Should you be thinking about your will?

People often have trouble finding the time to make or update a Will. It is at the back of their minds, but other things always manage to take priority. Some believe a Will is not important, and that their assets will ultimately end up in the right place whether they have one or not. If that is what you think, keep reading.

If you die without a will

• applicable law will determine who should administer your estate and it may not be the person(s) you would have chosen;
• significant tax saving opportunities may be lost;
• depending upon your circumstances, your surviving spouse may not be entitled to your entire estate;
• if a minor is entitled to a share of your estate, the funds allocated to him or her will be paid into Court and released when he or she attains the age of majority which may be 18 or 19 depending on the province in which you live;
• the person administering your estate may have to apply to the Court for the powers needed to deal with your property, resulting in time delays and unnecessary costs; and
• the legal fees and other costs incurred to administer your estate may be higher due to added complexity.

Should I write my own will?

Sometimes people write their own Wills, but that can create more problems than it solves. Ambiguous wording and technical deficiencies can make these Wills, or parts of them, invalid. Sometimes a Court application to interpret them is necessary. Opportunities to minimize probate fees and income taxes payable by the estate or intended beneficiaries may be overlooked. The best way to ensure that a Will is effective and enforceable is to have it drawn by a lawyer who specializes in estate planning.

Appointing an executor

When making a Will, one of the first things you will want to consider is who your executor(s) should be. The choice you make can have a significant impact on how your estate will be administered.

If you are leaving your entire estate to one beneficiary, such as your spouse, and you think he or she is capable of properly administering the estate alone, then it is logical to appoint him or her to act as the sole executor. However, alternate executors should also be appointed to act in case the primary executor is for any reason unable or unwilling to do so.

In other situations, the choice may be more difficult, but your executor should always be someone whose judgment you trust, who has the required skills to carry out the duties of an executor and who can be expected to act impartially and in the best interests of the beneficiaries. You should also consider the age of your executor, particularly if your Will provides for ongoing trusts for your children or others.

You do not have to appoint just one person. Appointing more than one executor to act together can be wise because different people can bring different skills and experience to the role. Perhaps one will have business or investment expertise relevant to the estate assets. Another might understand the needs, personalities and circumstances of family members and be effective in communicating with them. Appointing more than one executor can also help ensure continuity in the management of your estate. If something happens to one of the executors, the other(s) can continue on, minimizing any disruption insofar as the needs of the beneficiaries are concerned.

You may also wish to consider the possibility of a professional trustee, such as a trust company, lawyer or accountant. An objective professional can be a good choice if you anticipate conflict between the beneficiaries, if your assets or financial affairs are complicated, or if there are beneficiaries with special needs.

Personal effects

Bitter feuds can result over the division of personal effects. A child may grow up thinking he will inherit a particular painting or piece of jewelry, only to find out that his or her sibling thought the same thing. Often this has more to do with an individual’s emotional attachment to an article, rather than its actual value. There are many ways to deal with personal effects so as to minimize conflict, including:

• directing that particular articles be distributed to specific people;
• directing that personal effects be divided among beneficiaries as they agree, with a power given to an independent executor to cast a deciding vote if there is a dispute over a particular item; and
• requiring that personal effects be listed and valued and then directing that beneficiaries draw lots to determine the rotation order in which they will select articles they wish to have.

Recreational properties

A recreational property often has great sentimental value. It is the place where family members gathered over the years and enjoyed happy times. Parents are often inclined to direct that recreational properties be transferred to their children as co-owners. This may seem like a natural thing to do, and in some families it is workable, but in others it can cause a great deal of discord and irreparable harm to relationships. That is because there is a big difference between parents deciding to repair or upgrade a cabin, and four siblings at different stages of life, living in different geographical areas, trying to agree on what should be done. One child might think a new roof should take priority, another might prefer to spend the money on a speed boat, and a third may have no interest in or ability to pay for anything at all.

There are many ways to deal with recreational properties. For example, you might direct that the property be sold, with an option to purchase given to the children. Those who wish to buy it can then do so, applying some or all of their inheritance in payment of the purchase price. If some end up buying the cottage as co-owners, then at least they will have done so knowingly, without having the responsibilities of co-ownership forced upon them.

Alternatively, you could direct that the cottage be held in trust for the enjoyment of family members for a specified length of time. At the start of each season, the trustees in consultation with the family would decide who will be entitled to use it and when, how it will be maintained, and how related expenses will be shared. Depending upon your financial circumstances and those of your children, you may also choose to set up a fund through your Will to pay for property taxes, repairs and other expenses as they come due.

There are also other options and our lawyers would be pleased to discuss them with you.

Cash legacies

A legacy is a specific cash amount left to a beneficiary. The amount of a legacy can depend on many factors including the testator’s financial circumstances and his or her relationship with the recipient. Whenever a legacy is left to an individual or organization, the Will should address what happens if that individual predeceases the testator or, in the case of an organization, if it isn’t in existence when the testator dies. When considering the amount of a legacy, it is important to keep in mind the fact that legacies will be paid in priority to any gifts of residue.

Residue of an estate

“Residue” is the legal term used to describe what is left in your estate after taxes and debts are paid and legacies and other specific gifts are satisfied.

If you have a spouse, you will need to decide how to structure any benefits you wish to leave to him or her. Often, spouses leave all of their assets to one another in the first instance. However, that is not always the case. How you choose to provide for your spouse may depend upon many factors, including the duration of the relationship, the applicable law governing the rights of spouses, the value of your estate and your spouse’s assets, tax implications, your spouse’s age and other circumstances, and the ages and needs of other intended beneficiaries.

