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Many people, despite their good intentions, do not plan for their own death. In my 25 years as an accountant, I've noticed three main reasons: They are unwilling to accept their own mortality, they procrastinate and they don't appreciate the implications of not acting.

If this sounds like you, I am going to use reverse psychology on you. Instead of providing advice on what you should do to ensure your estate is easy for your family and executors to administer, I am going to explain the consequences of what can happen when you do not plan.

Able but unwilling to prepare or update your will

According to a 2012 lawyer's survey, 56 per cent of Canadian adults do not have a signed will. Many assume their assets will automatically transfer to their spouse.

However, unless the assets are held jointly with right of survivorship (except for Quebec), this will not be the case. If you pass away without a will, you are considered to have died intestate and the rules of your province of residence will determine how your estate is divided. As result, your assets may be distributed in a manner you did not anticipate or wish.

Family's blissful ignorance on asset transfers

Many families transfer assets haphazardly for income tax, asset protection and family law reasons. Where the assets are capital in nature, such as stocks or real estate, the transfer frequently creates an income-tax liability that is often blissfully ignored by the parent making the transfer.

As a consequence, your estate and/or executor may become liable for the income tax not paid when those transfers were undertaken. In addition, your executor will have the arduous task of trying to recreate transactions for which the paper trail (see below) is often missing, in order to amend tax return(s).

Parents often contradict the wishes in their will by transferring assets while alive. For example, some parents may include a provision in their will that states upon their death, all their assets are to be divided equally amongst all their children. Yet while alive, these parents transfer their home, cottage or rental property for what they think are sound income tax or probate reasons to only one of their children. This, obviously, can lead to huge family squabbles.

Head-shaking handshake deals

Some people enter into handshake deals with lifelong friends in an attempt to avoid paying income tax, or to keep assets hidden away from spouses or certain family members. Typically this relates to real estate and the friend is given 100-per-cent title on the property, with the intention that upon a sale of the property, the friend will give back the other party's share of the proceeds.

The obvious issue here is that you and/or your family are reliant on the honesty of your family friend to give back your share of the proceeds on the sale of the property.

I'm not paying for the marble in the foyer

Legal and accounting advice can be expensive, so you may avoid getting it or hire a low-cost alternative. This is penny-wise and pound-foolish thinking.

Without proper advice, the estate can be left with a legal and income-tax mess and the professional fees to untangle everything often end up three to five times higher than it would have been had proper professional advice been obtained from the start.

Long gone records

Imagine how hard it is to file a return when someone has passed away and documents relating to share or real estate purchases have long since been destroyed. As your executor or accountant will not have documentation of the cost base of certain properties, your estate may end up paying excess income tax.

You should always keep any document relating to the purchase price of any property that may rise in value. In addition, tax returns that have important information such as the 1994 capital gains election (Form T664) should be maintained.

Compromising executor positions

By being haphazard with record keeping and the transfer of assets, you leave your executors in an untenable position in complying with income tax and probate requirements, for which they assume liability.

Family court

A common result of all of the above issues is litigation amongst family members, business partners and aggrieved third parties. These lawsuits often decimate the original estate.

Planning for your death is truly a selfless act of love. By organizing your estate, you significantly reduce the emotional strain and financial stress on your surviving family members and executors.

Mark Goodfield is a partner with BDO Canada LLP in Toronto. He writes the Blunt Bean Counter blog and is the author of the book Let's Get Blunt About Your Financial Affairs.

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