You’ve worked hard all your life to build up a nest egg. You probably want to leave at least some of it to your family, and maybe others. The last thing you want to do is throw it away. But that’s precisely what can happen without a Will or estate planning.
- WHAT IS AN ESTATE?
- WHAT YOU CAN DO NOW
- WHAT HAPPENS IF I DON’T MAKE A WILL?
- WHY DO I NEED A WILL?
- WHAT IS PROBATE?
- POWERS OF ATTORNEY
- LIVING WILLS
WHAT IS AN ESTATE?
An estate is all of the possessions and investments that a person owns at the time they pass away. This can include vehicles, clothing, jewelry, art, accumulated points (e.g. air miles or grocery points), real estate, cash in the bank, stocks, mutual funds, shares in private companies, and so on.
With a couple of exceptions, contrary to popular belief, anything that a person owns jointly with another person is considered to be part of the deceased person’s estate. The exceptions are, for example, where the deceased person has written a Will which stipulates that jointly held assets are intended to be a gift to the surviving account/asset holder, or where the surviving account/asset holder is the surviving spouse – but this is only a presumption, and not a hard and fast rule! Each situation turns on its own facts and depends upon what the deceased person intended and how well they communicated that intention.
If a person had a Registered Retirement Income Fund or Registered Retirement Savings Plan or a Tax-free Savings Account and named a beneficiary, the value of that fund, plan, or account is not part of the estate. It goes directly to the beneficiary.
If a person had a policy of life insurance and named a beneficiary, the proceeds of that policy are not part of the estate, unless the beneficiary has already died and no substitute beneficiary was named. If no beneficiary was named or if the estate was named as the beneficiary, then the proceeds are part of the estate.
When a person dies, her or his estate remains available to pay any outstanding bills, taxes, and after those are dealt with, any legacies or bequests named in the person’s Will are paid; if there is no Will or estate plan, then the balance of the estate is paid to the person’s next of kin.
WHAT YOU CAN DO NOW
Remember: if you fail to plan, then you plan to fail. The big winners won’t be your loved ones; they’ll be Canada Revenue Agency, lawyers, accountants, and maybe a surprise beneficiary or two. There are a number of things you can do to reduce or defer taxes by structuring your affairs before death, even if your estate is not large:
- You can designate a beneficiary of your RRSPs, RRIFs, life insurance, and pension plans. If you have a tax-free savings account (TFSA), you can designate either (i) a beneficiary or (ii) a successor holder. Where a beneficiary is named, the TFSA is collapsed on your death and the entire plan value is transferred to a beneficiary. In the case of a successor holder, the plan is not collapsed on death, but instead, it gets transferred to the person you have named without cashing in any investments in the plan. In each case, the value of the TFSA is not part of your estate.
- Give your property away. For the most part, there is no tax on gifts, to either party. The overall value of your estate is lowered so the estate administration tax is reduced.
- Freeze the value of your business using the rollover and deferral rules in the Income Tax Act, withdraw its current value for your own use, and give the growth value to a child or other family member who may wish to carry on the business. I strongly suggest that you not try this yourself.
- Transfer ownership of assets such as bank accounts into joint names with the intended recipient. On death, the asset is not part of your estate so there is no estate administration tax on its value. Beware: there are several tax pitfalls to trap the unwary. Be sure to get expert advice before doing this.
- Farmers can transfer title to the farm to children or grandchildren and there will be no capital gains tax on the transfer until they sell it. Although they do not have to farm it, you must be farming the land before the transfer. Not surprisingly, there are certain rules which must be followed in order to qualify.
WHAT HAPPENS IF I DON’T MAKE A WILL?
Who gets your estate if you do not have a Will?
Contrary to popular belief, the government does not grab everything, but they do have a default Will written for you. It goes like this:
- If you leave a surviving spouse, but no children, your spouse gets it all.
- If you leave a surviving spouse and one child, your spouse gets the first $350,000.00 and shares the remainder equally with your child.
- If you leave a surviving spouse and more than one child, your spouse gets the first $350,000.00 and one-third of the remainder. The children share the other two thirds equally. Grandchildren of a child who died before you did will share their parent’s share.
- If you leave surviving children but no spouse, your children share the estate equally, again with grandchildren of a deceased child getting that child’s share.
