Preparing for Contingencies as Part of your Estate Plan

So much can change between the time your estate plan and related documents are prepared and when they take effect. That’s why it’s important for your estate plan to include back-up plans.

Executors and other appointments

As part of your planning, your estate planning documents would have appointed someone to be in charge of your affairs, such as the executor under your will (liquidator in Quebec) or the individuals you appoint to make financial or medical decisions on your behalf if you lose the capacity to make those decisions. These documents should always include a back-up for all these roles in case a person you appointed passes on or is otherwise unable or unwilling to act when needed.

Sometimes a back-up of your back-up might also be advisable. For example, if your alternate executor is a sibling or friend who is close in age to you and you live to an old age, that person may have already died or may not be capable of looking after your estate.

Death of a beneficiary

You should specify what is to happen if an intended beneficiary dies before you. Should the gift or share of your estate pass to the beneficiary’s children or to other beneficiaries instead? Or should the gift lapse?

Asset no longer owned

If your will leaves a specific item or asset to a beneficiary, it is important to address what should happen if you no longer own it when you pass away. For example, assume you leave your cottage to a sibling in your will and your remaining assets to charity. Consider some possibilities that might arise at the time of your death:

• Cottage is sold – If you sell the cottage during your lifetime, is your sibling to receive a cash gift instead, or does your sibling receive nothing?
   
• Cottage is replaced – If you sold the cottage and bought a new one, is your sibling to get the new cottage?

Why you should address contingencies

A common response to addressing contingences in an estate plan is that “I can update my documents if something happens.” However, this may not occur for one or both of the following reasons.

Procrastination

Often, estate planning isn’t perceived as something that requires immediate attention, so people will put off making needed changes to their planning documents.

Incapacity

If you become mentally compromised, whether due to illness or injury, you would no longer be able to update your estate plan and related documents to address circumstances that had not been fully addressed in your initial planning.

Assume, for example, you appoint your spouse to act on your behalf if you become incapable of acting but you do not appoint an alternate, as you feel you could address this in the future if something happens to your spouse. If you then become incapacitated and your spouse is not alive or cannot act for any reason, you would no longer be able to change your estate planning documents to appoint someone else to act instead. The distribution of your assets, whether under your will or in your beneficiary designations, also could not be modified, even where it is clear you would have made changes if you had the capacity to do so.

As part of creating or reviewing your estate plan documents, it is always prudent to ask, “What if...?”

Contact your advisor to review your planning and documents to ensure that all the reasonably foreseeable “what if” situations are addressed.