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Wealth management

What happens if you don't have a will?

November 2, 2020

Even today, many people don’t have a will, or it isn’t up to date. The situation is even more concerning, given that poor estate planning can result in a heavy tax burden for your heirs. And that’s to say nothing of the family conflicts that can result after you’re gone.

Isn’t it important for you to choose your heirs and decide what you want to leave them?

Without a will, who decides?

Did you know that if you aren’t married or in a civil union, your partner is not considered an heir in the eyes of the law? Under the Civil Code of Québec and Ontario’s Succession Law Reform Act, your spouse’s income tax status has no legal value in the estate if you don’t have a will. They must be an heir to get joint tax benefits after your death.

“People might be misinformed or underestimate the consequences of not having a will when they die,” says Dominique Bigras, Vice-President, Trust Strategies, at Desjardins Wealth Management. “They aren’t aware that without one, the Civil Code of Québec applies, which leaves no room for ambiguity.” At the time of your death, the Code provisions will appoint your heirs and determine how your assets are divided up.

“The children then become the heirs, regardless of what kind of relationship you had with them when you died,” says Bigras. “If the partners are married within the meaning of the Act, the Civil Code of Québec stipulates that the spouse will inherit a third of the assets, and the children will share two-thirds. If there are no children, the spouse will inherit two-thirds and a third will go to the ascendants (parents). And if there are no ascendants, the deceased’s siblings will share in a third of the assets.”

The benefits of a notarial will

What you need to remember is that a will ensures your wishes are executed and that the professional who draws it up will be able to help you with estate planning. They can help you choose your liquidator and make sure your wishes are respected and your heirs protected.

“The cost of getting a notarized will is minimal compared to the cost of not having this kind of legal document,” says Bigras. “You should also know that the subsequent costs are also higher for a holograph will (handwritten by the testator) and a will made before (2) witnesses. Both types of wills must be probated by the court or a notary after the testator’s death, so that their wishes are carried out, at expense to the heirs.”

A notary’s advice on drawing up a will is invaluable. Obviously, a notarial will isn’t a magic bullet; there will still be taxes owing on death. But the point is to organize the estate to reduce the tax burden as much as possible.

Tips to reduce taxes

For effective estate planning, you should consult your advisor or financial planner. They can help you optimize the value of your assets by recommending strategies like:

  • Leaving your:
    • Taxable assets to your spouse
    • Registered retirement savings plans (RRSPs) to your spouse or dependent children
    • TFSA to your spouse
  • Taking out life insurance
  • Donating to charitable organizations

In Ontario, all wills must be probated by a court to confirm that the will is the deceased’s last will. Without a will, the Succession Law Reform Act will appoint your heirs and determine how your assets are distributed.

Here’s how your estate is divided under the Act:

  • If you’re married and have no children, your spouse will be your sole heir.
  • If you’re married and have one child, your spouse will inherit the first $200,000, and the rest will be divided equally between both heirs.
  • If you’re married and have more than one child, your spouse will inherit the first $200,000, and the rest will be divided among the heirs: one-third to your spouse and two-thirds to your children.

Did you know you can have more than one will?

“Many people are unaware that in Ontario, you can have more than one will,” says Joseph Jalkh, Vice-President, Tax and Estate Planning, at Desjardins Private Wealth Management. You might have more than one because some assets are taxable, while others aren’t.

If that applies to you, Jalkh recommends you write up at least 2 wills:

  • The primary will covers assets subject to the estate administration tax.
  • The secondary will covers other assets that are not subject to the estate administration tax.

The estate administration tax will only be payable on the value of the assets covered under the primary will. This allows you to organize your estate to reduce your heirs’ tax as much as possible.

If you want more details about assets subject to this tax, refer to the Ontario government website.

Why update your will?

Your will should reflect existing family relationships at the time of your death and be consistent with the person you were. That’s why it’s important to keep it up to date. There are 3 main types of events that are cause for revising a will:

  • Legislative or tax changes
  • Family structure changes (divorce, a new marriage or common-law relationship)
  • Changes in your assets (home, cottage, business and so on)

When an update is in order, you should inform your loved ones and heirs of your wishes as well as the changes you made, to avoid any unpleasant surprises or family conflicts.

Avoid complications

As you can see, a will should be an essential part of your financial planning. By keeping it up to date, you’ll make sure your final wishes are respected and make life easier for your loved ones after your death. Before meeting with a notary, make sure to make an appointment with your advisor to get personalized guidance. Every situation is different and requires special attention.