- If only remote relatives outlive you, then there is a set of rules which states which level of family will be entitled to share in your estate.
There are no opportunities for tax deferrals if there is no Will. Valuable family heirlooms may have to be sold to generate cash to satisfy the succession requirements. There may be severe tax penalties imposed if you do nothing.
WHY DO I NEED A WILL?
A Will lets you get the most money and property where it is intended. For example, you can:
- Make charitable gifts – they’re tax-deductible to your estate if done correctly.
- Create trusts for your spouse or underage kids.
- Defer capital gains tax by establishing a spousal trust.
- Choose the timing of when people receive their bequest.
- Require that a child reach a mature age before getting their money, although you cannot tie the estate up indefinitely.
- Control who will be in charge of dealing with your debts and your assets.
- Select more than one estate trustee (executor) so that both sides of the family can be represented, or more than one area of expertise is represented.
- Designate back up choices.
- Give specific things to specific people, such as jewellery or business assets.
You can have a Will that deals with only the assets which cannot be transferred to your family, or liquidated, without a Certificate of Appointment of Estate Trustee (which used to be called “probate”), and a second Will for the other assets which do not require this procedure. This may lower the amount of Estate Administration Tax (formerly called probate fees) that your estate must pay.
You can write a list of things you want to leave to people and attach it as a schedule to the Will. Beware of changes to the list later – for them to be effective, you have to re-sign the Will.
NEW AS OF JANUARY 1, 2022:
Until December 31, 2021, if you marry after making your Will, your Will is automatically revoked (unless it says that you are making it intending to marry your future spouse). As I mentioned above, if your prior Will is revoked, then under Ontario law, your estate would be distributed among your family. For example, if you have a surviving (new) spouse and surviving children, your spouse would receive a portion of your estate and would share the remainder of your estate with your surviving children.
If you divorce after making your Will, all references in your Will to your spouse are automatically deleted, but your Will is otherwise left intact. So if your prior Will said that if your (former) spouse dies before you, your estate would be given to other people, then those other people will get your estate in its entirety. Those other people might be your children, grandchildren, charities, etc. – not necessarily the same result as if you had no Will.
As of January 1, 2022, getting married does not revoke any Will that you made before you got married. Instead, all bequests to your former spouse in your prior Will are invalid because your old Will will be interpreted as if your former spouse had died before you. Your new spouse will get nothing! Everything would go to those persons mentioned in your old Will. Your new spouse would have to apply to the Court to receive a benefit from your estate under what is generally referred to as dependant’s relief legislation. And there are time limits for making that application, not to mention the costs of the application itself.
The moral of the story is that if you are thinking of getting married, be sure to write a new Will mentioning your intended marriage.
WHAT IS PROBATE?
Letters Probate used to be issued by the Court when a person passed away, leaving assets which could not be transferred to the beneficiaries without this official sanction of the Will and the appointment of an Executor. It was not always necessary to go through this procedure and pay the probate fees.
The process is a bit different now. The person named in the Will as Executor (now called an Estate Trustee) may still have to apply to the Court, but the application is now for a Certificate of Appointment of Estate Trustee. In some cases, you still do not have to go to court.
You will have to apply for a Certificate of Appointment of Estate Trustee if the estate contains:
- Real estate worth more than $15,000.00
- Canada Savings Bonds
- Stocks (including mutual funds)
- Large bank investments (the amount depends on bank policy – usually anything over $10,000.00)
The Estate Administration tax is calculated on the value of the estate, subject to some reductions, such as the value of the mortgage on your real estate. There is no tax on the first $50,000.00, but it’s $15.00 per thousand (or part of a thousand) on the balance. There is no upper limit. This tax replaced the former probate fees, which were declared unconstitutional by the Ontario Court of Appeal in the fall of 1998 in the case of Re Eurig.
POWERS OF ATTORNEY
If you get sick or suffer an injury, and you aren’t able to make decisions about managing your money, your property, or your personal well-being, the Ontario government automatically becomes your legal guardian unless you take steps to prevent this from happening. The way to do this is to sign a Power of Attorney for Property before you are incapable of doing so.
An attorney is a person given the power to act in the place of another person.
