Category Archives: estate planning

Who gets what in a blended family with no will?

Q: What happens if I die, was previously married and had a will—but am now remarried (blended family) and have not written a new will? What happens to my estate if I die? How is it divided? Does my new spouse get all the assets? Or is it split between all children (his and mine)? Or do just my own children and spouse inherit everything? Or just my children?

—Donna

A: Donna, You ask, “What happens to your blended family if you die?”

The simple answer is that no one knows. No one can give you an answer without knowing your specific circumstances. You cannot get simple answers to comfort you. I’m not trying to scare you, but you need to get advice.

There are so many variables that determine who shares in your assets. Here are some variables that only involve children when parents die:

Minor Children Suffer Most

  • What are the ages of all children (his and yours)?
  • Are you supporting any children?
  • Are any children financially dependent?
  • Do you need guardians for children who are minors?
  • Should trusts be set up to invest minor’s inheritances?
  • Is any child on government assistance?
  • Should discretionary trusts be used for spendthrift children?
  • Do estranged children have claims to your estate?
  • Did you promise to pay for their children’s education or wedding?

You can protect minors with a will and estate plan.

Government Rules May Divide Your Estate

What happens if you don’t take the time to prepare an estate plan?

The government has a will for you that cannot be varied.

Governments have rules to divide your estate among your next of kin. These rigid rules are not flexible. These rules dictate who controls your money and who is your executor. They also decide who gets what and when.

What about Spouses and Wills?

Another set of variables applies to your spouse.

  • What if your new spouse has more wealth than you?
  • Should your money go to your spouse or your children?
  • What if your spouse requires a full-time personal service worker?

You Need to Reduce Taxes

Government tax rules apply if you have no will. As you can imagine, the government does not give you any tax breaks. You will pay the maximum in income and probate taxes.

You cannot use any tax deferrals or tax reduction options. You need to learn how to designate some assets like tax-free savings accounts and registered plans. You may need to protect your assets from creditors or prior spouses.

All of these variables affect what your family receives if you die. These examples do not consider lawsuits from prior spouses. All lawsuits waste your money and incur legal costs and delays. Lawsuits also destroy families and wipe out estates.

Estate Planning Can Avoid Lawsuits

You need to consider tax, estate and family laws. You need good professional advice to get it right.

Remember: estate planning is what you do for the people you leave behind.

If you love your family, find the time and write a will.

Source: Moneysense.ca – by  

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What happens to Aeroplan and other reward program points when you die?

Points

Aeroplan is “capitalizing on someone’s grief” by charging a fee to transfer points from a deceased member’s account, says the family member of a woman who died leaving 250,000 Aeroplan points behind.

“It seemed so callous. It seemed really insensitive. And it seemed really unnecessary,” says Kathryn Kwasnica of Victoria after finding out how much it would cost to transfer to her father the 250,000 points accumulated by her late stepmother.

But Aeroplan says it’s a “small” fee and that a second option allows users to avoid paying that charge altogether.

And even though the fees can be significant and travel booking potentially restrictive, compared with some other loyalty programs, Aeroplan has one of the better policies for dealing with points in the account of someone who has died.

Kwasnica’s stepmother, Linda Stewart, started feeling ill about a year ago, but it wasn’t until last summer that she was diagnosed with mesothelioma, an aggressive and deadly form of cancer.

AEROPLAN

It’s in the fine print. (CBC)

“Six months later she was dead,” says Kwasnica. Stewart was 68 when she died on Jan. 7.

Kwasnica, acting on behalf of her grieving father, Stewart’s husband, called Aeroplan to find out what to do about Stewart’s Aeroplan points.

She says she was told, in the event one of its members dies, Aeroplan charges a fee of $30 plus one cent per point to transfer the balance to a surviving family member. In Kwasnica’s case, because her stepmother had about 250,000 points, the fee would have amounted to about $2,530.  

“That seemed crazy for a data transfer,” says Kwasnica.

Aeroplan defends itself

“My father passed away a year ago, so I completely empathize with members who are going through what they’re going through,” says John Boynton, Aeroplan’s chief marketing officer.

“But we are always trying to balance shareholders and members, so there are certain costs that we have to recuperate.”

