At the death of a friend or family member, few people want to deal with financial issues. Settling an estate can be a large task. It will be easier for your family if you have consulted with a financial planner and written a comprehensive will.
A will sets out your wishes for the distribution of your estate. The will answers the questions: Who will administer the property and with how much authority? Who are the heirs? How much will they receive and when? How should unique assets be handled? Who should care for a child or other dependants?
If there is no will
If you die without a will, provincial law determines how your assets will be shared. In most provinces, your spouse will get a portion of your assets and the remainder will go to your children. Other living relatives may inherit if you do not have a spouse or child. And remember that rules for a married spouse may not apply to an opposite-sex or same-sex common-law partner. The amount awarded to each person varies by province and is determined through a lengthy court process that can leave your dependants unsure of their future.
If both you and your spouse die without appointing a guardian for your children, the province will determine who will take care of them. Your estate will be put in trust for them and they will inherit the full amount (with no controls) at the age of majority.
Many planning options
A will lets you plan for all these variables. With the help of a member of Advocis, you can ensure your family has enough to live on if you should die. You can divide your assets in a way that will avoid misunderstandings among your heirs. You can use life insurance to cover debts that may affect the settlement of the estate. You can create a trust for dependent children or other relatives. There are many options to ensure the orderly settlement of your estate.
Appointing an executor
An integral part of the will is the appointment of the executor. The executor is the individual chosen to administer your property after you die. This responsibility includes gathering assets and paying any outstanding debts, including income and other taxes. Without a stipulated executor, a court can appoint someone to administer the property. This may result in a conflict among family members over who will be responsible for the property and add further tension at an already difficult time.
The executor(s) will often be the spouse or children of the deceased. Due to their interest in the estate, they will not neglect its administration. Close friends may also be chosen.
More than one executor may be selected. This provides extra security. For example, your executor may die before you and you may forget or be unable to update your will. Or your executor may die before the final distribution of your estate. The person selected may also be unwilling or unable to act as executor. Choosing an additional or alternate executor helps reduce these risks.
One of the tasks that executors face is handling the probate of your estate. Probate is a court's declaration that the will is valid. The province will charge a fee or tax for this service. In Ontario, the probate tax is $5 per $1,000 for the first $50,000 of the estate's value and then $15 per $1,000 (with no upper limit) after that. The probate on a $500,000 estate would be $7,000. With skilled planning, you can keep these taxes to a minimum.
There is no probate tax on insurance policies where a beneficiary is named in the contract. That's one reason why it is important to name beneficiaries and not leave any portion of the benefits to your estate.
Final settlement of the estate
When the estate is settled, the executor will apply to the provincial court for release from the executor's duties. Compensation may be based on provisions in the will or a judge may determine an appropriate amount. It is unlikely that family members will claim executor compensation.
The estate settlement process can be complex. It is important to address concerns before a family controversy begins. A member of Advocis who specializes in estate planning can help you with some of the basic concepts and will recommend appropriate legal help depending on the complexity of your situation.
Some things your executor must do
- Find your will and act on it
- Notify your lawyer, banker, broker, insurance agent, etc. of your death
- Arrange your funeral (if your family has not already done this)
- Arrange payment for the funeral
- Pay your outstanding debts and taxes
- Prepare a statement of assets and liabilities
- Sell any property you want sold
- Distribute your estate to the heirs
- Find an accountant or other qualified person to file your final tax return
- Fill out life insurance and government forms