Estate planning is one of the most important aspects of a comprehensive Financial Plan, yet not nearly enough people or Advisors/Planners pay enough attention to it. It is essentially a process undertaken to ensure the assets of an individual are distributed according to their wishes, the loved ones are taken care of upon death and taxes and fees are minimized for both the Estate and beneficiaries. As one’s assets and net worth increases over time, so does the need to have a functional and comprehensive strategy for Estate Planning. This involves careful tax, legal and overall financial planning, which can only be effectively done by qualified and knowledgeable professionals. In this 5 part series, the topic of ‘Transferring Your Estate’ will be discussed in detail to give a clear understanding of the options available, thus allowing the Estate Planning process to be more effective and efficient.
Transferring one’s Estate to their heirs or beneficiaries is a topic of high importance for many, specifically those in the high to ultra-high net worth categories, but it is also something that should be closely planned for even in the mid income/family markets. While most people consider a Will as the most common method of Estate distribution/transfer, there are multiple ways that can each be effective in addressing specific objectives and concerns. Generally, there are 5 methods that should carefully be considered when creating an Estate Plan, which will be discussed over this series. The first and most widely recognized is the use of a Will.
The creation of a Will represents the foundation and most important part of an Estate Plan. Without a valid Will, there are often complications with the distribution and transfer of the estate through Provincial laws/rules, as well as by beneficiaries or heirs who feel entitlement to those assets. When a person dies without a valid Will, they are considered to have died ‘intestate’, which then creates the involvement of the courts. This is why it is very important to have a valid Will created, as it would avoid any problems or conflicts at time of death between the intended beneficiaries and the courts.
What is a Will? A Will is a legal document created as a means to legally communicate an individual’s direction in regards to the distribution of their estate after death. It is signed by the individual and generally witnessed by 2 other people, and is usually done with the assistance of a legal professional. Although creating a Will with a legal professional is not mandatory, it is always recommended as they can ensure that there are no conflicts, Provincial Laws are being followed and the language of the Will is clear and precise.
An important thing to note is that a Will only becomes effective upon the death of an individual, and has no bearing during their lifetime. This also means that a Will can be updated/changed at any time, and it is the most recent Will that would be legally binding. Along with instructions on the distribution of assets, a Will also includes instructions on appointing an Executor (the person who will execute the wishes of the deceased). Other things that Wills typically include are:
- Naming guardian for minor children
- Special instructions for burial
- Instructions for tax minimization
- Special powers entrusted to the executor and trustees
There are generally 2 types of Wills in most Provinces, with a 3rd one used in Quebec. These are:
English Form Will
- This is a Formal Will, usually typed (but can also be written), which must be signed by the Testator (the individual creating the Will) as well as 2 witnesses. A witness cannot be a beneficiary named in the Will, nor a spouse of a beneficiary.
- This is a Will that is written in the personal handwriting of the individual whose signature it bears (i.e. The Testator). The document is generally signed and dated, and is usually recognized by the Province it’s written in and does not necessarily require the signature of witnesses. A Holograph Will is generally not recommended as there may be certain pitfalls in language used and legibility of the handwriting.
- A Notarial Will is the only valid type of Will in Quebec. It includes the date and place the Will is created, and is read by the Notary to the Testator. This type of Will usually needs only 1 witness, however, the witness does not have to be present during the reading. As well, the Notary retains the original copy of the Will, with a copy available to the Testator upon request. The benefits of this type of Will is that it does not have to go through the Probate process, which reduces fees upon death of the Testator.
A Will is a pivotal foundation piece in the Estate Planning process, and as such, should be reviewed and amended regularly, as needed. It is not uncommon for people to review their will every 2 or 3 years, to ensure that their wishes for asset distribution are accurate and up to date. More frequent reviews might be necessary in the event of significant change in a personal or financial situation, such as the birth/death of a family member or marriage/divorce. Another important thing to note is that, every province has their own rules and laws regarding Wills, so any time there is a change in the province of residence, the Will should be reviewed as well, to make sure it is up to date with the legislation in that province.
When a deceased does not have a legal Will, they are considered to have died ‘intestate’. When this happens, the distribution of the deceased’s estate is determined by the Provincial legislation; essentially, the government decides who gets what through very strict rules called ‘rules of intestacy’. A common misconception is that the surviving spouse automatically inherits the full estate in the event of a deceased dying without a Will. While that may be true in some situations, there are many situations where that just is not the case.
One of the main challenges of dying without a Will is the actual process of distributing assets of the Estate. An application must be made to the courts for the appointment of an ‘Estate Administrator’, who essentially becomes responsible for the distribution of the Estate. This may end up being a rather lengthy process and does not ensure the assets would have been distributed as per the wishes of the deceased.
Effective Estate Planning is something that should be done with multiple professionals working together. The cooperation of an Elite level Financial Advisor along with strong Tax and Legal professionals provides you with the best opportunity to have a comprehensive Estate Plan which meets all your objectives. This process should never be overlooked and can provide peace of mind both while you’re alive, as well as when you have passed on.