Melanie McDonald, Partner, Borden Ladner Gervais LLP in Calgary
Without a will, assets must go through the probate process. That’s an immediate cost to your client’s survivors. And the estate lawyer’s fees aren’t always a percentage of the estate. Most lawyers charge fixed amounts, which could run into thousands of dollars.
In most provinces, if clients don’t have spouses or children, their assets go to their parents. But some young people have siblings or friends with greater financial need. Some might also want to make charitable gifts. Plus, uncertainty around how to handle an estate puts bereaved family members through much more grief.
Speak your will
There’s more to a will than listing who gets what. The document should specify who manages the estate after your client dies. If she has minor children, it should address guardianship and any trust funds. Your client should also draft power of attorney and healthcare directives in case of physical or mental incapacity.
The healthcare directive can specify where she will live (home, hospice, LTC, etc.), what her activities (hobbies, trips, day-to-day physical activities, etc.) will be, and who can visit her. In many provinces, a client can also address end-of-life wishes in the healthcare directive. She can specify the treatment she wants if she enters a vegetative state, or how long she would want to be on life support. Laws in most provinces specify that whoever you appoint must follow your wishes, regardless of what he or she may think is best.
If your client has special medical conditions, the directive could facilitate decisions about what kinds of treatments can be tried. She could also specify preferences for organ donation.
Digital assets are also becoming part of estate planning [Editor’s note: look for our article on this topic in the November issue of Advisor’s Edge]. Our questionnaires ask about email, Facebook, Twitter, LinkedIn and Dropbox accounts. Technically your client’s executor would be in charge of her online identity, unless she specifies otherwise.
We recommend people keep a separate list with their usernames and passwords, list of bank accounts and safety deposit boxes, etc., and tell the executor or appointee how to find that list.
Other unusual assets young people might wish to list in their wills are reward points—anything that could potentially be transferred. They might wish to leave instructions about how to use biological material such as frozen sperm or eggs; these are sensitive issues, and the family could be left in a quandary without specific instructions from the testator. Writers, musicians and designers might also want to leave specific instructions about copyright and royalties.
In most provinces, people can draft legal wills once they reach the age of majority. However, those under 18 can have wills in special circumstances: if they’re getting married or have high-risk jobs (e.g., military officer), or if the court approves a document for them. (People who travel to dangerous designations are often granted wills, regardless of age).
Tell clients it’s time to think about wills as soon as they have anything in their names, such as bank accounts, RRSPs or TFSAs. Young people should also draft wills when they receive inheritances. If they have life insurance through work, they can name the estate as beneficiary and let a will govern the proceeds’ distribution.
Right place, right person
If your client moves outside Canada, review the will and make sure it is still valid in that country. Likewise, inheriting property in a foreign country will require checking which legal and tax regime applies.
As for an executor, suggest your client choose a responsible adult and consult him or her. If their relationship changes, she can change the executor at any point.
Read: Leaving a sound legacy
Recommend she review her will every couple of years to make sure it reflects her most current situation and wishes. And encourage clients to create separate personal effects memos in which they mention all their valuables, such as jewelry, cars, boats, antiques, etc. Most wills I draft says the executor should distribute personal items in accordance with the memo. That way, the client doesn’t have to get in touch with me for small changes, such as who gets the car or guitar.
Richard Austin, Counsel at Conduit Law Professional Corporation in Toronto
For a healthy 22-year-old making $20,000 a year with no assets, spouse or kids, it seems excessively cautious to spend $200 on a will.
Worse, the document might only just address where he would like to be buried or cremated, or to whom his almost non-existent personal possessions would go. He doesn’t need an executor to carry out those wishes; he could just tell family and close friends. And if he’s terminally ill, there’s nothing stopping him from giving everything away before he dies, or drafting a will when the illness is detected.
Young people just starting out in jobs might have insurance policies at work. But it makes more sense to name a beneficiary—rather than create a will just for the purpose—as the benefits go directly to the beneficiary or the deceased’s estate, and are not subject to probate or any other fees or taxes.
Similarly, you can name beneficiaries for registered accounts such as RRSPs, as well as TFSAs.
RRSPs, much like insurance policies, pass directly to the designated beneficiary on death and are not available to creditors. For a TFSA, if the client names a beneficiary as a successor holder, the account continues to exist and the successor assumes ownership.
Any income earned after that date continues to be sheltered from tax under the successor holder. The successor’s unused TFSA contribution room also remains unaffected by additional ownership of the deceased holder’s account.
The main purpose of a will is disposition of assets. If he doesn’t have any, he doesn’t need one. He may own things that aren’t worth much but do have sentimental value that he wants to leave to a particular person. But with priceless treasures like these, it’s OK to tell family and friends while alive.
Power of attorney
If your client is worried about being physically or mentally incapacitated, it’s better to draft a power of attorney, or what some people call a living will. Ontario has two kinds of living wills: one for assets, the other for physical care. That latter covers donation of body parts and tissues.
Young people should think of having a will when they get married, are in a common-law relationship, have children, or start acquiring significant assets, such as a home.
A typical situation would be a young couple with kids and assets that aren’t jointly held. One spouse may want to ensure that while the surviving spouse can have income from the assets, they should ultimately pass on to the kids.
As for DIY, the kits could have faulty directions or your client could misinterpret them, thereby making the will void. Once your client builds assets he’d like to pass on, it’s time to give up DIY.
Kanupriya Vashisht is a Toronto-based financial writer.