See also: Enduring Power of Attorney and Personal Directives (Living Wills)

Estate Planning

Most people think “estate planning” means making a Will to take care of their possessions and people they care about after they die. They don’t realize that an estate plan is really a life plan. It certainly involves having a well thought out, carefully written Will to meet your wishes and the needs of your beneficiaries after death but it also involves well thought out, careful planning during life to:

  • Maximize gifts to be left after death by minimizing or delaying tax on your home, cabin, cottage, RRSP’s, RIF’s and other investments so that Revenue Canada (CRA) is not your primary beneficiary
  • Address your own security during life, especially if some catastrophe occurs such as a brain injury, coma or dementia and you aren’t able to make your own decisions about your property, your finances, your living situation or your health.
  • Take care of elderly parents and loved ones with disabilities before your death as well as after.

A sound estate plan should include the following tools:

  1. Will
  2. Enduring Power of Attorney
  3. Personal Directive (Living Will)

The estate plan may also include:

  1. Cohabitation Agreement or Estate Property Agreement
    • Particularly for blended families or older people cohabiting or remarrying who have adult children from a previous relationship.
  2. Trusts
    • These can be simple or complicated. Most often I use them in the following situations:
      • Minor children- to manage their money until they are old enough or mature enough to do so themselves
      • Special needs beneficiaries- to manage their money AND prevent disruption of their government benefits (AISH), regardless of age.

With these tools and some financial knowledge or advice you can ensure you are looked after as you age and that you can leave more money for the people you care about.

Wills

What and why?

Your estate is made up of all the property and debts that you have when you die – real estate, cash, investments, cars, jewelry, even your animal companions.

Your Will is the document that gives clear direction, a road map if you will, to your Executor so that he or she can carry out your wishes as smoothly and quickly as possible.

Only one in three Canadians has a Will which can leave their loved ones in a difficult situation when that person (inevitably) dies. Death can catch you off guard and your friends and family are left to pick up the pieces during a very emotional and stressful time.

Everyone should have a Will unless you have no income, no assets, no debts, no spouse, no children, no family, no friends, no animal companions and could care less about your community and society.

If you do a Will and do it well, you can minimize the tax paid, ensure gifts are distributed without time delay, protect your vulnerable beneficiaries, avoid family stress and bitter disputes… perhaps even “rest in peace”!

Types of Wills

Holograph

A holograph Will is a “do-it-yourself” document done in your own handwriting. It needs to be signed and dated but not witnessed. Holograph Wills are not legal in all provinces but they are in Alberta.

Will Kit

A Will kit is also a “do-it-yourself” document usually bought at your local store. It is pre-printed with some instructions. You fill in the blanks.

Formal Will

Both the handwritten Will and the one done with a kit will save you money in the short run but if you make an honest mistake(s) when putting them together the consequences can be serious.

The directions you give may be unclear (for example, “children”: is that biological only? step children?). You may sign it improperly (for example, use a beneficiary’s spouse as a witness) and sometimes not at all. I find that most people don’t think about the “what if’s” – what if I leave it to Jane but she dies before me? What if Jane and I die in a common accident? What if I have grandchildren? What if the house I am giving to my wife and young children is uninsured and mortgaged to the hilt? If you need a trust in your will, even a simple one (perhaps you have a special needs child or sibling, maybe you don’t want your children to get all their inheritance when they are only eighteen (18)) I believe you must use an experienced lawyer who specializes in Wills and Estates.

If you bring a lawyer the proper background information, usually a very complete Will Questionnaire, and talk with them about what is important to you, you will get a well-planned, clean and thoughtful roadmap for your Executor to follow upon your death.

Special Needs

Wills

A person who has a Guardian and/or Trustee may still have capacity to make a Will. Whether or not have this capacity their Guardian or Trustee cannot make a Will for them.

