The COVID-19 crisis continues to bring uncertainty for many. Whether anticipating job losses, isolation, or the possibility of falling ill, this unease has sent many people flocking to organize their estate planning documents. Under regular circumstances, tasks like creating a Will are often put off, something to take care of later. But having a plan in place is a powerful way to protect your loved ones from potential costs and additional stress.
Are Canadians prepared?
While most people want their assets to pass on to specific loved ones, there’s often a disconnect between wishes and action. According to the most current data on the subject, only 49% of Canadian adults have a Will in place, with only one-third (35%) of that group having an up-to-date version.
While the reasons for not having a Will vary, the majority of Canadians interviewed felt they were “too young” to worry about a Will, with another 8% saying they “didn’t want to think about dying.” If the past year has taught us anything, it’s that things can change quickly. The pandemic has demonstrated firsthand the unpredictability of death and illness, and having a plan in place ensures that your assets will be distributed as you intended.
But won’t my assets automatically go to my next of kin?
This is one of the biggest estate planning misconceptions. Many people wrongly believe that when they die their next of kin will automatically receive their money. In reality, the laws in the province or territory you live in will dictate your asset distribution and it may not be what you planned. The best way to ensure your assets are distributed as you wish is to create a legal Will.
Will basics
A Will represents the foundation of every estate plan and is the starting point of a well-executed wealth transfer strategy. Your Will details how you’d like your property and possessions to be distributed, and not having one in place at death can cause a host of problems for those you’ve left behind.
Your Will should specify: your executor; a guardian for dependent children; your beneficiaries and what they are entitled to; and burial and funeral arrangements. For a Will to be effective, it must be readily found, clearly indicate your wishes, and be easily verified by the courts — a process known as probate.
Probate describes the legal process in which a Will is reviewed to determine validity. It also includes the administration of the deceased’s estate including the collection of assets, the paying of liabilities, and the distribution of funds.
What happens if I don’t have a Will?
When someone dies without a Will in place, they are said to have died “intestate,” with the estate administered according to the provincial or territorial legislation where the individual resided. Keep in mind that each province or territory has its own intestacy laws that determine the estate’s beneficiaries and entitlements. If you die without a Will (or have an outdated one), your intended legacy can quickly fall apart, adding unnecessary strain on already grieving family members.
This is important to keep in mind if you want to leave all assets to a spouse. If you don’t write a Will, and the laws where you live come into play, you may find you’ve unnecessarily complicated the process. In Ontario, for example, a legal spouse will receive the first $200,000 if you die without a Will, but the remainder of the estate will be split equally among your spouse and dependent children when they reach the age of majority. This could make it difficult for your spouse to access funds they may need to pay expenses.
Outside of money and property not being distributed as you had intended, there are other consequences to not having a Will in place that could confuse matters for your family and potentially incur greater cost.
Having a Will in place can protect both your assets and your loved ones by:
1. Naming an executor. If you’ve written a Will and appointed an executor, then the process of probate is simplified. The court will validate the Will and appoint your executor to gather your assets and distribute them according to your wishes. If you don’t have an executor in place, the court will appoint one for you. This could potentially cost time, money, and loss of family control over not only the estate but funeral arrangements as well.
2. Allowing family quicker access to assets. When you die intestate your assets will be frozen and your loved ones will not have access to your accounts (even to pay funeral expenses). Only once a court has approved your executor and granted them the authority to distribute the estate would your family have access to your funds. If you don’t have a Will in place, this process could take significantly longer to settle, potentially leaving family members struggling while your assets sit in limbo.
3. Having an appointed guardian (or arranging a trust) for minor children. If you do not have a Will in place (with a guardianship clause), a court will appoint a guardian for any minor children. Typically this would be a family member, such as a grandparent, but this may not be what you had wanted. Inheritance can also be impacted. Money for minor children would be placed in a trust until they reach the age of majority in their province. If you’re passing on a significant sum of money, a Will allows you to set up a trust fund in advance. Within a trust, you can stipulate the amount of inheritance and the age children are eligible to receive it.
4. Preserving the estate. Not having a Will in place can cost your estate money. When you die intestate, you miss valuable tax planning opportunities that cannot be recovered. Your estate will also likely incur higher probate taxes and legal fees as the courts try to sort out assets, debts, and distribution of wealth.
5. Protecting loved ones. The emotional toll that dying without a Will can take on those left behind can be significant. Without a Will in place, your estate may not be accessible to your family. This can leave family members stressed, anxious, and not knowing how to move forward without a clear picture of what you would want them to do. Creating a Will is one way you can help ease your family through a challenging transition.
Keep in mind that each province or territory may have a slightly different process around what happens when someone dies intestate, but it’s nothing you’ll have to worry about if you put your Will in place. Planning ahead and making your wishes known on paper can help save your estate money and ensure that loved ones are taken care of.
For more information, speak with your BMO financial professional.
1http://angusreid.org/will-and-testament/
2https://www.ctvnews.ca/health/coronavirus/should-you-create-or-update-your-will-in-light-of-covid-19-1.4879831
2https://canadianfamily.ca/parents/organizing/7-things-you-need-to-know-about-making-a-will/
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