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Introduction

Although no one would dispute its importance, the creation and maintenance of a legal signed Will is frequently overlooked.

The following is intended to provide an general knowledge of the purpose and nature of a Will and some of the legal, financial and personal issues to be considered upon its creation. After reading you may feel you are better able to begin the drafting of your own Will with your personal legal advisor.

It is vital that your Will be created as part of a comprehensive personal Estate Plan, made in consideration of your present financial situation as well as your present and future goals. This will ensure that all aspects of your estate are disposed of and all beneficiaries are recognized according to your wishes.

Why Have A Will?

“A man who dies without a will has lawyers for his heirs.” Anon.

A Will determines who controls your estate after your death. A Will identifies your beneficiaries and ensures that they will share in your estate according to your final wishes. A Will can also minimize the costs and expenses that can accrue if you die Intestate (without a Will).

If you die without a valid Will your estate will be divided according to the laws of your province that govern the distribution of estate property.

If you have no Will and no living family members your estate vests in the Provincial Government.

If you die without a Will but leaving relatives, the law will apportion your assets among your immediate family. This will entail :

a) appointment of administrator of your estate,

b) identification of those among your family to whom your assets will devolve and what their respective portions will be and

c) establishing the age at which any minor beneficiaries might inherit .

The court-appointed administrator acts as the estate executor and has the power to deal with all debts and assets of the deceased. Until an administrator has been appointed no action will be taken on behalf of your estate. The administrator will pay the debts and expenses arising from the disposition of the estate before any distribution to heirs.

Division of Assets under Intestate Succession

The laws of each province are specific regarding the division of property when a person dies without a Will. Most provinces designate a spouse’s share - a portion of the estate that will automatically devolve to the surviving partner. Other family members - children for example - are provided for only if the value of the estate exceeds the spouse’s share.

PROVINCE/TERRITORY SPOUSE’S SHARE

Alberta $40,000 British Columbia $65,000 Manitoba $50,000 Northwest Territories $50,000 Nova Scotia $50,000 Ontario $200,000 Prince Edward Island $50,000 Saskatchewan $100,000

If a person dies without a will the estate would be distributed as follows : if spouse and no children, then all to spouse ; if spouse and 1 child, the spouse’s share is distributed and the remainder is split 50/50 ; if spouse and more than 1 child, the spouse’s share is assigned and the remainder split 1/3 to spouse and 2/3 to all living children equally ; if no spouse, then all to children equally ; if no spouse or children then the estate goes to parents equally or all to the surviving parent. If there is no spouse, children or parents, the estate goes to siblings equally ; if no siblings then estate goes to nieces and nephews equally.

What is a Will?

A Will is a written and (usually) signed statement bearing the signatures of two witnesses, neither of which can be beneficiaries or spouse and which provides instructions for the disposition of your property after you die. A Holograph Will is one that is completely handwritten and in some provinces is recognized as legal without either signature or witnesses. Residents of Quebec have the option of a Notary Will made by notaries granted Will-making powers by the Civil Code of Quebec.

If you sign a Will and then get married, your Will is considered revoked in most provinces unless the Will is updated to reflect ‘contemplation’ of the marriage.

If you obtain a Court Ordered Separation or Divorce, benefits to your former spouse will be canceled in most provinces unless the Will otherwise instructs. Similarly if a former spouse is appointed executor this appointment is also annulled unless otherwise provided for in the Will.

Role of Executor

The Executor (or Trustee) is the person specifically appointed to administer the Will and to ensure your final wishes are respected. It is someone you consider trustworthy and responsible and of a similar mind with respect to the disposition of your estate. It is often a spouse or close friend or family member, however if the estate is complicated it may be a professional - a Lawyer, Chartered Accountant or Corporate Trustee.

Duties of the Executor typically include:

a) make final funeral arrangements in accordance with family wishes,

b) probate the Will,

c) gather assets and determine and pay the debts of the estate, including funeral expenses,

d) file outstanding tax returns,

e) obtain clearance certificate from Revenue Canada that taxes are paid,

f) distribute the assets of the estate in accordance with the provisions of the Will,

g) manage the estate shares of minor beneficiaries until they are of age to inherit.

Testamentary Trusts

A testamentary trust is any trust that is created through the provisions of your Will and comes into effect only when you die. The assets of the trust are stipulated in the Will as are the beneficiaries, the length of time the assets will be held in trust and the terms by which they are to be administered. Such trusts provide a means of providing for named beneficiaries and have certain significant tax advantages due to preferential treatment under the Income Tax Act as well as other non-tax estate planning benefits. The terms of the trust usually provide for the payment of income and/or capital to the beneficiaries.

The executor or trustee named in your Will is usually - but not necessarily - the trustee of the testamentary trust. As such he or she is the legal owner of the properties within the trust and has full authority over the management of its assets and may make discretionary allocations among beneficiaries of the trust unless otherwise stipulated in your Will. The trustee is obligated to make decisions regarding the investment of the trust’s assets and file tax returns on behalf of the trust.

