The 50 Biggest Estate Planning Mistakes...and How to Avoid Them

THE MISTAKE WE WILL LOOK AT in this chapter is the idea that “one size fits all” when providing for the possible delegation of financial decision making. If we were in university, someone stepping into our shoes, financially speaking, would likely just have bills to pay and we would probably have no one financially dependent on us quite yet. By the time we reach our senior years, we may have become an avid and generous patron of the opera and be supporting our widowed brother who lives with us. Thinking about what our power of attorney could and should cover in each of these situations is like contemplating entirely separate jobs.

The way to deal with this evolution of your financial situation is to review and reconsider your approach with each stage of life. In fact it makes sense to address the possible delegation of your financial management in different ways as you go through life. You can do this in a way that is both legally sound and makes sense from a practical perspective:

1. Once you reach the legal age in your province to do a power of attorney, just do it. Appoint a person you trust completely—or maybe two persons acting together or separately—and at least one alternate. And when thinking about who you most want to appoint, it’s a fallacy to think that you should only appoint people who live close by. Sure, it can be more complicated, legally and practically, to have someone appointed who is a plane trip away, but especially in this day and age of email, phones, videoconferences and so on, the best person is the best choice, wherever he or she lives.

2. Make sure you think about the start date for your power of attorney. Will it be legally effective from the first day you sign it and simply held by a trusted person who knows your wishes about when it should be released for use? Or will there be a triggering mechanism in the document so that it becomes legally effective on a certain occurrence, such as one or two physicians stating in writing that you are unable to make financial decisions?

3. As you get older, think about ways to do a gradual transition of your financial decision making. Many older people are quite capable of paying the bills and talking to their portfolio manager, but at a certain age, they decide they are bored with trundling downtown for the meetings and would rather frolic longer in Arizona. So they get their kids involved gradually, which is a practical way to hand over some of the reins and keep an eye on things at the same time.

4. Similarly, if you receive a medical diagnosis at any age or stage indicating that your cognitive ability may be diminishing in the relatively near future, you can plan a gradual transition of your financial decision making at a pace that works for you and your family.

5. Continue to update your power of attorney so that throughout your life it reflects your situation accurately and thoroughly.

6. If your financial affairs are fairly complex and extensive, at age 65, you should speak with your advisor about setting up a “joint partner” or “alter ego” trust. Most often used because of their advantages in the overall estate plan, these trusts set up before death can be a powerful alternative to a power of attorney.

If you take any of these paths, keep your head up and your eyes open—do nothing by rote! Ask yourself each time you turn your mind to this aspect of your planning whether you are just going through the motions or whether you are really thinking about what would happen to your affairs if you pass out on the treadmill tomorrow and don’t wake up for a while. Sometimes people assume that things will carry on in the same way if they become incompetent: they assume someone will be able to access their accounts, pay their bills and so on. But even our spouse can’t step into our financial shoes unless we have given him or her that legal authority, so it is very important not to make any assumptions.

Think about:

• Your young children. Consider details like who you want to care for them, whether that guardian should be compensated, how and where the kids would live, and how your accounts and other assets would be accessed for your children’s care. No one quite knows the details of your life like you do so think about how your assets will be accessed for the care and maintenance of your children if you become unable to carry out the financial management yourself.

• People you are assisting who are not dependents but whom you would still want to benefit if you become incompetent. If you want the monthly payments to your spendthrift but endearing brother to continue, provide this direction, but with the caveat that there always be sufficient income to look after you and your dependents.

• Adult children and grandchildren you are assisting. This category warrants extra attention. If, over the years, you have made a practice of helping out your children and grandchildren when they are in a pinch, how do you want this handled if you become incompetent? This scenario, a common one, can create a touchy family issue, especially if your intention is to name one of them as your substitute decision maker in your power of attorney. Keep in mind that it is one thing to get gifts from Mom or Dad and quite another to receive them from a sibling under Mom or Dad’s power of attorney. If you want your adult kids to receive your ongoing support, consider finding ways to look after this in a more permanent way, such as an annuity or a trust set up for them while you are still competent. There will be legal and tax implications to check out before you do this, but you may avoid the possibility of uncomfortable family dynamics.

• Sporadic or annual gifts that you make to people or charities that are important to you. Specify an appropriate range: while you may want these payments to continue, you perhaps don’t envision your $50 donations to a few favourite charities “blossoming” to $5,000 Platinum Sponsorships. Or maybe you do! Be clear.

• In all of the above cases, the essential point to bear in mind is that if you do not clearly state what you want done after you are incompetent, your substitute decision maker is legally unable to do anything with your money other than use it to benefit you—which is as it should be. So if you want any of your assets to be shared with other people in any way, then you need to clarify that in the power of attorney document.

• And last but not at all least, think about yourself and the desired standards of care and accommodation that you want to receive. It may be wise to clearly state in your power of attorney that you want your assets to be used for the highest level of care and accommodation that your assets can support.

points to take away