A Wills and Estates Primer

Basic information you need to know when creating your will
December 2008

Harper Grey LLP Partner Bill MacRae shares some of the information, terms and pitfalls you should be aware of when considering your estate planning needs.

WILLS VARIATION ACT

  • The Wills Variation Act (WVA) allows a judge to reapportion your estate if your spouse or child claims that the will does not make a fair and adequate provision for them
  • The statute does not apply to grandchildren, stepchildren, nieces or nephews
  • In my opinion, it is not possible to simply exclude a spouse or child from an estate. It is considerably easy for them to challenge the will, and their likelihood of success is quite high in BC.
  • As a general rule, children should be given equal shares because of the statutory rights under the WVA.
  • A person who wants to exclude a child from a will would have to take steps such as moving assets into a trust or using or using jointly held assets so that those assets are not subject to the WVA. Life insurance and RRSP's are not subject to the Act either.  
  • Unlike most other provinces and territories, BC's legislation does not stipulate that once a child becomes 18 years of age, he/she should not have rights to challenge the will unless he/she is dependant or disabled. This is why most of the estate-related matters that go to the Supreme Court of Canada are from our province.
  • If you are concerned about a spouse or child bringing a claim against your estate, you should speak to a professional who specializes in this area

JOINT ASSETS

  • People - especially husbands and wives and those in first marriages - use joint tenancy title to real property, joint investment accounts and joint bank accounts so that their assets can automatically go to the survivor upon death
  • Joint assets are not part of the estate, are not subject to probate and are available immediately to the surviving spouse. They also avoid the probate filing fees of 1.4% of the value of the assets.
  • In the case of second marriages, if all of the assets are held jointly with the second spouse, then the deceased's children from their previous marriage may not receive anything from the estate
  • In the case where a widow or widower has just one child, there is often a consideration to add the child's name as a joint holder on property and accounts. This can have tax implications as it is a disposition for tax purposes of half the asset.
  • The use of joint assets between a parent and child means that the holder is giving up control of the asset. This applies to investment accounts, bank accounts and proceeds from the sale of any jointly held real estate.

PROBATE FEES

  • Probate fees are payable to the Government of British Columbia at the rate of 1.4% of the value of assets passing under a deceased person's will, when the will is probated here in BC
  • Probate fees are payable at the time the application for probate is made and apply to all assets in BC held by the deceased person who resided here
  • If someone in BC owns real estate in another jurisdiction, then that real estate is not subject to our probate fees
  • If, however, the person has investments or bank accounts in other jurisdictions, they are subject to our probate fees as they are considered to be part of the person's personal estate and thus are governed by the laws of the province where he/she resided
  • Off-shore bank accounts of BC residents are also subject to probate fees
  • Remember that you can use designations on life insurance and RRSP's as a way of avoiding probate fees as those assets then pass directly to the main beneficiary
  • Life insurance proceeds are not taxable
  •  If you name a beneficiary on the RRSP who is not your spouse, then the tax is owing on the RRSP by the estate. In the situation where the tax on the RRSP is to be paid from the proceeds of the RRSP, you need to designate your estate as the beneficiary of the RRSP so that the tax is paid and then the balance distributed in accordance with your instructions.

TRUSTS

  • Trusts allow for the ownership of an asset to be split as to who has the legal title and who has the beneficial title. The Trustee of the Trust holds legal title to the assets for the beneficial owner of the assets.
  • When assets are put into a trust, they no longer belong to the person who owned them, and are not part of their estate
  • There can be adverse tax consequences using trusts, which is why most people don't use them. When you transfer assets into a trust, it is a disposition for tax purposes. For example, if you have revenue property and you transfer it to a trust, the inherent capital gains will have to be dealt with and the tax paid for the tax year in which you transferred property to the trust
  • Trusts must file separate tax returns and a financial statement must prepared for the trust annually
  • Alter-Ego Trusts (for single people) and Joint Partner Trusts (for married/common law situations) allow you to transfer assets without triggering capital gains tax. To use either, you must be 65 years of age and meet certain other requirements.
  • With alter-ego and joint-partner trusts, the 'trust deed' replaces the will.  Assets are not subject to the Wills Variation Act and are not subject to probate filing fees.

POWER OF ATTORNEY

  • Each person creating a will should also consider creating a Power of Attorney
  • A power of attorney is effective during your life time to appoint someone who can assist you with financial, legal and income tax matters
  • The person who you appoint is to use your assets only for your own benefit and not for thier own benefit
  • In the case of a husband and wife, a power of attorney enables one to sign documentation that could be very important, such as a pending real estate transaction or income tax filing
  • A power of attorney does not cover health care decisions, although in the past the holder was often consulted on such matters

HEALTH CARE AGREEMENTS

  • A Health Care Agreement formally and legally appoints a health care representative who can make health care decisions
  • The representative only comes into play when people cannot give instructions themselves.
  • In situations where someone is in a coma, has had a stroke or has dementia, a representative is needed
  • This is a very important document for people who do not have a spouse or children
  • In health care agreements, there is usually a provision which indicates that the person does not wish to be kept alive by artificial means or heroic measures. In the event that there is no reasonable expectation of recovery, the Representative is to instruct the attending physicians that the person be allowed to die. These are obviously matters of consdierable importance and you need to make your wishes known to your family members through working with your professional advisers.

If you have questions or concerns about preparing a will, planning an estate or trust, or appointing a power of attorney or health care representative, please contact me.

Bill MacRae
Partner
Harper Grey LLP

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