What is a Will?

A Will is a formal legal document which appoints your executor and sets out your wishes for the distribution of your property upon your death. To be valid, a Will must comply with certain formalities of execution including being properly witnessed, dated and signed, deal with certain essential matters, and an affidavit must be sworn in front of a commissioner for taking oaths by the attesting witness. A Will only becomes irrevocable and takes effect upon death, which means that it can be changed from time to time during your lifetime. 

Although tools such as Will Kits, wills downloaded from the internet, or home-drawn DIY documents are popular tools for those who are hoping to save legal fees, the reality is that such documents rarely, if ever, result in a legally valid Will resulting in far greater costs and potential litigation when the time comes to administer the estate. 

Such Wills often are made in the absence of proper planning, without full understanding of the impact of joint ownership, beneficiary designations or contingent circumstances. These factors may produce unexpected consequences, undue tax burdens, and the intentions of the deceased not being carried out. Compared with the costs of dealing with an invalid or defective will, it is both economical, and smart planning, to have a proper will prepared - and it may cost less than you think.

The consequences of not having a Will.

When a person dies without a valid Will (dying intestate), a law called the Succession Law Reform Act sets out which family members or next-of-kin stand to inherit an estate. These rules are based solely on blood relationships and legal marriage – spouse, children, parents, siblings, and more remote next-of-kin. These rules are applied without regard to the relationship you may have had with any of these persons, or any of your other wishes about your personal effects, charitable gifts, or tax planning goals. 

As there is no Will, a family member must apply to the court to be appointed as executor. Other family members can contest this application, leading to costly disputes and delays. If no family member is available to step into this role, the Public Guardian and Trustee may have to be appointed. The legal fees and administrative expenses of dealing with an intestate estate are often much higher than a regular estate, far outstripping the costs “saved” by failing to make a proper Will. 

For the sake of your own peace of mind, and for the sake of your family, prepare a valid Will and update it regularly. 

Beneficiary Designations 

In this age of increasingly complex life insurance policies, pensions, registered investment accounts, RRSPs/RIFs and TFSAs, beneficiary designations are playing an ever-more-important role in creating a complete estate plan. When a beneficiary is named directly in a policy or investment, the entire value of that asset will pass directly to the named beneficiary therein. This means that, for example, even if a person has a valid will leaving all of the assets to the children, an out-of-date beneficiary designation to a former spouse means that the named beneficiary will inherit that asset, regardless of the terms of the will. Many assets such as RRSPs/RIFs and TFSAs can qualify for a tax-free spousal rollover by which this deemed disposition can be postponed until the death of the surviving spouse. Beneficiary designations are an effective way of minimizing probate tax as the assets with beneficiary designations do not form part of the legal “estate” for the purposes of a probate application, i.e., probate tax is avoided on these assets. Ensure that all of your beneficiary designations are up to date, especially if you have experienced a life change such as divorce, re-marriage, the birth or death of a child.  Discuss with your lawyer how your assets will pass on your death, both through your will and through any beneficiary designations you have made.

Choosing an Executor

Being an executor is an important job and requires a significant investment of time and knowledge. It is important to appoint an executor as well as an alternate executor in the event the first named executor passes away, becomes unwilling or unable to act.  A spouse, children, other family members, trusted friends and even in some instances professionals may be considered for the role of executor.  Executors can refuse to accept the appointment, in which case these duties will fall to an alternate named executor or even result in the involvement of the Public Guardian and Trustee. Discuss your plans with your intended executor in advance to ensure that he, she or they are comfortable with the role, have the necessary skills, and are willing and able to accept the appointment when the time comes.

 

Marriage, Divorce, and Common Law

Marriage, divorce and common-law relationships all have significant implications when preparing a Will. In Ontario, marriage has the effect of revoking a prior Will, unless the Will expressly states that it has been made in contemplation of a pending marriage to the new spouse. As a result, a new Will must generally be prepared after one marries.

Divorce, on the other hand, does not revoke a prior Will. This means that separated or divorcing spouses need to have new Wills prepared to reflect their new wishes. A separation agreement is critical to this process as it sets out the division of assets acquired during the marriage so that each spouse knows the extent of their property which will be subject to his or her Will. Good separation agreements will also contain a release of claims against each other’s estates, leaving each spouse free to make new Wills, as long as they keep in force any provisions such as life insurance policies that may be required by the agreement. 

Lastly, estate law is one area where, contrary to popular belief, common-law and married spouses do not have equal legal rights. In a common-law relationship, there is no automatic entitlement to share in a partner’s estate. Unless common-law partners make Wills specifically leaving assets to each other or hold assets in joint names, there is no presumptive right to a share of the partner’s estate. This often results in costly lawsuits or court applications, which can be avoided with proper planning. It is best to sit down and review your estate plan whenever faced with a change of marital status. Delays put your assets at risk of not going to the right beneficiaries.

Guardianship of Children

If you are the parent or legal guardian of a child, then you should prepare a Will, which includes appointment of a guardian for those children. While the courts reserve final jurisdiction to appoint guardians in the best interests of the child, generally the courts will respect wishes expressed by parents in their Wills. If no guardian is appointed, then either another family member may have to bring guardianship proceedings seeking custody of the children or, if no such person volunteers, then there is the possibility that your children could become wards of the state. You should also consider who would act to manage the inheritance left to your children in the event of your deaths – whether this would be your executor, the guardian, or another individual who may be suited to the role.