For a flat $30 fee, Aeroplan also offers the option to transfer those points to a newly created estate account, which can be used by surviving family members. But Kwasnica says she was told by the person she contacted at Aeroplan that the points in the estate account must be used in their entirety within one year.

Many Aeroplan trips need to be booked at least a year in advance, and Kwasnica understood that to mean her father would have had to make travel reservations practically while planning his wife’s funeral.

“Who wants to travel right after the love of their life dies and you’ve had the worst year of your life?”

But Boynton says that’s not actually the case.

“A year is how much [time] you have to do something with them. But you can also book an Air Canada ticket up to a year in advance too, so that’s two years. And if that’s too soon for you, you can also buy an Air Canada gift certificate, which doesn’t have an expiry, or a retail gift certificate as well.”

However, redeeming Aeroplan points for a gift certificate does not always offer the best value compared with, for example, redeeming those points for an international flight in business class.

Maximizing revenue

Patrick Sojka of the website Rewards Canada says transferring points is not a large expense for a loyalty program.

“Honestly, [the fee], it’s money-making,” he says.

“Ninety per cent of all programs worldwide charge you a fee to transfer points and miles to somebody else [in the event a member dies].”

In Sojka’s view, the fee is about maximizing revenue. “The fact [is] that the miles on those accounts are a liability. The sooner they can get them off the books, the better,” he says.

High cost of dying

Compared with Aeroplan, other loyalty programs have terms and conditions surrounding death that are even more expensive and draconian.

Air Miles used to allow the surviving family member to merge an account with that of the deceased at no charge.

But about four years ago, Air Miles changed its policy and now charges a fee of 15 cents per mile.

Sojka estimates the Air Miles fee is about 50 per cent higher than Aeroplan’s.

Other loyalty programs don’t even offer the option to transfer points in the event of a death.

According to the terms and conditions for Shoppers Drug Mart’s popular Optimum points program, “Upon the death of a Shoppers Optimum Member, the member’s account will be closed and any Shoppers Optimum Points in the account will be forfeited.”

Better not to tell?

But there may be ways around this.

In March 2013, Delta Airlines changed its policy, declaring SkyMiles would no longer be transferable upon death.

As a result, travel writers, bloggers, and travel hackers started advising SkyMiles members not to notify the program of a death.

“It’s a grey area. But you don’t let the program know that that person’s passed away,” says Sojka, who also advises this.

“What you do is ensure that everybody has your log-in and passwords and then you can use those miles. Because when you book rewards flights, they don’t have to be booked for yourself, they can be booked for anybody, essentially. You can go in and book points for yourself, your family members, you name it, using those points.”

It’s not clear if companies will crack down on this apparent loophole, but Sojka says he hasn’t heard of any repercussions from taking this route.

Now that they know about it, Kathryn Kwasnica says her family will probably go with the gift certificate option for her stepmother’s Aeroplan points.

“I think my dad would probably be into that. Because I think for him, the thought of travelling right now is just disturbing.”

 

Source: By Aaron Saltzman, CBC News Posted: Jan 27, 2016 

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Marriage-like relationships hard to prove in court, B.C. case shows

The courts can be a real heartache when it comes to complex relationships and claimants hoping to establish their rights as a spouse.

They shared pet names, dogs and the cooking.

But when Penny Neufeld lost the man who used to call her his “wife without a wedding,” what proof did she have that their relationship was actually spousal?

Norman Dafoe’s children claimed Neufeld was just someone their dad “took in at a difficult period in her life.”

They tried to pin him down on the exact nature of the relationship many times before he died, but doubted it was “intimate.”

And so, in what lawyers say is an increasingly common occurrence, it was left to a judge to sift through the details to determine if the two lives were — in fact — one.

“The only document in evidence that actually suggests that they had any kind of joint enterprise is a receipt from a veterinarian,” B.C. Supreme Court Justice Mark McEwan noted in his decision.

‘No end’ of disputes

No paper perhaps, but there were witnesses who saw the couple together: a storekeeper and a friend.

Neufeld recalled Dafoe’s smoking habits and how often the house they shared had been painted.

And then, McEwan said, there was her nickname: “‘D-Rod,’ apparently a reference to her hairstyle looking like that of Rod Stewart, the entertainer.”