Most parents with children with long term disabilities are concerned about the latter’s financial security. AISH on its own is certainly not enough to give someone a comfortable lifestyle. A properly planned and drafted Will including a special discretionary trust for the beneficiary with special needs can help maintain the government benefits along with the inheritance.

Discretionary Trusts

The discretionary trust allows the Trustee (Executor) to make certain payments for the beneficiary. This can include things like paying medical costs, renovating, repairing or even buying a home, paying for education, etc. The Trustee alone has the discretion to determine when the beneficiary needs funds and for what. Because the Trustee cannot be compelled to give the beneficiary any capital or interest it can be argued that the special needs beneficiary has no equitable interest in the trust and is still in need of and entitled to the government benefits.

Registered Disability Savings Plan (RDSP)

If you have a loved one with special needs, the government has established plans called Registered Disability Savings Plans to assist with the financial security of those who are:

      • 59 years of age or younger
      • Canadian residents
      • Eligible for the Disability Tax Credit; and
      • In need of a long term savings plan for the future

In many cases the amount contributed will be matched by a government grant of up to $3,500 and a bond of up to $1,000 per year.

Interest accumulates tax-free until money is withdrawn.

An important point to note when doing a Will is that as of January 1st, 2011 a deceased parent or grandparent’s RRSP, RRIF and/or RPP can be rolled over into the RDSP of a financially dependent child or grandchild with a disability.

RDSP’s are not seen to be assets nor are eventual payments under them seen to be income so AISH is not affected.

Probate

What is probate?

Probate refers to getting a Court’s stamp of approval on your Will so that your Executor has proof that they are the person authorized to deal with your estate, especially your real estate and your finances (bank account, investments, etc.). Many banks and other asset holders will refuse to deal with the Executor until probate is obtained so getting probate (or a Grant of Administration if you die without a Will) is an important step.

Executor’s Role

Some people who die do not need probate (for example, if everything is owned jointly with a spouse) but in many cases it is a necessity. Your Executor is the person in charge of getting the Court’s approval of your Will or their approval of how your estate passes if you die without one. (if you die without one your net assets are distributed according to a pre-arranged formula in accordance with provincial law). Most often the Executor employs an experienced lawyer to oversee the Court application for probate so that this is granted without delay.

The Executor should be someone you trust emphatically, knows you well, is aware of your wishes, has some business sense, appreciates your beneficiaries and is not a procrastinator.

Time frame

The time frame for administering and winding up an estate depends on the amount of preparation done before by you… (clear, updated wishes, an up-to-date record of possessions, etc.) and the experience of the Executor and lawyer.

Beneficiaries have a right to know what is going on but they should also respect the Executor’s role and leave them alone the first few months or the “Executor’s year”. The Executor will have plenty to do…find the Will, go through your pockets and drawers, empty the house, identify/inventory/value all you own and owe and begin filing taxes before applying for probate. Once probate is granted they’ll need time to liquidate assets and pay the debts before what is left can be distributed. Beneficiaries would be wise not to spend their inheritance before they get it!

Generally estates should be completed within two years but it often takes only a few months. With an estate that takes more time there is sometimes an interim distribution to beneficiaries if the net worth of the estate justifies this (that is, when there will be more than enough to satisfy debts and taxes with what remains). In very complicated situation the time frame is extended beyond two years.

Cost

A lot of people will do back flips to avoid their estate going to probate because of concern about the cost involved. The cost of probating or administering an estate consists of two numbers: the Court fee and the lawyer’s fees for the work done.

Court fee

In Alberta the Court fee for filing a probate or administration application is based on the net value of the estate. These costs are not significant with the maximum being in the range of $430.00 for an estate valued over $250,000

Lawyer’s fee

The Law Society outlines suggested fees for probate. These guidelines consist of a base fee of $2,250 and then a second charge equal to 1% of the value of the estate. Actual out of pocket costs for things like couriers and postage are extra.

My charge is generally based on the actual time spent on the file or the above fee guideline, whichever is less. Only in an unusual and complex scenario would the guideline amount be charged.