As soon as children are born or adopted, update your Will to appoint a guardian. Review this clause every few years to ensure that your choice of guardians is still appropriate, and that the guardians are still willing and able to take on the role if necessary. 

Making Specific Gifts

We’ve all heard stories of post-it notes attached to the back of paintings. To best ensure that those antiques, collectibles, jewelry and tools make it to the intended beneficiary, it is best to make a list as part of your estate plan rather than rely on these notes. To be legally binding on your executor, special gifts must either be made in the Will, or set out on a separate list which is in existence as of the date of the Will, signed, dated, witnessed and referred to in the body of the Will.  This is called “incorporation by reference”.  A less formal means of expressing these wishes is to prepare such a list, signing and dating it, and filing it with the Will. This list can be changed or replaced from time to time without re-signing your will; however, it will not be legally binding on your executor. Rather, it will only serve as guidance for your executor as to your wishes.

If you intend to make special gifts from your estate, ask your lawyer about the proper way to make a list and how the list should be referenced in your Will. There is no guarantee that a list written and kept at home will be found by your executors when the time comes, and it will not be legally binding unless it forms part of your Will.

Cottage Estate Planning

Cottage memories are a cherished part of your family history.  When arranging your estate plan, the family cottage requires special consideration.  

Our knowledgeable and experienced lawyers can help you understand the tax considerations of cottage properties.  Discussion of strategies for minimizing, or for providing for payment of these taxes, will ensure that this one-of-a-kind asset remains in your family for generations to come. We offer you assistance in arriving at the best decision about this important asset by guiding you through important family discussions.  

The Miller Law Group can also advise you on the myriad of issues arising from cottage ownership during your lifetime such as easements and rights-of-way, access and shore road allowances, shared ownership agreements and rental contracts. Cottage real estate entails a host of issues that are unique to rural cottage properties and, in some cases, to each individual municipality. A local lawyer who is familiar with these issues is often best suited to assist you in navigating these challenges.

In addition, we can advise you with respect to minimizing capital gains tax liability that may be attracted to the sale or inter-generational transfer of your cottage property. The Miller Law Group also represents U.S. and other non-resident cottage owners on cottage transactions, withholding tax issues and, in some cases, creating a Canadian estate plan in order to deal with Canadian-resident real estate holdings.

Business Estate Planning

Although many business owners put a succession plan in place for their business as they approach retirement, it is essential at any age to protect your business and your family by ensuring that your estate plan deals with the possibility of death or incapacity. Having such a plan in place can help your family manage in a difficult time and preserve the value you have worked to build in your business. Additionally, if your business is held through a private corporation, The Miller Law Group can prepare a corporate properties Will which can save your estate thousands of dollars in probate tax, as well as ensure that the corporation can be administered by your executor in a simple and timely fashion avoiding the delays of the probate process.

Business Succession Planning 

The Miller Law Group is able to assist in your lifetime business succession planning. We have developed expertise in the implementation of estate freezes, holding company structures, creditor-proofing arrangements, long-term agreements of purchase and sale, asset and share purchase and sale transactions, and tax reorganizations such as preserving the lifetime capital gains exemption which may be available on the sale of shares of a qualifying Canadian small business corporation. We have a wealth of experience in helping clients develop shareholders’ agreements with life insurance-funded buyout provisions to ensure that funding is available to a surviving partner to fund the buyout of a deceased shareholder’s estate in the event of death.

We will work closely with your accountants, financial, insurance, and tax advisors to develop a succession plan for your business that results in the best outcome for you and your company. Our extensive experience assisting estate trustees with administering corporate assets, implementing shareholder buyout provisions, and other corporate estate transfer and succession issues will be a valuable tool for your plan.

The two certainties of life.

There is a saying that death and taxes are the two certainties in life. Taxes, debts, funeral and testamentary expenses are the first items to be paid out of an estate before determining what is left over to distribute to the beneficiaries. There are at least four types of taxes to take into account when preparing an estate plan: 

Probate Taxes – Discussed above, this is a tax, which equals roughly 1.5% of the value of the assets of your estate payable when applying for probate.  There are many ways to minimize or delay this tax by careful planning.

Capital Gains – When someone dies, the government deems him or her to have disposed of all their assets at fair market value on the day prior to their death. Certain types of properties, such as a principal residence and qualified shares of a small business corporation can qualify for an exemption to this tax, but this can have significant tax consequences for cottage properties, RRSPs/RIFs, and investments when they are not being passed to a spouse. Any capital gains must be declared on the terminal income tax return filed on behalf of the estate and included in income in the year of death.

Income Taxes – An executor should consult an accountant and file a terminal income tax return for the deceased person within certain time frames following death.  This tax return declares both the person’s income for the year of death as well as any capital gains or other tax liabilities triggered by death. Generally, an executor should wait to distribute any assets from an estate until this tax return has been filed and a Notice of Assessment is issued confirming the amount of tax liability payable by the estate. The executor can also apply for a Clearance Certificate from CRA, confirming that there are no taxes owing.

Taxation of Testamentary Trusts - If a Will creates one or more trusts for beneficiaries including minors, then the trust will have to file annual tax returns declaring income received by the trust and payments out to the beneficiary in that year. This is a complex area and requires the advice of an accountant and a lawyer.

While it is not possible to avoid all types of tax that may be payable on an estate, your lawyer should be able to create a balanced plan for your estate that respects your intentions for your estate in the most tax-efficient manner possible.