Kimberly Whaley

Toronto-based estate lawyer Kimberly Whaley says the courts have seen an increase in cases involving complex family arrangements. (Kimberly Whaley)

“There’s no end of the types of disputes, but it is interesting to see how our courts are treating these relationships,” says Kimberly Whaley, a Toronto-based estate lawyer.

“Part of it probably has to do with sheer demographics in an aging population. People living longer, being healthier in later years, having later life partnerships. And then these unions cause rights and obligations.”

Whaley wrote a paper last year showing trends that “demonstrate an increase in competing family interests.” The number of Canadian common law couples rose 13.9 per cent between 2006 and 2011; more than 12 per cent of couples with children are step-families; and nearly half of those involve complex permutations and combinations of kids.

People lie about relationships at the best of times. They become downright secretive when religion, culture, children or Revenue Canada is involved.

Which means lawyers call on everything from Christmas cards to prescriptions for Viagra to establish a “marriage-like” relationship.

If it looks like a marriage …

As part of his reasoning, McEwan referred to a list of “indicia of ‘cohabitation or ‘consortium'” which comes up time and again in spousal support cases. It covers everything from sleeping arrangements to conduct in public.

Did the parties have sex? If not, why not? Did they buy gifts for each other on special occasions? Who did the shopping and cooking? How did the community and their children view them both alone and as a couple?

Even so, making a call can be tough.

Ontario Superior Court Judge Duncan Grace admitted his frustration last summer after Helen Havaris spent months trying to convince him she was entitled to part of John Prelorentzos’s estate.

The 71-year-old was still married to another woman when he died, though they had been separated for years.

But Havaris claimed she lived with him, travelled with him and attended his family’s Christmas, Easter and birthday celebrations.

His children said they saw no signs of affection. Indeed, they claimed their father used to joke about the fact Havaris “had placed a chain on the inside of her bedroom door.”

The judge said he found Havaris’s testimony “wooden.” Not one of her witnesses “mentioned a single word or gesture that demonstrated affection.”

“Despite the length of the trial the evidence on this issue left me asking: is this really all there is?” Grace wrote.

But in the end, after poring through documents including the pair’s rentals of one-bedroom hotel rooms, Grace decided “by a very thin margin” that Havaris qualified as Prelorentzos’s spouse.

Kids are always the last to know

In both that case and Neufeld’s challenge, the judges had to consider the attitude of the deceased’s children toward a woman who was not their mother.

When Dafoe was close to death, “a nurse who mistook the plaintiff for the deceased’s ‘wife’ appears to have created anxiety in the deceased’s family,” McEwan wrote.

Georgialee Lang

Family law expert Georgialee Lang says children are often the hardest to convince in spousal estate battles. (Georgialee Lang)

There were competing stories about deathbed statements and cash boxes. His family changed the locks on the doors. Neufeld “announced she would not be staying.”

B.C. family law expert Georgialee Lang says she has represented many women seeking to prove their place in a man’s life. Inevitably, the offspring are the hardest to convince.

“That’s part of the dynamic. He doesn’t want to disappoint his children. Sometimes a relationship has happened very quickly after a spouse died and it’s seen as unsavoury,” she says.

“It’s all those kind of personal, emotional and moral dynamics that come into play.”

In the end, McEwan decided the proof of Neufeld and Dafoe’s relationship lay as much in how others saw them as in how they saw themselves.

She was a caregiver during his illness. He bought her two cars. They appear to have been faithful to each other. 

And McEwan said the very fact his children had been asking what was going on for years “implicitly affirms a relationship that appears to be spousal or becoming spousal.”

The judge awarded Neufeld $60,000 out of a gross estate worth $160,000.

It’s a battle you can avoid with two simple weapons: a piece of paper and a pen.

Corrections

  • A previous version of this story mistakenly said Dafoe was awarded $60,000 by the judge. In fact Neufeld was awarded $60,000.
    Nov 02, 2015 6:49 AM PT

Source: Jason Proctor, CBC News Posted: Nov 01, 2015 2:00 AM PT

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70% of Rich Families Lose Their Wealth by the Second Generation

ARRESTED DEVELOPMENT with Jessica Walter and Portia de Rossi

A little honesty might help preserve the family fortune.

When Stephen Lovell used to visit his grandparents as a kid, it was like entering the world of Cole Porter or The Great Gatsby.

