A will is the cornerstone of any estate plan. If you don’t have one, the administration and distribution of your estate will be carried out according to the laws of the province you live in. When you make your will, it is helpful to work with a lawyer (or notary in Quebec) who has professional expertise in the area. And if your personal circumstances change—through marriage or divorce, for example—make sure you update your will to reflect your new situation.
Choose an appropriate executor
While being named an executor can be an honour, it’s also a huge responsibility. An executor has a legal duty to protect and administer the estate in a prudent manner prior to distributing the assets as specified in your will. The executor must ensure all valuables are safely stored, that key assets, such as a home, are insured and maintained, and that any investments held by the estate are properly managed.
Who should you choose? Pick someone who lives nearby, preferably in your province, has knowledge of tax and estate issues, is familiar with investments and accounting, and has the time available to perform an executor’s duties. As an alternative, name an estate professional as executor or co-executor.
Your spouse or child as
beneficiary
Registered investments, such as Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RIFs) can, on your death, be transferred to your spouse or, in certain circumstances, your dependent children, on a tax-deferred basis. Otherwise, the value of your plan on the day of your death will be treated as income in your final tax return and taxed accordingly.
For this reason, you may want to ensure you designate your spouse or, if the appropriate conditions are met, your dependent children, as your RSP or RIF beneficiaries so that tax continues to be deferred on these assets until the funds are withdrawn.
Joint ownership with right of survivorship
There are certain advantages to joint ownership. For example, depending on the legal type of joint ownership, when you own an asset jointly with another person, ownership may pass automatically to the other owner upon your death (this does not apply in Quebec). Business or property owners should consulte a probate attorney to fully understand what is applicable to their property. Also, jointly owned assets are excluded from your estate. That means probate fees for the estate may be lower. Probate is the legal process by which a provincial court approves a will as valid. In provinces with high probate fees, this can mean significant savings.
However, there are pitfalls to joint ownership too. For example, when you decide to make one of your assets jointly owned, there will be capital gains tax liabilities when you transfer partial ownership of the assets to the joint owner unless that joint tenant is a spouse. As well, joint ownership could mean that income from the joint account must be reported on a proportionate basis on the joint owners’ tax returns unless that joint tenant is a spouse.
There could also be family law implications. For instance, if you make your married child the joint owner of your cottage and the child’s marriage ends, the cottage may be considered family property to be divided with his or her ex-spouse. To be safe, consult with an estate-planning expert to ensure joint ownership makes sense in your situation, and that you choose the appropriate type of joint ownership.
Make estate planning a priority
Creating your estate plan is an important first step, but it’s not a one-time decision. Review your plan every couple of years to ensure the plan you designed still reflects your wishes. If you or a family member moves, divorces or marries, or you have a change in a business relationship (a partnership dissolves or you incorporate), you may need to change your estate plan.
Estate planning is becoming more and more complicated. It is always wise to work in partnership with your legal advisor(s) and accountant.
