Category: Wills and Estates

The Benefits of a Secondary Will

Posted on by danny

A common question wills/estate lawyers are asked is: what can I do to minimize paying the government taxes? There is no one-size-fits-all answer, but for many individuals, preparing a Secondary Will is a great option.

A Secondary Will is exactly what it sounds like – it is a second Will, which works in tandem with a first Will (often called the “Primary Will”) to separate the assets that require probate, from those that do not.

One Will (the Primary Will) covers only the assets that require probate, whereas the other Will (the Secondary Will) is not submitted for probate and governs only the assets that can be administered without probate.

When used properly, this estate planning strategy means that Estate Administration Tax (“EAT”) is paid only on the assets governed by the Primary Will, and not on the assets governed by the Secondary Will. The tax savings can be quite sizable.

Probate and Estate Administration Tax

When you pass away, the assets that you own at the time of your death form what is referred to as your “Estate.” Your Estate is comprised of all assets owned or registered solely in your name, including for example; real estate, vehicles, bank accounts, and corporate shares. Most jointly held assets with a spouse (i.e., real estate, bank accounts, etc.) and assets with named beneficiaries (RRSP’s, Pensions, etc.), are not included in your Estate but instead pass directly to the surviving owner.

Generally, before Estate assets can be distributed to the beneficiaries named in your Will, your Estate Trustee (executor) needs to apply to the court for a Certificate of Appointment of Estate Trustee (more commonly known as “probate”). Whenever a Will is probated, your Estate must pay EAT. Currently in Ontario, EAT is equal to 1.5% of the entire value of your Estate (with the first $50,000.00 being exempt). Importantly, EAT is only paid when an Estate Trustee must apply to the court for probate. If you do not need probate, you do not pay EAT.

For certain assets, for example; real estate (located in Ontario), bank accounts, investments, and vehicles it is required to apply to court and receive a grant of probate. Without probate, the assets would be frozen in the name of the deceased owner. Whereas certain other assets, for example; shares in a private corporation like a family business, do not require probate.

However, the problem is that if one asset requires probate, then EAT must be paid on the value of ALL Estate assets, including the exempt assets (private shares). When used properly, a Secondary Will saves your Estate taxes by separating the exempt assets that can be administered without probate, so that the taxable value of your Estate is reduced. This is illustrated in the example below.

Tax Savings Example

Let’s assume you are the sole owner of the following assets when you die:

Asset Value
Home $500,000
Bank Account

 

 $100,000
Shares in a Private Corporation $1,000,000

 

Secondary Will: If you have a Secondary Will, EAT is levied on the assets that require probate (the home and the bank account) which are governed by your Primary Will; however, EAT is not levied on the exempt assets governed by your Secondary Will (the shares).

The total amount of EAT payable by your Estate, is $8,250.00 [calculated as ($500,000 + $100,000 – $50,000) x 1.5%].

Primary Will: If you only have a Primary Will, EAT is levied on all the assets that form your Estate.

The total amount of EAT payable by your Estate is $23,250.00 [calculated as ($1,000,000 + $500,000 + $100,000 – $50,000) x 1.5%].

In this example, preparing a Secondary Will saves the Estate $15,000.00 in taxes. This is a simplified scenario, but it shows how using a Secondary Will can reduce EAT, which ultimately means a larger inheritance for your beneficiaries.

Other Benefits

In addition to the reduced EAT liability, there are other benefits that can be achieved by having a Secondary Will in place, for example:

Real Estate located outside of Canada: It may be beneficial to have multiple Wills when you own property outside of Canada. The laws in foreign jurisdictions often differ from Canadian law making it difficult for a Canadian Will to be compatible with the estate administration rules in that jurisdiction. Preparing a Secondary Will under the laws of the foreign jurisdiction, may streamline the estate administration process by allowing your Estate Trustee to distribute the Ontario assets governed by your Primary Will, before receiving approval from foreign government(s) to distribute your foreign property (which can often take a longer time to obtain).

Real Estate (First-Dealings-Exemption): Where an Ontario property has been converted to the Land Titles system from the Land Registry system and is being dealt with for the first time since that conversion, the requirement to apply for probate to sell the property may be waived. This exception is becoming increasingly less common, but if you have owned real property for decades and have not dealt with it since your purchase (i.e., added/removed another owner) this should be discussed with your estate lawyer. The use of a Secondary Will governing this type of real property means that no EAT will be levied against the value of the home.