People dressed in tuxedos and sipped cocktails. They owned boats, airplanes, a hobby farm. Not to mention a lavish mansion in Ontario, Canada, and a summer home in Southampton, New York.

He estimates that his grandfather, who founded the John Forsyth Shirt Co, had a fortune of at least $70 million in today’s dollars. But through a combination of bad decisions, bad luck, and alcohol dependency, the next generation squandered that money.

“I think about it all the time,” says Lovell, a financial planner in Walnut Creek, California.

Indeed, 70% of wealthy families lose their wealth by the second generation, and a stunning 90% by the third, according to the Williams Group wealth consultancy.

U.S. Trust recently surveyed high-net-worth individuals with more than $3 million in investable assets to find out how they are preparing the next generation for handling significant wealth.

“Looking at the numbers, 78% feel the next generation is not financially responsible enough to handle inheritance,” says Chris Heilmann, U.S. Trust’s chief fiduciary executive.

And 64% admit they have disclosed little to nothing about their wealth to their children.

The survey lists various reasons: People were taught not to talk about money, they worry their children will become lazy and entitled, and they fear the information will leak out.

When I asked financial planners why the wealthy are so poor at passing along money smarts and why second- and third-generation heirs turn out to be so ham-handed, the answers were surprisingly frank.

A sampling: “Most of them have no clue as to the value of money or how to handle it.” “Generation Threes are usually doomed.” “It takes the average recipient of an inheritance 19 days until they buy a new car.”

 Yes, the statistics may be grim. But just because most wealthy families see their fortunes evaporate within a couple of generations does not mean yours will. Some strategies to avoid it:

Talk Early and Often

You may think you are encouraging hard work by not disclosing wealth to your kids, but that really just fosters ignorance.

If you have just never talked about money, get over it, and give your kids a crash course in financial literacy. Many financial institutions, including U.S. Trust, offer specialized learning materials and courses to get heirs up to speed.

That goes for grandkids, too: Instill smart money lessons in them, and you have pushed family wealth forward another 30 or 40 years.

Discuss the Will

If you are ready for true transparency, take it up a notch and bring up the elephant in the room: the will.

“Parents and grandparents should communicate the whats and whys of their will in a group setting, with all their children present, long before the will is read,” says David Mullins, a planner in Richlands, Virginia.

That way, you can hash out any issues as a family beforehand. It is better than after the fact, when the patriarch or matriarch is not around to explain or make adjustments, and things devolve into all-out legal war.

“Trust me, siblings will find out who got what,” says Mullins. “Without proper communication, this can destroy families.”

Create a Roadmap

Almost one-quarter of baby boomers think their kids will not be able to handle wealth properly until the ripe age of 40. And almost half of wealthy individuals over 70 agree.

That is why you should give your heirs a financial roadmap in the form of a family mission statement, advises U.S. Trust. You can lay out what you expect in terms of spending, saving, and giving back, as well as pass along strategies for building wealth.

Stephen Lovell wishes his mother had that kind of roadmap.

“How did my mother blow it?” he says. “She just didn’t know any better. And now we all live with that regret, every day.”

Source: Time.com June 17, 2015

Will you die with a mortgage? 10 reasons why more people will

Special to The Globe and Mail

Just hearing those words creates a visceral response among some who see it as a sinister product that drains fragile old people of their home equity.

Reverse mortgage let seniors pull cash out of their homes with almost no qualifications – up to 50 per cent of their property value. The downsidesinclude rates that are up to 2.5 percentage points higher than standard mortgages, fees and penalties for early repayment and smaller inheritances for the borrower’s heirs.

Whether reverse mortgages are good or bad depends on whom you ask. But either way, one thing seems clear: reverse mortgages are here to stay, and they’re becoming a go-to solution for a growing number of older Canadians.

In fact, the catalysts for growth are so evident that I’ll go out on a little limb and make a prediction. Within a decade, one in ten senior homeowners will sign up for a reverse mortgage, and yes, many will take them to the grave.

Here are ten reasons why:

1. Falling returns – Actuaries project that stocks, a staple in most retirement portfolios, could return roughly 1.45 per cent less than they have in the past, on an inflation-adjusted annual basis. And long-term bonds won’t return any better, especially if rising rates drag down bond prices and seniors have to liquidate their portfolios to fund retirement. With lower returns come smaller retirement nest eggs.

