A lot of people think they don’t need a will. Wrong.
That’s one of the most common misconceptions around estate planning, according to Pamela Earle, a lawyer in St. John’s, Nfld. “If you don’t, under the laws of intestacy, your assets will be distributed according to the government and not the way you want,” says Earle, who specializes in wills and estate planning at the law firm of McInnes Cooper.
Maybe you want your wife to inherit your assets with nothing passing to your children until her death. If you die without a will, you should know that most provinces will divide the estate between the surviving spouse and all children. Although the strict formulas used to calculate such divisions may vary by province, the first $200,000 might go to your spouse, for example, with the remainder split 50-50 between your spouse and an only child. Or there may be a one-third/two-thirds split between spouse and several children.
“People tend to think that a spouse automatically gets everything, but that’s not true,” says Earle. (And contrary to popular belief, the government only takes the estate if you die intestate with no living relatives.)
Having a will is especially important in the case of common-law unions. “Under the laws of intestacy, a common-law spouse takes nothing,” says Susannah Roth, a wills expert with O’Sullivan Estate Lawyers in Toronto. Even a common-law spouse with whom you’ve shared an abode for many years and had several children will have no standing. Without a will, your estate will go to the kids.
Minor children are also a concern in intestacy. Quite apart from the unresolved issue of guardianship in the absence of a surviving parent or an appointed guardian, the children’s share of your assets is paid into court and invested on their behalf until they reach the age of 18. “Not only is the rate of return low,” notes Roth, “but the children are also entitled to the entire proceeds at age 18. Most people would want their children to wait longer to have access to that capital.”
And don’t assume that your family knows your wishes for the distribution of your assets and the disposal of your remains, says Roth. “Often, they have no clue.”
“I encourage people to communicate their plans to their loved ones and executors so that there are no surprises after the individual passes,” says Jordan Hardy, a lawyer with MacPherson Leslie & Tyerman in Regina who has seen a steady flow of wills litigation in the past few years. “A significant number of the cases I’m working on could have been avoided by better communication on the part of the testator.”
The right mindset
“I’ll cut you out of my will!” Such utterances may be the stuff of Victorian melodrama, but the punitive sentiments behind them can taint modern will-makers, too. Before you pick up your pen or see your lawyer to set down your last wishes, you should get into an equitable frame of mind. This will ensure that your dependents and relatives are treated fairly and help avoid time- and money-draining legal costs later on. Bear in mind these principles.
1. Leave vengeance to the Lord. It’s never a good idea to use your will to punish people who would reasonably expect to inherit from you. “That’s a recipe for litigation, so consider that beforehand,” says Roth in Toronto. And would you really want your last document to sow dissension among your kin and waste your legacy on legal wrangling?
2. Think outside the box. Probably you want the bulk of your estate to go to your spouse and/or children, but pause before you automatically assign the whole of it to close family. Is there a needy distant relative or a helpful friend to whom a small bequest of money or personal property would make a real difference? A down-and-out nephew? An impecunious friend who shares your interest in art books? Or could that empty spot in a favoured neighbourhood green space use a shade tree?
Before she died, Susan Friedman, a market research analyst in Toronto, added a directive to her will-which originally left all of her assets to her husband-allowing a small cash bequest to be made to an unemployed brother who was convalescing after a life-threatening respiratory illness. It made no difference to her well-off husband, but it was enough money for her ailing brother to take a much-needed winter vacation down south.
3. Be charitable. There are many worthy charities and religious institutions that can make good use of even modest bequests. Your estate will receive tax deductions for posthumous gifts to registered charities, and these will offset taxes on other assets. But, reminds Roth, “it’s even better to make these donations during your lifetime so that you yourself enjoy the tax benefits.”
1. A simple will? Don’t fall into the trap of thinking that you need only a simple will, warns Roth. Perhaps you have an ex-spouse and children by a former union. Perhaps you have assets in other jurisdictions or potentially warring beneficiaries. “Above all, you want to set things up to avoid future litigation,” says Roth. That’s why precise lawyer-drafted wills are generally a safer bet than do-it-yourself efforts.
2. Who will execute your will? Carefully consider your executors, advises Roth. Think about their age, their organizational ability, their skill with numbers and the amount of time they have to give to administering an estate. If an executor is your contemporary, is she likely to die before or soon after you do? “Have an alternate executor in mind, especially if your first choice is an older person,” says Roth.
“If you want to appoint more than one executor, make sure they get along,” she adds. One man’s will named his second wife and one of his sons by his first marriage as joint executors. By the time he died, the two executors were barely speaking to each other, hampering the administration of his will. “With ongoing trusts, it’s better to appoint a third party such as a trust company or a lawyer,” says Roth.
3. Minimize tax. “A lot of people don’t realize that there are planning opportunities that will minimize tax on your estate,” says Newfoundland’s Earle. Strategies include naming your spouse as sole beneficiary of all your RRSPs and setting up a spousal rollover trust, which gives your spouse access to earnings on securities held in your name. “Your spouse gets the benefit of your portfolio, which is taxed only after the second spouse dies,” she says. You can also set up trusts for minor children and even adult offspring if you have concerns.
4. Major changes. If you are elderly and decide to make major changes to your will, you may need extra documentation of competency to make sure no one claims you did not know what you were doing or were unduly influenced by a particular beneficiary. Sometimes that works for good. After having a minor stroke, an elderly Winnipeg music teacher was persuaded to change her will, leaving her house and assets to her cleaning lady instead of the conservatory where she had studied music. Her family lawyer challenged the change on grounds of incompetency, and the original will was reinstated.
5. Resist pressure. Some relatives may pressure you to reveal what you are going to leave them and may try to influence the distribution of your assets or even demand their share. “This can happen especially if you’re dependent and vulnerable,” says Roth. She advises a person in that situation to keep his own counsel and tell the importunate relative he’s still considering the best way to divide things but all will get their fair share. “If you know a beneficiary will be unhappy with your will, discuss with your legal adviser how to prevent that person from derailing your plans.”
6. Remember to make a living will. You should give power of attorney to a trusted individual who can make health-care decisions on your behalf in case you become incapable of doing so. The emphasis is on “trusted.” One Toronto man gave power of attorney over his end-of-life care to his son not his spouse, because, he said, “she had insisted on keeping an old family dog alive too long!”
7. Keep up to date. Review your will and estate planning periodically to ensure it is realistic in terms of your current assets, executors and the needs of your beneficiaries.
Typical costs for wills
Costs can vary greatly by city, the size of the law firm and the complexity of the assets and beneficiaries. But a lot of the time, wills and living wills are not as expensive as you may think.
Handwritten holographic will: $00Stationary-store or online will kit: under $30Simple “law shop” will: $99Simple law-firm-drafted will that includes a living will: $500Complex will with power of attorney, varied assets, trusts, different jurisdictions and multiple beneficiaries: $1000 plus