Succession Planning – Warning Signs


I was asked recently by a group of financial planners to provide them with information regarding common misconceptions of clients when they are considering their succession plans. My paper was appropriately subtitled “Warning Signs that Legal Advice is Most Likely Needed”.

Structuring a succession plan can be confusing and challenging.  Our Estate Planning Group strives to identify the particular areas of concern of each of our clients, address their unique circumstances and assist them in arranging a suitable estate plan.

If any of the following situations relate to you, you may wish to seek legal advice to consider the potential consequences (both before and after your death) and your options before finalizing your succession plan.  Our Estate Planning Group can assist you with these or any other questions you may have regarding your personal circumstances.

  1. “I want to transfer my [real property, bank account, investment account…] into joint ownership with my child because joint ownership solves everything.”
    • During the lifetime of parents:
    • parents lose absolute control of joint assets
    • joint ownership introduces new relationships into the partnership (i.e. spouse of child)
    • joint ownership may open the property to claims by child’s spouse in the case of separation or divorce of the child
    • jointly owned property is exposed to child’s liabilities and creditors
    • there are tax considerations for both parents and child, such as the loss of principal residence capital gains exemption (in whole or in part)
    • After the death of both parents:
    • adding a child as a joint owner without consideration or supporting documentation imposes the doctrine of resulting trust and may result in the asset being clawed back into the estate and therefore subject to probate fees and a claim under the Wills Variation Act
  2. “I trust my child to do the right thing.”
    • See all of the above if parents intend to place property, accounts, etc., in joint ownership with child
    • Child’s current intentions may be good, but his financial and spousal circumstances may change and may place an unnecessary strain on your child or change his good intentions
    • Siblings may have a falling out in the future, tainting your child’s intentions
    • Setting out your instructions in the Will as to the disposition of your estate makes your intentions clear to all parties involved
  3. “Probate fees are significant and I want to avoid them.”
    • Probate fees are 1.4% of gross assets (less mortgage liabilities)
    • Transferring assets or adding joint owners just for the sake of saving probate fees may result in more headaches and significant legal costs
    • Legal and tax implications as noted above must be considered
    • A qualifying trust such as an alter ego trust or joint spousal/partner trust may be an acceptable alternative to provide for the eventual distribution of assets transferred to the trust.  When setting up a qualifying trust, several issues are critical:
    • careful consideration must be paid to which assets are settled in the trust and how the succession plan is set out
    • consistent treatment of trust assets following establishment of the trust is imperative
    • need for continuing oversight of the trust and annual income tax filings
    • additional costs of establishing and administering trust vs probate tax savings must be considered
    • other family issues may make the use of a qualifying trust more attractive no matter the cost to set up and maintain the trust (Wills Variation Act avoidance?)
  4. “I just need a simple Will.”
    • Blended families need careful succession planning to address the needs of and obligations to both families to minimize Wills Variation Act claims – each circumstance is different
    • Complexity of client’s circumstances = Complexity of the Will
    • You may need special treatment for a spendthrift child or a mentally challenged child or other circumstances; simple may not be better
  5. “I can do anything I want with my estate.  If I own it I control it.  I can disinherit my [spouse] [child] if I want.”
    • Wills Variation Act imposes not just a moral obligation but a legal obligation to consider adequate, just and equitable maintenance and support for spouse and children from the estate
    • Wills Variation Act actions are expensive and may eat up a significant portion of the estate