Do I need an Estate  PlaN?

Most people intend to prepare to a will to protect their family. But many people never actually make out a proper and valid will. In many cases this may be because we do not have a clear understanding of why a will is needed, what might happen if you die without a valid will, and how to go about preparing a will. When people do get around to preparing the will, quite often it is the last detail before a vacation, or in the face of an emergency. The will done under such circumstances will take care of the immediate concern; but the opportunity to properly plan the distribution of the estate is not taken up.

What is an estate plan? Do you need anything more than a will? Do you need an estate plan? These are some of the questions that should be addressed.


What is an Estate Plan?

First, an estate plan is simply one or more documents that provide for the distribution of your estate, at the time and in the manner according to your wishes, to the individuals you wish to share in your estate. For the simplest of estates, this may be no more than a basic will. Depending upon the circumstances, an estate plan could require a trust (either in the will or as a separate deed) be set up, the incorporation of a company or the re-organization of your existing business. What is the right estate plan for any individual depends on the circumstances of the individual and his or her family, the value and types of property in the estate, and the tax consequences that might arise. An estate plan can include a will, a form of trust, steps taken to minimize taxes or to take advantage of capital gains exemptions, or even the gifting of property to enhance tax credits.


What should an Estate Plan accomplish?

A proper and complete estate plan carry out your wishes with the least amount of cost. Some of the issues that need to be considered are outlined below.

Carry out your wishes

A well prepared estate plan needs to deal with a number of issues. The first and most basic issue is that the plan should distribute your estate according to your wishes. If there is a spouse or a life partner, then this individual must be properly provided for. You may wish to provide an outright gift or it may be more appropriate to place assets in trust to ensure that the spouse or partner is properly provided for during the lifetime of the individual.

Generally all children receive an equal share from the estate of the parents. But you may have good reason to provide for different individuals to receive different or unequal shares from your estate. Due to illness or disability, a child may be in need of more assistance from your estate than other children. Unfortunately families do become estranged for numerous reasons. You may have valid reasons to favour one or more children over another. All these considerations needed to be reflected in your estate plan.

There may be certain organizations or charities that have played an important role in your lifetime. Through proper planning, you can continue to support these organizations or charities through your estate without imposing an undue burden on your beneficiaries.

Minimize probate fees and taxes

At the time of death, under the Income Tax Act there is a deemed sale at fair market value of all assets owned by the deceased individual. Depending on the current value and nature of the assets, this deemed disposition could result in capital gains or other forms of tax. If the assets are given to a surviving spouse, or put in a special trust for the spouse, then the tax may not payable until the spouse in turn disposes of the assets. The tax that would otherwise be payable upon the death of the individual is deferred to the future. This reduces the net cost to the estate of the taxes thus increasing the amount available to the family.

If a gift is made to a charitable organization, then certain tax credits are available which can be used to reduce the taxes payable by the estate. The amount of the tax credits depends upon the nature of the property that is given by way of a gift and when the gift actually takes effect. With careful planning, the tax credits can be enhanced without increasing the cost of the gift to the estate.

This is not a complete and exhaustive outline of the tax planning techniques available to minimize taxes. It is simply to illustrate that there are planning techniques available which can maximize the value of the estate available to your beneficiaries.

An increasing burden on estates is the payment of probate fees. Probate is simply an order by the Court that the document presented is the last will and testament of the deceased individual and gives authority to the person named as the executor to distribute the estate according to the provisions of the will. In BC, like most provinces, a fee must be paid to the government before probate is granted. The amount of the probate fee is based upon the value of the estate; the larger the estate, the greater the fee will be.

To reduce or eliminate probate fees in whole or in part, various techniques can be used. In the case of an RRSP or a life insurance policy, a beneficiary can be designated so that the proceeds pass outside of the estate. Probate fees are payable only in respect of the assets passing through the estate and not on property that goes to a beneficiary outside of the estate. Depending upon the circumstances, certain property could be registered in the joint names of a beneficiary and the testator so that the property remains outside of the estate. Another possibility is to move the property to a jurisdiction where probate fees are less or not payable at all.

