We’re all going to die!
An Introduction to Estate Planning – Part 1
Several years ago, when I was a pastor, I spent a portion of one year involved in Clinical Pastoral Education (CPE), the kind of training that is often required of chaplains. One of the statements made earlier on by the director of the program at the London Health Sciences Centre was to point out the obvious, that we are all going to die. His point was that we needed to come to terms with that reality, as it was quite possible that we were going to speak with hospital patients who were terminally ill. If we were unable to come to terms with our own inevitable demise, how could we be open to listening to someone whose death was much nearer?
In these days of COVID-19, when fears – or denials – of death have been more heightened, it seems appropriate that we arrive at this discussion. A CBC article indicated that COVID-19 had prompted a “flood of people” to write or update their wills. In the next several posts I will write about a number of areas concerning estate planning. To begin, let’s talk about wills or the lack thereof.
The Purpose of a Will
Are you married? You need a will. Perhaps you are not married but have a common-law partner. You need a will. Do you have children? You need a will. Do you have property? You need a will. Are you going to die? You need a will. Well, I suppose you may not need a will if you have no assets and no heirs, but for most people, a will is a basic component of estate planning, or of financial planning more broadly.
A will allows you to provide for an orderly distribution of your assets in the manner that you desire. A will also has the potential to reduce taxes on your estate and your beneficiaries. And yet, several articles that I reviewed indicated that more than half of Canadians do not have a will.
Dying Intestate: Dying without a Will
If you die intestate, that is, without a will, your assets will be distributed according to provincial law, which may very well be different than you wished.
For example, in Ontario, if you died without a will and you had a common-law spouse, that is, you were not legally married, the surviving spouse will not inherit any part of the estate. The survivor may be able to file a claim to resolve this situation, but this is an example of how the absence of a will can cause difficulty and distress to a loved one.
Writing again with reference to Ontario, according to the website of the Ministry of the Attorney-General:
When a person dies without a valid will, called “intestate,” Ontario’s Succession Law Reform Act sets out how the estate is distributed.
According to the Act, unless someone who is financially dependent on the deceased person makes a claim, the first $200,000 is given to the deceased person’s spouse if he or she has decided to claim his/her entitlement. The other possibility is to claim half of the net family property. A lawyer can help determine which is the better choice.
Anything over $200,000 is shared between the spouse and the descendants (e.g. children, grandchildren) according to specific rules.
If there is no spouse, the deceased person’s children will inherit the estate. If any of them have died, that child’s descendants (e.g. the deceased person’s grandchildren) will inherit their share.
If there is no spouse or children or grandchildren, the deceased person’s parents inherit the estate equally.
If there are no surviving parents, the deceased person’s brothers and sisters inherit the estate. If any of the brothers and sisters have died, their children (the deceased person’s nieces and nephews) inherit their share.
If there are no surviving brothers and sisters, the deceased person’s nieces and nephews inherit the estate equally. However, if a niece or nephew has died, their share does not pass to their children.
When only more distant relatives survive (e.g. cousins, great nieces or nephews, great aunts and uncles), the rules are complex, and you should speak to a lawyer.If any heir was alive when his or her relative died, but died before the estate was distributed, that person’s own heirs are entitled to their share.
When a person dies without a will, only blood relatives, including children born outside of marriage, or legally adopted children can inherit. Half-blood relatives share equally with whole-blood relatives.
Each province will have its own laws regarding the disposition of an estate, but the main point is that you lose control over how your estate is distributed if you don’t provide a valid will. What are the implications beyond the legal rules?
You have left a mess for your family that will take time and money and must be resolved through a lengthy process in the courts.
Your assets are potentially tied up for months, leaving your family unable to access your funds to pay for the expenses incurred since your death.
You have not named a guardian for your minor children or planned for the management of their inheritance once they reach the age of majority. Imagine if both parents were to die. If no one applies to be guardian to your children, then the judge will have to appoint someone. Do you really want your children to go to someone who does not share your views of life to raise your children? Let’s also imagine you managed to save up an estate of a couple of million dollars. If you have two children, and assuming it has been prudently invested during their minor years, they could easily inherit more than a million dollars each when they reach 18 or 19. Without a will that establishes a trust to hold and distribute those assets in a responsible manner, the children could spend that money in very unfortunate ways.
If you have not yet set up a will, you may want to investigate doing so soon. Depending on complexity, a will can be as little as a few hundred dollars or over a thousand dollars. There are even will kits which can be had for under one hundred dollars. Whether kits are adequate for your needs is a question I am unable to answer, however.
In the immediate context of COVID-19, creating a valid will without an in-person signature in “wet ink” sounds impossible. However, in Ontario at least, there is a workaround that allows the witness requirements to be met by using audio and video technology. You can read more about this at the website of the London, Ontario law firm, Brown Beattie O’Donovan.
In my next blog post I will discuss Powers of Attorney.
Click here to contact me for an appointment.
In these uncertain economic times, you may be interested in a half-hour no-cost, no-obligation financial planning conversation with me. It’s called FINPLAN30 and the range of topics is wide open. Click here to sign up for a free session.
Disclaimer: This blog post is intended for general information and discussion purposes only. It should not be relied upon for investment, insurance, accounting or legal decisions.