Confidentiality: When a Will is probated, it becomes a matter of public record. Therefore, if you have privacy concerns with respect to your Estate and would prefer your assets, and the beneficiary(s) of those assets to be confidential, having a Secondary Will may help ensure confidentiality and privacy.

Other Valuable Assets: Secondary Wills can also be used to separate expensive assets; such as paintings, artwork, and jewelry that would not otherwise require probate. When these types of personal assets are covered under a Secondary Will you do not pay EAT on their value. For example, if you have $100,000.00 worth of jewelry that you want to leave to your child, it will need to be appraised and the value is included in the calculation of EAT. However, because no one (i.e., a bank or the government) needs to approve the transfer of your jewelry, you can exclude it from your Primary Will, by including it in your Secondary Will. If you take this step, the value of that jewelry will not be included in the EAT and you would save taxes.

In summary, while the greatest benefit to using multiple Wills (Primary and Secondary Will) is often the tax savings potential, there are several benefits that can be achieved. We recommend consulting with one of our estate lawyers to discuss how a Secondary Will can help you accomplish your estate planning objectives.

Power of Attorney

Posted on by danny

No one wants to think about a time when you can no longer make decisions for yourself. The thought is a difficult one; but a worse thought is when you are in that situation and you have no one you trust to make those decisions for you. It is for this reason that a set of Continuing Power of Attorney documents should be drafted when you still have the capability of choosing someone you trust to handle your affairs.

In simple terms, a Power of Attorney is a legal document that gives someone else the right and authority to act on your behalf. The validity, requirements, and use of power of attorney documents in Ontario is governed by the Substitute Decisions Act, S.O. 1992, CHAPTER 30., the Powers of Attorney Act, R.S.O. 1990, CHAPTER P.20, and related common law decisions.

In Ontario, there are three types of Power of Attorney documents:

1) Continuing Power of Attorney for Property –appoints someone to make decisions with regard to your financial affairs and continues to be in effect even if you become mentally incapable.

2) Power of Attorney for Personal Care- appoints someone to make decisions with regard to your personal decisions including health care and continues to be in effect even if you become mentally incapable.

3) Non-Continuing Power of Attorney for Property – limited use document that appoints someone to make financial decisions during a specified period of time and cannot be used if you become mentally incapable. For example, these are often used for individuals who are out of the country for long periods and need someone to handle their affairs while they are gone.

This article will focus primarily on the first two Power of Attorney documents. Unlike a Will, a Power of Attorney comes into effect during your lifetime and is only valid until death. After death, your Power of Attorney no longer has power. It is intended to be used during periods of incapacity- meaning times when you are unable to make decisions on your own behalf. Some common examples include: individuals suffering from dementia or Alzheimer’s disease or those who are in a coma or under long-term sedation, among others.  However, you should always choose someone you trust because, for example, your Power of Attorney for Property comes into effect as soon as you sign it- meaning that individual can access your bank accounts or sell your property without your knowledge, even if you are still mentally capable.   It is for this reason that it is crucial that you trust the person who you have appointed because the position holds a lot of power.

A Power of Attorney is not a mandatory document, but instead one that you give voluntarily to protect you and your assets. You should never force someone, or be forced, to give a Power of Attorney.  Furthermore, you cannot give a Power of Attorney if you are “mentally incapable”. In other words, if you are unable to recognize the gravity of signing the document at the time of signing, it cannot be completed (mental incapacity is much more complicated that this, but for ease of reference we will stick with this). Lawyers are not permitted to witness a Power of Attorney document if they have reason to believe that the individual does not have capacity. It is for this reason that it is important to ensure that these documents are finalized while you are still capable. Many adults with aging parents or spouses face this issue because if they have waited too long, the documents can no longer be validly signed. Many people get to the point when they need a Power of Attorney, but are no longer capable of giving one.

What happens if I don’t have a Power of Attorney?