Minimize administration and legal expenses

Upon your death, various steps must be taken to manage your estate and eventually distribute it to your beneficiaries. If you do not have a will, then it an administrator or personal representative must be appointed. This requires your family members to apply to the court for an order appointing a qualified person to become the administrator of the estate. Until the administrator is appointed, no one may have the authority to make decisions for the estate. This will delay the proper administration of the estate. Court proceedings can be expensive.

A properly prepared will can avoid or at least minimize the legal and administration expenses to the estate. For example, if the will names an executor, then it is not necessary to apply to the court for the appointment of an administrator.

Allow proper management of your estate

Most people will have an estate that includes different types of investments, or an interest in an ongoing business. The bulk of the estate might have to be held in trust for infant children which could require investment of the estate funds over an extended period of time. An estate plan can include appropriate investment powers to the trustee of your estate to ensure that the estate is properly managed. The range of powers granted to the trustee should be tailored to suit your particular needs.

Provide for a blended family or alternate lifestyle

An increasing number of individuals are part of a blended family. This can create tensions which may lead to serious problems. Balancing the competing needs of all members of the blended family can be difficult. However, there are many innovative techniques available to address the needs of the individuals having a legitimate claim on the estate. For example, a trust could be created under which the trustee uses part of the estate to purchase a life insurance policy on the life of the surviving spouse and the balance is held in trust for the spouse. The insurance policy will ensure that the children from the earlier relationship are properly provided for upon the death of the spouse. The funds held in trust for the spouse ensures that there is always a fund to provide for the needs of the spouse.


What is a Will?

A will is a written document, prepared according to the requirements of the Wills Act, that sets out your wishes for the distribution of your estate amongst the beneficiaries named by you in the document. It will name an executor or trustee to take charge of your estate, manage and administer your estate, and when appropriate distribute the estate amongst the beneficiaries. The will also authorizes your executor to settle all estate debts and taxes payable by the estate.

If there are minor children, then you can name a guardian for the children in your will. Should you wish to create a trust, then the terms of the trust can be set out in your will and the trustee named.

The executor, trustee and guardian can all be the same person but you can name as guardian of your infant children an individual different from the executor and trustee. Usually the executor is the same as the trustee. Most couples provide that the entire estate is to go the survivor of the two individuals; in such cases, it is practical and less expensive to name as the executor your partner or spouse.


What if I do not have a Will?

If you die intestate, that is you do not have a valid will, your estate will go to your family. Despite what some people may say, there will not be a disaster. However, the estate will be subject to some expenses which could have been avoided, and there could be some delay in distributing the estate to your heirs. An administrator must first be appointed by the courts to take charge of your estate causing expense. The person appointed administrator will then manage and distribute the estate according to the laws of the Province.

Your estate will be distributed amongst your heirs according the provisions of the Estate Administration Act in BC. This sets out what portion of the estate is paid to the surviving spouse, and what portion is paid to any surviving children. If there is no surviving spouse and children, then the estate will be distributed as follows:

  • amongst your parents equally if you are survived by your parents;
  • if your parents are deceased, then equally amongst your brothers and sisters;
  • if there are no brothers and sisters, the amongst the children of your brothers and sisters; and,
  • finally, if there are no nieces and nephews, the estate will go to the government.

The distribution is made without regard to what your wishes might have been or any preferences you might have expressed during your lifetime.

Some of the benefits of an estate plan outlined above, such as minimizing taxes or providing for the special needs of an heir, can not be realized. The burden of taxes, and the expenses of administration, may be greater than necessary.


Can I use a will kit to prepare my Will?

Yes. But keep this in mind: the kits commonly available are prepared to allow individuals to prepare a basic form of will, and are designed to be useable by the greatest number of people. For most people, the kit results in a will that no doubt will be adequate. However, if you have a family member with special needs, or a blended family, or if you wish to establish a trust for any purpose, then the kit in all probability will not be sufficient for your needs. If there is any complicated tax planning required, then the kit is not sufficient for your needs. By having a qualified lawyer prepare you will, you can have the plan tailored to your specific needs and wishes. And you will have the peace of mind knowing that everything that could be done has been considered and implemented if it was in your best interest.

If you have any questions on the issues discussed above, or on estate planning in general, please contact Sucha S. Ollek at: