Canada: Should You Be Thinking About Your Will?

Many people have trouble finding the time to make or update a Will. It is at the back of their minds, but somehow other things always manage to take priority. Some believe that a Will is not all that important, and that their assets will ultimately end up in the right place whether they have one or not. If that is what you think, keep reading because you may be in for a surprise.

If you die without a will in British Columbia

  • The Court will decide who should administer your estate and it may not be the person you would have chosen
  • Depending upon your circumstances, your surviving spouse may not be entitled to your entire estate
  • If a minor is entitled to a share of your estate, those funds will have to be paid into Court and will be released to that individual when he or she is 19;significant tax saving opportunities for your estate and beneficiaries may be lost
  • Depending upon the nature of your assets, the person administering your estate may have to apply to the Court for the powers needed to deal with your property, resulting in time delays and unnecessary complexity
  • The legal fees and other costs incurred to administer your estate are likely to be higher.

Should I write my own will?

Sometimes people write their own Wills, but that can create more problems than it solves. Ambiguous wording and technical deficiencies can make these Wills, or parts of them, invalid. Sometimes a Court application to interpret them is necessary. Often, opportunities to minimize probate fees and income taxes payable by the estate or intended beneficiaries are overlooked. The best way to ensure that a Will is effective and enforceable is to have it drawn by a lawyer who specializes in estate planning.

Appointing an executor

Once you decide to make a Will, the first thing you will want to consider is who your executor(s) should be. The choice you make can have a significant impact on how your estate will be administered.

If you are leaving your entire estate to one beneficiary, such as your spouse, and you think that beneficiary is capable of properly administering the estate alone, then it is logical to appoint him or her to act as the sole executor. An alternate executor can then be appointed in case the primary executor is unable or unwilling to act.

In other cases, the choice may be more difficult, but your executor should always be someone whose judgment you trust, and who can be expected to act impartially and in the best interests of the beneficiaries.

You should consider the age of your executor, particularly if your Will provides for ongoing trusts for your children or others, assuming that your executor will be appointed to act as the trustee of those trusts.

You do not have to appoint just one person. Appointing more than one executor to act together can be wise in some circumstances because different people can bring different skills and experience to the role. Perhaps one individual will have business or investment expertise relevant to the estate assets, and another will understand the needs and personalities of family members and be effective in communicating with them. Appointing more than one executor can also help ensure continuity in the management of your estate. If something happens to one of the executors, the other(s) can continue on, minimizing any disruption insofar as the needs of the beneficiaries are concerned.

You may also wish to consider the possibility of a professional trustee, such as a trust company, lawyer or accountant. An objective professional can be a good choice if you anticipate conflict between the beneficiaries, if your financial affairs are complicated, or if there are beneficiaries with special needs.

Personal effects

Bitter feuds can result over the division of personal effects. A child may grow up thinking he will inherit a particular painting or piece of jewelry, only to find out that his or her sibling thought the same thing. Often this has more to do with an individual's emotional attachment to an article, rather than its actual value. There are ways to deal with personal effects so as to minimize conflict, including

  • Directing that particular articles be distributed to certain people
  • Directing that personal effects be divided among beneficiaries as they agree, with a power given to an independent executor to cast a deciding vote if there is a dispute over any particular item
  • Requiring that personal effects be listed and valued and then directing that beneficiaries draw lots to determine the rotation order in which they will select articles they wish to have.

There are also other options that our lawyers would be pleased to discuss with you.

Recreational properties

A recreational property often has great sentimental value. It is the place where family members gathered over the years and enjoyed happy times. Parents are often inclined to direct that recreational properties be transferred to their children as co-owners. This may seem like the right thing to do, and in some families it is, but in others it can cause a great deal of discord and irreparable harm to relationships. That is because there is a big difference between parents deciding to repair or upgrade a cabin, and four siblings at different stages of life and living in different geographical areas trying to reach an agreement as to what should be done. One child might think a new roof should take priority, another might prefer to spend the money on a speed boat, and a third may have no interest in, or ability to pay for, anything at all.