In the situation where you become incapable of making your own decisions, and you do not have a Power of Attorney for Personal Care, many decisions related to personal care would be made by a family member, if any, who would automatically receive the authority to make these decisions for you. This individual would not receive the same amount of authority they would have received as your Power of Attorney. Some situations require the appointment of an individual by the Consent and Capacity Board. If there is no family member who is willing and able to act on your behalf, the Ontario Public Guardian and Trustee would have to be appointed.

In the situation where you become incapable of making your own decisions and you do not have a Power of Attorney for Property, a friend or family member can apply to the Superior Court of Justice to be appointed as your “Guardian of Property”. This process is detailed and can be quite expensive as it requires payment of court fees, capacity assessments, and legal fees. Alternatively, if the Public Guardian and Trustee of Ontario have been named as the statutory guardian, the Public Guardian and Trustee of Ontario can also name an individual to be the Guardian of Property.

The issue with these two options is that you do not have control over who is managing your decisions. Your decisions could be left in the hands of someone you do not trust or one that does not necessarily have your best interests at heart. There are requirements for these individuals to act reasonably, but if you are incapable, you are not able to request an accounting or make a complaint. Someone else would have to be the individual who questions the decisions of your guardian.

Often people say “it’s too early” or “I’ll get to that eventually”. Life tends to get in the way. Some people may find themselves mentally incapable and facing a lawyer who, by law, cannot witness a Power of Attorney document.  When it comes to these life decisions, it is best to discuss your options with your lawyer sooner than later to ensure that the decisions regarding your health and your finances are in the hands of someone you trust.

Dealing with Digital Property from Beyond the Grave: How to Manage your Digital Estate

Posted on by danny

Dealing with Digital Property from Beyond the Grave: How to Manage your Digital Estate

When it comes time to draft a will, clients are normally very direct in what they want happening to their property when they die.  The sofa may be left to their daughter Sally, the convertible left to uncle Tony, the hockey cards left to nephew Jimmy.  Pretty much any piece of property can be left to pretty much anyone, and for the most part, everyone has a plan in mind.  But in the last decade or so, a new type of property has emerged that is often overlooked in estate planning: digital property.

Digital property, for the most part, is intangible. It can take make many forms, including but not limited to, photographs, music files, e-mails, social networking profiles, enterprise web content such as blogs and reviews, and video footage.  When a person dies, their digital property could live on in cyberspace forever, or on the other hand, could be disposed of when an account gets deleted due to inactivity.

Here are some practical considerations involving your digital property to think about:

Photographs:

Gone are the days when you take several dozen pictures, bring the film in to the developer, and then store the photos in an album or in a box under the stairs.  Nowadays, a computer might hold hundreds upon hundreds of digital photographs, uploaded and transferred within seconds.  Many of these digital files are the only copy of the picture in existence.  Obviously, to preserve memories and family history, it’s important that these photos be dealt with and passed on.  If you maintain a photostream on a website such a Flickr, there is no right of survivorship, meaning the pictures will be disposed of. That is, unless someone takes over the account.

Music files:

Whether you’re a casual downloader or an MP3 maniac, you don’t actually own your digital music files.  When you use a program from purchasing digital music such as iTunes, you agree on the end user agreement that you will be a licensee of the music. That means you’re not actually allowed sell or bequeath the files to someone else. The same goes for digital music files that are stored in a “cloud”.  It’s a pretty common practice for people to pass down their old vinyl or CD collections. While there’s not much that can be done to stop it from happening with digital files too, as a general point of law, there is no property right to the file.

E-mails:

The approach from major e-mail service providers varies from company to company.  For example, Gmail (Google mail) will hand over the account of a deceased, so long as certain information can be provided, such as a death certificate and a copy of a power of attorney. Hotmail will grants access to the account after being provided with the same information required by Gmail.  However, Hotmail will automatically delete the account after a year of inactivity. Yahoo, on the other hand, is much stricter that Gmail and Hotmail.  That’s because it does not have a right of survivorship in its privacy policy. Once Yahoo receives a death certificate, it will close the account and delete the contents.  If you use an email account that isn’t provided by Gmail, Hotmail, or Yahoo, it may be worth spending a few minutes checking out your provider’s privacy policy.

