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Dying without a will can cost your dear ones dearly

When it comes to your estate, failing to prepare a will may save you legal fees in the short term, but could cost your family later. Dying without a valid will is called "dying intestate," and it's rife with problems.

The problems

I'm always amazed at the number of people who have failed to prepare a proper will. And I'm talking about intelligent and responsible people. With all the drawbacks of dying intestate, you'd figure these folks would have looked after this critical area of their planning. There are five key drawbacks to dying intestate:

1. Provincial laws dictate who gets what. Each province has its own intestacy laws which will distribute your estate in the manner the government sees fit. And I can tell you, your spouse doesn't automatically get it all if you have any children.

2. You'll pay more tax when you die. The easiest and most common way to defer tax on death is to leave all your assets to your spouse. Yet, dying intestate won't allow for this. The result? Taxes owing that might not otherwise have been paid.

3. Delays are a given. Dying without a valid will means the court will have to appoint an administrator of your estate. This takes time and will delay the distribution to your heirs, and can lead to family feuds where more than one person feels they are best suited for the administrator's job.

4. Extra costs are guaranteed. The expenses of your estate will increase with additional legal costs, especially if each family member hires their own lawyer to gain a right to act as your administrator or for other advice. Also, money owing to minors must be paid into court and held there, which can cost legal and other fees.

5. A judge will decide on guardians. Without a valid will, you forfeit the right to decide who should look after minor children when you're gone. A judge will make this decision based on what he or she sees as being in the best interest of your children.

The distribution

The distribution of your estate differs by province if you die intestate. Generally, your spouse (if you're legally married, not common-law) gets everything if you have no kids. If you have kids, your spouse generally gets a fixed dollar amount, and then splits the balance of the estate with the kids in some manner.

In Ontario, for example, your spouse would get the first $200,000 of your estate after all debts are paid. The balance of your estate would be split 50/50 between your spouse and one child. If you have more than one child, your spouse gets one third of the balance and the kids split the rest equally.

Check with a lawyer in your province for the actual distribution where you live. And while you're at it, make an appointment to have that lawyer prepare your will to avoid the pitfalls of intestacy.

Tim Cestnick, FCA, CPA, CFP, TEP, is a tax specialist and author of Winning the Tax Game 2005 and The Tax Freedom Zone.tim@timcestnick.com



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