Last month’s Retirement Resource Centre article, 7 legal documents to have ready at retirement, identified wills as a must-have for most clients. This follow-up article offers additional insight into the importance of creating a will and keeping it current.

Estate planning is an essential part of wealth management. It’s particularly important when a client’s estate involves significant assets — a cottage, small business or foreign property — and multi-faceted relationships such as a blended family. And as Sun Life Financial estate and financial planning specialist, R. Paul Thorne (B.Comm., LL.B., LL.M., CFP) points out, a sound estate plan almost always involves a will.

“When properly structured, a will can simplify the distribution of your client’s estate, provide for family members, minimize taxes and expenses, and protect beneficiaries’ inheritance. It’s a client’s last chance to express their wishes.”

Percentages vs. dollar amounts

When it comes to asset allocation, clients may be better off using percentages versus dollar amounts. Bequeathing $10,000 to aunt Ruby, $15,000 to cousin Sam and $12,500 to lifelong friend, Nigel, could be complicated – if not impossible – if there aren’t sufficient assets at death.

“In the event of a dispute, because specific legacies generally take priority over residuary/general legacies, it’s better to indicate that you want to leave, say, 1% of the net assets of your estate to a specific person if your intention is to treat all beneficiaries the same,” says Thorne.

The basics

Each province maintains specific rules regarding wills and the settlement of an estate. However, no matter where a client lives, their will should:

  • be in writing,
  • be signed by the client in the presence of two witnesses (witnesses and their spouses should not be named in the will),
  • be signed by the witnesses,
  • clearly indicate that it belongs to the client,
  • clearly specify to whom or where the client wants their assets to go,
  • appoint the executor, and
  • include the date of signing.

“These are basic requirements of any will. Spoken instructions can be forgotten and generally don’t hold up in a court of law, and any ambiguity could cause problems,” says Thorne, who recommends working with a professional.

“By having a will drafted and executed by an experienced estate lawyer, not only can clients benefit from expert advice, they’ll avoid the errors that may occur with a holograph will or standard ‘do-it-yourself’ will.”

For clients who assume their loved ones will look after their final wishes — in lieu of a formal will — Thorne has this to say: “Many people think that, in the event of their death or incapacity, their spouse or family members will automatically have the authority to handle their affairs — and that they’ll automatically inherit everything. But that’s not true.”

When clients die without a will, they die ‘intestate’, which means their provincial government’s intestacy rules will apply. For some, this could cause problems, including family tension and legal disputes.

With a will, clients can:

  • appoint their executor,
  • specify how they want their assets and possessions distributed,
  • provide for their loved ones,
  • minimize taxes, and
  • provide guardianship instructions regarding their dependants.

“Essentially, a will is the easiest and most effective way to fulfill your final wishes.”

It’s also important to ensure that clients are aware that some assets don’t pass through the estate or will. Jointly-owned assets (such as a home or cottage) may pass to the surviving owner depending on the manner of holding title. Registered assets (like Registered Retirement Savings Plans and tax-free saving accounts), pension plan benefits and life insurance with a beneficiary designation pass to the named individual outside of the estate. Assets held in trust may have specific instructions for distribution following death.

“Many clients believe that executing a will, maintaining joint assets, or designating a beneficiary are mutually exclusive. To the contrary, their manner of holding title to property, beneficiary designations, and details of their will should be coherent to ensure they meet their wishes.”

Did you know?

A will can ensure the transfer of capital property and registered assets to a surviving spouse by means of a rollover to the spouse. This can potentially help defer the tax on these assets until the death of the surviving spouse, spreading the tax out over time at lower marginal tax rates.

The upkeep

A will also requires regular upkeep, as Thorne explains.

“I recommend reviewing a will at least once every five years or any time there’s a major life event – marriage, divorce (in some provinces, marriage or divorce revokes or amends a will), birth, adoption, job loss, retirement, the death of a spouse or an executor — and making the necessary updates.”

And when a will involves a blended family, those updates need even more consideration and, in most cases, professional guidance.

“It’s human nature to want to provide for a new spouse in your will, but clients may want to look further down the road to prevent their respective children from being excluded. An example is a woman who passes away, leaving her husband as her heir. If he then revises his own will, naming his children from a previous marriage as his heirs, his late wife’s children could end up with nothing, despite their mother’s intentions. That’s why it’s wise to consult an experienced estate lawyer — someone who knows what to consider and how solutions involving spousal trusts or life insurance can deter potential problems.”

The power

From asset allocation to family protection, a carefully-crafted, up-to-date will is a powerful document — and an important part of a sound estate plan.

Learn more – Sun Life Financial has a team of estate and tax planning experts who can offer knowledge and assistance to help you with complex cases. To learn more, contact a Sun Life Financial Sales Director.