Many of us understand the importance of having a will: around half of Canadians have one. However, drawing up a will that’s completely fair to all your beneficiaries (the people who are in line to receive your belongings and assets, usually your spouse and children) is considerably more complex.
It can be particularly complicated if you have just one property (your home, or primary residence) and several children. Many parents want to leave the same amount to each child in their will; this is not just a question of treating each child the same, but doing so can also avoid leaving behind resentment among siblings or even prevent your will from being contested.
This can become particularly complicated if any of the children are living in the home or want to live there.
The emotional and practical aspects of dividing one property among several children can be challenging. Let’s explore various strategies that can help you pass on your primary residence fairly.
The problem with bequeathing one property to all your children
One approach to passing on a home is to grant each child an equal share of its ownership. While this is certainly one way to ensure a fair will, it can lead to several issues down the line. For instance, disagreements may arise over how to manage the property, including whether to rent it out or sell it.
One sibling might want to keep the home as a family legacy, while another might prefer to sell it and cash in its value. If one sibling is not able to buy out the others, this could put a strain on family relationships or even lead to legal disputes.
Furthermore, if one sibling lives in the home and relies on it as their primary residence, this could create a power imbalance and lead to resentment. There are typically better strategies for passing on your home fairly.
Give the property to one child and compensate the others financially
An alternative approach is to give the property to just one of your children. Obviously, to make this fair, you would need to provide your other children with an inheritance that’s equal in value to your home at the time of your death.
This method requires planning and an accurate assessment of your property's market value (a real estate appraiser can help you determine this). You can then distribute in your will other assets, such as investments, savings or other belongings to balance out the inheritance. Problems can arise if there is a large discrepancy between the value of your home and your remaining assets.
Also, the property’s fair market value should be assessed on death, rather than when the will is made (given that the property in question could have increased or decreased in value considerably in the interim). Alternately, several valuations could be obtained over the timeframe, with an average value being used.
What to include when calculating your whole estate's value
To ensure a fair distribution, it's crucial to have a comprehensive understanding of your total assets’ value upon passing away. This includes:
- Assets: include the value of your primary residence and investments (such as RRSPs, TFSAs and other savings).
- Valuables: don't forget to include valuable personal items, like jewellery, watches, art and collectibles. These items can greatly affect the overall value of your estate.
- Liabilities: you also need to include any outstanding debts, such as a mortgage, credit card balances and loans. These will reduce the net value of your estate.
While leaving a primary residence in your will won’t usually bring about the headache of capital gains tax, if the final years were spent in a care home or similar residence, there could be some tax implications, so you should bear these in mind when calculating the final value of your home.
By having a precise figure for your entire estate, you can better plan how to distribute it fairly among your children.
Consider previous financial help
To be completely fair, you should also add any previous financial help to your calculations. For example, if you helped one child with a down payment on their first home or paid for their wedding, you might want to have this reflected in their inheritance.
This can help avoid feelings of favouritism and ensure that your will is a true reflection of your overall gifts to your children.
Put a clause in your will to sell the home
One option to reduce potential disputes is to include a clause in your will that instructs your executor to sell your home after you die and split the proceeds equally among your children. In fact, this is the most common outcome, even if you don’t stipulate this in your will.
This approach ensures that each child receives an equal amount without the complications of co-ownership. However, this method can be emotionally challenging if any family member wants to keep the home, and it can potentially get messy. However, you can avoid this by giving your executor the necessary power to sell the home on your behalf and distribute the proceeds.
Make up for any shortfalls with life insurance
Many people’s biggest asset is their home, and it’s rare that they would also have enough assets to give to their other children that are of equal value (especially in certain Canadian cities, where homes can sell for several million dollars).
This is where life insurance can come into play. The proceeds from a life insurance payout can be given to your children who didn’t receive the home in your will. An IG Advisor can help you work out how much coverage you should sign up for to ensure your will is fair.
Be open and communicative about your decisions
Discussing your plans with your children is key to ensuring they understand and appreciate your intentions and have the opportunity to voice their opinions.
This transparency can help reduce the likelihood of any disputes and allow you to adjust your plans if necessary. Your children will be more willing to accept your wishes as laid out in your will and will be less likely to contest it.
Get help in making a fair will
As we’ve seen, developing a fair will that satisfies all your children can be complex, particularly when you have one large piece of real estate like your home to include. An IG Advisor can help you balance out your will so that each child is fairly treated, including bringing life insurance into the mix if necessary.
They can also help you develop an estate plan that includes all aspects of making sure your wishes are followed, including the need for a power of attorney and how to leave a charitable gift in the most tax-efficient way possible.
If you think you may need help making your will fair for all your children, contact your IG Advisor today to discuss ways they can help you to achieve this. If you don’t have an IG Advisor, you can find one here.
Written and published by IG Wealth Management as a general source of information only. Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice. Seek advice on your specific circumstances from an IG Wealth Management Advisor.
Insurance products and services distributed through I.G. Insurance Services Inc. (in Québec, a Financial Services Firm). Insurance license sponsored by The Canada Life Assurance Company (outside of Québec).
