Tag: Will

Intestacy? For those you love, make a Will

Complications and costs of an un-planned estate

Recently, I was invited by a financial advisor to meet with a young mother of two whose husband had, in a matter of weeks, gone from diagnosis to death – and there was no Will. I’ve had that same meeting a half dozen times over my working life.

You may find it shocking for me to be so blunt in saying so, but that falls well short of the emotional pain of becoming a widowed parent of toddlers, trying to keep the household together financially, and plodding your way through an intestacy. It’s devastating enough to deal with a close death, without that added uncertainty, paperwork and excess stress.

So, to the question of when someone should have a Will, my unhesitant response is that if you ARE an adult then BE one – and make a Will. If not, here’s what may be ahead for your family.

Purpose of a Will, and effect of intestacy

A Will allows you to say who will receive what you own at the date of your death, in what proportions and with appropriate strings attached if you wish.

Without a Will, the provincial/territorial rules of intestacy – meaning the absence of a valid Will – will dictate who among your family (or more distant relations) will receive your property, and in what proportions. Unfortunately, that distribution would be without the benefit of your legally binding wishes, let alone any final thoughts or moral guidance you may have wanted to impart. The exact rules vary by jurisdiction, but generally:

    • Spouse and no children – Entire estate passes to the spouse
    • Spouse and child or children – Spouse commonly receives a legislated minimum amount, and the rest is distributed between the spouse and child/children, with the spouse getting the largest portion
    • Child or children – Each will get an equal share
    • No spouse or children – The rules expand outward to parents, siblings and other blood relations
    • No blood relations – The estate will likely end up with the provincial government

Note that intestacy does not supersede property passing by right of survivorship when held jointly (with anyone, not just a spouse), nor does it affect beneficiary designations on registered plans and insurance policies.

Extra stress for common law spouses

Depending on province/territory, a common law spouse may be excluded from estate distribution if there is no Will, or require a prior registered notice to qualify for a share of the estate. For the purposes of entitlement to intestate distribution, the term “spouse” applies to:

    • Only legally married persons in Ontario, Quebec, New Brunswick, Newfoundland & Labrador, and Yukon.
      (In Yukon, a common law spouse may apply for a court order for support and maintenance from the estate.)
    • Both legally married and common law spouses in British Columbia, Alberta, Saskatchewan, Manitoba, Prince Edward Island, Nova Scotia, Northwest Territories and Nunavut. (In Nova Scotia and Nunavut, registration of common law status and/or filing of a domestic contract may be required.)

Adjusting unintended or unexpected distributions

Even when people are legally married, an intestacy invariably puts the surviving spouse in a difficult position. Rather than the entire estate passing to the survivor (as is most often the expectation), the children may gain property rights alongside their parent. If the children are adults and all get along, that may be manageable. If there are minors and/or past conflict, then further complications and anguish may be ahead. The age of majority is 18 in six provinces: Alberta, Manitoba, Ontario, Prince Edward Island, Quebec, and Saskatchewan. The age of majority is 19 in four provinces and the three territories: British Columbia, New Brunswick, Newfoundland, Northwest Territories, Nova Scotia, Nunavut, and Yukon.

Possibly, the spouse could take steps to force a different distribution, for example by electing under the jurisdiction’s family law to treat the death as a legal separation. Though this may be a practical and arithmetically justified step, it can be emotionally tough to come to this decision (in addition to possible social and cultural discomfort the survivor may feel), and even then it will seldom result in all the assets being back with the spouse.

And as challenging as things may be where the surviving spouse is the parent of the children in an intestacy, any conflicts of interest could elevate to conflicts in reality in second marriage and mixed family households.

Supporting your children in vulnerable circumstances

Beyond the matter of transferring property between you as spouses, as parents you also have to think the unthinkable of what happens if you both die, whether at once or in short succession.

Transferring property to children can be complicated. A trustee will be legally required for minors – which you could have done by Will, but which instead will probably require a court order in an intestacy – and even young adult children can use support and guidance. It requires careful thought to decide how best to structure a trust, what powers to give the trustee, how things will be accounted for, and ultimately who is best suited to the job. You missed out on your opportunity to give those instructions if you didn’t make out a Will.

Equally important, such a traumatic time is when children need a stable family structure. You want them to have an emotionally supportive home, surrounded by extended family and a social setting that allows them to build fulfilling lives. To the point, your Will is the last word you can offer on guardianship, so its contents and the conversations leading up to its execution are fundamental to your role as a parent.

Having ‘enough stuff’ is not the criterion

You may feel you don’t own enough to be bothered, but eventually you will (often without you noticing), and sometimes rights and claims arise as a result of an untimely or accidental death. And really, it’s not so much about the things you own, as it is about properly caring for the people you love, particularly those who are financially dependent on you.

