Honey, Is It Truly only Your Money?

I cringed reading a recent batch of newspaper advice columns. Someone wrote this: “I want to divide my estate unequally between my successful and unsuccessful children. Can I do it?”

The “advice expert’s” answer was short and sweet. She said, “It’s your money. You can do whatever you want with it!”

I think this is a load of rubbish. It comes from people who don’t know better, but have opinions about everything.

When you deal with money in your estate, you need to know the law. Technically, the newspaper answer is correct about adult independent children.

But let me tell you why it is not good advice. Despite what you may think, there are legal, moral and contractual ties that can restrict what you do with your money. And if you have a child with special needs, well, that is entirely another story.

Parents often feel that the unsuccessful child needs an extra portion. “More porridge, if you please.” It compensates Little Annie for not being as productive, as fortunate financially, as educated, or as accomplished, blah-blah. These are excuses and rationalizations.

I have no problems if you treat children unequally while you are alive.

But you must explain to your family why:

 • Felicia is getting the restaurant,

• Billie gets the farm, and

• Jodie gets the summer home/cottage.

However, most parents do not want to do that. They probably have very good reasons. They can start a squabble that will tear the family apart.

So why do most caring parents try to treat children unequally in their wills? Because they think they can get away with it, and they get bad advice.

I tell clients to treat the children unequally while they are alive. That way you can explain it to your other beneficiaries.

You don’t want your children to learn about the unequal treatment for the first time in a lawyer’s office. Imagine their shock when a lawyer gives them the will. They learn they were being punished for:

• being successful,

• staying married,

• having multiple homes,

• paying off mortgages, or

• saving and investing money.

No one can explain why you treated them this way once you are gone. This is a question no one can answer. It causes heartache. It is cruel because no one can satisfactorily explain this to your children.

Why did you punish them in this way? A child asks, “What did I do to deserve a smaller portion than my sister? Why was I being punished for being successful?”

There is no one to answer.

If you give unequal shares in your will, make sure you tell your children while you’re alive. Tell them before you make the will. It will save you some money. You won’t go back to a lawyer to change your will.

What About Married and Common Law Spouses?

It’s a farce to think you have the freedom to ignore a married or common law spouse. These people are entitled to maintain the standard of living they had with you while you lived together. In some cases, they may be entitled to a better standard of living, especially if your middle name was Scrooge.

You need to recognize that you live in a village of entitlement.

Everyone wants or has claims to a slice of your estate. You must consider everyone, from the tax department to the person who drives you to medical appointments.

You can’t do whatever you want with your money. Is that clear by now?

If you do, you run the risk of these people hiring lawyers after you are gone. They can sue your estate. You must then satisfy all legal and moral claims against your estate.

Otherwise, your executors can spend years in court. Your beneficiaries and executors hire lawyers. Your estate gets frozen until all the disputes are resolved. We’re talking tens of thousands of dollars and years in court.

Did I get your attention?

Read my free guide, Estate Planning – 7 Keys to Success.

About Edward Olkovich

Edward Olkovich (BA, LLB, TEP, C.S.) is a nationally recognized author and estate expert. He is a Toronto estate lawyer and Certified Specialist in Estates and Trusts. Edward has practiced law since 1978 and is the author of Executor Kung Fu. Visit his website, mrwills.com for more free valuable information.

© Edward Olkovich 2013






Education and Tuition Claims at Tax Time

I am right in the middle of the annual early season tax rush and many of the early filers expect refunds. I always get a few new clients each year as referrals from existing clients and it is always interesting to see previous returns they have either done themselves or have paid someone else to complete.

One area of particular interest is the claim for various tuition and education expenses. In most instances, I see that previous filers have almost universally transferred the claim from a dependent child to one of the parents. Of course this is permitted but my question is why would someone do this without at least explaining the consequences of making that choice. After questioning these clients, no-one has ever explained their options – or their child’s options!

While I find this strange, I guess it is the easy way out for many preparers – they don’t have to take time and run things both ways and the explain to their clients. I don’t see it that way at all.

When I explain the potential short-term advantage to the parent in question versus the potential long-term benefit to their child, they have always opted to change the filing and leave the unclaimed tuition and education items in the hands of their children.

So – what do I show them? All of these expenses involve post-secondary education and the intention is that the child will pursue some level of advanced career placement with the potential to earn above-average income, which is great to see. Wouldn’t it be nice for them to have the luxury of choosing when to claim those accumulated expenses after they begin working? Wouldn’t it be nice for them to maybe have an entire year of employment income – and pay ZERO taxes on it? Would that help reduce or maybe even eliminate debts that had accumulated during their education – including Student Loans?

Something worth considering before you rush to file your return – the potential tax savings in the hands of the student are major considerations versus the potential for some short-term savings in the hands of an employed parent. Don’t choose the easy way out – do the numbers first.

The Scariest RRSP Story

Will you put money into your RSP before the deadline? Are you going to rush over to the bank or your advisor to do that? Then I’ll ask you to remember Jack the pilot’s story as you contribute to your RSP. It will throw you a new curveball and your financial future may not be the same.

