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Will, why & how?

Reasons for Making a Will

A will is a legal declaration of how a person wishes his or her estate (property and possessions) to be disposed of after death. The person who writes the will is the testator (male) or testatrix (female). The executor (male) or executrix (female) is the person appointed by the testator to carry out his or her wishes after death. The executor is responsible for disbursing the belongings to the beneficiaries, as well as managing the estate after the testator is gone.

It is important that you make a will for the following reasons:

• To ensure that your bequests (gifts) are passed on to the proper person(s)

• To avoid leaving your relatives with costly paperwork and lawsuits after your death

• To allow you to choose appropriate individuals as your child(ren)’s adoptive parents or guardians

• To prevent your estate from going to the provincial government

Legal Representation

When drawing up a will, it is not necessary to retain a lawyer unless you are:

• About to be married;

• Separated or are in the process of getting divorced;

• The owner of a large, complex estate;

• Very old or suffering from mental or physical disabilities;

• Not of legal age;

• Born or married under a community property system (Quebec and Washington State residents);

• Involved in a common-law or same-sex relationship;

• The parent of a child or children born out of wedlock whom you are not supporting;

• Residing in a province or country in which you are unsure of the regulations (different Jurisdictions have different rules regarding the validity of wills);

• The owner of real estate outside your province or country of residence;

• Disinheriting a child or spouse; and/or

• Concerned or unsure about the particulars of your will.

Rules and Recommendations

There are certain rules by which you must abide to ensure that your will is valid and may be upheld in a court of law. Since you have no control over this after your death, make sure you are acting within the laws of your province when you make your will. The following are basic rules and recommendations:

▪ Format

Your will must be handwritten, word-processed, or typewritten (not tape-recorded or videotaped).

▪  Residency clause

This is a simple statement that includes your full legal name, address, and province. It is used to establish which province’s laws should apply.

▪  Previous wills

The new will should have a clause revoking all previous wills and codicils.

▪  Witnesses

You must sign your will in the presence of two witnesses who are of legal age and sound mind. The witnesses cannot be beneficiaries named in the will, nor can they be family members. It is also recommended that both you and the witnesses initial each page of the will.

▪  Survivorship

You should state in your will that any executor or beneficiary who dies within a certain number of days after your death is considered not to have survived you, and designate alternates. The number of days is discretionary, but should be short. Thirty days is usual.

▪  Executor/Executrix

Make sure the executor or executrix knows where to find your will after your death. It’s also a good idea to appoint someone young enough to outlive you. An alternate executor or executrix should be appointed in case your initial choice is unable to fulfill the responsibilities of the role.

▪  Guardian

Most people name their spouses as guardians for their children. It is important, however, to name an alternate guardian in case both you and your spouse die at the same time. If you do not name your spouse as guardian, you should still name an alternate individual to act as guardian in the event that the initial choice is unable or unwilling to do so.

▪  Storage

Store your will in a safe place such as a safety deposit box.

▪  Revision

Review your will periodically. Update it by adding a codicil, or write a new will if necessary.

▪  Proofread

Before signing, read your will carefully to ensure that all dates are correct and that names of beneficiaries and executors are correctly spelled. Ensure that beneficiaries named in your will are identified not only by name but also by their relationship to you or their occupation, as well as address.

▪  Updating Your Will

You should read your will at least once a year to make sure it’s current. It is easier to add a codicil than to write a new will. A codicil is a legal amendment to your will that allows you to make changes or additions (Make sure you specify which clauses you are changing). The codicil is a separate sheet of paper added to your will that must be signed by you in the presence of two witnesses and by each witness as well. Never write on your will once it has been signed, as it will automatically become null and void. You may find it necessary to add a codicil to your will because of:

• A change in tax laws,

• The birth of a child or grandchild, or

• The death of a beneficiary or a named executor.

Preparing a New Will

There may come a time when it is necessary to write a new will. When writing a new will, you must revoke the previous will. The law considers a will invalid if:

• It has been tampered with or destroyed,

• You were married after the will was drawn up, or

• You write a new will to replace it (provided the executor is aware of the existence of the new will and knows where to locate it upon your death).

