Anyone who has been shopping for groceries has had a recent reminder of the powerful effect of inflation.
The purchasing power of your money falls as the years pass, which means that the same amount of money buys you fewer tomatoes, eggs and loaves of bread as time goes by.
The effect is even more noticeable over a longer period of time, or when you’re talking about faster-appreciating assets like real estate, and a recent decision from Ontario’s Court of Appeal should serve as a reminder why it is important to update any specific dollar amounts you include in your will.
The son of the deceased in the case scored a big windfall when the three-judge panel allowed him to take advantage of a clause in his mother’s will that gave him the option to buy her hobby farm for $85,000 – a price set in 1985 when she signed the document, which was never subsequently revised.
The decision doesn’t say exactly how much the land is currently worth, but you can bet it’s much more than the amount agreed in 1985, considering how vigorously most of the man’s siblings contested their mother’s will.
The son was the only one of the mother’s six surviving children who ever worked on the 66-acre hobby farm. However, some of his siblings argued that since she no longer operated the farm at the time of her death, the option to purchase should not apply and the value of the property should fall into the residue of the estate. But the Appeal Court was not convinced.
“One might well wonder whether the testator intended to benefit [the son] quite as much as she did,” the decision reads. “The task of this court is simply to determine whether the option to purchase is valid and was validly exercised. It is and it was.”
In this case, the fixed dollar-value of the son’s option to purchase worked to his advantage because he got the land for a bargain price, but the power of inflation cuts both ways. If his bequest had been for cash, the same son would not have been so happy, since $85,000 in 1985 dollars is equivalent to around $200,000 today.
Updating dollar values to account for inflation isn’t the only reason you should return to your will after drafting it. I typically recommend clients revisit their estate plan every couple of years, at least to check that the people you named as your executor and beneficiaries still make sense; lives change and relationships evolve over time, and they may not always be as suitable in those positions as they were when you first picked them.
If you can’t commit yourself to that kind of frequency, then big life events or major relationship changes should prompt an update to your will – think the birth of a child, marriage, divorce, or a major change in net worth.
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