Jack was a pilot and had a sizable RSP account. He and his wife Helen were going through a separation. Jack wanted to keep his portfolio intact. He decided to let Helen have their home, and he would keep the investments. Jack signed a separation agreement, and a divorce proceeded uncontested.

Jack later remarried and had several children with his second wife. Jack’s second wife predeceased him and Jack revised his will. He wanted everything to go to his children. Unfortunately, Jack died without revising his designated beneficiary of his RSP.

Jack had invested over $300,000 in his RSP. The tricky part was that it was still designated to his first wife, Helen. Here is the trouble this caused his estate.

Jack left the RSP to his first wife

Helen received the full $300,000 from Jack’s RSP. Unfortunately, this generated a tax liability to his estate of approximately $150,000 for the RSP.

Well, I know you’re asking: isn’t there a tax-free rollover of a RSP to a qualifying spouse? Does this not give Jack a tax deferral if he leaves a RSP to a qualifying spouse?

Yes, but the problem was that Helen was no longer a qualifying spouse. She was Jack’s first wife. Therefore, there was no tax deferral or rollover possible for Jack’s estate.

The worse news is that Jack’s children paid the taxes of $150,000 from his estate. That tax bill left very little for Jack’s children whom he intended to benefit.

The scary part

All of this could have been avoided. All Jack had to do was check the designated beneficiary of his registered plans. Whenever there is a separation, death or divorce you need to revise your designated beneficiaries.

Could Jack have made a new designation in a will? Possibly. But to be a valid designation it is necessary for Jack to make reference to the institution and the RSP account number.

When banks merge or branches close, these designated particulars are changed or are lost. When a bank branch closes, oftentimes paper or electronic records will not always match Jack’s intended beneficiary.

Who is responsible for this RSP mistake?

Only Jack has the right to obtain this information. He must keep it up to date to reflect his estate plan. It is not enough for Jack to make a will. His will must reflect how he owns or has designated his property.

As a lawyer, I do not include any designations for registered plans in any wills. I do this so my clients can cheaply and easily change their designated beneficiary. They do not have to pay a lawyer to change their will. That is the cost benefit of controlling your designated beneficiaries.

The scary part is if you fail to keep the designated beneficiaries up to date.

Then your loved ones may end up with a horror story.

Estate Planning Steps to Take

1. Remember Jack the pilot as you contribute to your RSP.

2. Ensure your RSP holder confirms the name of your designated beneficiary in writing.

3. Make sure your designated assets match your beneficiaries under your will.

About Edward Olkovich

Edward Olkovich (BA, LLB, TEP, C.S.) is a nationally recognized author and estate expert. He is a Toronto estate lawyer and Certified Specialist in Estates and Trusts. Edward has practiced law since 1978 and is the author of Executor Kung Fu. Visit his website, mrwills.com, for more free valuable information.

© Edward Olkovich 2013



A ridiculous idea – but profitable!

My mind works in strange ways as my readers know – so here is another slightly off-beat idea on RRSPs – for children!

I took the time recently to confirm a long-held belief – most people selling RRSPs aren’t aware of all of the possibilities – and neither am I for that matter – however, here is an idea that no-one I asked had the slightest understanding of that which I was asking. My question was simple (or at least I thought so anyway): “What is the earliest age at which a person can purchase an RRSP?”

Without exception, I received answers that fell within this brief summary – “the year after they have earned income.”

I found this a bit disconcerting, particularly coming from many professional advisors. The correct answer, of course, is the same day the receive their SIN from the Federal Government. In other words, within 3 to 6 weeks after they are born.

But wait you say – they don’t have any earned income so how can they contribute?? My response – what about the lifetime $2,000 over-contribution limit? I usually receive a puzzled look from the person with whom I am speaking and then they say: “what about it?”

Let’s be a wee-bit creative here – I am NOT a rocket scientist I assure you – my mind just works somewhat differently than most other peoples’!

These days, parents and grandparents spend literally thousands of dollars on toys and other gadgets that have life spans counted in days and weeks and maybe months – but that’s it. What about a gift that will GROW with each passing year?

Rather than all of the toys and related odds and sods, put $2,000 into an RRSP for the baby as soon as the parents receive an SIN. The actual source of the money is irrelevant of course – but the concept is sound.

If a baby has an RRSP with $2,000 in it at age zero and leaves it until age 65, it will grow to $18,713.40 assuming a compound growth rate of 3.50% and as much as $25,597.47 with a compound growth rate of 4.00%. I will leave it to my readers to play with other assumptions – my purpose here is just to get people thinking about the possibilities of acting on this idea.

The $$ amount doesn’t sound like a lot – and it really isn’t – but it is certainly worth a lot more than the toys and gadgets that are generally purchased for a new-born child in their first year of life. What a special Christmas gift (oops – don’t want to be politically incorrect!) – holiday season gift – for the new one in your life!

All the best to everyone for a wonderful and SAFE holiday season and a prosperous 2013! Cheers Ian