2. Sporadic saving – Returns aside, people simply aren’t saving consistently. Less than four in ten saved for retirement in 2014. Half of Canadians think they’ll run out of money within ten years of retiring and/oroutlive their savings. A stunning 47 per cent of 55– to 64-year-olds say they don’t have a penny saved for retirement.

3. Rates have fallen – You can now get a reverse mortgage for as low asprime + 1.25 per cent for a variable rate or 4.99 per cent for a five-year fixed. These rates could drop further if funding costs fall and/or HomEquity Bank – the leading provider – ever gets nationwide competition.

4. Industry acceptance – Mortgage brokers and financial advisers will increasingly push reverse mortgages for two reasons. For one, they may be paid more as HomEquity ramps up its adviser compensation program. And two, reverse mortgages are no longer a last-resort solution in some cases. Drawing on home equity instead of liquidating retirement investments can help certain seniors save taxes, preserve old-age benefits, maximize CPP benefits, and diversify and extend the life of their investment portfolio.

5. Under-employmentJob quality is deteriorating which could make retirement savings’ shortfalls more common. It’s no surprise that more people expect to work past retirement age. And it doesn’t help that senior unemployment has almost doubled since the mid-1980s.

6. Lots of equity – More homeowners than ever (24 per cent) are relying on their home(s) as their main source of retirement income. Fortunately for seniors, home values have surged 430 per cent in the last 30 years, knock on wood.

7. More homeowners – Canada’s home-ownership rate has leapt from 61 per cent in 1984 to over 70 per cent today. In turn, more people are qualifying for a reverse mortgage.

8. Longer lifespans – In 15 years, seniors will make up 23 per cent of the population, versus 15.6 per cent today. Not only that, but we’re living longer (to age 81.7 on average, and counting). Unfortunately, costly health problems become more frequent around age 77, on average, a problem since retirement savings aren’t keeping up. Moreover, 91 per cent of Canadian boomers want to stay in their own home as long as possible. But home careisn’t cheap and it’s getting costlier every year.

Total and share of population 65 and over by decade, 1971–2080

Source: Statistics Canada (19712010) and Office of the Superintendent of Financial Institutions (20202080)

9. Bigger mortgages – Mortgage and credit line debt surged 62 per cent and 132 per cent, respectively from 1999 to 2012. If you haven’t experienced it, mortgage payments on a fixed income can be, shall we say, stressful.

10. Financial hot water – More older Canadians are having to bail out theirsinking financial ship. As just one example, 21 per cent of Credit Counselling Society clients are now age 55 or older. That compares to just 5 per cent 19 years ago. As of 2010, seniors were 17 times more prone to insolvency than they were just two decades ago.

Assuming that most of these trends won’t reverse anytime soon, reverse mortgages will become a vital fallback for hundreds of thousands of Canadians in decades to come. And after 29 years in existence, they may even become a mainstream financial-planning tool.

Canada’s only national provider, HomEquity, sold 23 per cent more reverse mortgages in 2014, and that growth is just a hint of what’s around the corner. In the U.S., reverse mortgage sales have been up to 100 times greater than in Canada (mind you, interest deductibility and reverse mortgage insurance play a role down south).

There are usually better alternatives than reverse mortgages, like proper planning, downsizing, landing a renter, getting a home equity line of credit and so on. But needs cannot always be planned. A Monitor Deloitte survey last year found 845,000 – or 17.6 per cent – of Canada’s 4.8 million homeowners age 55 plus had a serious financial need and were looking for options. The above options won’t work for many of those folks.

That’s why one in ten senior homeowners may rely on a reverse mortgage within a decade.

*************

Quick Reverse-Mortgage Facts

  • Who can get one: Almost any homeowner age 55+, with no credit or income check
  • How much can you get: 20 to 50 per cent of your property value, tax-free with no payments required
  • What determines how much you get: Your age, type of home, location and existing secured debt
  • When is it paid back: When both spouses die or sell the home, or sooner if one prefers (a penalty and fees may apply if you pay off a reverse mortgage in the first ten years)

Robert McLister is a mortgage planner at intelliMortgage Inc. and founder ofRateSpy.com. You can follow him on Twitter at @RateSpy