You should prepare a new will if your situation changes in one or more of the following categories:

▪  Financial situation

If there is a change in your finances, for better or for worse, you should review your will. If you acquire new property or sell property, it is a good idea, at the very least, to add a codicil. If it is a major change, you should draw up a new will.

▪  Tax laws

Laws frequently change, so keep informed of any changes that may affect your will.

▪  Beneficiaries and executors

You may outlive your executor or beneficiaries, or you may no longer want to include them in your will.

▪  Marriage

Marriage automatically revokes a will, so draw up a replacement as soon as possible after you marry or re-marry.

▪  Children

Writing a new will provides protection and security for any new additions to the family.

▪  Divorce/Separation

Keep in mind that a divorce does not automatically revoke a will but it does revoke a bequest to an ex-spouse or appointment of an ex-spouse as executor or trustee.

▪  Moving

If you move to a new province or country, you will want to explore the laws governing your new area. The changes may be minor enough that you may add a codicil instead of drawing up a new will. Consult your local legal community for advice.

Choosing an Executor or Executrix

The executor or executrix is your personal representative. After your death, the executor’s job begins. When choosing an executor, understand the amount of responsibility that you are entrusting to this person. The following are basic guidelines to consider when choosing your executor:

Choose someone who is a resident of Canada to avoid possible income tax problems due to the estate being classified as a non-resident estate. To avoid any legal confusion and for convenience, it is best if the executor resides in the same province as you. Inquire into your provincial laws if you want to appoint someone outside your province.

• Select someone who is reliable, trustworthy, and responsible enough to handle your affairs.

• Choose an executor who you expect will outlive you.

• Make sure the person you choose is willing to serve as your executor.

• Choose an individual who is of legal age and sane mind, and who has not been in trouble with the law.

• Name an alternate executor in case your first choice of executor is unable to take on the responsibilities.

Executor’s Responsibilities

The executor’s job is not simple. Sorting out a person’s estate can take a great deal of time. The executor has a limited amount of time (within one to three years) from the date of your death to complete all that is outlined in your will. You should have all your papers in order to help make your executor’s job easier. The following is a simplified list of the duties the executor will need to complete following your death:

• Make funeral arrangements

• Locate and verify will

• Locate and review life insurance policies and advise the insurance companies of the death

• Notify people (i.e., institutions, joint owners, beneficiaries)

• Locate, inventory, and determine the value of all assets

• Gain control, insure, and protect the assets

• Transfer assets from your name to the name of the estate

• Complete probate application

• Set up an estate bank account

• Publish a notice to creditors

• Pay off debts in your name

• Set up a trust fund, if required

• File tax returns, pay taxes, and obtain a tax clearance certificate

• Find beneficiaries and distribute bequests

Executor’s Powers

The powers that you give to your executor grant him or her power of decision making outside the limits you have stipulated in your will. When writing your will, you are simply unable to foresee the potential problems that may occur during the distribution or management of your estate. Furthermore, the law can restrict the powers of your executor, so it's often a good idea to specify in your will that your executor will have certain powers beyond those normally granted by provincial law.

For example, you may want to consider giving your executor the power of resolution of disputes, so that he or she may have legal recourse if arguments or legal battles erupt over matters of the estate. You may also want to give your executor the power of employment of agents, so that he or she may hire a trust company, lawyer, accountant, or other professional if the administration of the estate becomes too difficult.

The power of realization and sale can be especially useful. It allows the executor to determine the appropriate time to sell properties, instead of liquidating assets and distributing the money as soon as possible after your death. If the market is bad or the executor can’t get a good price right away, your beneficiaries will be glad to have this power in place.

Trusts

Trusts are usually set up for the benefit of minor children or people under a mental or physical disability. A trustee is appointed to handle the beneficiaries’ assets until they come of age, are capable of handling their own affairs, or until the end date specified in the will.

