Planning your will is one of the most important decisions you’ll make in your lifetime. A properly prepared will ensures your assets are distributed according to your wishes and can save your loved ones from unnecessary legal complications and stress during an already difficult time. In Canada, estate planning laws vary by province and territory, making it crucial to understand the specific requirements and considerations for your location.
Understanding the Basics of Canadian Wills
A will is a legal document that outlines how you want your assets distributed after your death. Generally, it is advisable for all adults to have a will and to have their will reviewed and updated periodically and after major life changes.
The person who creates the will is called the “testator” and those who will receive assets are known as “beneficiaries.” The person responsible for carrying out the will’s instructions is called the “executor”.
Key Components of a Valid Canadian Will
- Declaration: A clear statement that this is your last will and testament
- Revocation clause: Canceling all previous wills
- Executor appointment: Naming the person(s) who will manage your estate
- Guardian designation: If you have minor children
- Asset distribution instructions: Specific details about what each beneficiary will receive
- Residual clause: Addressing any remaining assets
- Date and signature: generally signatures from the testator, witness and/or lawyer
The laws regarding wills and what is required changes from one province or territory to the next. Please consult with an estate lawyer to confirm what is required.
Choosing Your Executor: A Critical Decision
The executor of your will is responsible for carrying out your wishes after your passing. They will be responsible for locating and securing all of your assets, and distributing those assets according to the instructions in the will. They will also be responsible for your estate’s tax filing and debt payments. It could take anywhere from a couple months to a couple years to manage an estate through probate depending on the complexity of the estate.
Key Considerations When Selecting an Executor:
- Trustworthiness: Choose someone who is reliable and honest.
- Financial acumen: They should understand basic financial concepts and be capable of overseeing the distribution of assets.
- Willingness: Though technically not required, it would be best if the person is willing to take on this responsibility.
- Location: An executor that is close to you will likely have an easier time managing the estate.
- Age and health: Consider their ability to serve when needed, it is often recommend to choose someone who is younger than you.
- Alternative options: Name backup executors just incase an executor declines the appointment, is unfit due to illness, or possible pre-deceases you.
Protecting Your Minor Children
If you have children under 18, your will should address their care:
Guardian Designation
The guardian designation is your chance to declare your wishes in regards to the care of your children. It would be advisable to discuss the appointment with your chosen guardian(s) before naming them in your will. You may also want to include a letter of wishes or directions for the named guardian.
For the same reasons as the executor appointment, it would be advisable to have a back up or alternate guardian designated.
Financial Provisions
You can provide instructions to create trusts for minor beneficiaries and leave instructions regarding the beneficiaries access to the trust. Your instructions can also include designating a trustee to manage the funds, whether that is a person you know or a professional.
Funds or assets can also be left to the designated guardian(s) to help them raise your child or children. This could be in addition to or in place of setting up trusts.
Asset Distributions
There are a couple ways to distribute or bequeath assets to beneficiaries:
- Specific bequests: Leaving particular items to specific people, these instructions should be clearly laid out in the will.
- Percentage distribution: Dividing assets by percentage, this is common if there are multiple beneficiaries. However it does not take into consideration the different types of assets. For example: Distributing 50% of a bank account is much simpler than 50% of a vacation property.
- Charitable donations: Include the full proper name of the charitable organization you would like to include and confirm that they are able to accept the assets. Not all charitable organizations are going to be able to accept investments or physical property. It would be best to know a head of time if the donation needs to be in cash and where that cash is coming from. For example: You may choose to donate a stock portfolio, or you may leave instructions to liquidate a particular account and donate the cash.
Types of Assets to Consider:
- Real Estate: Primary residence, vacation properties, investment properties – these assets may be difficult to split amongst multiple beneficiaries.
- Financial Assets: Bank accounts, investments, RRSPs, TFSAs – these assets are easier to split amongst multiple beneficiaries. However, be careful to follow the rules of registered accounts.
- Personal Property: Vehicles, jewelry, collectibles, family heirlooms, furniture, etc.
- Business Interests: These can be tricky to bequeath, please consult a professional to confirm this is done correctly and ensure the beneficiary is able and willing to inherit this type of asset.
- Digital Assets: Online accounts, cryptocurrencies, digital files, and cloud storage accounts. Make sure your executor will be able to access these assets for distribution. If the cannot access your accounts, the assets may be lost.
Tax Implications of Estate Planning
Canada doesn’t have an inheritance tax, but estates face several tax considerations:
Capital Gains Tax
Upon a person’s death, their assets are deemed (or thought of as) sold at fair market value. This establishes the value of the assets for the will and taxes. The estate may potentially have capital gains taxes to pay assuming that the assets increased in value and are not exempt. This includes investment accounts and properties that are not considered a principle residence.
Registered Accounts
Each registered account (TFSAs, RRSPs, FHSAs, RIFs, etc) has it’s own rules about naming beneficiaries and how the accounts might be transferred to a spouse, child or other beneficiary. It is critical to confirm that each account is set up correctly and that the beneficiary designations are completed. The beneficiary designation should reflect what is included in the will.
Special Considerations for Blended Families
Blended families require careful planning to protect the interests of one’s biological children, provide for current spouse, possibly provide for stepchildren, and address possible conflicts. The use of trusts maybe helpful. And it is critical to have very clear inheritance instructions.
Common Will Mistakes to Avoid
- Outdated beneficiary designations: Review and update your beneficiary designations as your life and family change. For example: your beneficiary designations may change if minors are no longer minors.
- Failing to update after major life events: Updating wills and beneficiary designations after major life events helps ensure your current wishes are know and followed. This includes marriage, divorce, births, deaths, and adoptions.
- Unclear instructions: Be specific about asset distributions and who the beneficiaries are.
- Not considering all assets: It may be helpful to clearly document all of your assets (physical, financial, and digital) before writing the will and before each update.
- Forgetting debts: Your executor will be responsible for paying off debts, so include instructions or preferences on how that should be handled.
- Inadequate executor selection: Choose carefully and have backups named in the will, otherwise there may be conflicts and the courts may have to appoint someone.
- DIY complex estates: Get professional help for complex estates, large estates, or if you are unsure if your will is complete or valid.
Complementary Estate Planning Documents
Power of Attorney
Establishing a Power of Attorney helps protect you and your wishes in the event you are incapacitated, ill, or out of the country.
Advanced Directives
Advanced directives help document what your wishes are for the types of care you do or do not want if you are unable to communicate those wishes when a decision needs to be made.
Final Thoughts
Creating a comprehensive will is a gift to your loved ones. It provides clarity during a difficult time and ensures your wishes are honored. Remember that will planning is not a one-time event but an ongoing process that should evolve with your life circumstances.
While basic wills can be straightforward, complex estates benefit significantly from professional guidance. The relatively modest cost of proper legal assistance far outweighs the potential complications and costs that can arise from DIY errors or outdated documents.
Take the time to plan your estate properly. Your beneficiaries will thank you, and you’ll have peace of mind knowing your legacy is protected. Whether your estate is simple or complex, a well-planned will is one of the most important documents you’ll ever create.