With an aging population in Canada, more Canadians than ever are faced with dealing with the financial consequences of dying and the transfer of their wealth to others. Yet, many people have inadequate or outdated estate plans and half of adult Canadians do not even have a Will. If they were to die suddenly, their current wealth transfer would not match what their true intentions are.
- An estate plan is the process of identifying your wealth and structuring your affairs to ensure your wealth transfer matches your intentions in the most effective manner. The preparation of your Will is the culmination of putting your estate plan in place.
- A Will is the written document that confirms and directs what your wishes are for your assets after your death.
A significant and often used component of an estate plan is incorporating a charitable gifting strategy. Many Canadians like the idea of giving back to one or more of their favourite charitable organizations and find making a gift at their death a worthwhile endeavour. In your Will, you can gift a certain amount to be distributed to the charity or can set a percentage of your estate is to be distributed to the charity.
One major benefit of incorporating a charitable gift in your Will is financial. Often the most income tax one pays is not during your lifetime but is payable by your estate at your death. The Income Tax Act has a set of rules that are triggered at death that can create a significant tax burden for your estate. The rules also provide for offsetting tax reductions for the charitable donations you make in your Will.
So, your Executor may be able to write a cheque to your favourite charity after death and a smaller cheque to the Receiver General of Canada. Depending on the amount of the gift, maybe no cheque!
When you begin to work on your estate plan and undertake the Will preparation process, one of the key considerations to ponder is who to name as your Executor and Alternate Executor of your estate. What is an Executor? The Executor is the person/entity you name to take responsibility for the management and distribution of your estate when you die. It can be an individual (spouse, adult child, family member or friend, a professional such as a lawyer) or a trust company that offers Executor services.
The list of responsibilities of the Executor is a long one. An estate administration, even the simplest ones, often extend into the second year after death. There are many situations where a person who had agreed to be named and considered it an honour now realizes what a time consuming and responsible burden that role had become.
What qualities should you look for in your Executor? Here is a helpful list:
- Prior estate administrative experience
- Tax expertise or access to expertise
- Some understanding of estate and trust law
- Financial accountability
- Good judgement and impartiality
Potential problems that may arise for an Executor when they do not have the experience or expertise to take on the role include:
- Personal liability for mistakes
- Criticism from family and beneficiaries on how the estate has been administered
- Challenges in administering the estate due to location, lack of time or ability
- Challenges in handling financial matters
- Challenges of providing required full and complete accounting to all beneficiaries
An excellent estate plan can all be for not if the Executor does not follow through with the instructions and duties on timely basis. Have the tax returns been filed on time? Have charitable donations been made according to the Will in the most tax effective way? Have all the assets of the deceased been accounted for?
It is important to ask the person you wish to name whether they wish to act. There have been many situations where a person was surprised to find out they were named after the person had died. It is too important of a role to not ask and have agreement at the time of completing the Will. Compensation should also be addressed at that time as to whether the Executor should be paid for taking on the burden of administration. All Wills should also name at the very least one alternate Executor in case the first Executor predeceases or is unable to perform the duties at the time of your death.
Here is detailed checklist of the Executor duties:
- Obtain the original Will and confirm that the Will document is the most recent one signed by the deceased and review for specific instructions concerning the funeral
- Obtain multiple original copies of death certificates to deliver to various financial institutions and government agencies
- Review and interpret the Will
- Meet with family members
- Assess financial needs of family
- Communicate with beneficiaries, gather information and set expectations
Protection of Assets
- Redirect mail
- Ensure safe custody of valuables
- Check and secure vacant property
- Verify adequate insurance is in place to protect assets
- Notify financial institutions where deceased had accounts or other dealings
- Cancel credit card accounts, leases, memberships and subscriptions
- Notify government and pension agencies
Valuation of Assets
- Locate all estate assets (bank and investment accounts, original stock and bond instruments, property deeds, etc.)
- List safety deposit box contents
- Obtain fair market value of real estate, securities and personal valuables at the date of death
- Investigate all debts owed by the deceased
- Apply for government and employer or former employer pensions and benefits
- Apply for and collect life insurance and other insurance benefits
- Prepare Statement of Assets and Liabilities, provide to lawyer for probate application and pay probate fees
Administering the Estate
- Open an estate account to deposit income, pay expenses and transfer balances
- Close bank accounts, investment accounts and safety deposit boxes
- Review investments and registered accounts with designated beneficiaries
- Transfer, sell, dispose of personal and household effects where necessary
- Interim reporting to beneficiaries
- Obtain copy of last tax return filed by deceased
- Determine any outstanding tax issues, filings outstanding
- Complete and file all tax returns and pay any required income taxes
- Obtain clearance certificate from CRA
Distribution of Estate
- Pay all creditors
- Distribute specific bequests
- Begin distribution of assets to beneficiaries according to terms of Will or realize assets and distribute cash
- Set up testamentary trusts if instructed under the Will
- Prepare final accounting and reporting to all beneficiaries
John Pin, Senior Manager, Estate Planning
Solus Trust Company Limited www.solustrust.com