Trustee

A trustee and an executor are not always the same person; whether you choose to have one person fulfill both functions and a separate individual for each depends on the complexity of your state and on how much responsibility you would like to give to your executor. If you choose the after, then understand the responsibilities of each person. The executor handles the distribution of the estate and will pass on the amount designated to the trust. The trustee’s responsibilities last much longer than those of the executor. When choosing a trustee, consider the same basic guidelines as you would when selecting an executor. Some factors to consider when setting up a trust include the following:

• Trust funds must be properly managed, as they can last for a long period of time.

• The trustee’s responsibilities must be clearly specified.

• The trust dates must also be specified (when it begins and ends).

• All beneficiaries should be named.

• Alternate beneficiaries should be named in case a beneficiary dies.

• An alternate trustee should be named.

• The trustee should be permitted to charge a fee for services.

Trustee’s Responsibilities

A trustee can be an appointed individual or a trust company. Trust companies can be expensive, and may not be necessary unless you have a large, complicated estate. The trustee’s responsibilities can be very involved. At a minimum, the trustee can expect to be responsible for:

• Investing the estate’s money in accordance with the province’s Trustee Act;

• Monitoring investments closely, keeping accurate records, and, if requested by family or authorities, preparing reports;

• Filing annual tax returns (trusts are taxable in Canada);

• Making any necessary payments for the upkeep of surviving children;

• Understanding all the clauses in the will involving investments and the trust; and

• Understanding the basic principles of trust law.

Assigning a Guardian

A guardian takes the place of a parent of minor children. Careful consideration should be given when selecting a guardian. Make sure the person is an appropriate individual who is willing to take on the responsibility of raising your children. If you choose to name a guardian who is not your spouse, because you do not wish your spouse to have custody, you should give reasons in the event your spouse challenges the Guardian clause. Be sure to name an alternate guardian who is willing to take over as guardian in the event that your first choice cannot fulfill the role. The following are some issues to consider when choosing a guardian:

• Consider the guardian’s age. For example, leaving your children with their grandparents might not be a good choice due to the grandparents’ age and lifestyle.

• Evaluate the economic situation of the guardian and the estate. The guardian may be unable to afford the time or money needed to raise a child.

• Make sure there is no conflict of religious beliefs.

• Ensure that the guardian holds similar educational expectations for the child.

• Consider any cultural differences or language barriers.

• Make sure the guardian has views similar to yours regarding child discipline.

There may be a need to include special clauses for the guardian concerning:

• The expenses of moving a child into a new home,

• The possibility of the guardian needing to buy a new home or expand an existing home,

• Special health or educational requirements of the child,

• The right to spend income or encroach on capital to provide for the needs of the child, and/or

• Compensation for the guardian in assuming the responsibility of the child.

Beneficiaries

Beneficiaries are the people or organizations named in your will who will receive your assets. They can be friends, family, charities, or anyone you choose. The executor releases the assets to the beneficiaries when all debts, taxes, and expenses are paid.

Bequests

Be as specific as possible when outlining bequests. For example, if you would like one of your children to inherit a collection, specify clearly which child and exactly what collection. The following are some tips regarding bequests:

• Be specific about the particular item and recipient.

• Use clear language that will be easily understood by everyone.

• Don’t use general terms such as "I hope" or "I wish."

• Use as much detail as needed to explain your wishes.

Debts and Taxes

Before your assets can be distributed, your executor must pay your debts from your estate. Your executor must file a Terminal Tax Return and pay taxes owed for the year of your death. A tax return must also be filed for the estate. Income tax is payable on the value of the estate prior to distribution. If the executor fails to pay your creditors, the creditors can sue the executor to recover the amount owed. One way an executor can locate your creditors is through publishing a notice to creditors in the newspaper.

Estate

The estate is everything you own and everything that is owed to you. Estate assets include non-liquid assets such as your house and vehicle, liquid assets such as bank accounts and savings bonds, and also items of emotional value such as family heirlooms, clothing, and other possessions. Don’t forget that your debts are also part of your estate.

