Everyone needs a Will, a Power of Attorney, and a Medical Directive. No matter what your circumstances these three documents are essential. Failure to have any one of them will have very serious negative practical and legal consequences in terms of difficulty in handling an estate, or a person’s fiscal or medical circumstances.
In 2014 the Province of B.C. passed new comprehensive legislation dealing with Wills and Estates. This legislation called the Wills Estates and Succession Act (“WESA”), combined all relevant laws in B.C. into one Statute. WESA made very significant changes to the laws in B.C. concerning Wills and Estates. It redefined and renamed many terms; for instance, we no longer have a testator in B.C. that expression was changed to Willmaker. It changed the method and procedure for the signing Wills.
Rather than go on at length about the many legislative changes; let’s talk about what everyone needs and should have as a will and for estate planning purposes in B.C. today. There are very significant changes in WESA on what happens to a person’s estate if they die and have foolishly not make a will.
A good will should be short be, in plain and simple English, straight forward and easy to understand, set up a succession of executors/trustees and set up a scheme of distribution which ensures all assets are distributed. If a will is done well and, in this fashion, it is entirely likely that it never needs to be changed. Frankly, the most common change I see is to name the children who are no longer minor. I have in my files wills I did 47 years ago that are as good today as they were back when they were signed.
In making a will the first decision is who should be the executor and trustee of their estate when they die. In all cases that choice should be family members. Only where there are no available family members or such choice would lead to irreconcilable differences should a person stray from naming family members as executors. Husband and wife should name the surviving spouse. Then, upon the death of the last surviving spouse the executor/trustee should be one or more of the children. There is nothing wrong with naming several children as joint executors; if that’s a problem chose the child who is best suited to handle the job. Regardless of who you name as executor/trustee that person is answerable to all the beneficiaries and must provide completely transparent statements regarding the handling of the estate so in the end the fair and equitable distribution of your estate is assured. The location where a named executor lives is no longer a problem; anyone anywhere in the world can be an executor.
Never name a bank, trust company or a professional like a lawyer or accountant as your executor. First of all, for a professional to offer to act as your executor is, in my opinion, unethical; the professional you see should stick to the job they were retained to handle ie. accounting or legal work like drafting the will. Banks, trust companies and professional can and will charge very significant fees to be executor of your estate. By naming family members, you ensure that your estate, and all of it, goes to your beneficiaries.
There are a number of provisions that a properly drafted will should contain; clauses giving the executor/trustee discretionary powers to handle the assets in a way that produces the best value, setting up trusts for minors or persons with disabilities, confirming the Willmaker could leave separate instructions regarding smaller personal items and instructions dealing with last remains.
Let’s talk about taxes and costs in handling an estate. First of all, let me dispel the myth; there are no estate or inheritance taxes in B.C. or Canada. I don’t care what financial planners or bankers or others have told you; inheritance taxes simply do not exist.
What that means to the average person is that all of your estate will go to your beneficiaries without deduction for taxes. If you stop and think about this for a moment you will realize that a very significant amount of wealth is now and continues to be transferred to the next generation for example the typical estate in this community is approximately $1 million dollar; all of that, unless you spend it will pass to your children without taxes.
Now there are some consequences of death which cause various standard income tax issues to catch up with your estate. For example, when you die if you have an RRSP or an RIF that plan can and should be designated to your surviving spouse; and that transaction will occur with any deduction for taxes. But when the last spouse dies a remaining sum in an RRSP or RIF is deemed to have been received by the estate and taxes. But, and I repeat myself, this is not an estate or inheritance tax; it is an expected tax that you knew would occur when the funds were withdrawn for the RRSP or RIF. The other income tax issue which arises on death is capital gains, if a deceased person owns rental or recreational property there is a deemed disposition of such property on death. But once again that is an expected consequence of owning such property and is not an estate or inheritance tax.
Since there is no such thing as estate tax the issue is probate fees; the province of B.C charges a fee on filing a probate application. That probate fee is 1.4% of the net value of the estate. So on the average estate today worth say $1,000,000.00 the probate fee is $14,000.00. In the greater scheme of estate planning this fee is so small it is not worth consideration in estate planning; however, some will take extraordinary and unwise steps to try and avoid it. Any such steps have significant risks, create serious problems, and will normally destroy a good estate plan.
