Why do I need a will?

Anyone who has a spouse or children, or is simply concerned with how his/her property will be distributed after his/her death should make a will. There are “do-it-yourself” kits and software packages available in most office supply stores; however, we recommend getting the help of a legal advisor if your estate is anything other than simple. Bear in mind that what you may assume is a simple estate may have legal complexities that cannot be properly addressed without legal advice.

The estate of someone who has sizeable assets and dies intestate can be complicated, and may demand going to court before the assets can be distributed. Without a will, personal property (anything other than real estate) will be distributed according to the intestacy laws of the province in which the testator was domiciled when he or she died. Real property will be dealt with based on the intestacy rules of the province in which the property is located. Minor children will be placed under the care of a guardian appointed by the courts. If some family members have special needs, they may not receive the same priority by the courts as the testator might wish.

Without a will, you cannot appoint the person who will take care of your estate – the court will make the choice for you.

The time taken by the court to appoint an administrator to act on behalf of your estate will cause a delay that could trigger cash-flow problems for your heirs. Keep in mind that until an appointment is made, no one has the legal authority to touch your estate.

Dying intestate can result in needless taxation and possibly estate administration fees, especially if you neglected to do any estate planning. This results in less of your estate going to your beneficiaries, and more to the federal and provincial governments.

EXAMPLE

Albert was 52 when he was killed in an accident. He left a wife and two children and an estate valued at $700,000. Albert and his wife Olga were joint tenant owners of their home in Toronto. Albert had neglected to make a will. After Albert and Olga had married, Albert had thought about naming Olga as the beneficiary on his RRSP and changing the beneficiary on his life insurance policy from “Estate” to Olga, but had never followed up.

Because of the joint ownership, Olga becomes the sole owner of the family home, worth $575,000. For the same reason, Olga also becomes sole owner of the joint bank account (which has a balance of $5,000). Instead of Albert’s RRSP being rolled into an RRSP for Olga as the surviving spouse, a special election would have to be filed to permit the RRSP to be transferred tax-free to her. The life insurance policy is redeemed and the $50,000 forms part of Albert’s estate. Although the $50,000 is not subject to income tax, the RRSP and the proceeds of the life insurance policy are included with Albert’s bank accounts, and other personal assets in the calculation of estate administration tax.

Additional court costs for naming an administrator to handle the estate further reduced its value. If Albert had done some estate planning and prepared a will, Olga would have inherited everything directly and avoided the additional court costs, as well as probate fees.

What if I die without a will (intestate)?

If you die without a will, your spouse is entitled to receive preferential share, $200,000 in Ontario. The preferential share is the amount that would be distributed to the spouse before any other calculations are made. The spouse would also be entitled to receive 1/3 of the remaining assets, with the rest divided equally among children.   

What should be in a will?

A will must clearly state the intentions of the testator in language that is easily understood by those responsible for administering the estate. A confusing will can be as ineffective as no will at all. Even simple instructions can take a number of pages to be expressed in correct legal terms. It’s impossible to describe here the clauses that could be relevant in every case since every individual’s situation is unique and requires “custom” advice. For information purposes only, here are some commonly used will clauses.

IDENTIFICATION AND REVOCATION

• • Identifies you and often your domicile. (Your usual residence called “domicile” by the court decides under which provincial laws your estate will be administered.)
  • Declares that this document is your last will and that all prior wills and codicils      are revoked (may not be included in situations of multiple wills).

APPOINTMENT OF ESTATE TRUSTEE(S) / EXECUTOR(S)

• • Designates the individual(s) or institution(s) you appoint as your estate trustee, either individually or as co-trustees.
  • A successor or alternate trustee may also be designated to act if your original choice of trustee is unable or unwilling to accept the responsibility.

PAYMENT OF DEBTS, TAXES AND FEES

• • Instructs your trustee to pay all debts (mortgages, loans, funeral and estate administration expenses) out of the estate.
  • Authorizes your trustee to pay income taxes or probate fees that may be payable.

SPECIFIC BEQUESTS

• • Details the distribution of specific personal property to specific beneficiaries.

LEGACIES

• • Details the distribution of specific cash amounts.

LIFE INTEREST CLAUSE

• • Leaves someone the income or the use and enjoyment of an asset, but not the ownership of the asset itself. On the death of the person holding the life interest (called the life tenant), the asset would pass to another beneficiary, chosen by    you, and identified in your will.

TRUSTS

• • Sets out the terms of any testamentary trust(s) (i.e., a trust created on the death of the testator) created by your will.

ENCROACHMENT CLAUSE

• • Used in a trust if you want the trustee to be able to give the beneficiary of the     trust additional funds for special circumstances or needs.

RESIDUAL ESTATE

• • Details the distribution of your remaining property after all of the specific          bequests have been made and all legacies have been paid.

COMMON DISASTER / SURVIVOR CLAUSES

• • Details the distribution of the assets if intended beneficiaries die at the same         time you do, or do not survive you beyond a set period of time (often 30 days). Also details the dispersal of assets if intended beneficiaries die before all trusts are terminated.

GUARDIAN APPOINTMENT

• • Names the individual(s) whom you appoint as guardian(s) for your minor children. (In Ontario, this is an appointment valid for 90 days, after which the court determines what is in the best interests of the children.)

POWER CLAUSES

• • Empowers your estate trustee(s) to exercise various powers (choice of investments, decision-making powers, etc.) in the management of your estate without having to obtain court approval.

TESTIMONIUM AND ATTESTATION

• • Formally confirms that you have read and understood the contents in the will, records when and where the will was signed and that witnesses were present at    the time you signed the will.

What makes a will valid?

There are certain requirements to ensure that a will is valid. Generally the testator cannot be under the age of majority and must have the mental capability to understand what he/she is doing (“of sound mind”). The testator must sign the will in the presence of two witnesses who are neither beneficiaries of the will nor spouses of beneficiaries. These two witnesses must sign the will in the presence of each other and in the presence of the testator.

A will may also be valid if written entirely in the handwriting of the testator (not on a computer). This type of will (called a holograph will) requires only the signature of the testator. No witnesses are required. This type of will is not recognized in all provinces.

How to make a minor change to your will?

A codicil is a document that is executed and validated like a will. It can amend a will by revoking or changing an existing clause, or adding a new clause. Just like a will, a codicil is dated and must be in the testator’s handwriting, or must be signed by the testator in front of two witnesses. If many changes are being made, one should draw up a new will rather than repeatedly amend the old one.

Beware of family law issues

In some circumstances, your estate or the succession may not be divided exactly as you wanted. All provinces have family law legislation (family patrimony in Quebec) that deals with the division of assets acquired during a marriage in the event of its breakdown. The legislation may also extend to the division of assets on the death of one spouse. In Ontario, the surviving spouse is entitled, broadly speaking, to one-half of the increase in value of assets accumulated during the marriage (with some exceptions). If the deceased spouse’s will provides less than this to the surviving spouse, he/she may, by law, demand an equalizing payment from the estate. Other provincial laws may allow a spouse, child or other close family member who was financially dependent on you during your lifetime continued support from your estate, even if you intentionally omitted that person from your will.