While thinking about one’s own inevitable demise can, indeed, feel uncomfortable, the consequences of not having a Will can be far more unpleasant. Creating an estate plan - a set of arrangements regarding how your property and assets will be handled after your passing - is a way of preserving your legacy and protecting your family.
Without an effective estate plan, your assets may be distributed in a way that you do not approve of and may cause unwanted family friction. More importantly, however, drafting a Will and making other important estate planning arrangements will help your family to access your assets and funds easily and distribute your estate seamlessly.
In this article, we will walk you through the basics of estate planning. We will first mention two of the most important documents related to this area of the law - Wills, and Powers of Attorney - explaining how they differ and in what situations they come into play. The information you’ll find here will also reassure you of the importance of creating these documents and, hopefully, motivate you to get around to it without delay.
Wills vs. Powers of Attorneys
Without a doubt, Wills and Powers of Attorneys (POAs) are the two most important basic estate planning documents. While the usefulness or practicality of other, legal tools related to the distribution of a person’s estate - such as trusts - will depend largely on the size of their estate or tax needs, having a Will and a POA is practical and necessary for every Canadian adult. How, though, do these two important documents differ?
The contents of a Will deal with what should happen to your assets and property when you die. Up until that moment, a Will doesn’t have any legal power and, with the assistance of an attorney, you can alter its contents multiple times according to your wishes or changing circumstances.
A POA, on the other hand, whose contents are legally binding while you’re still alive, expires when you die. Generally speaking, there are two kinds of POA’s: (a) Power of Attorney for Personal Care; and (b) Power of Attorney for Property. By appointing a POA, you give a person you trust the legal authority to make certain decisions related to your finances and property and/or your personal care. Equipped with a POA for property for example, your appointed attorney will be able to access your bank accounts, sign checks in your name, take loans on your behalf and even buy or sell real estate. Similarly, equipped with a POA for personal care, your appointed attorney will be able to make decisions regarding your personal care that you are incapable of making yourself.
What makes a POA so practical is the fact that it is an incredibly flexible document. This means that you can grant your attorney (the person representing you, not necessarily a lawyer) a variety of different rights and competencies according to your personal needs and circumstances. A Power of Attorney for Property and a Power of Attorney for Personal Care can both be especially useful if, following a tragic occurrence, you lose your capacity to manage your own affairs effectively.
Unique Benefits of Having a Will
As mentioned above, the two main reasons for creating a Will are:
Only by having a Will and subject to the rights of your spouse, can you make sure that your estate will be distributed strictly according to your wishes and that your property and assets end up in the hands of the right people. If you die without a Will - or, using a legal term, if you die “intestate” - your estate will be distributed in keeping with inheritance laws as defined by the Ontario Succession Law Reform Act, or the equivalent legislation in your relevant jurisdiction. These laws define a hierarchy of people who will be entitled to your assets upon your death.
For example, if you are married and have no children, all your assets will be passed on to your spouse. If you are married and have children, your spouse will be entitled to a preferential share of your estate while the rest of it will be divided equally among your children. The Ontario Succession Law Reform Act defines the distribution of a person’s estate in other circumstances as well but the point is that you can only bypass the applicable succession laws if you have a valid Will in place.
Keep in mind that if you’re married, the Family Law Act gives your spouse certain rights and these may affect the distribution of your estate. For example, if you don’t provide sufficiently for your spouse under your Will, he or she will be able to make a claim for more under the Family Law Act.
An estate trustee is a person who has the sole legal ability to manage and distribute a deceased person’s estate. You will designate a person whom you wish to be appointed as your estate’s trustee in your Will. It is common practice to name more than on estate trustee, or to name a primary and a substitute estate trustee in your will. This helps facilitate the distribution of your estate in the event that one of the named estate trustees is unable or unwilling to act at the time of your death.
Generally speaking, upon your death, your assets cannot be transferred, sold or distributed without a Certificate of Appointment of Estate Trustee. When you have a Will, the process to obtain a Certificate of Appointment of Estate Trustee with a Will can take months. When you die without a Will, this process to obtain a Certificate of Appointment of Estate Trustee without a Will can take much longer. This can leave your family financially stranded and without access to your money at a time when they are likely to need it the most.
Keep in mind that there are some practical ways to make sure you’re family has money in the interim. For example, the use of joint bank accounts or making your spouse an authorized signatory on your business/corporate bank account, can provide seamless access to funds prior to the formal distribution of the estate.
In order to obtain the Certificate of Appointment of Estate Trustee, your estate will have to pay an Estate Administration Tax on the value of the assets that are passing under your will. Certain assets such as jointly held property (bank accounts and real estate, primarily) may pass by survivorship and not be subject to the Estate Administration Tax. Other investments such as life insurance and RRSP’s will also pass outside the estate and not be subject to Estate Administration Tax if a beneficiary is name directly in the applicable policy.
The use of joint property as an estate planning tool must be used cautiously. Where there is a dispute about property that is transferred by survivorship, courts may presume that the property was to supposed benefit all the beneficiaries and was only held jointly for practical purposes to “facilitate the free and efficient management” of the deceased’s affairs (which is often the case with the elderly).
How to Start an Estate Plan?
Now that we’ve established the importance of making estate planning arrangements, however, you may be wondering how do you go about creating a Will and other documents that comprise a solid estate plan. While you can write a Will and a Power of Attorney by yourself, it is advisable that you first contact a lawyer to help you understand the legal ins and outs.
We encourage you to give this some thought and ultimate get yourself a Will and POAs. While creating a Will can make you think about your mortality, it can also give you comfort in knowing that your legacy will be secured and your family protected in case of future unexpected events.
Ordower Law can help. Feel free to contact us.