On average at least 3 people each month come to me seeking a way to avoid probate fees. This is the advice I give them. It’s simply not wise nor worth the risks. The standard idea put forth is to add children to the title of a parent’s home. The problem with this is if there is more than one child all children would need to be added to be fair. And then we get to the real problems with this idea. The adding of a child means they all must sign any mortgage or transfer when you want to mortgage, get a line of credit or sell. Each child on title is therefore obligated for the debt on your title and their credit is affected. Each child must add this ownership to their assets and is answerable in any family law proceeding or debt proceeding. Next from a CRA prospective the family home is exempt from income tax because it is your personal residence but the part owned by your children is not exempt so now you’ve brought to the table capital gains tax on a previously exempt property. And finally, you have removed all court protection which is there in probate matters to ensure a full accounting and an equitable distribution.
The next major decision in making a will is the distribution of your estate. In this matter, there are only two restrictions in B.C. You must make ‘reasonable and adequate provision for your spouse and for your children (natural or adopted). Other than these restrictions a person is free to make whatever distribution they wish of their estate. A usual will would provide that on the death of one spouse the entire estate goes to the surviving spouse and then upon the death of the last spouse the estate would go equally to the children. That scheme is immune from any legal challenge. An unequal distribution to children must be justified; the best way to do that is to have the Willmaker write on in their own hand the reasons for such an unequal distribution.
Second marriage situations require a fair bit more inventiveness; often the solution is to do mutual wills which contain contractual provisions stating each spouse leaves the assets to the surviving spouse but when the last spouse dies the will of that spouse, regardless of which one, divides the estate equally between all the children of both spouses. There are other solutions also available; each situation requires a different design.
The typical design for a second or blended marriage usually entails making provisions for the surviving spouse to live in the home until their death and then a split of the residence net proceeds between the children of both spouses. This scheme is just one example of how these more complicated situations are handled. What is usually important in designing these schemes is making sure they are locked in by having the spouses sign mutual wills wherein they agree not to change the scheme after one dies.
Generally, it is important for spouses to hold their home and fiscal assets jointly. Those arrangements ensure that the surviving spouse receives title and immediate access to all jointly held assets. In addition, it is important as a general rule to designate your spouse as the beneficiary of an RRSP or RIF or an insurance policy so that those assets flow smoothly and quickly to the surviving spouse. These arrangements make Probate unnecessary and ensure that all the surviving spouse needs to sort out ownership and transfer of assets is a Death Certificate and a Certified Copy of the Last Will of the deceased; there are virtually no costs involved.
Probate is required when a person in B.C. dies and they have assets registered in their name or assets of a value exceeding $25,000.00. Probate is the process by which the executor named in your will obtains a BCSC Order which confirms the validity of the Will, the appointment of the executor and gives the executor the legal authority to handle the assents in the manner you have laid out in your will. Probate brings to play the BCSC supervision of an estate and provides a mechanism for the beneficiaries to require the executor to fulfill the instructions laid out in the will.
The new WESA legislation has streamlined probate applications so that with complete and timely information it is now possible to obtain a probate order in a very short time. Once Probate has been obtained and with the consent of all entitled beneficiaries, it is possible to distribute the estate at that time. In the absence of consent, the distribution is required to be delayed until 210 days after the issuance of probate. Frequently I am able to obtain probate and distribute the estate to the beneficiaries in 4-6 months from first receiving instructions. In these cases, a small holdback to make sure CRA requirements are satisfied is kept in trust until final assessment notices and perhaps a clearance certificate is given by CRA.
No estate planning is complete without a Power of Attorney and a Personal/Medical Directive. Obviously, a will speaks from death and governs what happens after you are gone. What I am now speaking about is the planning required for the possibility that while you are still alive something may affect your ability to make decisions either from a financial perspective (Power of Attorney) or from a personal/medical prospective (Directive). These documents are drawn so they only become operative when the person giving them is no longer capable to make decisions. If you are lucky you never need to use these documents; however, the problem is if you have not done them while competent it is too late because these documents can only be signed while you are competent. These forms changed in 2012 and 2013; while an old PoA is ‘grandfathered’ it is often difficult to use so it is wise to sign the new forms that comply with the new legislation to avoid any problems dealing with financial institutions or medical facilities.
Our team here at Saanichton Law Group can help you to write your Will, appoint a Power of Attorney, and draw up a Medical Directive. Call us today to speak with one of our professional attorneys at 250.544.0727.