Estate Planning

Estate planning is an important part of making a will. By preparing an estate plan, you are able to establish the way in which your estate will be managed and distributed after your death. You can also determine the financial support that your estate will be capable of providing. For example, if you would like to provide funds for your spouse and one underage child for a certain period of time without encroaching on your capital, you will need to plan exactly what funds will be needed and in what amounts they will be distributed. Once you have calculated your net worth, you can then determine the funds available for educational needs, expenses, and life income for your dependants. Your estate plan is not a legal document and it does not take the place of a will, but it is a vital element in resolving the dispersal of your estate. Along with your will, you should review and update your estate plan yearly. 

Residue of Estate

The estate residue consists of any remaining assets after all specific bequests and devises have been made. It also includes any specific bequests that cannot be carried out for whatever reasons (e.g., the death of a beneficiary). Be sure to specify in your will to which beneficiary you would like to leave the residue.

Joint Assets with Right of Survivorship

Having joint ownership of property with right of survivorship means that you and your partner simultaneously own the entire asset. When one of you dies, the surviving partner owns the asset no matter what your will says. Joint assets can be your house, bank accounts, term deposits, savings bonds, and guaranteed investment certificates. Anybody can own assets jointly — not only married couples or business partners.

Designated Beneficiary Assets

A designated beneficiary is the person whom you choose to be the recipient of assets such as RRSPs, RRIFs, LIRAs, employee pensions, and life insurance. Designated beneficiary assets are given to the survivor you named when you bought the asset, regardless of the will’s instructions.

Tenancy in Common

This is different from joint ownership in that each of the buyers owns a portion of the title. If your partner predeceases you, his or her share does not go to you. Instead, your partner’s share will automatically go to his or her heirs. This gives you a new partner to the property whether you want one or not.

Probate

Probate means the executor is giving proof to a judge that this is the deceased person’s last will. The executor doesn’t necessarily have to appear before a judge. The paperwork can be given to a probate clerk who in turn gives it to a probate judge, who is then responsible for reviewing, approving, and signing a probate certificate. Once this is completed, the probate certificate proves the will is valid, and the appointed executor has full legal power to sort and distribute the deceased’s assets as requested in the will. There are ways to avoid probate of your will, and probate is not necessary if the value of your estate falls below a certain dollar amount, which varies from province to province.

Probate Assets

Probate assets are assets over which you have sole ownership, and that the executor will be responsible for handling after your death. All your bequests will most likely be probate assets. Probate-free assets are those that pass on regardless of what the will stipulates. Two examples of probate-free assets are joint assets with right of survivorship and designated beneficiary assets.

Probate Fees

The following are the fees connected with probate:

▪  Probate tax

The government charges this tax for processing a probate application through the court. The charges differ in each province, so you should check with the laws in your legal community.

▪  Legal fees

This cost can be optional for the executor, depending on whether he or she has the time to get probate without a lawyer. If the executor cannot do the probate application, then there will be the costs of hiring a lawyer to do the legal work involved in the probate application.

▪  Executor’s fees

The fees for the executor are for the work completed to get probate as well as for the executor’s work administering the estate.

Health Care Directive

The health care directive is used to prepare for a time when you may no longer be able to make your own decisions about health and personal care. You can assign a health care agent to look after situations such as the following:

• Making health-related decisions regarding medical and dental treatment

• Making decisions regarding surgery, medication, diet, or exercise

• Reviewing and signing medical documents

• Deciding on accommodations and living arrangements

The agent you assign must be an individual whom you trust and who knows you well. This person does not have to be your executor and cannot be a trust  company. The most important thing to remember is that the agent you choose should be comfortable making these emotional decisions on your behalf. It will be of great assistance to your agent if you outline your wishes with as much detail as possible to relieve your agent of some of the burden of decision making.

A health care directive is legally binding. It is a declaration of your wishes for the benefit of those who will be responsible for your care. Keep in mind that your physician and next of kin must be willing to co-operate. You should discuss these matters with them well ahead of time. This document should be reviewed and updated with your will and your estate plan. Do not keep it in the same location as your will, as it may be discovered only after your death. It is best to distribute copies to those involved, and to leave a copy with your doctor for your medical file.