Do-it-yourself estate planning leaves heirs exposed to potential financial and legal challenges

TORONTO, Aug. 31, 2015 /CNW/ - CIBC (TSX: CM) (NYSE: CM) -- When it comes to the transfer of assets from one generation to the next, having a will is the most fundamental component in your estate plan.

"It's surprising how many people either don't have a will or think they don't need one," says Jamie Golombek, Managing Director, Tax and Estate Planning, CIBC. "If you have no will, you have no say in who will manage the estate, who will inherit your assets or what steps could be taken to minimize taxes. Without proper planning and a written will, you are leaving it to the legislation as to who ends up with your assets and could be exposing your heirs to all sorts of potential problems."

A recent CIBC poll finds that more than half (51 per cent) of Canadians expect to leave assets upon their death. The poll also finds that Canadians on average plan to leave their heirs nearly $380,000.

Mr. Golombek outlines the common mistakes Canadians make in estate planning and tips on how to avoid them in his report, "Your Estate Matters", which is the first of a five-part series of reports on estate planning that are available in CIBC's Advice Centre.

Mistake #1: Misconceptions of what an estate is

While the term "estate" often evokes images of sprawling mansions or luxurious lakeside cottages, almost every adult has an estate.

"If you have retirement savings or real estate such as a family home, then you have an estate," Mr. Golombek says. Estate planning is the process of making arrangements for the management and transfer of your estate. "An estate plan is always recommended if you have any assets at all, but it is essential if you plan to take care of any dependents, such as a spouse, partner or children."

Mistake #2: Letting the government write your will

A written will is at the heart of any estate plan. It records your intentions for the management and transfer of your assets. One of the most common mistakes in estate planning is not having a will at all. The estate is then administered according to provincial law, leaving crucial aspects to be decided by the government.

"To allow for your estate to be passed on to loved ones according to your wishes and with minimized delays and costs, you should have an estate plan and a written will," says Mr. Golombek.

Here's what might happen if you don't have a will:

• The surviving spouse or partner might not be entitled to all assets. In most provinces, after granting a preferential share of the estate to the spouse, the balance will be split between the spouse and any children.
• The surviving spouse might not be able to obtain ownership of the family home. If the children's share of the estate exceeds the value of the real estate, the spouse might be forced to sell and pay out the remaining balance.
• Children under the legal age may not have access to their share of the estate. Their inheritance might have to be paid into court to be managed by a government office until they reach the age of majority.
• The surviving spouse might not automatically be named as the estate administrator.  They would have to apply to the court for this role.
• And - most important - the value of the inheritance might be significantly eroded by taxes. Income taxes can often be deferred by taking advantage of various spousal or partner rollovers.

Mistake #3: Do-it-yourself planning

When it comes to making arrangements for the management and transfer of their estate, Canadians should not resort to do-it-yourself planning.

"Many estate planning mistakes are made through inexperience and lack of knowledge," says Mr. Golombek. "Family, succession and income tax laws are very complex and vary from province to province. These laws also change frequently."

"You should obtain professional advice to avoid estate erosion and complications for the next generation," urges Mr. Golombek. "The cost of proper advice is often less than the cost of unnecessary taxes and fees if you don't have an estate plan in place."

Key Poll Findings:

Percentage of Canadians expecting to leave assets to someone upon their death:  

Overall value of assets expected to be passed on:

From May 19 to May 20, 2015, an online survey was conducted among 1,504 randomly selected Canadian adults who are Angus Reid Forum panelists. The margin of error - which measures sampling variability - is +/- 2.53 per cent, 19 times out of 20. The results have been statistically weighted according to education, age, gender and region (and in Quebec language) Census data to ensure a sample representative of the entire adult population of Canada. Discrepancies in or between totals are due to rounding.

About CIBC

CIBC is a leading Canadian-based global financial institution with 11 million personal banking and business clients. Through our three major business units - Retail and Business Banking, Wealth Management and Wholesale Banking - CIBC offers a full range of products and services through its comprehensive electronic banking network, branches and offices across Canada with offices in the United States and around the world. You can find other news releases and information about CIBC on our corporate website at www.cibc.com/ca/media-centre/

SOURCE Canadian Imperial Bank of Commerce