10 Things People Get Wrong When Planning Their Estate
Estate planning is about much more than writing a will. Here are 10 common mistakes Canadians should understand before and during retirement.
Estate planning can feel like something to deal with “later.”
There are retirement accounts to manage, investment decisions to make, housing questions to answer and, hopefully, plenty of life still to enjoy.
But estate planning isn't just about what happens after you die.
A good estate plan also considers what happens if you become unable to manage your own financial or personal affairs, who will have the authority to act on your behalf, how your assets will transfer, what taxes may arise, and how much responsibility will ultimately fall on the people you leave behind.
For Canadians, and particularly those living in Ontario, there are several misconceptions worth clearing up.
Here are 10 things people commonly get wrong when planning their estate.
1. Thinking a Will Is the Entire Estate Plan
A will is important, but it is not your entire estate plan.
In Ontario, a will takes effect when you die and sets out your wishes concerning the distribution of your estate. It can also name the person who will administer your estate, known as an estate trustee or executor.
But an estate plan can also involve:
Powers of attorney
Registered accounts
Beneficiary designations
Life insurance
Jointly owned assets
Real estate
Business interests
Tax planning
Charitable giving
Personal and family considerations
A will answers an important question:
“What should happen to my estate after I die?”
Your broader estate plan should also consider:
“Who can make decisions for me if I am alive but unable to make them myself?”
That distinction becomes increasingly important as we get older.
2. Assuming Everything Passes Through Your Will
Another common misconception is that everything you own automatically passes according to your will.
It doesn't.
Certain assets can transfer outside the estate depending on how they are owned or whether a beneficiary has been designated.
Examples can include:
RRSPs and RRIFs with named beneficiaries
TFSAs with appropriate successor-holder or beneficiary designations
Life insurance policies
Jointly owned property
Certain jointly held financial accounts
Pension benefits
This is why creating an asset inventory is so valuable.
Make a list of your:
Bank accounts
Investments
RRSPs
RRIFs
TFSAs
Real estate
Life insurance
Pensions
Business interests
Significant personal property
Debts and liabilities
Then identify how each asset is owned and what happens to it when you die.
The goal is to make sure the pieces of your estate plan actually work together.
3. Choosing an Executor Simply Because They're Family
Your oldest child isn't automatically the best person to administer your estate.
Neither is your closest relative.
An executor, or estate trustee in Ontario, can have significant responsibilities. They may need to locate assets, deal with debts and creditors, communicate with beneficiaries, handle tax matters, manage estate property and distribute assets according to the will.
Ontario describes an estate trustee as the person responsible for managing the estate after death and carrying out the instructions in the will while following the law.
When choosing an executor, think about:
Reliability
Organization
Financial capability
Availability
Location
Willingness to take on the responsibility
Ability to communicate with family members
Whether they can remain impartial when family disagreements arise
You can also discuss the decision with the person before naming them.
Being someone's executor should be a responsibility they understand and are prepared to accept—not a surprise they discover after your death.
4. Forgetting About Incapacity
Estate planning isn't only about death.
What happens if you are alive but unable to manage your finances because of an accident, illness or cognitive impairment?
In Ontario, being someone's spouse or child does not automatically give you unlimited authority to manage their property simply because they become incapable.
This is why powers of attorney are an important part of planning.
Ontario distinguishes between documents dealing with property and personal care. The appropriate documents can give someone you trust the legal authority to make decisions on your behalf when required.
The exact rules differ across Canada, so estate documents should be prepared with the laws of your province or territory in mind.
The key lesson is simple:
Don't wait for a crisis to discover that nobody has the legal authority to help you.
5. Treating Beneficiary Designations as a One-Time Decision
You may have named beneficiaries on your RRSP, RRIF, TFSA, life insurance policy or pension years ago.
But your life may look very different today.
Marriage, separation, divorce, the death of a beneficiary, the birth of children or grandchildren, and other major life changes can all affect whether your existing designations still reflect your intentions.
Beneficiary designations deserve periodic review.
More importantly, don't look at them in isolation.
Your will, beneficiary designations, account ownership and overall estate strategy should tell a consistent story.
An outdated beneficiary designation can create an outcome you didn't intend.
6. Assuming Estate Planning Rules Are the Same Everywhere
This is particularly important for Canadians who read financial information online.
A large amount of estate-planning content comes from the United States.
You'll frequently encounter concepts such as American “living trusts,” U.S. probate procedures and American estate-tax strategies.
Canada has a different legal and tax system.
And even within Canada, estate and probate-related rules can vary by province.
