This article has been compiled from “Creating a Will that accurately reflects your wishes,” featured in Perspectives Volume 1, Issue 2, Fall 2011 (page 4), and “When should you review your Will or estate plan?,” featured in Perspectives Volume 2, Issue 1, Fall 2012 (page 2).
Consider these facts: among Canadians of all ages, almost half do not have a Will, and among younger individuals (aged 27 to 34), that percentage jumps to 88 percent. Yet, when it comes to wealth transfer, over half of individuals intend to pass on the entirety of their wealth through their estate at death.1 These statistics are a clear indication of the disconnect between intentions and formalized plans that exists for many Canadians, with many overlooking or lacking awareness about the centrality of having a valid and up-to-date Will. While there are a range of reasons individuals neglect creating a Will — for example, assuming they are too young, pushing it aside for other priorities, or feeling uncomfortable looking ahead to their eventual passing — it’s crucial to recognize a Will’s functionality in ensuring an individual’s wishes and intentions are properly documented and ultimately carried out. From an age standpoint, while many individuals associate the creation of a Will with middle or later phases of life (which is now coming to the forefront as more of the Canadian population shifts into their senior years), turning a focus to Will and estate planning holds a high level of importance for adults at every life stage.
Understanding Will basics
Generally speaking, Wills can be considered the guiding legal document in the administration of an estate, in which individuals express their wishes as to how property and possessions are to be distributed at death. Many individuals unfortunately make the assumption that if they were to pass away without a Will, their estate would pass to their spouse. The reality, however, is that those who pass away without a Will are said to have died “intestate.” In simple terms, dying intestate generally means your estate will be administered pursuant to the provincial or territorial intestate legislation based on where the individual resided at death. Each province and territory has intestacy laws that define the estate’s beneficiaries and their estate entitlement. In other words, for those who either don’t have a Will or have one that’s outdated, all of the time, resources, work and planning to build and preserve an individual’s wealth can quickly unravel, negatively impacting the intended wealth legacy and potentially leaving a strain on family and loved ones.
Beyond the basic drafting of a Will, there are a few common missteps some individuals make within this area of planning. While many may give thought to “big picture” considerations, it’s likewise important to walk through the practical aspects and details, as well as considering the potential impact certain decisions will have on family members and the estate in general. As such, taking the appropriate steps to put a valid Will in place is a great starting point, but individuals also need to ensure it accurately reflects wishes and intentions in the most effective way.
8 key considerations in Will planning
Planning in advance to avoid potential oversights and urgency
While drafting and finalizing a Will may become more top of mind for some individuals as they near a certain planned life event (e.g. vacation abroad or scheduled surgery), when on the heels of an illness or injury, or as they shift into their more senior years, leaving planning to the last minute often means there may not be time to consider all of the available options. Doing the planning well in advance can eliminate many of the pressures associated with drafting a Will and helps to ensure individuals have the opportunity to examine the full range of potential choices and implement all decisions in accordance with their wishes.
Naming a guardian for minor children
While individuals may not necessarily recognize it in the moment, certain life events during their younger years, such as home ownership and having children, is actually a time when having a Will takes on a heightened level of significance. Specifically in regards to minor children, a Will provides the legal means for parents to identify who they wish to be a guardian should the unexpected happen. In certain provinces the guardianship appointment needs to be confirmed by the court for it to be effective. The unfortunate reality is that without a valid Will outlining this decision, the government ultimately decides who will raise the children in accordance with provincial or territorial law.
Understanding the tax impact of certain approaches
While individuals may have certain decisions in mind, it’s important to consider what the potential tax consequences will be and how they may impact the estate. This is especially important to help ensure equality among beneficiaries. What may seem like an equal distribution may not end up that way once tax implications are factored in. For example, if a cottage is left to a family member, that individual will receive the property but any tax payable as a result of the deemed disposition at death will be payable by the estate (which could ultimately affect what other beneficiaries receive from the estate).
Ensuring executors and trustees are capable and co-operative
The role of an executor, or liquidator in Quebec, is to administer your estate in accordance with your Will and/or the governing provincial or territorial legislation. Family members or close friends are commonly a preferred choice for these roles, but dynamics should be taken into consideration, especially when individuals opt for co-executors or co-trustees. Oftentimes, the decision for who will fulfill these roles takes place in isolation, without proper attention given to who is best qualified to take on all of the associated duties, who they will need to be in contact with and in what capacity or whether it may create friction or resentment. When individuals can’t work well together, this may increase the likelihood of conflict, delays and unnecessary expenses in the estate administration process. For more information on choosing the right executor, please view the accompanying article “A matter of informed choice.”
