A will is a legal document that describes how you want to distribute your assets after your death. It allows you to communicate your wishes clearly and precisely. It is crucial to have a will, especially if you have young children and want to decide who will take care of them.
What does a will contain?
Generally speaking, a will includes:
- Designation of an executor, the person to carry out the will’s provisions
- Beneficiaries of the assets
- Instructions for how and when the beneficiaries will receive their share of the assets
- Designation of guardians for any minor children
Assets can be classified into two: those that allow the naming of beneficiaries and those that do not. For assets that do not allow the naming of beneficiaries, such as real estate and some bank account types, the will is the one to designate who will get them. Meanwhile, assets that allow the naming of beneficiaries, such as IRAs and investment accounts, can be transferred directly to your beneficiaries even without a will and have greater authority than the will. These assets usually avoid probate (a legal process for settling an estate) as well as certain taxes, helping you maximize what you leave to your beneficiaries.
What are the types of wills?
There are three basic types of wills in Canada:
- Formal will – This is a typewritten will signed by you in the presence of at least two witnesses (who cannot be your beneficiaries or their spouses). It is advisable to have a lawyer prepare this will so that you can avoid potential problems such as improper wording or signing.
- Notarial will – This is similar to the formal will but is only used in Quebec. It is prepared by a notary and signed before the notary and a witness.
- Holographic will – This will is completely handwritten, dated and signed by you with no witness involved. Experts discourage this type of will because it is subject to misinterpretation and challenge. In addition, some provinces do not recognize it as a legal document.
What makes a will valid?
A will can be considered valid if it meets the following conditions:
- It has to be executed according to the provincial laws
- You must be of sound mind at the time of preparing it
- You must understand the results of preparing it
- You must understand the nature and extent of the property you own
- You must be at least 18 years of age or the age of majority as defined under the provincial laws
- It has to be signed, dated and witnessed by the number of people required by the provincial laws You can amend your will to change the provisions. The amendment, known as a codicil, is subject to the same requirements as the original will.
When should you change your will?
Make sure to update your will whenever your circumstances change. Marriage, divorce, re-marriage, adoption, birth, and death of a spouse or an executor are some of the reasons to make changes to your will. In some provinces, getting married automatically revokes your current will. As such, if you die before drawing up a new will, you will be treated as if you have none.
What are the limitations of a will?
A will cannot accomplish the following:
- Disinherit a spouse – Spousal rights are protected in common-law states under spousal elective share statutes and in community-property states under community-property statutes.
- Transfer title to property held in JTWROS (joint tenancy with right of survivorship) and TBE (tenancy by the entirety)
- Bequeath all or most properties to a charity when the decedent is survived by a spouse or children
- Avoid probate
Is there a substitute for a will?
Yes, there is. In the absence of a will, a will substitute allows you to transfer assets to beneficiaries outside probate, which expedites the distribution process and helps you avoid any costs associated with probate. Will substitutes are classified into the following categories:
Right of survivorship
JTWROS and TBE transfer assets directly to the surviving tenant at the death of the other. However, TBE can only be used by legally married husband and wife and is not recognized in all states.
Some examples of this include:
- Payable-on-Death (POD) and Transfer-on-Death (TOD) accounts – These involve depositing funds for the benefit of another, payable on the death of the original depositor. Both are cheap (sometimes free) to execute. However, TOD accounts can only be used for individual stocks or stock accounts.
- Contract provisions effective at death – These can include life insurance, annuity contracts, qualified plans and IRAs where you designate a beneficiary to whom payments are made after your death.
- Funded living trusts: Revocable living trusts are the most commonly used will substitutes. These are funded during your lifetime to avoid probate at death.
These substitutes can be both beneficial and risky. Compared to wills, they are easier to amend. On the other hand, they may come with high set-up costs and some maintenance costs as well as put you on the hook for some taxes if the substitute you choose is not properly set up. So you should be careful with your decision.
Although a will cannot resolve all your estate planning needs, it can serve as an essential component of your estate plan, especially when used with other estate planning tools. For best results, make sure to consult an estate lawyer when making your will.