For reasons unknown to me, my wife thought that my articles about Estate Planning are not “exciting” (this is a euphemism) – thus, the reason for today’s title. Unfortunately, I know extremely little about Kim Kardashian or her diet, but I do have a few important comments to share about the importance of having a Will and the consequences which may occur when one dies without a Will.
Firstly, if you do not have a Will, then you are amongst the majority of Canadians – as 51% of Canadians do not have a Will – and even those who do have Wills may find that their Wills are outdated and should be updated to reflect current estate intentions.
If you have ever wondered what challenges may arise when someone dies without a Will (known as dying “intestate”), consider the following “Top 10 List”:
- Your estate will be distributed in accordance with the Intestacy Rules – which may not reflect your actual intentions.
In Ontario, the Succession Law Reform Act (Ontario) (“SLRA”) provides how assets are distributed upon death when the deceased does not have a Will.
In general, if you are survived by only your spouse, the spouse will be entitled to your entire estate. If you are survived by your spouse and one child, the spouse takes the first $200,000 (their “preferential share”), and the remainder is split equally between the spouse and child. If you leave two or more children, one-third of the estate goes to your spouse (after they receive their preferential share) and the balance will be divided equally among your children.
- Common-law spouses do not automatically inherit your estate and have no entitlement to your estate, where the partner dies without a Will.
The SLRA defines “spouse” as a married individual and does not include a common-law partner. This is an evolving issue across Canada as a greater proportion of the population is living in common-law relationships. To avoid surprises, it is critical to have a Will and Powers of Attorney in place to ensure your estate wishes for your partner are aligned with your estate documents.
- You Lose the Opportunity to Appoint who will be the Executor of your estate.
Without a Will, section 29 of the Estates Act (Ontario) provides the provincial Court with authority to appoint your spouse or common-law partner, the next of kin, or both as your Estate Trustee(s) (a.k.a., Executor). There is no priority given to one party to be appointed over the other. Moreover, if your intentions were to have some other individual(s) act as your Executor, then you would forfeit this opportunity without having a Will.
- If you have minor children and you are the primary caregiver, you lose the opportunity to specify who you want to act as their Guardian(s).
If you do not have a Will, the Office of the Public Guardian and Trustee (“PGT”) may become involved in the lives of your children and make this decision without considering your wishes.
- You Lose the Opportunity to create a Power of Attorney (“POA”) for Property and a POA for Personal Care.
As part of the Will-drafting exercise, the lawyer will discuss your intentions if you were to become incapacitated and thus unable to manage your own financial affairs and make decisions concerning your personal well-being. POAs for Property and for Personal Care provide the necessary powers to the desired individual(s) to address such scenarios.
- Possible Income Tax and Probate Savings may be Lost.
Wise estate planning involves reviewing your assets, how title is held, etc. By going through this process, you may be able to identify opportunities to reduce your Income Tax liability on death and/or reduce your Probate Tax exposure (e.g., using Multiple Wills if you have a private corporation). Thus, enhancing the after-tax size of your estate and increasing the value distributed to your intended beneficiaries. If however, you die intestate, you may have missed opportunities to consider certain tax and probate planning strategies, and your estate may end up paying more tax than would have otherwise been required with proactive planning. To learn more about Probate Planning, click here.
- You may have to Sell Assets (which were intended to stay “in the family”) to Pay Taxes &/or Other Debts.
An additional point to the above implication is that the estate planning process may uncover the fact that your estate may lack liquidity on death (or on your spouse’s death). For example, individuals who have significant real estate wealth (whether in the form of investment properties, family cottage, etc.) may be “asset rich, but cash poor”. Without proper planning, there may be a need to sell certain illiquid properties (perhaps at an inopportune time when valuations are unfavourable) in order to pay taxes and/or other debts owing by the estate.
Your lawyer may identify this liquidity need and discuss purchasing life insurance to provide a cost-effective funding solution. Specifically, life insurance may provide the required liquidity (when it is needed) to pay tax and/or debts owing on death – which could thus allow your assets to stay “in the family” and transfer to your intended beneficiaries.
- Your Children may Receive Assets Before you Intended.
If you are survived by a child, they will receive their inheritance outright upon attaining the age of majority. If you die with a significant estate, it may be unwise to leave such wealth in the hands of an 18-year old. On the other hand, with a Will, you may have an inheritance transferred into a “Testamentary Trust” for the child’s benefit and/or consider “Staged-Gifting” Techniques to have the inheritance transferred in portions over a number of years – instead of as a one-time lump-sum distribution.
Moreover, if you have a child who suffers from a disability, it is important to consider incorporating certain estate planning strategies into your Will (e.g., Henson Trust, Qualified Disability Trust, etc.) and ensure the child will receive the required ongoing care and support needed.
- You have No Control over your Funeral and Burial Arrangements.
If your executor, who, as noted above, the Court selects on your behalf – does not know or does not care about your burial preferences, your arrangements will be made according to their preferences and not your own.
- You Lose the Opportunity to Explain your Legacy Wishes.
It is generally recommended to discuss and share your estate intentions with your loved ones and beneficiaries during your lifetime to avoid unexpected surprises, explain the reasoning for your decisions, etc. Having such family conversations is generally encouraged to promote the successful transfer of wealth between generations and to mitigate potential family conflict.
To conclude on this note, Warren Buffet once said,
“Your children are going to read (your) Will someday…it’s crazy for them to read it, after you’re dead, for the first time. You’re not in a position to answer questions.”
