The approach of another great month means another great opportunity to spread our knowledge with our clients and community. In the October issue of Hespeler Village magazine our very own advisor, Jordan Gillespie, shared his vast knowledge on Estate Planning. Read below to see the unnecessary drama you can encounter in your estate planning:
When It Comes to Estate Planning, Ignorance Isn’t Bliss
Is it the black wire, or was it the green wire? What about the red wire? Think hard…you only have one chance. The sweat starts to collect on your forehead as seconds count down on the timer. You know you’ve heard something about how this should be done before, you’ve seen it multiple times on TV, but your mind is drawing a blank. If only you could remember what that guy said…
This kind of excitement isn’t the kind of chance you want to take with your estate planning.
As entertaining as this might sound to watch, I can guarantee you it’s not fun to flip a coin and take a chance with how you set up your estate to attempt to eliminate probate. While many people may think they’ve “optimized” their estates to bypass probate and leave the greatest inheritance to their heirs, many haven’t considered the ramifications of what they’re actually doing.
Sometimes “optimizing” your estate leaves your loved ones with huge tax liabilities.
Susan, an 82 year-old widow and mother to Tanya (daughter- 59) and Joseph (son-58), is sitting with her lawyer to update her will, as she knows that a will that hasn’t been reviewed in the last five years can be considered “out of date.” Susan was talking to her friends at the bingo hall last week and learned that her friend, Gwen, had found a “loop hole” to stiff the government of the proceeds of probating her residence, which she also wishes to leave to her adult children. Taking Gwen’s advice, Susan instructs her lawyer to begin the process of transferring her principle residence, currently valued at $600,000, to joint-tenants with rights of survivorship with her adult children, Tanya and Joseph. Now, when the time comes, Susan’s residence will pass directly to Tanya and Joseph, who will sell the home and split the proceeds equally- thus avoiding the necessity of probating the will.
The lawyer drafts Susan’s will as instructed. All good, right? Well- what Susan, Tanya, Joseph and the lawyer didn’t consider was that both Susan and Joseph own their own primary residences. When they sell the home, which is now each of their “second residence”, they will have to pay capital gains on the value of the sale. Susan effectively saved her family from paying an approximate probate cost totaling $8,500 and instead handed them an approximate Capital Gains bill for $40,000 each.
See a professional to maximize your estate planning
The moral of the story is that there are professionals for a reason. Although Susan did what she though was right, she didn’t have any professional tax or financial second opinion regarding Estate Tax Liabilities, and how to most efficiently structure her affairs. Sometimes it’s best to leave the drama for TV! Make sure you utilize the required professionals whenever it comes to your financial, estate, and insurance protection needs.
Jordan Gillespie is a Financial Advisor with Davlyn Financial Services Inc., a local, family-run firm in Hespeler. Contact him at Jordan@davlynfinancial.com for more information.