Social networking profiles:

You may or may not be one of the 500 Million people who have an active Facebook account. If you are, then you should know that when you die, your account will be de-activated and converted into a memorial page.  This means that you “friends” can still visit your page, but no one will be able to log into the account in the future.  If you have a Twitter account, it will be removed after given notice with a death certificate. However, if family members submit a formal request, they may be provided with archives of public Tweets from the deceased user. As for Google+, the same policy as provided for with Gmail will apply, giving your heir full access to the account, so long as certain information can be provided, such as a death certificate and a copy of a power of attorney.

Video footage:

Youtube, which is owned by Google, allows heirs to have full access to an account and its content. Once an heir has access to the account, he or she can keep videos public, make them privately accessible, unlist them, or delete them from the site outright.

 

For the most part, digital estates do not currently receive much attention.  This is likely because the concept is relatively new, and because the generation of people that have online property are not at the stage in their lives where they plan for their death.  However, this is surely going to be an area of estate law that will begin to grow exponentially.

If you have specific plans for what should be done with your digital property when you die, your best option is to appoint a “digital trustee” in your will and leave him or her with specific instructions.  Otherwise, your heirs and trustees will have to sort out your digital property and deal with service providers individually.  This will be time-consuming and potentially very stressful.

Your digital trustee can be left a list of all your accounts, user names, and passwords. This will allow him or her to assume your online identity and deal with your digital property according to your wishes.  If this is something you’re considering, it may be worth sitting down and making a list of all your important accounts, writing out your login and password information, figuring out how you want each account dealt with, and deciding who you want to deal with the accounts.

While this approach may violate the terms of service for various companies, as of yet, courts in Ontario have not dealt with the issue on any substantive basis. Until this happens, the time may be right for you to decide what will happen to your digital property when you die.

Common Law Spouses Intestate

Posted on by danny

My common law spouse doesn’t have a Will, what am I entitled to?

In many ways, being common law spouses is very similar to being legally married spouses. However, one of the significant differences between the two surfaces when a spouse dies without a valid will.

In Ontario, a person who dies without a Will is referred to as “intestate” and the distribution of their estate falls under the intestate rules under Part II of the Succession Law Reform Act, 1990. As detailed in my previous post regarding intestate succession, under this Part, a surviving spouse is the first in line when it comes to the distribution of the estate of their deceased spouse. However, the definition of a “spouse” under Part II of the Succession Law Reform Act specifically refers to legally married spouses. As such, a common law spouse is not entitled to the relief granted under this Part of the legislation.

Additionally, a legally married spouse is entitled, under the Family Law Act, to elect to receive an equalization of the net family property (this is the value of all the property that a spouse owns at the time of death, after deducting any debts and liabilities). Again, this election is only available to legally married spouses.

So, where does this leave a common law spouse when his or her spouse has died intestate?

A common law spouse has the right, under Part V of the Succession Law Reform Act, to bring a claim for dependant support. This Part of the legislation specifically includes common law spouses since it defines a spouse as: two persons who are not married to each other and have cohabited either continuously for a period of not less than three years, or have been in a relationship of some permanence, if they are the natural or adoptive parents of a child. (Please note- this claim is also available for spouses whose spouse died with a will but did not leave adequate support for the surviving spouse)

Although this relief is available, bringing a claim for dependant support can be an expensive and arduous process- given that it will require an application to the Superior Court of Justice.  In the application, the spouse will have to provide evidence to prove that he or she fits into the definition of a spouse under Part V of the legislation. If he or she does fit within this definition, the amount of support is also at issue. When determining a dependant’s required amount of support, the court reviews many factors including, but not limited to, the dependant’s current assets, the dependant’s ability to support his or herself, the dependant’s age and physical and mental health, among others. Additionally, an application by a spouse also allows the court to review the relationship between the dependant and his or her deceased spouse to determine whether or not support should be provided.

This process can be made more complex if there are other beneficiaries who feel that they have a better claim to the estate, or that the common law spouse’s claim is invalid or exaggerated.

Generally, this remedy is only available up to 6 months after date of the grant of letters probate of the will or of letters of administration. If this is the common law spouse’s only alternative, it is recommended that he or she contact a lawyer well before this time limit is up.

The best method to ensure that your spouse is properly supported for upon your death is to have a will drafted. This is especially important for common law spouses as they are not entitled to the same rights and privileges as a legally married spouse. To obtain more information on this topic or to discuss your current situation, please feel free to contact one of our experienced wills and estate lawyers.

