Your will enables you to determine the beneficiaries of the property in your estate. It is important to understand, however, that some property will be handled outside of your estate, which is to say that it will not necessarily be governed by the terms of your will. Therefore, it is crucial that those types of property are carefully considered when preparing your estate plan.
Property Held Jointly With Another Person
One asset that will pass outside of your estate is any property that you hold jointly with another person. There are two types of property ownership of real estate. The first, and most common, is "joint tenancy". This type of ownership means that the co-owners do not own a specified share of the property, and when the first co-owner dies, the surviving co-owner will become the sole owner of the property through the operation of a the legal principle of survivorship. The surviving owner will be able to transfer the title to the property into their own name without the necessity of a grant of probate, and so property held in this manner will pass outside of the estate.
The second type of property ownership is "tenancy in common". If you own a specified share or percentage of a piece of real estate, then the principle of survivorship will not apply, and the share of the property owned by the deceased will be dealt with as part of the deceased's estate.
The issue of joint property can give rise to a wide range of contentious issues when an estate needs to be administered. It is important to get legal advice about this type of property, ideally at the time that it is acquired or placed into joint names, so that all of the parties understand the nature and effect of the joint ownership.
RRSPs and RRIFs
RRSPs and RRIFs are another type of asset that will commonly pass outside of one's estate. Most people find that their estate would enjoy a significant tax saving if they designate a beneficiary, other than their estate, on their RRSPs or RRIFs. If the designated beneficiary is a spouse or common law partner, or a child or grandchild who was financially dependent on the deceased, then the deceased's RRSP or RRIF can be rolled over to the beneficiary's RRSP, RRIF or Registered Disability Savings Plan (RDSP) on a tax-deferred basis. If you name a beneficiary on those investments, you do not need to deal with them in your will unless you want to make a change to the designated beneficiary.
Life Insurance
Life insurance proceeds will also often pass outside of the deceased's estate if a beneficiary other than the estate is named on the insurance policy. There are a number of reasons for which it will usually be recommended that a beneficiary be named on the insurance policy. First of all, if the life insurance proceeds do not pass through the estate, then they will not be available to creditors of the estate. The proceeds can also be paid out to the beneficiary relatively quickly, since no grant of probate is required.
The most important point to keep in mind with the above-noted types of property is to ensure that the beneficiary designations on all of your RRSPs, RRIFs and life insurance policies are kept up to date at all times. There are numerous situations where an ex-spouse or a parent remains the designated beneficiary of a policy, when that was likely not the intention of the deceased. There is often no remedy for a loved one who is surprised to find out that they are not the beneficiary of a valuable life insurance policy or retirement investment.
It is usually very easy to change the beneficiary designations, either on the instrument itself or through your will, so it is important to review this part of your estate plan to ensure that your documents reflect your current intentions.
As with all legal matters, additional complexities can arise depending on the facts in each unique situation. It is important to have a trusted legal advisor assist you with your estate plan in order to ensure that your intentions are realized for any property passing outside of your estate.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
