The importance of having a Will in place, especially living in unprecedented times, cannot be overstated. Passing away without a Will carry major implications, whether it relates to non-tax considerations or certain income tax and probate fee issues that may arise.
Appointment of Executors and Trustees
When an individual passes away without a Will, it becomes necessary to make an application to the court to have an estate trustee appointed without a Will. This process could be costly, time-consuming and contentious as it is uncertain who would become appointed, potentially causing dispute among family members as they apply for appointment.
When an individual passes away without a Will, they are deemed to have died “intestate”, and therefore the rules of intestacy under the Succession Law Reform Act in Ontario apply in the distribution of the individual’s assets, but subject to a surviving spouse making an equalization claim under the Family Law Act.
The intestacy distribution notes the following:
- if the deceased is survived by a spouse with no children, the spouse receives the entire estate.
- If the deceased is survived by a spouse and children, the spouse receives the first $200,000.00, and the remaining estate is divided equally between the spouse and the children.
- If the deceased is survived by children with no spouse, the estate is shared equally among the children.
- If the deceased has no spouse and children, the parents inherit.
- If the deceased has no spouse, children, and parents, then the siblings inherit equally, with provisions for the children of deceased’s siblings.
- If the deceased has no children, spouse, parents, or siblings, then nieces and nephews inherit the estate equally.
- Where there are no spouse, children, parents, siblings, nieces and nephews, then “next of kin” inherit.
- If there is no next of kin, then the estate “escheats” to the provincial government.
Having a Will allows you to dictate how your assets are dealt with upon death and can ensure that your assets are distributed in accordance with your wishes and intentions. Having your estate distributed under an intestacy where there is a surviving spouse may carry with it significant income tax implications.
Passing away without a Will makes you lose the opportunity to appoint legal guardians for your children or others who lack capacity. A Will generally stipulates who you would like to care for your children after your death, but should you pass away without a Will, the Office of the Public Guardian and Trustee may become involved in the lives of your children and others who lack capacity.
You would increase your estate’s exposure to estate administration tax (“EAT”), which is a tax charged on the total value of the deceased’s estate. A Will must be probated in order to formally pass assets from the deceased to their beneficiary as institutions like banks and trust companies often require a Will to be probated in order to release funds to the estate executor so that they can administer the estate. However, not all Wills are subject to probate and where probate is not required, the EAT can be avoided. A carefully drafted estate plan will typically include a primary Will and a secondary Will. The primary must be probated and on which estate tax must be paid, and the secondary Will includes assets that are not required to be probated, such as private company shares, antiques, jewelry and other private valuables. Having this Will in place has the potential to reduce your estate’s exposure to EAT, resulting in greater percentage of your assets flowing to your beneficiaries.
You may also risk having assets which you intend to keep in your family be sold to pay taxes or other debts. When there is insufficient assets to pay taxes or other debts, the lawyer you retain for the drafting of your Will may discuss purchasing life insurance with you. Having proper life insurance may provide you with cash to pay off debts upon your death, which would save executors from having to sell your estate assets.
If you and your partner are unmarried or in a common law relationship, your partner does not have the same right to your estate as they are not considered to be “next of kin” under Ontario’s Succession Law Reform Act, R.S.O. 1990, c.S.26. This means that your partner is not entitled to your assets unless you express your wishes in a Will.
We can help
Having a Will is crucial to ensure that your loved ones are protected, and that your assets are distributed in the manner that you intended. If you are a business owner, you may also want to protect the shares and assets of your business. Talk to us today!