If you want to provide for your spouse while ensuring that other beneficiaries, such as your children, ultimately inherit the capital, giving your spouse a “life interest” under a trust established by your Will may be the answer. A trust can permit your spouse to enjoy for life all of the income earned from your estate, together with capital in the discretion of the trustee(s). The balance of the capital remaining on your spouse’s death would then pass to your descendants or other intended beneficiaries.

If you plan to divide the residue of your estate among more than one family member, friend or charity, your Will should specify the share that each recipient will receive. Is it to be an equal or an unequal division? If you decide to leave a share of your estate to an individual, what happens if he or she predeceases you? Should the gift fail? Should it pass to his or her children or to his or her estate? What if a named charity is no longer in existence at your death? Should the executor be given discretion to make the payment to another charity with similar purposes? These are all matters to be considered.

Protecting minor beneficiaries

Your Will should direct that any inheritance payable to a minor beneficiary be held in trust at least until he or she reaches the age of majority. Otherwise the law will require that it be paid into Court for the benefit of the child until he or she reaches that age.

Directing that a minor beneficiary’s share be held in trust beyond the age of majority is common. When it comes to dealing with money, wisdom often comes with age and inheritances can be frittered away easily on living expenses, luxury items and ill conceived business ventures. Receiving a significant inheritance at a young age can also eliminate motivation. Why bother with higher education or struggle to work hard if you are expecting a big payout sometime soon? Extending the duration of a trust may also provide a beneficiary with tax benefits, family law protection and other advantages.

If an inheritance is expected to be sizeable, staggered distributions at specified ages might be an option worth considering. For example, you might direct that a beneficiary receive 25% of the capital at the age of 25 and the balance at 35. This can allow a beneficiary to gain experience in handling and investing money over time. If the first distribution is used foolishly, there will be another in reserve, and hopefully the beneficiary will have learned something by the time it is paid.

The role of a guardian

A guardian is the person appointed to step into the parental role and assume responsibility for the personal and physical care of minor children. Guardians decide, for example, where children will live, the school they will attend, the activities they will take part in, and the medical care and religious training they will receive.

Sometimes clients wonder about the interplay between executors and guardians. Using as an example a decision as to whether a child should attend summer camp, the judgment as to whether or not summer camp would be good for the child would be made by the guardian. The executor would then decide whether the child’s trust fund can afford to pay the camp fees. As a result, it is important to appoint executors and guardians who will be able to work together cooperatively and in the best interests of your children.

Court challenges to wills

Wills can be challenged on a number of grounds. For example, in British Columbia the Wills, Estates and Succession Act (“WESA”) provides that if you die leaving a Will which does not, in the Court’s opinion, adequately provide for the proper maintenance and support of your spouse or children – including adult children – the court may vary the terms of your Will to provide for them in such manner as it considers appropriate. A great deal of litigation is commenced each year pursuant to this legislation, particularly in the context of second marriages and blended families and where a testator does not treat his or her children equally.

A Will can also be challenged on the basis that the person who made it did not have the mental capacity required by law to do so, was unduly influenced to make it, did not approve its contents or did not sign it in accordance with the technical requirements imposed by law.

To minimize the possibility of a successful challenge to your Will, it should be prepared by a lawyer who specializes in estate planning and who is familiar with your personal and financial circumstances and those of your beneficiaries.

Income tax implications

Succession duties and estate taxes were eliminated in Canada years ago. At present, income taxes, including taxes on unrealized capital gains, are the primary taxes payable as a consequence of death.

With certain exceptions, when you die you are considered for tax purposes to have disposed of your capital assets for proceeds equal to their fair market value on the date of your death. This may trigger a tax liability if any of those assets have increased in value since you acquired them. However, if your assets are left outright to your spouse, or are directed by your Will to be held in trust exclusively for the benefit of your spouse during his or her life on the terms contemplated in the Income Tax Act (Canada), a “rollover” will be available. The effect of the rollover will be to defer the tax required to be paid on any gain in the value of the assets until your spouse dies, or until the assets are disposed of, whichever first occurs.

There may be other ways to minimize or defer the tax liability payable as a consequence of your death and our lawyers would be pleased to discuss any available opportunities with you.

Probate fees

In Ontario, probate fees (also referred to as estate administration taxes) are charged at a rate of approximately 1.5% of the value of the deceased’s estate. This means that for every $1,000,000 in assets passing pursuant to a Will that is probated, approximately $15,000 in probate fees will be payable.

In British Columbia, probate fees are calculated at approximately 1.4% of the value of all real and tangible personal property owned by the deceased in the province and, if the deceased was ordinarily resident in British Columbia immediately before death, 1.4% of the value of intangible personal property (such as bank account balances, stocks and other securities) wherever located.

By comparison, the maximum probate fee payable under Alberta law is $400.

There are a number of ways to minimize or eliminate probate fees payable on death. Our lawyers would be pleased to discuss those opportunities with you.

How often should a will be reviewed?

You should review your Will at least every five years to ensure that its provisions remain appropriate, and more often if there is a significant change in your personal or financial circumstances or those of the persons named in your Will. Executors may move away or become ill. Legacy amounts may become inappropriate in light of your increasing or decreasing fortune. Beneficiaries may die, fall out of favour or become incapacitated. Significant changes of this kind should be reflected in your estate plan.

Conclusion

A properly designed estate plan will enable you to ensure that your life’s acquisitions will be disposed of in an organized and tax efficient way in favour of the people and charities you wish to benefit.

When you do not plan, your family can be left feeling frustrated and hurt that you did not care enough to take the time to put your affairs in order. Your estate may also be saddled with unnecessary taxes and expenses.

Whether you need a simple Will or a carefully structured plan involving an estate freeze, trusts and privately held companies, we have the expertise to help you organize your affairs and achieve your goals.