Why is a will necessary?
WHY IS A WILL NECESSARY?
The answer to this question is important, especially since the majority of people living in Ontario do not have wills. Simply put, the answer is:
- If you do not have a will, you cannot select the executor who will administer your estate. If you do not have a will, the person who will be in charge of your assets and in control of the needs of your family will be appointed by the court.
- If you do not have a will, you cannot choose who is to receive a benefit or gift from your estate. Without a will, provincial legislation dictates who will be your beneficiaries, and the people that you might have wanted to receive a gift will not inherit anything. This is especially important if you have a common law spouse or same-sex partner. Your partner may not be considered your spouse for division of your assets.
- If you do not have a will and your children are under 18, the children’s bequests will be paid to the court. The Court will hold the assets until the children attain age 18. Not only does this take the assets out of your control, the children will automatically receive their bequests once they turn 18, whether or not they are mature enough to manage the money or the assets. A will allows you to set the age children are to receive their bequests and provides the flexibility to set up trusts for children or to consider any special needs of family members.
- A properly written will may result in increased tax savings, both at the time of your death and following your death, which would not be available without a will.
THE PURPOSE OF YOUR WILL
The purpose of a will is to provide for the orderly distribution of your assets at your death. Simply put, the will instructs your executor to figure out what all your assets are, as well as all your liabilities. The will instructs your executor to use the assets to pay off the liabilities, like your funeral, tax returns, etc.. Then, the net value of your estate can be distributed among your beneficiaries in the manner that you dictate.
TYPES OF DISTRIBUTIONS FOR YOUR ESTATE
After you have provided for the payment of your debts, the distribution of your personal effects and the payment of cash legacies, you may wish to provide for the immediate distribution of the remainder of your estate to one or more people.
Clients are often concerned that an immediate distribution to beneficiaries is not in the best interest of the estate and the beneficiaries. A surviving spouse may not be able to manage the estate without assistance. A parent may feel that, at age 18, a child may not be mature enough to handle a large sum of money. You may deal effectively with these types of concerns by establishing a trust or trusts in your will.
When you create a trust in your will, you direct your executors to hold your estate, or part of it, in trust for the beneficiary or beneficiaries. It is quite common to provide in a will that a child’s share is to be held for his or her benefit until the child attains a certain age, and to give the executors the discretion to use the funds being held in trust for the benefit of the child until he or she attains that age. It is also common to provide for a staged distribution of the child’s share. For example, a part may be paid at age 21 and the balance at age 30. Until the child reaches age 30, the executors will have some control over the child’s interest in the parent’s estate.
Many factors must be taken into account when you are deciding whether or not to establish a trust or trusts under your will. These factors include the size of your estate, the ages of your beneficiaries and how responsible they are, and any special needs, such as medical or educational, which a beneficiary may have.
PROVIDING FOR CONTINGENCIES
When considering your will, it is important to remember that people do not always die in order of age. You should consider various circumstances and plan your will accordingly.
RESTRICTIONS ON TESTAMENTARY FREEDOM
The law restricts a person who is making a will from making inadequate provision for his or her dependants. A dependant may include your legal or common law spouse, a parent, a child, or a brother or sister.
There may be other restrictions on your freedom to dispose of your estate. For example, you may have a marriage contract or a separation agreement with your spouse or former spouse, requiring support to be paid following your death, or you may be a party to a buy-sell agreement with a business associate regarding your interest in a business, which will provide for your shares in the event of death. A court order, where there has been a divorce, may also restrict your freedom to dispose of your estate.
EXECUTORS AND TRUSTEES
You must name an executor and trustee, or executors and trustees, of your estate. Although there is no legal limit to the number of executors and trustees, there may be some practical limitations since executors and trustees must work together in the administration of your estate.
The executor is the person or group who will carry out the provisions of your will.
Your choice of executors and trustees will depend on the terms of your will. If everything is left outright to your spouse, for ease of administration, you may wish to name your spouse as the sole executor and trustee. If your children are at least 18 years of age, they may also be named as executors and trustees. A trust company carrying on business in Ontario may also be named as an executor and trustee of your estate.
If there are trusts established under your will which delay the distribution of your estate, your choice of executors and trustees must be given careful attention. In such a case, the executors and trustees must invest the assets in the trusts and make the appropriate payments. These are crucial decisions, and your executors and trustees should have the proper judgment and business sense, as well as the ability to relate well to your family members.
There are income tax consequences that might occur by your death, which should be taken into account when considering your will. If you do so, your will can be an effective tax planning instrument, both at the time of your death and after death.
There are no death taxes imposed by any of the provinces of Canada, but, in some jurisdictions such as the United States and the United Kingdom, there are death taxes. Even if you are an Ontario resident, these taxes may be triggered if you own assets in a foreign jurisdiction.
THE NEED TO REVIEW YOUR WILL
It is advisable for you to review your will, at the very least, every three years. This will allow you to consider the needs of your children as they mature, whether your executors and trustees should be changed, any assets which you have recently acquired or disposed of, and the like. An up-to-date will clearly facilitates the administration of your estate.
Note: This memorandum is not intended to contain advice specific to your situation. Your estate and planning strategies are unique and should be reviewed by your legal and financial advisers and by your tax accountants.