Factoring in your beneficiaries’ spouses
While everyone’s family circumstances and dynamics are different, some individuals may wish to consider the potential that a gift to a child may end up in the hands of a daughter- or son-in-law. In general, there are two scenarios to consider here. First, if an inheriting child were to pass away shortly after the parent’s death, the inheritance could pass to the child’s estate, which means the asset could pass to their surviving spouse. In this situation, a “survivor clause” in which the beneficiary must survive you for a specified time period in order to inherit may be an option to consider. Second, it’s important to understand how a child’s inheritance may be impacted in the event of a marriage breakdown under the governing provincial or territorial legislation.
Considering assets that will pass outside of the estate
As part of putting together a Will, individuals should do a review of which assets will pass outside of the estate. This is also a point to keep in mind for updating a Will — if you decide to transfer an asset during your lifetime or make changes to an asset’s structure (changing it to a joint account with right of survivorship, for example) that had previously been included in your Will, this would likely necessitate an update to the Will document. As well, ensure that any beneficiary designations made on registered assets are consistent with your Will and estate planning objectives. Any inconsistencies could result in a conflict among your heirs.
Leaving assets to the surviving spouse
In any situation where a surviving spouse has not been provided for in a Will, he or she may be entitled to make a claim against the estate for support (the amount and the duration vary by jurisdiction) under the applicable provincial or territorial law. Even if this is done inadvertently, this oversight means the family and the estate could be exposed to the costs, delays and stress of taking legal action to address the situation.
Naming beneficiaries to receive the residue of the estate
Depending on circumstances and the complexity in planning how assets will be distributed, some individuals overlook how the remaining residue of the estate will be distributed. Generally speaking, “residue” is the assets remaining after payment of debts, taxes and other expenses incurred in the administration of the estate and after any gifts of specific assets or sums of cash. Much like not having a valid Will at all, if beneficiaries aren’t named to receive the residue, the leftover assets could end up being distributed in accordance with the provincial or territorial rules of intestacy.
Note: This list of considerations is non-exhaustive and may not necessarily apply to your individual circumstances. As such, it is crucial to consult with qualified legal, tax and estate professionals to ensure your situation and needs have been appropriately accounted for.
When to review and revise a Will
Once individuals have created a Will, it’s equally important to ensure it remains updated and continues to accurately reflect wishes and intentions. Outside of specific life events, a good rule of thumb is to do a review of your Will every three to five years. Further to a routine review, however, the following are some situations and events that may impact a Will or the decisions made within it.
- Marriage, divorce or re-marriage
A change to marital status marks one of the most important times to update or prepare a new Will. This is because in many provinces and territories, marriage cancels any previous Wills. As such, if someone remarries and were to pass away before preparing a new Will, their estate would be treated as if they died intestate. Updating a Will after a divorce or even separation is also crucial, as these events do not cancel existing Wills in many jurisdictions.
- Changes to financial position
While mid-life is generally a good time to revisit your Will to confirm decisions still align with your current circumstances, shifts in financial position at any life stage should also be a catalyst for reviewing plans. For those whose net worth has increased significantly since drafting a Will, there may be new assets that need to be accounted for, changes in how to equalize beneficiaries, or new planning opportunities available to limit tax implications.
- Death of a life partner, executor or beneficiary
While updating a Will may be the last thing on an individual’s mind following the death of a loved one or close friend, addressing these life changes in a timely manner will help decrease the chance of having estate administration issues down the road. The death of a spouse or life partner usually necessitates an update to an individual’s own Will, and if the late spouse is named as executor or as a beneficiary in any regard, the corresponding documents also need to be revised. If your executor passes away, changing a Will as soon as possible is crucial to ensure you maintain both a primary and alternate person for this role. Additionally, if one or more of your beneficiaries dies, the Will and any other estate-related documents should be updated to reflect a new primary and alternate beneficiary.
- Acquisition of foreign property
When purchasing a foreign property, a range of estate-related factors and their resulting consequences need to be considered. From a Will perspective, individuals need to determine if their Canadian Will (and Power of Attorney) is valid in the jurisdiction where the property is located. In some instances, a second Will may be needed.
- Change in province or country of residence
Every jurisdiction has its own laws and requirements pertaining to Wills, so it’s crucial to consult with a qualified legal and tax advisor to ensure both your Will and estate plans are valid when you relocate either within or outside of Canada. Additionally, individuals should also confirm that their choice of executor and trustee, if applicable, are also still valid.
- Changes to legislation
It is beneficial for individuals to stay up to date on legislative changes, as federal and provincial laws can have a significant effect on estate planning and taxation. Here again, it’s imperative to consult with a qualified tax and legal advisor to determine the impact of any changes on your personal situation and how that may ultimately impact the decisions and intentions documented in your Will.
Individuals should always ensure executors and beneficiaries either have a copy of the Will or know where it is stored. Additionally, it is crucial to keep your executor up to date anytime there is a change to your Will, or if you have created a new one, to help avoid delays and prevent unnecessary confusion or stress when it comes time for them to fulfill their role.