A will is a document that contains a declaration by a person
(called a testator) describing how his or her property should be
dealt with on death. The will may be revised at any point during
the testator's lifetime, as long as he or she has the necessary
mental capacity to do so. If you are over the age of majority (18 in Ontario), you should
have a will. A will ensures that the persons whom you wish to
benefit actually do benefit to the extent and in the manner that
you wish. It also enables you to select the person you wish to
administer your estate. Who will administer the estate? The court will
appoint someone to administer your estate, giving priority to a
spouse (legal or common law), adult children and other next-of-kin,
in that order. How will the assets be distributed? In
Ontario, if you do not leave a will, the
Succession Law Reform Act specifies who will receive your
property and in what proportion. This law is entirely inflexible
and makes no allowances for what your wishes may have been.
Furthermore, the scheme of distribution is restricted to spouses,
offspring and other blood relatives. There is no provision, for
example, for any distribution of assets to friends, in-laws or
charities. If a person dies without a valid will, without a
surviving spouse and without offspring or other blood relatives,
the person's assets become government property. If the estate is worth more than $200,000 and there is a
surviving spouse and at least one child, the entire estate does not
go to the spouse. Rather, it is divided between the spouse and the
child in proportions determined by provincial laws. This can result
in capital gains taxes being payable on death. It can also result
in the spouse having to live on less than what the decedent may
have wished. Both situations can be avoided with a proper will. When will minors become entitled? If there is
no will, the portion of the estate left to a minor must be paid
into court and can be used for the child's benefit only if an
application is made to the Children's Lawyer (formerly the
Official Guardian). The child will be entitled to his or her share
on reaching 18 years of age. In a will, trusts can be established
to provide for the ongoing use of funds and to defer the final
distribution of funds until the beneficiary reaches the age of
majority. Are there other problems if you don't have a
will? Common law relationships are not recognized under
the Ontario wills legislation, so a common law spouse has no
entitlement to the estate (other than the right, as a dependant, to
make a claim for support). Further, if the spouse of the decedent
was separated but not divorced, he or she is entitled to the
spouse's share as determined by provincial law. Who will have custody of minor children? If
there is no will, no one will have the immediate authority to take
care of minor children. Someone will have to make an application to
the court to obtain legal custody. Are There Any Assets That a Will Does Not
Cover? Proceeds of life insurance and RRSPs and similar
plans that are payable to a named beneficiary are not covered by
your will. Similarly, assets held jointly with right of
survivorship (generally, joint bank accounts and real estate held
in joint tenancy) will pass automatically to the surviving owner
and are not governed by the terms of a will. For tax reasons, it is
particularly important to designate your spouse or dependent
children as beneficiaries of RRSP proceeds. Otherwise, the entire
amount of the RRSP will be included in your income in the year of
your death. There are no such negative tax consequences associated with
insurance proceeds, but naming a beneficiary ensures that the named
person receives the proceeds very quickly after death. On the other
hand, naming minors as beneficiaries entitles them to receive the
proceeds at the age of 18, which may not be advisable. In this
case, you could name your estate as beneficiary of the insurance
proceeds and establish trusts under your will for any minor
beneficiaries, or you could establish a separate insurance trust in
your will. The latter is generally preferable, because naming the
estate as beneficiary will result in probate taxes being payable on
the amount of the insurance proceeds. Estate trustees. An estate trustee (formerly
called an executor) is a personal representative chosen by you and
specified in your will to carry out the terms of the will. The role
of the estate trustee is onerous, and the choice of one or more
estate trustees requires careful consideration of their
suitability. If your original estate trustee becomes unable to
carry out his or her duties, a well-drawn will typically provides
for the appointment of replacement estate trustees to ensure that
there is always someone of your choosing available to act. Disposition of assets. A will permits you to
determine who should benefit from your estate. You may choose to
leave particular articles or property to a named individual or
charity (e.g., "My 1965 Ford Mustang to my brother, John
Smith, if he survives me"), or you may provide for a gift of a
sum of money (e.g., "The sum of $1,000 to the Toronto Hospital
Foundation"). In most cases, individuals wish to leave most, if not all, of
their estate to their surviving spouse in the first instance, and
then provide for their children in the event that there is no
surviving spouse. This will not necessarily happen if you die
without a will. Furthermore, leaving the estate to a spouse (or to
a trust for the sole benefit of the spouse) avoids the capital
gains tax that would otherwise arise on the death of the first
spouse to die. Of particular significance to parents of minor children is that
a will may also provide when or at what age a beneficiary is to
receive his or her entitlement under the will. If the will does not
make this express provision, a minor beneficiary is entitled to
receive property left to him or her on reaching the age of
majority. In a will, it is possible to provide that a minor
beneficiary's share be held in trust until reaching a specified
age. The terms of such a trust can be tailored to your intentions.