A Power of Attorney can be revoked if you have the mental and legal capacity to do this. For example, signing a new Power of Attorney will revoke any previous one unless you make it clear that earlier ones are to remain in place.
Powers of Attorney are valid only while the person giving them is alive or until they are revoked.
An attorney under a Power of Attorney is a fiduciary, meaning that he or she must act in your interests only. An attorney cannot use his power to benefit himself.
You should consider specifying a backup choice of attorney if your first choice is unable or unwilling to carry out this responsibility. You should also make sure that your chosen attorney is comfortable with your decision.
Types of Power of Attorney
There are two kinds of Power of Attorney under Ontario law:
- Continuing Power of Attorney for Property:
- delegates decision-making authority over asset management, investments, business decisions, and anything else a person can sign their name to, short of a new Will or a Power of Attorney
- can be limited in its duration, when it begins, what it covers
- usually stays operative even after you have lost the mental capacity to manage your own property
- Continuing Power of Attorney for Personal Care:
- Gives authority to make decisions about surgery, medication, long-term care, when to withdraw life support, etc.
- is not operative unless you have lost the mental capacity to make personal care decisions
- the attorney must make the decisions that you would have made
- does not usually give guidelines for how this authority is to be exercised
Living Wills are also called advance health care directives. They are a set of instructions or guidelines for making decisions about health care once you have become unable to instruct your health caregivers as to your preferences. They tell your Attorney for Personal Care how you want the Power of Attorney for Personal Care to be used.
Some people include these instructions in the Power of Attorney for Personal Care itself. However, since there are certain requirements for signing and witnessing a Power of Attorney, it is sometimes more difficult to make changes in the contents of a Living Will if it is contained in a Power of Attorney. Our preference is that a Living Will be a separate document.
Contact us to learn more about Wills and estate plans, and how we can help you create your own.
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Our experience at Peter Lamprey LL.B was extremely incredible ! We were first time home buyers and the patience and commitment to getting all the paper work in order and finalized was over the top. Jessica was amazing and always made us feel like top priority when I’m sure she was extremely busy with other clients. If you ever need any legal advice or work go to this outstanding lawyers office you will not be disappointed !!!
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Peter helped me write my will. It was a completely new experience for me, but he was patient and I left feeling confident in the work done. His staff are friendly and courteous, and the office just has a nice vibe.
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Peter is very knowledgeable in both Estate Law and Real Estate Law, I have used him personally as well as my clients and I am always happy with the level of service that Peter and his team provides, would highly recommend them
I have used Peter for 2 purchases and 2 sales of homes over the past 18 years. He has always been professional and helpful. His staff is fantastic to work with and have gone above and beyond to help me out each and every time. Peter and his staff have made the entire process pleasant and smooth. I would recommend his law firm to anyone seeking a real estate lawyer.
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So incredibly impressed with the service I receive each and every time I visit Peter’s office. Jessica, the administrator on my file, was so helpful, friendly and made me feel totally at ease.
I been a client of Peter Lamprey’s since 2012, personally for a home purchase, will, power of attorney’s, etc and of Vanessa’s for our company when we need documents notarized, Commissioner of Oaths, etc. The staff are friendly, knowledgeable and go out of their way to be accommodating. Very happy with the service we receive.
Best lawyer I have ever dealt with!
Peter helped in closing my first home. He was extremely easy to get along with and ensured that everything that we were to sign and discuss was well understood before moving onto the next piece. Without his guidance and down-to-earth approach, I wouldn’t have had such an easy time purchasing my first home. I appreciate you hard work, from your team and yourself. Thank you!
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-Sandy & Lynne
I dealt with Peter Lamprey’s office on the purchase of my new home. Jessica was fantastic, mortgage documents were received late so the entire process had to take place on day of closing. She went out of her way to answer all my questions and made sure everything went through without a hitch. Peter explained Everything I needed to know, went through all the paperwork, and answered all the questions I had. I would highly recommend Peter Lampreys office for the purchase/sale of of your home. 10/10
After a number of false starts with other unethical lawyers, my experience with this lawyer and his associates was always ethical and easy. They made everything easy in that they understood my intent and purpose for my will. They smoothed the way for me to have my will be what I wanted for who I wanted. – Ann Drake