Commonly Overlooked aspects of Estate Planning
To schedule an appointment, contact our law firm at 403-400-4092 or Chris@NeufeldLegal.com
Estate Planning - Trusts - Foreign Property - Guardianship - Divorce - Disabled Kids - Handicapped Adults
Estate planning is often viewed through the narrow lens of drafting a Will. However, the complexity of modern assets and tax laws means that even a professionally drafted Will can fail to achieve its goals if broader considerations are ignored. From the tax trap of registered accounts to the nuances of digital legacies, the complexities of life can all too easily lead to commonly overlooked aspects in establishing one's estate plan.
I. The Deemed Disposition and the RRSP/RRIF Tax Trap
One of the most jarring surprises for executors is the tax liability triggered at the moment of death. The Canada Revenue Agency (CRA) generally treats a deceased individual as having sold all their capital property at fair market value immediately before death (a deemed disposition). While a spousal rollover can defer these taxes, assets passing to children or other heirs can trigger massive capital gains. Most notably, the entire value of an RRSP or RRIF is often added to the deceased's final income in a single year, potentially pushing the estate into the highest tax bracket and siphoning off nearly half the account's value before a single dollar reaches the beneficiaries.
II. The Nuances of Joint Tenancy vs. Tenancy in Common
Many Canadians add an adult child to the title of their home or bank account as a joint tenant to avoid probate fees. While this allows for a right of survivorship, it is a legal minefield. If the intent wasn't clearly documented as a gift, the law may presume a resulting trust, meaning the asset still belongs to the estate and is subject to probate regardless. Furthermore, placing a child on a title exposes the property to that child’s creditors or a potential ex-spouse in a divorce. If the property is not the child’s principal residence, you may also inadvertently trigger capital gains tax on their portion of the home upon its future sale.
III. The Blended Family Inheritance Gap
In blended family scenarios, a standard Will that leaves everything to a surviving spouse can unintentionally disinherit children from a previous marriage. If the surviving spouse inherits everything, they are under no legal obligation to leave anything to their stepchildren in their own subsequent Will. To prevent this, specialized tools like Spousal Trusts are underutilized; these allow the surviving spouse to use the assets or income during their lifetime while ensuring the remaining capital eventually passes to the deceased’s biological children. Relying on the personal assurance of a spouse to take care of the kids is a leading cause of estate litigation in Canada.
IV. Overlooking the Digital Footprint
In an era where life is lived online, failing to plan for digital assets can lead to the permanent loss of sentimental and financial value. Digital assets (ranging from cryptocurrency and online banking to social media accounts and cloud-stored family photos) often fall into a legal grey area because service provider contracts (Terms of Service) usually override a general Will. Without specific digital clauses in a Power of Attorney or Will, executors may be legally barred from accessing accounts due to privacy laws. Establishing a digital inventory and appointing a digital executor who knows how to handle encryption and two-factor authentication is now a critical, yet frequently ignored, step.
V. Misunderstanding the Role and Location of the Executor
The choice of an executor is frequently based on emotion rather than logistics, which can lead to administrative nightmares. For example, naming an executor who lives outside of Canada can trigger non-resident trust tax rules, potentially subjecting the entire estate to higher tax rates and complex reporting requirements. Furthermore, many people fail to realize that being an executor is a demanding, part-time job that can last years. If the chosen individual lacks the financial literacy or the time to manage CRA filings and beneficiary communications, the estate can suffer from costly delays and interest penalties on unpaid taxes.
VI. Neglecting the Living Side of Estate Planning
Finally, a common oversight is focusing entirely on what happens after death while ignoring the risk of mental incapacity during life. An estate plan is incomplete without a robust Personal Directive for Healthcare and a Power of Attorney for Property and Finances. Without these documents, if you become unable to manage your affairs due to illness or injury, your family may be forced to apply for a court-ordered guardianship - a process that is expensive, public, and time-consuming. These documents should be specific, outlining your preferences for medical intervention and even naming replacement agents to ensure there is always a designated decision-maker in place.
Contact our law firm today to learn how our legal team can help you plan for the future or deal with the legal demands associated with the passing of a loved one. Contact our law firm at 403-400-4092 or via email at Chris@NeufeldLegal.com to schedule a confidential initial consultation.
IMPORTANT NOTE: This website is designed for general informational purposes. The site is not designed to answer specific questions about your individual situation or entitlement. Do not rely upon the information provided on this website as legal advice in respect of your individual situation nor use it as substitute for individual legal advice. If you want specific legal advice, you need to engage a lawyer under established legal engagement procedures that have been specifically agreed to by that lawyer.
Contact Info - Mobile Services - Hospital Visits - Legal Notices - Privacy - Terms of Use - Main Will Webpage