For Ontario residents, for example, the relevant system includes Estate Administration Tax, which applies when an estate certificate is applied for and issued, subject to the applicable rules and exemptions.
So be careful when taking a strategy you saw in a U.S. article or social-media video and assuming it works the same way in Ontario.
General financial education is useful.
Estate documents should be based on the laws that actually apply to you.
7. Focusing on Avoiding Probate Without Looking at the Bigger Picture
“Can I avoid probate?” is a common estate-planning question.
But probate—or, in Ontario, obtaining an estate certificate—is only one part of the estate-administration picture.
Ontario's Estate Administration Tax is based on the value of the estate when an estate certificate is issued. For applications made on or after January 1, 2020, estates valued at $50,000 or less are exempt, while the tax for estates above that amount is generally $15 for every $1,000, or part thereof, above $50,000.
That doesn't mean every asset necessarily has to pass through the estate.
But trying to structure everything around avoiding probate can create other issues involving:
Tax
Control
Ownership
Creditor considerations
Family expectations
Administrative complexity
The better question isn't simply:
“How do I avoid probate?”
It's:
“What structure makes sense for my entire estate?”
8. Ignoring the Tax Side of Estate Planning
One of the biggest estate-planning mistakes is thinking about inheritance without thinking about taxes.
Death can have significant tax consequences.
For example, Canada generally treats a person as having disposed of capital property immediately before death. This is known as a deemed disposition and can result in capital gains being reported on the deceased person's final tax return. Certain transfers, including qualifying transfers to a surviving spouse or common-law partner, may receive tax-deferred treatment.
Registered accounts can also require careful planning.
RRSP and RRIF amounts can create taxable income at death, although specific rollover rules can apply in situations such as transfers to a qualifying spouse or financially dependent child or grandchild.
That means estate planning should consider questions such as:
How much is in registered accounts?
Who are the beneficiaries?
What assets have significant unrealized gains?
Is there a surviving spouse?
Are there charitable intentions?
Are there business assets?
Is there enough liquidity to cover taxes and expenses?
The goal isn't simply to minimize tax at all costs.
It's to understand what may happen and plan accordingly.
9. Keeping the Entire Plan Secret
Privacy is perfectly reasonable.
But complete secrecy can create unnecessary problems.
Your executor needs to know that your will exists and where it can be found.
Someone you've appointed under a power of attorney should understand that they may eventually have an important responsibility.
Your family may also need to know where to locate:
Your will
Powers of attorney
Insurance policies
Investment statements
Banking information
Property records
Tax documents
Contact information for your lawyer, accountant and financial professional
You don't necessarily need to tell everyone exactly what they're inheriting.
But the people responsible for carrying out your wishes should be able to find the information they need.
A well-organized estate plan can be a tremendous gift to your family.
10. Creating an Estate Plan and Never Looking at It Again
Perhaps one of the most common mistakes is assuming that once you've signed the documents, you're finished.
You're not.
Your financial and family circumstances can change considerably over the years.
You might:
Buy or sell a home
Start or sell a business
Retire
Move provinces or countries
Open new investment accounts
Change your investment strategy
Have grandchildren
Experience a marriage, separation or divorce
Lose a beneficiary
Change your charitable intentions
Acquire significant new assets
Any of these changes can justify reviewing your estate plan.
At minimum, consider reviewing your estate documents and beneficiary designations periodically and after major life events.
Estate Planning Is Part of Retirement Planning
Estate planning isn't simply about deciding who gets your money when you're gone.
It's about creating a framework for your financial life—and making things easier for the people who may eventually have to step in and help.
For Canadians approaching retirement, the conversation can involve:
Income → Investments → Taxes → Insurance → Estate → Family
These pieces are connected.
Your RRSP and RRIF strategy can affect your taxes. Your beneficiary designations can affect how assets transfer. Your property ownership can affect estate administration. Your powers of attorney can determine who can help manage your affairs if you become incapable.
And your will provides the instructions for what happens to the assets that form part of your estate.
The objective isn't to create the most complicated estate plan possible.
It's to create a plan that reflects your wishes, works within Canadian and provincial rules, and gives the people responsible for carrying it out a clear path to follow.
A good estate plan isn't just about leaving something behind. It's about leaving clarity behind.
This article is intended for general educational purposes and is not legal, tax or financial advice. Estate-planning rules can vary by province and depend on individual circumstances. Ontario residents should consult an Ontario-qualified estate lawyer and appropriate tax/financial professionals before implementing an estate-planning strategy.