When discussing estate planning, we often focus on the more complex details, such as how to reduce tax liability for your estate, or whether to make use of multiple wills. However, before moving on to these more complicated topics, it is vital to start from the beginning and consider the basics as a first step in estate planning.
A CIBC survey from last year found that around one half of Canadians do not have a will, indicating that many of us have not yet taken that first step in creating an estate plan, no matter how simple or complicated.
One of the main reasons that all Canadians should strongly consider making a will is that, if they do not take the initiative to do so, the legislated scheme will determine who will be the executor of one’s estate and how assets will be distributed. In Ontario, the Estates Act, R.S.O. 1990, c. E.21 (the “Estates Act”) and the Succession Law Reform Act, R.S.O. 1990, c. S.26 (the “SLRA”) provide that scheme.
Section 29 of the Estates Act sets out that the deceased’s spouse or next of kin may act as executor, which, in the case of an intestacy, is often referred to as an “Estate Administrator”. Part II of the SLRA sets out the distribution scheme on intestacy, in order of priority, as follows:
- Where someone dies with a spouse and no children, the spouse is entitled to the entire estate;
- Where someone dies with a spouse and children, the spouse is entitled to a preferential share, currently $200,000 in Ontario, and the spouse and children are each entitled to a share of the remaining amount;
- Where someone dies without a spouse or children, the estate would then be distributed to their parents, or the survivor of them;
- Where someone dies without a spouse, children, or parents, the estate would then be distributed among surviving brothers and sisters;
- Where someone dies without a spouse, children, parents, or siblings, the estate would be distributed among nieces and nephews; and
- Where someone dies without any of the above family members surviving them, the estate would then be distributed to next of kin.
It is, therefore, easy to see that the legislative scheme may ultimately result in the distribution of one’s estate in a manner that may not have been intended.
When it comes to determining the right time to begin planning your estate, the earlier you start, the better. Many people think that they may be too young to make a will, and that it is something that they need not consider until later on in life. However, the earlier you begin planning, the more flexibility you will have in how to structure your estate and your will. For example, you may consider purchasing life insurance as a way to fund payment of tax liabilities triggered by death, and advance planning can allow for a reasonable cadence of payments throughout the course of your life. It is vital to take advantage of the time available and plan as early as possible. You do not want to leave anything until the last minute, such that you are scrambling to create and implement a plan, possibly forcing you to make hasty decisions, without the opportunity to thoroughly think the matter through.
It is also important to revisit your estate plan over the years, and particularly upon certain life events. The most obvious trigger points that indicate it is time to reassess your estate plan include marriage, divorce, or second marriage. Furthermore, one perhaps less obvious event that should trigger a reconsideration of your current estate plan is any significant change in financial circumstances. After losing or gaining a significant sum of money, you may want to rethink the options that are available to you, in terms of estate distribution and in terms of efficiency (including tax planning considerations). Revisiting your estate plan from time to time by taking your current circumstances into account is a good way to anticipate issues that may arise later on and reduce the chance of such issues causing delays or other problems in the administration of your estate, to the extent possible.
Another key consideration in estate planning should be speaking to your family about your estate plan. Although this conversation can be a difficult one to have, it is very important to make your estate plan known during your lifetime. Managing expectations is difficult, especially if they have been permitted to inflate over many years or decades. If you can take the time to explain your reasons for choosing to distribute your estate in the manner set out in your will and estate plan, your loved ones and beneficiaries will have some valuable insight into your wishes that may be difficult, or impossible, to glean after you have passed away.
Lastly, take care not to get so bogged down in tax considerations or the most efficient methods of distributing your estate that your estate plan no longer accurately represents your wishes. Focus first on planning your estate from the heart. Tax considerations can be built into your plan and adapted as necessary, but the foremost consideration should be to set out your estate plan in accordance with your wishes.
Ian Hull and Suzana Popovic-Montag are partners at Hull & Hull LLP, an innovative law firm that practices exclusively in estate, trust and capacity litigation. To watch more Hull & Hull TV episodes, please visit our Hull & Hull TV page.
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Discussing personal finances is often considered a taboo, but many barriers can be knocked down if you approach the conversation openly, lay out your goals, and check them off.
Or any other crisis -- to talk to your parents about their estate plans. If you feel disingenuous using some ice-breaking strategy then just be upfront about acknowledging how uncomfortable the topic makes you feel. That in itself is an ice breaker.
Ensure your parents feel loved and in control of the situation. Don't forget the discussion is about them and how they want you to fit in. Listen to their ideas to get a strong understanding of what they want. If you have suggestions then offer them, but don't expect that they'll immediately accept them, if at all. It's about people skills and open communication. If you know that will be a hurdle from the start, then perhaps a visit to a third party such as an estate lawyer or financial planner can help take the edge off.
Assets, wills, and how your parents want to share their legacy; be prepared with specific questions about all those topics. Beyond that, you'll need to talk to your parents about plans about their income, retirement investment plans, and health care. Some professionals suggest commonly cited questions including: should your parents have a living will? Does the Power of Attorney cover off what your parents want addressed? Does your parents' will and estate plan clearly lay out the transfer process to beneficiaries or deal with tax issues?
After figuring out exactly what your parents want in their estate plan there must be clear guidance on where those plans will be kept. Experts in the industry stress the importance of knowing where to easily find phone numbers and contact names, details, and documents including wills, investments, and personal information such as birth certificates.
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