Do you have will power?
Contrary to what some people believe, preparing a will doesn’t mean preparing for, or inviting, premature death.
It does mean having to think about your death. And that in itself may be the reason why almost half of Canadians don’t have a will.
Most of us have plenty to gain from a properly prepared will and a lot to lose by neglecting to plan this aspect of our lives.
For instance,people who feel it’s important to help family, friends and community throughout their lives may use their wills as a means of continuing the good work after they’re gone.
A will can accomplish such diverse goals as:
- Funding an education for a teenager
- Making sure a good friend knows how much you care
- Ensuring your community hospital continues to thrive.
Problems of no will
Die without a proper will and a good portion of your assets could evaporate in taxes and legal fees. There could also be some serious and unexpected financial outcomes for your loved ones.
- If family law dictates your children get hefty pieces of your estate pie, your spouse could be left with much less th you’d anticipated.
- Similarly, your spouse could be denied access to money until the courts appoint an administrator for your estate.
In the worst cases, the consequences for your husband, wife or partner could be as dire as not having enough cash to cover day-to-day expenses or being forced to liquidate treasured heirlooms or other key family assets.
What’s more, although they’re slowly being aligned with family law, the rules for people in common-law relationships – including same-sex couples – tend to be less clear. Legislation in this area is evolving so it may be especially important to protect your partner by addressing specifics in your will.
Next page: Family law applies
Family law applies
No doubt, the consequences to your heirs if you die without a will can be serious. However, two myths surround the scenario of dying intestate, that is, without a will:
- The government will grab everything
- All your assets will automatically pass to your spouse.
In reality, the government becomes the sole beneficiary of your estate only if you have no next of kin, not even a nephew.
And although your spouse has certain rights to your property, he or she won’t inherit everything, if you have other dependants, for example.
Family law generally governs how your estate is divided should you die without a will, and these rules vary by province and territory. However, in practice, all follow a similar pattern of protecting the dependants of the will-maker, generally assigning precedence by closeness of family tie. The built-in protections are similar.
“While every province is different, they all make provisions for the surviving spouse and children,” says Timothy Matthews, an estate lawyer in Halifax.
Nonetheless, you should consider whether you really want the government dictating how your assets are divided.
Giving away assets
Granted, a will isn’t the only way to ensure specific assets go to certain people. The simplest solution is to give away the assets to the right people during your lifetime.
Especially if you’re considering giving money, key issues include:
- Ensuring you’ve looked after your own needs adequately (that is, you haven’t given away too much)
- You’re aware of relevant income attribution rules.
These rules generally depend on the type of income generated by your gift and your relationship with the person receiving it. For instance, as long as you’re alive, the tax on interest income earned by a large gift of cash to your spouse would be attributed to you.
As well, by designating a beneficiary directly on certain assets, such as your RRSP or a life insurance policy, you can bypass the estate and avoid probate.
Joint ownership benefits
Joint ownership is another possible strategy for bypassing probate. Jointly owned bank and investment accounts, for example, automatically pass to the surviving owner when you die.
Note that these assets must be designated “joint assets with right of survivorship.” If you choose the joint ownership route, be aware of some untidy situations that can arise.
For instance: (
- Look out for any conflicts with what’s stated in your will. Assets you own jointly with one person can’t be left to someone else you name in your will
- Be aware of the power this type of arrangement gives the joint owner even while you’re alive. You no longer have complete control over the bank account, home or whatever the asset.
Next page: What is probate?
What is probate?
Canada has no estate or inheritance taxes, but death still has its costs. For one thing, a fair chunk of your estate could go to paying taxes from the deemed disposition of your property. (When you die, the government deems that you have disposed of all your assets, and tax would be due on any realized gains.)
The other direct tax related to your death is probate.
Probate refers to the legal process of validating a will. A probated will allows the executor to deal with any third parties, including banks and other financial institutions, in settling the estate.