If I don’t have a Will?

Posted on by danny

What happens if I don’t have a Will? – A review of intestate succession in Ontario

In Ontario, a person who dies without a Will is referred to as “intestate” and the distribution of their estate falls under the intestate rules under the Succession Law Reform Act, 1990. Factors that impact the distribution of the estate include: potential beneficiaries living at the date of death of the deceased, the net value of the estate (the amount after all debts and funeral expenses are paid out), the preferential share (an amount a spouse is entitled to, which is currently set $200,000 in Ontario), and the relationships that the individual has – either legally or through blood relations.

Please note- A “spouse” in the following distribution rules refers to an individual who is legally married. A common law spouse does not have the same legal rights as a legally married spouse under the Succession Law Reform Act. (If you are not legally married but you would like to leave your estate to your common law spouse, the best method in doing so is to ensure you have a Will. For more information, please also see my article regarding the rights a common law partner may have upon the death of their intestate spouse.

If an individual dies intestate, and that individual is married without children, the spouse of the intestate receives the deceased entire estate, absolutely.  An intestate’s spouse also has rights under the Family Law Act, 1990. However, the spouse would have to choose whether to receive under the Succession Law Reform Act or under the Family Law Act, as you cannot receive under both acts – a lawyer should be consulted to assist in making this decision.

If an intestate had a spouse and did have a child, but that child predeceased the intestate, the intestate’s child’s children (the grandchildren) would receive the amount the child would have had he or she been living at the time of the intestate’s death. If there are no grandchildren, it would be treated as if there was no child.

If the intestate has a spouse and children, the distribution is determined based on the net value of the property. If the net value of the property is higher than the preferential share, the spouse receives the $200,000 preferential share outright, and splits any amount over the $200,000 equally with any children of the deceased alive at the time of the death (or any children of predeceased children of the intestate).  If the net value of the estate is under the preferential share ($200,000), the spouse receives the proceeds of the estate absolutely.

If the intestate has no spouse, but has children, the proceeds of the estate are distributed equally between all living children at the time of death of the intestate. Again, if a child predeceased the intestate but has living children (the intestate’s grandchildren), those children would receive the amount that their parent would have had they not died before the intestate.

If the intestate has no spouse, no children, and no living grandchildren, the proceeds of the estate is distributed equally between the parents of the deceased living at the time of death.

If the intestate has no spouse, no children, no grandchildren, and no living parents the proceeds of the estate is distributed equally between the siblings of the intestate living at the time of death. If a sibling predeceased the intestate and has living children, those children would receive the amount that their parent would have had they not died before the intestate.

If the intestate has no spouse, no children, no grandchildren, no parents, and no living siblings, the proceeds of the estate is distributed equally between the nephews and nieces of the intestate living at the time of death. If one of the nephews and nieces predeceased the intestate, their share is split equally between the surviving nephews and nieces equally.

If the intestate has no spouse, no children, no grandchildren, no parents, and no siblings, no living nephews or nieces, the proceeds of the estate is distributed equally between the individuals fitting into the next degree of blood relative living at the time of death, absolutely.

If there are no blood relatives of the intestate, the estate escheats to the Crown- meaning the proceeds of the estate are given to the Crown, Her Majesty the Queen.

It is clear that the distribution of an intestate’s estate can be complicated and convoluted. Not only is the determination of who receives under the estate complex, but the process of properly distributing the estate can also prove to be challenging.

In order to legally act on behalf of an estate, an individual must apply to the Superior Court of Justice for a Certificate of Appointment of Estate Trustee. This application requires, among other things, a renunciation from other potential estate trustees who are entitled in priority to be named as estate trustee, consents from all potential beneficiaries of that individual’s appointment, a valuation of the estate, and an affidavit by the individual applying to become estate trustee swearing their intention to act faithfully when distributing the estate. In addition, a monetary bond filed with the Court could also be required, depending on the situation. These applications generally require the assistance of a lawyer, so if you find yourself in this situation, please contact a lawyer to discuss the option available to you.