The tax advantages of testamentary trusts arise largely from the fact that such trusts are considered ‘persons’ for tax purposes and as such the income earned therein is taxed at the graduated rate according to the Income Tax Act and not at the considerably higher rates that would apply if the gain were added to the beneficiaries’ taxable income.

The most common uses of testamentary trusts are to provide for minor inheritors - children and grandchildren - and as a means of providing a benefit to a spouse usually over a spouse’s lifetime.

In the case of children or grandchildren, some of the advantages of the trust are :

a) to provide for those with disabilities, for up to as long as the lifetime of the beneficiary, b) to assist a child viewed as spendthrift or otherwise irresponsible, c) to provide for educational assistance, d) to provide tax benefit for minors who would benefit from the particular tax advantages with a testamentary trust.

The trustee manages the assets in the trust for the benefit of the child/children and distributes the income and capital at the trustee’s discretion. The full assets of the trust may devolve to the beneficiary when an age of responsibility has been attained or as stipulated in the Will.

In the case of a spousal trust assets are left in trust usually for the lifetime of the spouse. At the spouse’s death the assets pass to other beneficiaries as specified in your Will (usually children). Income is paid out over the course of the spouse’s lifetime according to the terms of the trust that may also provide for access to capital assets at the spouse’s request or the discretion of the trustee. A spousal trust may be useful in cases where full and immediate access to capital is not required or can be deferred in favour of tax savings. As well the assets of a spousal trust are protected from claims by the spouse’s relatives, future partners or other creditors.

As well testamentary trusts are useful in providing continued access and control for surviving family members to a seasonal property - a cottage for example, or in the case of a family-operated business.

Who Should Be My Executor?

There are several things to take into account when pondering the question of whom you should choose as executor:

• Your executor should be someone you consider trustworthy and is in agreement with you as to the details of the disbursement of your estate.
• He or she should be capable of carrying out your wishes as estate executor. If your estate is complex you may consider a professional executor; a trust company, chartered accountant or legal advisor.
• If you anticipate controversy or conflict among beneficiaries you may choose someone other than a family member (or beneficiary) to ensure impartiality.
• Your executor should of course be someone likely to outlive you. Consider one who is a nearby resident.
• One named in a Will as executor is under no obligation to serve, so discuss your wishes with your executor beforehand.
• Ensure he or she is willing to perform the duties required of them and that they fully understand the intentions of your Will, and make known your wishes regarding burial arrangements.

Appoint an alternate executor in case the primary named executor is unable or unwilling to perform those duties at the time of your death.

Funeral Arrangements

It is the duty of executor to ensure that funeral arrangements are followed according to the instructions in your Will but since the Will might not be read until after the funeral you should make your wishes known beforehand, both to your executor and to family members. These could include such matters as organ donation, place of burial, service preferences, disposition of remains, etc.

Personal Effects and Bequests

Bequests to individuals or organizations can be specified in your Will. These include donations to schools, charitable organizations, churches, or to individuals. Legacies of this sort are paid out of the estate first before the disbursement to named beneficiaries from remainder - or residue - of your estate.

If you wish to leave personal articles to particular individuals a Memoranda of Gifts should be attached to your Will. The memoranda should specify the article and the intended recipient and should be signed and dated prior to the date of your Will.

In addition to Memoranda of Gifts or specific bequests you can choose to make gifts in the form of cash. If so keep in mind the value of the gift is likely to decrease over time due to the affects of inflation and the cost of living.

Residue or Remainder of Estate

The residue of the estate is what is left over after all testamentary expenses, debt payments and liabilities, bequests and gifts of personal articles. All of the aforementioned items are paid out of the estate before the residue is distributed to your beneficiaries.

Provisions for Businesses

A special provision of your Will can provide instructions for how your interest in a business may be managed or disposed of in the event of your death.

Guardians

Your Will can name a guardian or guardians to take custody of minor or dependent children who would otherwise be uncared-for in the event of your death.

Some considerations for the selection of guardian(s) include: -*are they of a similar mind as you on matters of child-rearing?

• do they live close by or will your children be required to move from their present community?
• do they have the means, financially and emotionally, to be adequate caregivers?
• what are their religious beliefs?
• are they trustworthy? consider that they will have access to your children’s inheritances.

Your Will may provide compensation for named guardians.

Common Disasters

You may wish your Will to contain a Common Disaster Clause. This provides that your spouse will inherit only if he or she outlives you for a specified period (usually 30 days). This will avoid having to deal with the same assets twice in the event that you and your spouse die at approximately the same time. A common disaster clause can also name alternate beneficiaries in the event your immediate family was to perish in the same accident.

Using Software Programs or Pre-Printed Forms

Some people make wills with the help of software programs or preprinted forms, but lawyers warn that some of these aids are questionable. American-produced packages, for example, may not take account of Canadian legislation, much less make allowances for distinctions in provincial probate laws.

When you consider the full value of your estate it simply makes good sense to write your Will with the guidance of a professional advisor.

Planning Your Will

After you have considered the full extent of your estate and have decided upon how you wish the assets to be distributed at your death, you need to meet with a lawyer to draft your Will. The Checklist and Plan paragraphs at the end of this will help to focus on the elements of your Will to ensure that nothing has been overlooked.