There are many ways to deal with recreational properties. For example, you might direct that it be sold, with an option to purchase given to the children. Those who wish to buy it can then do so, applying some or all of their inheritance in payment of the purchase price. If some do end up buying the cottage in this way, then at least they will be doing it knowingly, without having the responsibilities of co-ownership forced upon them.

Alternatively, you could direct that the cottage be held in trust for the enjoyment of family members for a specified length of time. At the start of each season, the trustees would decide who will be entitled to use it and when, how it will be maintained, and how related expenses will be shared. Depending upon your financial circumstances and those of your children, you may decide to set up a fund through your Will to pay for property taxes, repairs and other expenses as they come due.

There are many options and we would be happy to explore these and other possibilities with you.

Cash legacies

A legacy is a specific cash amount left to a beneficiary. The amount of a legacy can depend on many factors including the testator's financial circumstances and his or her relationship with the recipient. Whenever a legacy is left to an individual or organization, the Will should address what happens if that individual predeceases the testator or, in the case of an organization, if it isn't in existence when the testator dies. When considering the amount of any legacy, it is important to keep in mind the fact that legacies will be paid in priority to any gifts of residue.

Residue of an state

"Residue" is the legal term used to describe what is left in your estate after taxes and debts are paid and legacies and other specific gifts are satisfied.

If you have a spouse, you will need to decide how to structure any benefits that you wish to leave to him or her. How you do so may depend upon many factors, including applicable law governing the rights of spouses, tax implications, the value of your estate, your spouse's age and circumstances, and the ages and needs of other intended beneficiaries.

If you want to provide for your spouse while ensuring that other beneficiaries, such as your children, ultimately inherit the capital, giving your spouse a "life interest" under a trust established by your Will may be the answer. A trust can permit your spouse to enjoy for life all of the income from your estate, together with as much of the capital as your executors consider appropriate to meet his or her needs. The balance of the capital remaining on your spouse's death would then pass to your children or other specified beneficiaries.

If you plan to divide the residue of your estate among more than one family member, friend or charity, your Will should specify the share that each recipient is to receive. Is it to be an equal or an unequal division? If you decide to leave a share of your estate to an individual, you should also specify what is to happen if he or she predeceases you. Should the gift fail in that case? Should it pass to his or her children? To his or her estate? What if a named charity is no longer in existence at your death? Should the executor be given discretion to make the payment to another charity with similar purposes? These are all matters you should consider.

Protecting minor beneficiaries

Your Will should direct that any inheritance payable to a minor beneficiary be held in trust by your executor(s) at least until he or she is 19, being the age of majority in British Columbia. Otherwise the law will require that it be paid into Court for the benefit of the child until he or she reaches that age.

Directing that a minor beneficiary's share be held in trust beyond the age of majority can be a good idea. When it comes to dealing with money, wisdom often comes with age and inheritances can easily be frittered away on cars, living expenses and ill conceived business ventures. Receiving a significant inheritance at a young age can also eliminate motivation. Why bother with higher education or struggle to prove yourself in a job if you know there is a big payout coming soon? Extending the duration of a trust can also provide a beneficiary with tax benefits, family law protection and other advantages.

If the inheritance is sizeable, staggered distributions at specified ages might be wise. For example, you might direct that a beneficiary receive 25 per cent of the capital at the age of 25 and the balance at 35. This can allow a beneficiary to gain experience in handling and investing money over time. If the first distribution is used foolishly, there will be another in reserve, and hopefully the beneficiary will have learned something by the time it is paid.

The role of guardian

A guardian is the person appointed to step into the parental role and assume responsibility for the personal and physical care of minor children. Guardians decide where children will live, which school they will attend, what activities they will take part in, and what medical care and religious training they will receive.

A common question clients ask is how executors and guardians interact. Using as an example a decision as to whether a child should attend summer camp, the judgment as to whether or not summer camp would be good for the child would be made by the guardian. The executor would then decide whether the child's trust fund can afford to pay the camp fees.

