10 Reasons to Stop Putting Off Your Estate Planning
Dylan Bredo - Sep 07, 2021
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How to tell a good Estate Plan from a bad one! Click below to read more about why an Estate Plan is a vital part of your financial plan.
From our partners at Miller Thomson: Estate planning is an essential part of wealth management. Estate planning not only ensures that your assets are distributed pursuant to your wishes, but it ensures that such distributions are done in a tax effective manner, and that your beneficiaries are protected. Whether your current estate plan requires revisiting or whether you do not have an estate plan in place, the following are ten reasons to stop putting off your estate planning:
1. Control how your estate will be distributed
By making an estate plan, you can set out who will get what from your money, possessions and property when you die. For instance, you can provide for specific items to go to specific people or charities, or you can provide for your estate to be divided amongst certain individuals in set portions. This can be done through the use of a Will, beneficiary designations in insurance policies, beneficiary designations in RRSPs or TFSAs, or through trusts. This planning can help avoid fights between family members or friends over how your estate should be divided.
If you don’t make an estate plan, all your money, possessions and property will be distributed to your next of kin in accordance with the law, and this may not be the same as your wishes. Each province sets their own intestacy legislation but for instance, in British Columbia, if you do not have an estate plan in place then your estate will be distributed as follows when you die:
a. If you have a spouse and no children, your estate passes to your spouse (which would include a common law spouse who you have lived with for at least 2 years in a marriage-like relationship immediately before your death).
b. If you have a spouse and children, then what passes depends on whether the children are also your spouse’s children. If so, your spouse gets the first $300,000 of your estate. If not, your spouse gets the first $150,000 of your estate. The residue of your estate, after the preferred distribution to your spouse, is then divided between your spouse and your children, with your spouse getting one half, and your children dividing the other half equally. Your spouse is also entitled to all household furnishings and has the right to acquire the family home from your estate.
c. If you have no spouse, then your estate is divided equally among your children.
d. If you have no spouse and no children, then your estate is divided equally among your parents. If your parents aren’t alive, then it is divided equally among your brothers and sisters. There are further rules setting out how your estate would be distributed to your nieces, nephews, grandparents, aunts, uncles, cousins and other relatives if you have no spouse or children, and your parents and siblings aren’t alive.
2. Decide who will administer your estate
By making a Will, you can decide who will administer your estate. This person, named the executor, is responsible for safeguarding your property after you die, for gathering your assets, for paying your debts and for distributing what remains of your estate among the beneficiaries you name in your Will. The executor can be a friend, a family member, or even a professional trust company. You usually want to choose someone who you trust and who will likely be alive when you die. You should also confirm that the person you name as your executor is willing to accept that role. If you don’t make a Will, then the law dictates who can apply to the courts to administer your estate. In British Columbia, your spouse or a person nominated by your spouse would be the first person who could apply to administer your estate if you do not have a Will. If you do not have a spouse, or your spouse is unwilling or unable to act as the administrator, then a relative can apply. If you have no relatives who are willing and able to act as the administrator, then any other person the court considers appropriate to appoint, which could include a friend or the Public Guardian and Trustee, could apply.
3. Decide who will be the guardians of your children
If you have children who are minors, then in your Will you can name who you would like to look after your children if you die. When making this decision you should consider the person’s parenting style, the person’s age, as well as their relationship with your children. If you have older children, you should also consider their wishes. You should also talk to the person or persons you wish to name as the guardians of your minor children to ensure they are comfortable with that role. While the guardianship appointment you make in your Will is not binding on the courts (as courts will typically consider the best interests of the child as well the wishes of children who are over 12 years old), they are usually given significant weight.
4. Establish trusts to delay the distribution of your estate to your beneficiaries
If you don’t have a Will, or your Will is silent on when a beneficiary is to receive their share of your estate, then your beneficiaries will be entitled to their full share of your estate once the estate has been properly administered. This may not be ideal, particularly for distributions to a beneficiary who is a minor, or a beneficiary that lacks maturity or financial responsibility or has other difficulties. However, if you have a Will you can stipulate when a beneficiary will be entitled to receive their inheritance. For instance, if a beneficiary is a minor, you can provide in your Will that their share of your estate is to be held by your executor, or a trustee you select, until they reach a certain age. Alternatively, you could provide that they receive their share of your estate in staggered distributions at different ages. Your Will can also provide your executor with the discretion to make earlier distributions to the beneficiary if the executor thinks it is reasonable. This could be for things such as the beneficiary’s education or day-to-day living expenses.
5. Avoid the Public Guardian and Trustee holding a minor’s share of your estate
If any of the beneficiaries of your estate are under the age of majority, and you either don’t have a Will or your Will is silent on when that beneficiary is to receive their share of your estate, then their share of your estate may have to be paid to the British Columbia Public Guardian and Trustee, who would hold the minor’s share in trust for them until they reach the age of 19. Similar provisions exist in other provinces in Canada, whereby the Public Guardian and Trustee must hold a minor’s share until they reach the age of majority, which is either 18 or 19 depending on the particular province. The guardian or parent of the minor would then have to apply to the Public Guardian and Trustee whenever they need money for the minor from their inheritance for things like their education or living expenses. When the minor turns 19, they can demand all their money from the Public Guardian and Trustee. If you have a Will, however, you can provide that your executor, or some other person named in your Will as the trustee, is to hold the minor’s share in trust, and that the executor or trustee can use the minor’s share of your estate for the minor’s benefit, without having to get approval of the Public Guardian and Trustee.
6. Planning for financial decision making if you lack mental capacity
There is a misconception that estate planning deals just with what happens to your assets when you die. In fact, estate planning should also address how your financial affairs will be handled in the event that you lose mental capacity. For instance, if you lack mental capacity, who will pay your bills and have access to your banking? By executing a power of attorney, you can appoint someone to make financial and legal decisions on your behalf when you become incapable, without the need for an expensive court order. You can also decide the scope of the authority that you grant to your named attorney. Similarly to when selecting an executor for your Will, it is important that you consider carefully who to appoint as your attorney. Your attorney should be someone who you trust, such as a close friend or family member. You could also name a trusted advisor or a trust company.
7. Planning for personal care and healthcare decision making if you lack mental capacity
– Similarly to your financial affairs, as part of your estate plan you can appoint another person to make personal care and healthcare decisions on your behalf in the event you lack mental capacity. These decisions include:
a. personal care decisions on matters ranging from where you live, what you eat, participation in social activities, and contact or association with other people; and,
b. decisions to consent to, or refuse consent to, health care matters ranging from routine tests and dental treatment to major surgery, and diagnostic and investigative procedures.
While this is done through a representation agreement in British Columbia, in other provinces it may be referred to as a power of attorney for personal care or a personal directive. By executing a British Columbia representation agreement, you can designate who your representative is. This does not have to be the same person as you name as your executor or your attorney, as the person who you think is the most suitable to handle your financial affairs may not be the person you want making personal care or healthcare decisions on your behalf. You have the choice of appointing a single representative or multiple representatives. You can also designate the scope of authority your representative will have.
In British Columbia, if a healthcare decision needs to be made for you and you are incapable of making the decision on your own behalf and you have not appointed a representative under a representation agreement, a temporary substitute decision maker will be chosen to decide on your behalf. A healthcare provider must choose the first available person, in order from your spouse, your child, your parent, your sibling, your more distant relatives, your close friend, or a person immediately related to you by marriage, to obtain necessary consents to, or refusals of, treatment. The first person contacted who agrees to make decisions on your behalf and who is at least 19 years of age, has no dispute with you, and has been in touch with you within the last 12 months, becomes your temporary substitute decision maker. If, in the opinion of the healthcare provider, there is not an available and qualified person to be your temporary substitute decision maker, or there is a dispute about who is chosen, then the healthcare provider must choose a person authorized by the Public Guardian and Trustee, including a person employed by the Public Guardian and Trustee, to be your temporary substitute decision maker. As can be seen, the temporary substitute decision maker may not be the person you would ordinarily choose to make your healthcare decisions.
8. Tax and probate fee planning
Doing your estate planning involves more than just determining what your assets are and how they should be distributed. It also involves planning to minimize taxes and other fees that may be payable on your death or as a part of probating or administering your estate. For instance, in British Columbia if your estate needs to be probated, then your executor or administrator must pay probate fees to the court, which are calculated as follows:
a. $6 per $1,000 (0.6%) in excess of $25,000; and
b. 1.4% of the value of your estate in excess of $50,000.
However, certain assets pass outside your Will and are not subject to probate fees in British Columbia, such as assets held in an RRSP with a named beneficiary, or assets held in joint tenancy.
In Ontario, to obtain a Certificate of Appointment of Estate Trustee (with or without a Will), the Estate Administration Tax (i.e. the probate fee) is $15 per $1,000 or portion thereof in excess of $50,000. Estates up to $50,000 in value there is no probate fees. This can be a significant amount so planning to limit probate fees is important. In addition to having assets pass outside your Will so as to not be subject to probate fees, another way to minimize probate fees is through the use of multiple Wills.
9. Cost savings
While implementing an estate plan will cost you money now, a well implemented estate plan can save your beneficiaries and your executor or administrator time and money in the future. For instance, a good plan can reduce probate fees and income taxes, and eliminate or reduce the fees of the Public Guardian and Trustee. A good plan can also avoid the expense and delay of court proceedings required to appoint someone to make financial decisions on your behalf if you lack mental capacity.
10. Death is inevitable
Very few things in life are certain, but death is one of them. While you may think there is never a good time to do your estate planning, there can be major consequences if you wait until it is too late. For instance, you may lack the mental capacity required at law to make a plan. Or if you die unexpectedly you may die without a plan. Similarly, if you lose mental capacity before making a power of attorney or a representation agreement, then a family member will need to apply to the court in order to make financial and healthcare decisions on your behalf. This process is both time consuming and expensive. One important thing to remember is that so long as you have mental capacity, you can revise or revoke your Will, power of attorney and representation agreement. So even if you are uncertain about certain aspects of your estate plan, it is best to get something in place in the interim period while you sort out the outstanding issues.
We recommend that you have a Will, a power of attorney and a representation agreement or living Will. Although you can use a kit to write these documents, we recommend that you get professional help from a lawyer to make sure your estate planning documents are legal and to ensure your estate planning documents accurately reflect your wishes. If you already have estate planning documents in place, we recommend that you review them every three years to ensure that they are consistent with your current wishes.
If you have had any changes in your personal or financial circumstances (such as a marriage or divorce), or a beneficiary, executor or named guardian has died, then you should also consider updating your estate planning documents.
The result of a good estate plan is the peace of mind that comes with knowing that you have made plans for your future and your family’s future.
If you would like to learn more about what we can do for you, visit our website www.badgerinvestmentgroup.com.