This article is a brief overview and generalization of the rules of intestate succession. There are many specific rules and laws that govern this area of law and as such, certain facts and realities impact your situation. If you do not have a Will and would like more information about it before contacting a lawyer, please review my article regarding the basics of why a Will is important.  Please also contact our office and one of our wills and estates lawyers will be happy to answer any questions you may have.

Do I need a Will?

Posted on by danny

A Basic Overview of the Importance of Executing a Will

As a lawyer, this is a question that I have been asked many times. “Do I really need a Will?” “Is it worth it?” “I’m not a millionaire, so what’s the point?”

The easy answer is: having a Will provides you with the comfort of knowing that your estate, no matter its size, will be handled in the manner in which you choose. It gives you control.  Furthermore, it makes the winding up of your estate much easier and more straightforward for your family- something that can, in itself, be emotionally draining and difficult.

To get a better idea of what this means, I will go over the basics:

What is a Will?

A Will is a legal document that provides instructions on how an individual’s estate will be distributed after death.  It comes into effect once a person dies.

What is the purpose of a Will?

The purpose of a Will is to ensure that the estate is distributed in the manner the deceased desired, to provide authority to the estate trustee (also known as an “executor”), and to provide protection for the estate and for the rightful beneficiaries.

What clauses are included in my Will?

A Will can include many provisions. However, the standard will should include, at the very minimum, the following: appointment of an estate trustee, authorizing the estate trustee to act on behalf of the estate, and instructions for the distribution of the proceeds of the estate (after payment of debts).  The Will can also include provisions for investment of trusts, appointment of a guardian for children under the age of 18, funeral instructions, and many more.

What is covered by my Will?

A Will encompasses all of the assets of the deceased, but there are some exceptions. The estate generally includes real property, vehicles, interests in corporations, investments, bank accounts, jewelry, artwork, among others.

However, life insurance policies or pensions that have a named beneficiary are not included in a Will- so if you have named an individual as a beneficiary under one of these plans, ensure that you have listed the correct person on that plan since a Will cannot change that designation.

Furthermore, a home owned with other individual(s) as “joint tenants” does not fall under a Will. Upon the death of a joint tenant, his or her interest in that home automatically transfers to the joint owner(s). This arrangement is very common between spouses. However, it could cause problems, for example, in the event that a brother and a sister jointly own a multi-family cottage. If the cottage is owned jointly, and the brother dies, his portion would not go to his wife/children, but instead would automatically transfer to his sister, leaving his wife/children with no claim to the cottage. If the brother wanted his ownership to be included in his Will to be left to his wife/children, the ownership must be changed to tenancy-in-common.  If you do want your interest to form part of your estate and to transfer to your beneficiaries, make sure to discuss your options with a lawyer.

Why draft a Will?

In addition to ensuring that your wishes are met, it is important to draft a Will because it is the best method of providing your family with the ability to deal with, and wind up, your estate. For estate trustees, a valid Will can be used to obtain money from bank accounts, discuss options with lawyers, and sell your property. It provides your estate trustee with the authority and protection to act on behalf of the estate. Furthermore, someone who acts on behalf of the estate without proper authority can open themselves up to potential liability. This can occur, for example, if debts are not properly paid out or if the estate is distributed too soon or to the wrong beneficiaries.

Why do I need a lawyer?

A lawyer with experience in wills and estates law can assist in ensuring that your estate is distributed in the method that you choose and in a manner that best protects your beneficiaries. There are many rules with regard to wills and estates. If drafted improperly, for instance, your Will can accidentally disinherit a beneficiary or include individuals that you did not want to be included. Furthermore, an improperly executed Will can be deemed invalid. This can happen if there are issues with signing of the Will, improper and insufficient amount of witnesses, or unclear distribution wording, among others. If your Will is deemed invalid in Ontario, your estate will be distributed as if you did not have a Will, or in other words, in accordance with the intestate rules under the Succession Law Reform Act, 1990. Please see my article, What happens if I don’t have a Will? for more information.

Where do I go from here?

This article is a brief overview and generalization of the many aspects and points to consider when drafting a Will. There are many specific rules and procedures that govern this area of law and as such, certain facts and realities impact your situation. Please contact a lawyer to discuss your specific situation.

If you do not have a Will, or you do and would like to update your existing Will, please feel free to contact our firm and one of our lawyers would be happy to assist you and your family with navigating this complicated area of law.