For example, a trust may provide for periodic distributions of
income to the beneficiary, or leave the timing and amount of the
payments to the discretion of the estate trustee. In addition, the
trust may provide for the entire trust property to be distributed
to the beneficiary when he or she reaches a stated age (e.g., 25
years); alternatively, it may provide for a distribution of the
capital of the trust at stated intervals and in stated proportions
(e.g., one-half at age 25 and the balance at age 30). Trusts are extremely flexible arrangements, and their use in
wills is not confined to making provision for minor children.
Trusts can also enable you to provide for a disabled beneficiary
who may not be able to handle his or her own financial affairs. A will may also provide for a substitute beneficiary in the
event that the first named beneficiary dies before you do. Custody of Children and Guardianship of Children's
Property. A will may include a provision appointing a
person or persons to take custody of your minor children and become
guardians of their property. In Ontario, such an appointment is
effective for a period of 90 days; if the named custodian/guardian
wishes to continue acting after this time, he or she must apply to
the court to have the appointment confirmed. There are several statutes and legal rules that may have affect
your ability to dispose of your property as you choose. Family Law Act. This provincial
statute governs, among other matters, the division of property of
spouses in the event of marriage breakdown or death. The Act
significantly affects the freedom of Ontario spouses to dispose of
property on death. The property disposal provisions of the Act
apply only to legally married spouses, whereas the support
obligations of the Act extend to common law spouses as well. Under the Family Law Act, the value of all "net
family property" accumulated by spouses during the marriage
is, generally, shared equally when the marriage ends, whether the
end is due to separation, divorce or death. "Property" is
very broadly defined under the Act and includes business and
partnership interests, investments and pensions. When a spouse
dies, the surviving spouse must elect to take either the
entitlement under the Family Law Act or the gifts
specified in the deceased spouse's will. If the surviving spouse elects to take his or her entitlement
under the Act, any gifts specified in the will are revoked: the
will is interpreted as if the surviving spouse had predeceased the
testator unless the will expressly provides to the contrary. The
surviving spouse's entitlement under the Act is typically equal
to one-half the difference between the deceased spouse's net
family property and the surviving spouse's net family property.
A surviving spouse may elect in favour of the Family Law
Act only if his or her net family property is less than that
of the deceased spouse. The Act is of concern to you only if you do not intend to leave
a significant portion of your estate to your spouse, as is
frequently the case if one or both spouses have children from a
previous marriage. The Family Law Act also permits a couple to enter into
a domestic agreement (often called a "marriage
contract"), which can have the effect of excluding a
spouse's entitlement to make a net family property equalization
claim and which may also cover issues such as support. Succession Law Reform Act. This
provincial statute contains provisions that entitle certain persons
to make a claim for support against an estate if they can establish
that they were dependent on you at the time of your death and that
you have not made adequate provision for their support under your
will. Those who may qualify as a "dependants" include a
spouse (legal or common law), a parent, children, brothers or
sisters. A will cannot include special provisions that will prevent a
support claim from being made against your estate by a party
claiming to be a dependant. To reduce the likelihood of such a
claim, however, you may determine that it is appropriate to make
some provision for the dependant, either in your will or by some
other means (e.g., life insurance). Shareholders' Agreements and Other
Contracts. A testator may be a party to a
shareholders' agreement or other contract that may limit his or
her capacity to deal with a particular asset. It is important to
give the lawyer preparing your will the opportunity to review these
agreements. Once a will is complete, it should not be put away and
forgotten. Whenever there is a substantial change in your
circumstances (e.g., an increase or reduction in assets or the
death of an estate trustee or a beneficiary), you should review
your will and possibly update it. As well, if you marry, your
existing will is revoked. In any event, you should make a point of
reviewing your will every year or two to ensure that it continues
to meet your needs and wishes. Powers of attorney are an important component of any personal
and financial plan. In Ontario, there are two types of powers of
attorney: (i) continuing powers of attorney for property, and (ii)
powers of attorney for personal care. A continuing power of attorney for property allows an individual
(called the donor) to appoint another individual (called the
attorney) to make decisions about the donor's financial
affairs. This type of power of attorney is "continuing"
because it continues to be effective even if the donor loses mental
capacity at some point. A power of attorney for personal care allows the donor to
appoint an attorney to make certain decisions about the donor's
healthcare, nutrition, shelter, clothing, hygiene or safety if at
some point in the future the donor is incapable of making the
relevant decisions. The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
What Is a Will?
Who Should Have a Will?
What Happens if You Die Without a Will?
What Should a Will Cover?
Are There Any Limitations on What You Can Do in Your Will?
How Often Should I Review My Will?
Do I Need a Power of Attorney?
ARTICLE
13 January 2011
Your Will: The Foundation of Your Estate Plan
A will is a document that contains a declaration by a person (called a testator) describing how his or her property should be dealt with on death.