Q: I’d like to understand better the most basic scenario of estate planning. Can it be as simple as one of those do-it-yourself online Will and Last Testament kits that you fill out? And if so, does it need to be notarized? Or, is it necessary to see an accountant or a lawyer about this? In case I die, I just want my house and the money in my RRSP (which in total make up 90 per cent of my assets) to be passed on to my kids and/or wife with as little hassle and cost as possible.
Also, while I’ve heard the term “probate” several times, I still don’t fully understand it. Is it a kind of tax? I’d like to understand this more.
— P.C., in Ontario
FP Answers: That’s a great question, P.C., and certainly one that many should consider. Recent surveys show that more than 50 per cent of adult Canadians do not have a will and another significant portion has an outdated — maybe invalid — will.
At a basic level, estate planning is the preparation undertaken to ensure your estate is wound up in the manner that you prefer. This involves the dispersal of your assets (financial or sentimental) in the most tax-efficient way possible so your estate retains more of its value and your beneficiaries receive more.
A Last Will and Testament has many necessary uses. It’s where you select your executor to enact your will’s instructions, where you name your beneficiaries (whether they are family or friends or charities) and where you indicate your choice of guardians for young children. So, the best reason for having a valid and up-to-date will is to make it easier in terms of costs, time and stress for your family members after your death.
Wills come in many forms. They can be as simple as a what’s called a “holographic,” where you write it out by hand and sign it, with no witness required. While this can be a very simple option, it has its drawbacks — mainly that the potential for error is high so this should not be the top choice for a will.
As you mention, another way to indicate your wishes at your death is by using an online will kit. These kits guide you through the process of creating a Last Will and Testament. It typically includes a “fill-in-the-blanks” form or template where you click boxes or complete blanks online regarding your financial circumstances, your beneficiaries and your final wishes on how you want these assets distributed.
This is helpful if you have low or no assets, with simple instructions, but they can’t adequately handle complex situations such as blended family and large self-managed investment accounts. And like handwritten wills, it’s very easy to make a mistake. With many blank spaces to fill in, errors are common.
Still, the cost of online wills is affordable, starting at about $50. Expect to pay between $300 and $1,000 to hire a lawyer for your will. The main thing with lawyers is that they can help you evaluate what you may need in your will and answer any of your questions upfront.
While not legally necessary, having a will notarized ensures that your signature and identity are certified to be true. The recommended way is by using a lawyer. You are then assured that your current situation is understood in relation to your estate goals. Your instructions to your estate administrator will be laid out so that they are easily understood during the probate and dispersal process.
Working with a lawyer also confirms that you are mentally capable at the time. The two signing witnesses (who can’t be beneficiaries of your will) attest that the document is indeed your will and has your signature and the date.
The second part of your question relates to probate. Many people are confused by this term. They know that it is connected to wills in some way but they don’t know exactly what it is, and why it’s required.
Put simply, probaterefers to the legal process in which a court formally reviews a will to determine whether it is valid and authentic. If the deceased didn’t have a will, it appoints someone to act on their behalf.
When a will goes through probate, it’s necessary to get valuations of all the estate assets as of the date of death. It is required for almost all sizes of estate settlements and many financial institutions will not process an estate without having been probated.
To be clear, not all property will be part of the estate in all cases, so probate will not be required for some assets. For instance, real estate and bank accounts that are owned by people who are joint tenants usually transfer to the remaining joint tenants when the owner dies so probate is not required.
There may also be pension plans, life insurance policies, RRSPs and TFSAs that the deceased person has directed to go to specific beneficiaries — usually from one spouse/partner to another, requiring little need to probate. But for an estate that has other beneficiaries such as children or charities, probate is a necessity.
In all cases of probate, there are fees involved. In Ontario, for instance, probate fees or Estate Administration Tax (EAT) are:
- $5 for every $1,000 of assets up to $50,000, and
- $15 on every $1,000 of assets over $50,000
Use the Ontario government’s estate administration tax calculator to estimate the probate fees that have to be paid. The EAT fee is paid from the estate before dispersal of remaining assets. For instance, on a $1-million estate, Ontario probate fees are $14,250.
You should also note that Ontario is simplifying the process for small estates worth up to $150,000, making estate management easier for Ontarians. As of this past April, if an estate in Ontario is valued at $150,000 or less, you can apply for probate through the small estate court process. (If you live outside Ontario, go to probate fees by province to calculate your fees.)
In your case, you can limit probate by indicating your spouse as your RRSP beneficiary so the RRSP assets would be received directly by her. In this case, there is an option to “rollover” the total amount of your RRSP into her RRSP with no tax consequences.
Confirm with your RRSP holder, usually your bank or other financial institution, that you have this beneficiary designation in place. (Note that an RRSP that is left to children will have tax withheld.) If your home is now jointly held with your wife, then ownership of the house after your death will become hers as sole owner. In this case, no probate is necessary.
Finally, a probate court will usually require access to your original will before it can process your estate. It’s key, then, to keep the document where it is safe and yet accessible. Avoid storing it in a bank safety deposit box or in any other location where your family may need a court order to gain access. A waterproof and fireproof safe in your house is a good alternative.
Then let your executor know where the original will is stored, along with necessary details such as the password for the safe. You may also want to make copies to establish your intentions in case the original is destroyed. In any event, without the original, there’s no guarantee that your estate will be settled as you’d hoped.
All said, the peace of mind from discussing your estate goals with a lawyer and ensuring all errors are avoided is well worth your time and money. If not done correctly, it may cost more after your death — in both cost and stress for those left behind.
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