Even if you’re young and penniless, think of the parents and the family from which you came. When a child dies first, it can be crushing to parents, whether that child is under their roof or has set out into the world. Such a ‘death out of order’ can be emotionally, socially and even physically paralyzing for parents. A minor child can’t do anything to provide relief in such tragedy, but as an adult you can make a Will to assure that the estate can be managed as efficiently as possible, helping your parents to begin dealing with their grief.

Is it time to revise your Will?

Three prompts to keep your estate planning current

For some people, even the thought of creating a Will casts a pall over their mood. Yes, a Will deals with a person’s death, but the broader process of estate planning is about caring for the most important people in your life. Having an up-to-date Will is central to that process.

But how do you know if you are really “up-to-date”? Realistically, it isn’t feasible for you to constantly adjust your Will, but the three prompts discussed in this article will help you keep on top of any necessary changes.

The purpose of a Will

Estate planning is about taking care of yourself now and in the future. It is also about taking care of the people around you – now, in the future and when you are no longer there.

As much as the phrase “taking care” expresses your values and emotional commitment, it has an equally important practical purpose. With a clear picture of who is the focus of your planning, you’re in position to manage your property to fulfill your intentions during your lifetime, and to prepare for the eventuality of your death – that being when your Will takes effect.

With the benefit of good legal guidance, your Will will be drafted within the boundaries of the law, while anticipating reasonable contingencies. Still, there is nothing more constant than change itself, and that also applies to the people, the property and the law of estate planning.

When to review your Will – The 3 P’s

What then may prompt the review of a Will and thus require a discussion with your lawyer? The potential changes to your circumstances can be grouped into the following three categories, which are listed in order of priority:

1.     People changes

This includes you, a dependent, a Will beneficiary, an immediate family member (whether or not a beneficiary), an executor, or a trustee or guardian.

    • Beginning or end of a close personal relationship, whether or not legally married
    • A birth, adoption, death, mental capacity concern or significant health event
    • Immigration, emigration or change in citizenship, and even a permanent move to or from the province
    • A change in liability exposure, such as a bankruptcy, being joined in a lawsuit, signing a guarantee or starting a business

2.     Property changes

Your Will is used to direct who will receive the property out of your estate, which in turn is the property you own when you die. Changes in the nature, legal title and dollar value of property could affect proportions among beneficiaries, and at the extreme could effectively disinherit one or more of them, intended or not.

    • Sale of a large asset, especially if it is the subject of a specific Will bequest
    • A windfall, such as an inheritance, court award or lottery prize
    • A theft, loss or consumption, including a marked decline in or withdrawal from an investment account, especially for an RRSP/RRIF plan where a beneficiary designation is in place that was designed to coordinate with inclusion or exclusion of beneficiaries in a Will
    • Ownership change or transfer, including loans or gifts to Will beneficiaries, a change to bank signing authority, or the addition of a joint owner on investments or real estate
    • New life insurance, or cancellation or loss of insurance (for example, on retirement from employment) where the plan proceeds or a beneficiary designation were factored into Will planning

3.     Passage of time

Even if you and the property have remained effectively the same, the legal landscape may have shifted beneath you. The principal sources of law are the courts, provincial legislatures and the federal Parliament.

    • Case law – A judge may have ruled in a court case where the strategies, circumstances and or facts are similar to your situation and planning decisions.
    • Provincial law – Changes may be made to legal entitlements or processes. For example, in 2020 Manitoba eliminated its probate fees, and as of 2021 Ontario no longer treats a marriage as revoking a pre-existing Will.
    • Federal law – Changes are regularly made in tax legislation, so there could be developments that could have an impact on Wills, or the administration of estates and trusts.

It is difficult to say exactly how often you should review your Will, but it is commonly suggested that you review it at least every five years. Though the timing of court judgments is somewhat random, political change is more predictable. A sitting provincial or federal government must call an election within five years, and there could possibly be two elections in that time.

Testamentary trust tax changes

Indeed, one of the most significant estate tax changes came about just over five years ago. For decades, testamentary trusts – those created through a Will – were entitled to preferred tax treatment. As of 2016 they are now taxed at the top tax bracket, near or exceeding 50% in most provinces, with two key exceptions:

    • Graduated rate estate – For the first 36 months of an estate, graduated tax brackets apply. However, the rules are complex, and if not carefully navigated, the preferential treatment may be lost.
    • Qualified disability trust – Ongoing graduated-tax-bracket treatment may be available to a testamentary trust with a beneficiary who is qualified for the disability tax credit.

Wills drafted and executed before this development may have included one or more testamentary trusts to take advantage of the tax rules in place at the time. Today, those trusts will have little or no tax benefit and may turn out to be an impediment to efficient estate administration. For those who have benefited from what was good planning in the past, it may be time to call the lawyer and discuss appropriate planning in this new environment.

Estate planning to estate do-ing

Because you don’t have 9 lives to figure it out

Experienced estate lawyers will tell you that estate planning provides people with comfort, confidence and certainty. For some however, the mere mention of it causes anxiety.

Perhaps this comes out of a superstitious belief that by contemplating your mortality, you might somehow bring it about. Or maybe it’s the anticipation of having to deal with tough decisions that may have no clear right or wrong answer, where logic and emotion must be delicately balanced.

Whatever the reasons, it is an area where people tend to procrastinate, and that’s risky both for you and for the people you care about. By instead tackling the process with a constructive mindset, you are able to de-stress it, and can turn it into a positive, reaffirming journey.

A people perspective

Estate planning is more than simply ‘who gets what’. It gives you a chance to think about who you are, what matters to you, and most importantly who matters to you. That means taking care of yourself, both now and in the future, and taking care of the people closest to you: now, in future and when you are no longer around.

Viewed through the principal lens of benefiting people and only secondarily as a distribution of things, estate planning emerges from the cold shadow of legality into the warmth of personal relationships.

As you may expect, this adds complexity to the decision-making, often calling for input from professionals beyond a lawyer alone. Commonly these will be financial professionals, but also may include guidance of a spiritual nature. The key is to have such advice coordinated so that the people are kept in focus, and the ultimate plan is legally sound.

The estate planning process

At least part of the concern for those anxious about estate planning is the prospect of dealing with paperwork. Undeniably, material must be reviewed and documents eventually executed. Along the way, however, there is much to ponder, to appreciate and to learn from. To turn a phrase from Marshall McLuhan – who famously said that the medium is message – here, the method is the message.

The most effective estate planning involves you as a full participant. Just as your lawyer is an expert in the law, you are the expert … in you. Working cohesively, you will be able to uncover what is relevant, gauge significance, prioritize among issues, and explore options.

But the starting point is back with that candid look at where you are now, before you can decide where you are going. In a sense it is that simple, while at the same time not easy. It takes effort.

What’s up (with the) docs?

In due course, that effort leads to the creation of documents that make it clear who is to benefit from your planning, and who has responsibility to carry it out.

Most people are aware that a Will allows you to direct who is to receive your estate property: your beneficiaries – and who is to manage or ‘execute’ the instructions in the Will: your executor. The formal term for an executor varies across provinces, but the duty remains the same. This person is required to manage the property as a trustee who is legally bound to protect the best interests of your beneficiaries.

And while you’re still around to enjoy that property yourself, you can name someone as your attorney – meaning a decision-maker – to manage it for you if and when you can’t. Similarly, you can name someone to make personal decisions if you are incapacitated, like where you live, when you receive health care, or how you give medical consent. Again, the formal terms vary by province. The key point is that your decision to prepare these documents does not affect your ability to decide for yourself, but rather shares authority with someone you trust.

Shortcuts, and short circuits

Once you are confident that the intended plan fits your needs, your attention may turn to cost savings. But take care that you don’t short-circuit that plan in pursuit of a financial shortcut.

The classic cost savings target is the probate fee or tax, with each province once again having its own terminology, processes and costs. It ranges from a small filing fee of a few hundred dollars, up to about 1.5% of the value of estate assets.

Familiar techniques to reduce probate include keeping beneficiary designations on life insurance and registered plans current, holding property in joint ownership with right of survivorship, and making gifts to people now rather than later. While each of these may result in reduced probate tax, they are not without their own costs and potential drawbacks, so again professional advice is critical.

Getting it all going

The best of intentions can be the worst of planning if you don’t get started. That’s what’s meant by the title of this article, going from estate planning to estate do-ing. Make the commitment to consider and record what you have, who you care about, and how the two intermix.

While you are not required to use a lawyer, it’s the best way to be confident that you are operating with current legal information, guided by a professional who has the necessary expertise and experience. If you don’t know a lawyer, check with the referral service of the provincial law society regulating lawyers, or get a recommendation from someone whose professional opinion you respect.

Once underway, be sure that your lawyer is aware of all your professional advisors so their input can be included where and when appropriate. As well, to the extent that you are comfortable with it, it can be helpful to communicate with your family and others you care about that you are actively working on your estate planning. The decisions are yours to make, but their perspectives can help you determine if your plan will (or should) carry out as initially intended, or if adjustments may make sense.

Finally, once you have put the planning into place through the decisions and documents, you need to monitor it. That runs along three lines:

    • A prudent course is to schedule a follow-up with your lawyer no more than five years down the road to check whether changes in the law or other events outside your control might affect your plan.
    • As well, having made an inventory of your property, you will now have a better sense of the implications if there are changes to it.
    • Lastly, and most importantly, if there are changes in the people or your relationships with them, it may be time to revisit things to be sure you are taking best care of you and the people who matter most to you.