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tax matters

I think that being eccentric would be fun. I don't mean eccentric in a use-your-tea-bag-then-dry-it-out-and-use-it-again sort of way, but in a do-something-crazy-to-help-other-people sort of way. Take Luis Carlos de Noronha Cabral da Camara, for example. This Portuguese aristocrat had no family and few friends, so he left his estate upon his death a few years ago to 70 complete strangers that he randomly selected from the Lisbon phone directory. Most of them thought it was a scam – until they received their cheques.

I've been writing about the five D's of estate planning: define, design, document, discuss and distribute. Today, I want to finish things off by talking about distributing your estate.

The basics

At the most basic level, you can distribute your estate either during your lifetime, or after your death. People who make distributions on or after death usually do so because they aren't sure how much they're going to need, and don't want to run out of money. This is a perfectly legitimate concern.

I would say, however, that you should do the math to determine approximately how much you're likely to need to look after yourself for the rest of your life. If you can't do the math, ask an accountant or financial planner to help.

Many people who have more than they'll need choose to give some away today – to family, friends and/or charity, because they want to see the gift enjoyed. If you're transferring money to your heirs today, decide whether the amounts will be considered an advance on their inheritance, or gifts over and above what they'll receive upon your death. If the amounts are an advance, be sure to document these advances, advise your executor where to find that documentation, and clarify in your will that advances will reduce the amount that each heir will otherwise receive.

The methods

To the extent your estate is going to be distributed after your death, there are six key ways this can happen:

1. Through intestacy laws. If you die without a will, these provincial laws will dictate who gets what. This could create more tax and other costs than necessary. This is a default approach to distributing your estate, but it's not a plan.

2. By naming beneficiaries. You should name beneficiaries on your life insurance policies, pension plans, RRSPs, RRIFs and TFSAs.

3. By owning assets jointly. If you own an asset jointly with right of survivorship, the asset will become the property of the other joint owner(s) if you predecease them.

4. By way of trusts. You can leave assets to others who are beneficiaries of a trust you might set up during your lifetime (called an "inter-vivos trust") or upon death (called a "testamentary trust"). Trusts are valuable if a beneficiary is unable to manage an inheritance on his or her own, or if you want to add a measure of asset protection to help your heirs.

5. Through a partnership or shareholder agreement. If you're party to one of these agreements, your interest in that partnership or corporation could be distributed in accordance with the agreement.

6. By your will. Even if you plan to distribute your estate using one or more of the other methods, you should still have a will to deal with any other assets or belongings you might own at the time of your death.

When preparing a will, many people take the view that "fair isn't always equal"; there can be valid reasons to leave different amounts to different heirs. I do encourage you, however, to avoid a situation where you completely leave a child out of your will altogether. I realize that there can be exceptional circumstances and there is no one-size-fits-all approach here. However, most people who leave a child out of a will do so because of a strained relationship.

There's no better time than today to mend broken relationships. And if that isn't going to happen, it could be a healing gesture to remember that child in your will in a meaningful way. It can send one last message that you really do care, despite the issues between you.

On the flip side, leaving that child out of your will sends exactly the opposite message – a message that you don't care, or that you can't forgive. That message, unfortunately, will live with that child forever. You can't change it after you're gone.

The emotional scars this can create for not only the child, but other family members, isn't worth it. Swallow your pride. If you can't reconcile during your lifetime, at least make a positive and meaningful gesture upon your death.