Before you meet with your lawyer you should prepare the following information:

• full name and address of executor(s)
• name and address of guardian(s) if any,
• name and address of trustee(s) if any,
• name and address of beneficiaries,
• list of beneficiaries named in RSPs, RRIFs, pension plans and insurance policies,

Please note that your lawyer will want a complete list of your assets and where they can be found.

Changing Your Will

Wills need to be updated as the circumstances of your life change. Any event or development in your personal or financial condition can impact your Will.

Some examples include:

• changes to provincial laws affecting estates,
• moving to another province,
• the death of a beneficiary,
• a significant change in personal finances.

Get into the habit of reviewing your Will periodically - say every 2 to 3 years - to ensure it is still applicable to your current situation. As well your legal advisor can notify you of changes in legislation that may affect your Will.

WILL PLAN CHECKLIST

Consider the following as you go through the planning process of your Will. As you will discover it can be helpful if this is your first attempt at drawing up a Will or if you are reviewing an existing Will.

• Have you decided on an executor and alternate executor(s)
• Have you discussed your wishes with your executor? Is he/she aware of and comfortable with the duties required of them as executor of your estate?
• Does your executor know where your Will is kept?
• Have you discussed funeral arrangements with your executor?
• Are there any recent additions to your immediate family - children or grandchildren?
• Have you prepared a memorandum outlining the distribution of your personal effects?
• Have you decided on bequests or gifts to family members or other individuals?
• Have you prepared a memorandum specifying gifts of personal articles?
• Have you named a beneficiary of registered assets - RRSP, RRIF, pensions?
• Have you named a guardian for any minor children?
• Does your Will have a Common Disasters Clause?
• Are there special considerations to be reflected in the writing of your Will? (bankruptcy, pending divorce, children from a previous marriage , etc.)
• Are you aware of the provincial Family Law Act and how it might apply to your estate?

The following questions apply as well to those with existing Wills. You may wish to review your Will with your legal advisor if you feel changes may be necessary.

• Are your executors/trustees still appropriate?
• Has a spouse or any beneficiary died since your last Will was created?
• Are there any new family members - children, grandchildren or other - since your last Will?
• Have you gotten married, divorced or separated since your Will was created?
• Do you wish to add or remove any beneficiaries?
• Do you wish to change the terms regarding provisions to any of the beneficiaries?
• Has your net worth significantly increased or decreased since your last Will? -*
  Have you moved to a different province since your last Will?
• Have you acquired significant new assets, property or commercial, since your last Will?

YOUR WILL PLAN

The following form will help you to organize the details of your estate and the division of your assets at the time of your death. Make sure all sections are fully considered.

• Province of Residence:
• Executor/Trustee:
• Alternates:
• Guardian:
• Alternate:
• Legacies:
• Cash:
• Registered Assets:
• (RSPs, RRIFs, Pensions)
• Other
• Personal Property Residue:
• Distributions to:
• (e.g. spouse, children)
• Testamentary Trusts:
• Common Disaster:
• Other:

Probate Fees and Multiple Wills

In Canada, with the victory of the Estate of Philip Granovsky v Ontario (1998) the use of Multiple Wills may be a viable way for estate planners to significantly reduce the probate fees that apply upon the disbursement of a deceased’s estate.

When you die your executor has legal authority to deal with your estate however probate is usually required to successfully transfer certain of the assets (real estate, publicly traded shares, financial investments) registered in your name. Letters probate (Certificate of Appointment of Estate Trustees with a Will) provides proof to other financial institutions and advisors - as well as the land registry office - that your executor is recognized by the courts and is authorized to act on behalf of your estate. The fees (Estate Administration Tax in Ontario) attached to probate can be substantial. They vary from province to province but in Ontario they are calculated as follows: $5.00 per $1,000.00 up to the 1st $50,000.00 and $15.00 per each $1,000.00 to the full value of the assets of the estate.

In the Granovsky case the deceased had prepared two wills; the first specified all those assets of his estate which were probatable - i.e. for which those third parties (financial institutions, transfer agents etc.) usually require authentication of the Will and executor before releasing assets, and a secondary Will that included the rest of the estate and for which probate is not considered necessary (assets in joint accounts, life insurance policies, shares in a private company, RRSP & RRIF holdings that have a named beneficiary). In this case the latter represented some $25 million in shares of a private company.

In the case Ontario argued that probate fees applied to all of the assets of the estate regardless of the number of Wills. The Court disagreed ruling that the executor in fact is under no obligation to probate and that ‘limited probate’ is possible under the law. The Granovsky estate was spared the probate taxes that otherwise would be applied to the $25 million in shares - approximately $375,000.

The province has indicated it will appeal although it has taken no action to date (mid-2000) and legal opinion is that the decision was sound and will stand. If you are considering this strategy you should be aware that the use of multiple Wills for avoidance of probate tax has been validated only by the court in Ontario under Ontario statutes. See your legal advisor regarding any more recent court developments and how they might apply to your estate plans.