Only the simplest wills – for example, one in which all the assets are in the hands of executor and for which there are no outside parties involved – can avoid probate. (Note that, in Quebec, notary-prepared wills do not require probate.)
For probate, the executor must submit an original of the will and a list detailing the components or at least the value of the estate to the courts in the province or territory where you last lived.
How long the probate process takes depends on the complexity of the estate as well as on how easily your executor can access all the necessary information. Provided everything is in order, probate can be accomplished in a matter of weeks.
Probate tax is the fee charged by the government for its work. In most provinces, probate tax rates are based on gross value of the estate.
Alberta calculates probate tax on the net value – after debts owed by the estate have been paid – and has the lowest rate of all provinces and territories.
Ontario, which charges $5 per $1,000 for the first $50,000 and $15 per $1000 on amounts over $50,001, and British Columbia are the most expensive provinces in terms of probate taxes.
The cost for a will drafted by a lawyer usually runs between $100 and $500, depending on its complexity. Although there is no legal requirement that you have a lawyer draw up a will, it’s strongly advised, particularly if your estate is large or complex, and/or you’ve had more than one marriage.
If you choose to do it yourself, you can create your will in a variety of ways.
Wills that are completely handwritten by the will-maker and aren’t signed by witnesses are known as holograph wills. They are valid in some provinces but, in general, they tend to be incomplete and are not recommended.
For years, there have been do-it-yourself will books and kits, and now there are software packages and Internet sites that invite you to create a will with the click of a mouse. This approach may be better than no will at all, but a do-it-yourself strategy has its shortcomings.
“I like to use the analogy of doing a will yourself to doing your own electrical work,” says Matthews. “If you’re just changing a light bulb, you can do it yourself. But if you’re installing an electrical box, you need to consult an expert.”
The danger in creating your own will is that your instructions might be misunderstood.
“There have been many, many reported cases of ambiguity with do-it-yourself wills,” says Matthews.
“The courts throw up their hands and say they have no idea of what was intended. The whole will, or part of the will, could be rendered invalid.”
As well, depending on your personal circumstances, a standard will kit might not address all your personal concerns. The cost of having a lawyer draw up your will can be a bargain when you consider that skimping by doing your own will could mean your beneficiaries end up hiring an army of lawyers to settle your affairs.
Whatever format you choose, certain conditions must be met for your to be valid:
- It must be signed by you and, except for holographic wills, by two witnesses
- Each must see the others sign
- A witness can’t be a beneficiary of the will and must be an adult of sound mind
Make it accessible
Only the original of your will is binding so, no matter how carefully drafted, your will is useless if the original can’t be found when it’s needed. You can have your lawyer safeguard this important document or you can take responsibility for storing it yourself.
The most important thing is to store it where it won’t be lost or damaged and will be easily accessible. Keep it in a safety deposit box only if someone you trust has authority to access it or you are certain the bank will let your executor retrieve it upon your death.
You may want to keep the details of your will confidential while you’re alive but let your executor as well as someone close to you know where to find the original will.
Changing your will
As a rule of thumb, say some experts, you should review your will every five years. But a better rule might be to review your will as necessary. Life events – illness, deaths and births affect your plans. And jobs, friendships and the value of your estate all change. These are the best incentive for reviewing your estate plan and your will in particular.
As well, differing provincial legislation makes it important to review your will if you move from one jurisdiction to another.
Minor alterations to your will (an amendment is called a codicil) can be made inexpensively.
A will can be cancelled or revoked by destroying it or by drafting a new one that specifically revokes the old one. There’s another reason you might need a whole new will.
“In many provinces, marriage revokes a previous will,” warns Matthews. When you marry or re-marry, draw up a new will as soon as possible. An important distinction is that divorce does not nullify an existing will.
“Even if there are no big changes in your life, tax laws change all the time and your will should reflect those changes,” says Matthews.
An up-to-date will is the best way to have the final say.