Court challenges to wills

Wills can be challenged on a number of grounds. For example, the Wills, Estates and Succession Act ("WESA") provides that if you die leaving a Will which does not, in the Court's opinion, adequately provide for the "proper maintenance and support" of your spouse or children – including both minor and adult children – the court may vary the terms of your Will to provide for them in such manner as it considers appropriate. A great deal of litigation is commenced each year in British Columbia pursuant to this legislation, particularly in the context of second marriages and blended families, and also in cases where a testator has not treated his or her children equally.

A Will can also be challenged on the basis that the person who made it did not have the mental capacity required by law to do so, or was unduly influenced to make it or did not sign it in accordance with the technical requirements imposed by law.

To minimize the possibility of a successful challenge to your Will, it should be prepared by a lawyer who specializes in estate planning and who is familiar with your personal and financial circumstances and those of your beneficiaries.

Income tax implications

British Columbia abolished succession duties years ago, and the federal government eliminated estate taxes. At present, income taxes, including taxes on capital gains, are the primary taxes payable as a consequence of death.

With certain exceptions, when you die you are considered for tax purposes to have disposed of your capital assets for proceeds equal to their fair market value at that time. This may trigger a tax liability if any of those assets have increased in value. However, if your assets are left outright to your spouse, or are to be held by the terms of your Will exclusively in trust for your spouse during his or her life on certain terms, a "rollover" will be available. The effect of the rollover will be to defer the tax required to be paid on any gain in the value of the assets until your spouse dies, or until your spouse (or the trustee holding assets for your spouse) disposes of the assets, whichever occurs first.

Probate fees

You should also be aware of the impact that probate fees can have on your estate. British Columbia has the second highest probate fee rate in Canada, calculated at approximately 1.4 per cent of the value of all real and tangible personal property owned by the deceased that is in the province and, if the deceased was ordinarily resident in British Columbia immediately before death, 1.4 per cent of the value of intangible personal property (such as bank account balances, stocks and other securities) wherever located. This means that for every C$1,000,000 in assets passing pursuant to a Will that is probated, approximately C$14,000 in probate fees will need to be paid.

There is no maximum cap on probate fees in British Columbia. By comparison, the maximum payable under Alberta law is C$400. There is also no deduction for debts and liabilities owed by a deceased, with the exception of debt that is secured against property, such as by way of a mortgage.

There are a number of ways that you can minimize or eliminate income taxes and probate fees payable on your death. We would be pleased to discuss those opportunities with you.

How often should a will be reviewed?

You should review your Will at least every five years to ensure that its provisions remain appropriate, and more often if there is a significant change in your personal or financial circumstances or those of the persons named in your Will. Executors may move away or become ill. Legacy amounts may become inappropriate in light of your increasing or decreasing fortune. Beneficiaries may die, fall out of favour or become incapacitated. Significant changes of this kind should be reflected in your estate plan.

We can help

A properly designed estate plan will enable you to ensure that your life's acquisitions will be disposed of in an organized and tax efficient way in favour of the people and charities you wish to benefit.

When you do not plan, your family can be left feeling frustrated and hurt that you did not care enough to take the time to put your affairs in order. Your estate may also be saddled with unnecessary taxes and expenses.

Whether you need a simple Will or a carefully structured plan involving an estate freeze, trusts and privately held companies, we have the expertise to help you organize your affairs and achieve your goals.


About Norton Rose Fulbright Canada LLP

Norton Rose Fulbright is a global law firm. We provide the world's preeminent corporations and financial institutions with a full business law service. We have 3800 lawyers and other legal staff based in more than 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia.

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Wherever we are, we operate in accordance with our global business principles of quality, unity and integrity. We aim to provide the highest possible standard of legal service in each of our offices and to maintain that level of quality at every point of contact.

For more information about Norton Rose Fulbright, see nortonrosefulbright.com/legal-notices.

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