5 Common Estate Mistakes

Article written by Jennifer Black and Dedicated Financial Solutions.

5 Common Estate Mistakes and how to overcome them as best as possible, after the fact.

1. A bank account held solely in the name of the deceased (not held jointly between two people). Many married couples have a joint account for paying bills, but also keep an individual bank account separate from their spouse. Maybe their pay goes directly into this account and then they transfer money to the joint account each month. For example, John and Mary both work and each hold separate bank accounts into which their salaries are deposited. If John dies, his bank account will be frozen and Mary will not have access to it, possibly for months. The bank will not allow a withdrawal until they have documentation proving that Mary is the rightful beneficiary of the account. Will Mary have enough money to pay all the bills while this process is taking place? This problem could have been avoided. If the bank account had been in joint names with “rights of survivorship”, it would have been accessible to Mary after the loss of her spouse.

2. Lack of a valid will can create many problems. The purpose of a will is to specify exactly what you would like done with your assets when you die. It can also specify who you have chosen as a guardian of your underage children. Without the will to clarify everything, the government must take control of the process and follow preset “estate” rules. Applications must be made to the courts to act as the estate administrator and guardian of the children. This process can be costly and lengthy. During this process, the assets of the deceased are frozen. Also, the preset rules the government follows to distribute the estate assets is not maximize tax-efficiency.

3. No beneficiary designation on registered plans: RRSP, pension plan, TFSA and RRIF accounts. If no beneficiary has been designated, the assets would be included in the deceased’s tax return and be part of the deceased’s estate. A valid will would then determine how the assets would be distributed. If instead, the spouse is designated as the beneficiary of a registered plan, the deceased’s registered plan assets can be transferred directly to the surviving spouse’s registered plan, thereby avoiding the inclusion of the registered plan assets in the deceased’s tax return. This can save significant taxes and avoid having to include the registered plan assets in probate.

4. Having too many bank accounts, investment accounts, RRSP accounts. Over the years, most people change jobs and change residences. Often, bank accounts and RRSP accounts are opened at financial institutions based on convenience of location, being close to home or work. After several moves, an individual may have many different institutions holding various accounts. These accounts can be forgotten, especially if they were only used once for a last minute RRSP contribution. In many cases, if the individual dies, their spouse has no way of knowing where all of these accounts are or that they even exist. The only indication may be that they receive an annual statement in the mail. But, if the financial institution does not have a current address on file for the account holder, this may not even happen. Now that most financial institutions are switching to electronic statements, the possibility is even greater that the spouse may have no way of learning of old accounts that are held in the deceased’s name.

5. Only one spouse deals with all of the financial matters. In a marriage, usually each spouse has their own main responsibilities in the marriage. Therefore, one spouse will typically deal with the finances because they are more skilled or more interested in this area, and the other spouse will take on other responsibilities. However, it is important that both spouses are aware of what is happening with their finances. The less involved spouse should still go to some of the meetings with the financial advisor to stay up-to-date. They should also have knowledge of where all their assets are and what professionals are involved with them. This will make it much easier to deal with the finances in the event a spouse passes away.

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