With the fear and uncertainty COVID-19 has created, many people are rushing to get their estate in order, including drawing up wills. While it’s unfortunate that this pandemic has people thinking about the unthinkable, having one’s affairs in order is always an important but often neglected piece of financial planning.
The key is to do it right. Just as there’s a huge cost to not doing it at all, the cost of not doing it correctly can have unfortunate consequences.
Here are the top mistakes people make when creating a will, as well as some tips on what to do:
Insisting a Will is a DIY Project
I know many people who believe that spending a few dollars on a do-it-yourself will-kit is better than paying a lawyer a few hundred dollars to draw one up. But what most don’t understand is that if the will-kit is prepared incorrectly – that is, if it’s not signed according to law or if the information is vague, wrong or open to interpretation – their estate could end up being dealt with by the courts. This will cost a lot more in money and time, and a great deal of frustration amongst all parties involved.
- A DIY approach may make sense if your situation is straightforward, however, if you have a blended family, are separated or divorced, have a business or children who have special considerations, I can’t stress this enough – engage an estate lawyer.
Not Updating Your Will To Reflect Life Changes
The time when most people consider getting a will is when they have their first child or when they’re gravely ill. However, there’s a lot of “life” that happens in between that can completely change your financial situation (i.e more children, a divorce, a new business, marriages of children, a new marriage with stepchildren, grandchildren, death of a family member, etc.,)
Most of these circumstances will require you to update your will and rethink your financial planning. Some of these could make your current will obsolete. For example, many are not aware that a will is nullified by marriage unless specifically stated that there is an intended marriage.
- Don’t think simply writing over the old will, will make it legal. If mistakes are made or if it’s vague, you’ll have problems.
- Store the most recent copy of your will in a safety deposit box and a second copy with the law firm or trust company
51 percent of Canadians had no last will or testament, while 35 percent of Canadians had one that wasn’t up to date
Picking the Wrong Executor
The importance of the executor role and the time required to settle the estate is too often underestimated. In fact, choosing the person who will oversee your estate is the most significant decision one can make.
When choosing an executor, there are qualities they should possess in order to be able to deal with the estate. They need to:
- Be organized and effective to manage the amount of work that may be needed.
- Be calm to manage the possible uncertainty that could come with the execution; and
- Have strong social skills to deal with the beneficiaries.
- Know you well enough to understand what you would want and how you’d want your assets to be distributed.
- Consider appointing a corporate executive if the estate is complicated or if you have trouble finding a suitable executor.
- Consider setting aside a lump-sum payment to your executor for their time and effort in carrying out your wishes.
- Make sure you’ve discussed the appointment with your executor and they know where to find your will.
Seen as a taboo, no more than 10 to 15 percent of Singaporeans have made wills
A common error I see is that a will is done without the input of estate-planning professionals.
I’ve seen this scenario play out many times: Someone dies, their assets are distributed to a beneficiary, but because this beneficiary is not a spouse, it triggers a “deemed sale” which in turn triggers a huge tax liability for the beneficiary. They want the asset but they have to pay for it. But they may not be able to pay for it.
Here’s another scenario: A parent “gift” their cottage to all three of their kids but only one wants it so he/she has to buy the others out…except they don’t have money. So the kids are forced to sell their beloved cottage and with it all the wonderful memories.
Essentially, the result is that what the deceased intended has created more problems.
The involvement of a tax-planner and a financial planner can save one from this headache. They can help you sort through the different settings, the financial implications, and suggest a plan, insurance, or investment products that may solve any potential problems that may arise.
- Write down your objectives for the assets and set up a meeting to discuss this with a financial planner. If you don’t have one, there are many that are fee-based and can provide you with advice for a specific concern.