Estate Law Articles
16 Costly Misconceptions About Wills and Trusts
Misconception #1: A Will avoids probate. No. A Will is the primary tool of the probate system. Your Will is like a letter to the Court telling the Court how you want your property distributed. The Superior Court in Ontario will ensure that your Will is valid, which is presumptively the case if the requirements of Part I of the Succession Law Reform Act are met. Probate tax is paid and assuming the Application for probate is in order, the Court will grant a Certificate of Appointment of Estate Trustee With a Will (formerly known as Letters Probate). With the Certificate, your Executor or Executrix will then be at liberty to collect your Estate assets, ensure your bills and taxes are paid, and distribute the balance to the beneficiaries as you have set out in your Will.
Misconception #2: A Testamentary Trust avoids probate. No. A Testamentary Trust is a Trust contained within a Will that holds property for a specific purpose. For example, one purpose would be to hold property until minor children turn 18, when they can legally receive assets and give a release to the Estate Trustee – or until children reach the age when you believe they are mature enough to responsibly handle the property. A Testamentary Trust is not an Alter Ego or Joint Partner Trust. It is part of a Will and takes effect only when you die.
Misconception #3: Probate Taxes and the Expenses and Costs of Administration of an Estate are Small. Not necessarily. Such costs can be very substantial. The largest portion of the costs are typically probate taxes of approximately 1.5 per cent of the value of your Estate assets and the fees charged by lawyers and personal representatives for their services for the estate, in addition to filing fees, costs of publication, fees for copies of death certificates, filing fees, bond premiums, appraisal and accounting fees, and more. Often the fees of personal representatives are based on a percentage of the value of your Estate assets taken in and distributed. There is also the possibility of an on-going care and management fee if your Estate is not to be immediately distributed. Like surgery, probate can be simple and easy, but frequently probate can have drastic and damaging results. Accordingly, like surgery, because of its uncertainty in terms of both the potential for problems and high costs and fees, probate is something best to avoid when appropriate.
Misconception #4: Property can be distributed according to the terms of your Will in only a few weeks. In Ontario, most tasks involved in the administration of an Estate are usually completed within 12 to 15 months. During this time, the deceased person’s property must be inventoried and appraised. Beneficiaries must be notified. Probate and income taxes must be paid. Contested claims, if any, must be settled. Creditors must be notified and paid. If all of this is not done before the Estate is distributed to the Beneficiaries of the Estate, the personal representative may be personally responsible for those claims. As a result, most personal representatives won’t distribute all Estate assets until they are sure all claims, particularly income taxes, have been settled. And, income taxes are typically not finalized until all tax returns have been assessed and all Clearance Certificates have been obtained from the Canada Revenue Agency. That process can take a further year or more.
Misconception #5: Your Will and your assets remain private. No. Because probate is a public legal proceeding, your Estate may become a matter of public record. This means that anyone – including nosy neighbors and salespeople – can go to the applicate location of Ontario Superior Court of Justice to find if a probate Application has been made, and the value of your personal property (i.e. savings, investments, household contents) and real property (i.e. your home, cottage or commercial real estate )at the date of death. Multiple Wills and Alter Ego Trusts are techniques to keep your information private.
Misconception #6: A Will helps you avoid taxes. Not necessarily. A simple Will does little to lower your income taxes. A Will simply directs who will administer your affairs, how you want your property distributed, and who you want to act as guardian for your minor children in case you and your spouse die in a common accident. A skilled lawyer and tax professional can use a Will to plan complicated Estates that require tax planning, but the cost of the complex plan will not be minimal and often it will be comparable to the cost of setting up an Inter Vivos (i.e., lifetime) Trust or more.
Misconception #7: Your Home and Recreational Property can be handled through the same probate and qualification. Yes, but only if they are in the same Province. If you own property in different Provinces, a second probate grant will need to be opened, which means your Estate may need to hire another lawyer. This will increase the overall estate administration expenses. And if you own real estate outside of Ontario, probates will need to be applied for in the other jurisdictions as well.
Misconception #8: A Will prevents quarrels over assets. Wrong. Wills are among the most contested legal documents in Canada. Today, it is common for unhappy relatives to challenge a Will. This results in higher lawyers’ fees and even more delays. A proper plan that involves an experienced estate planning lawyer and if appropriate, health care professionals, will minimize the potential for costly quarrels and will minimize the likelihood of your Will being successfully challenged.
Misconception #9: Estranged family members will not know about probate if a Will excludes them from an inheritance. In Ontario, the Court process is public and anyone may search to determine if a probate Application has been made and if so, what the value of the Estate was for probate purposes. Certain aspects of the probate process can be avoided, however, and financial responsibility can be mitigated through the use of Trusts and other types of estate planning.
Misconception #10: A Will from one Province is legal in another Province. Wrong. If the Will is legal in the Province where it was prepared, it is not necessarily legal in all Provinces. D Provinces have different requirements, for example. In Ontario, you can make a Will wholly in your own handwriting, if you sign it and date it, but not in Prince Edward Island. In Ontario, two witnesses are necessary for a Will to be valid under the Succession Law Reform Act but in other Provinces, such as British Columbia, one witness may be sufficient under the Wills, Estates and Succession Act. Wills should be reviewed by a lawyer and sometimes changed whenever you move to a new Province. Basic requirements need to be met. Also, review by an estate lawyer is appropriate because the Will’s language may not mean the same thing as it did in the Province where it was signed. In addition, you may need the witnesses to probate the Will and if the proper procedures were not followed, you may have trouble probating the Will.
Misconception #11: A Will helps you when you become physically or mentally incapacitated. No. A Will is totally ineffective until death, and, therefore, does nothing to help you through incapacity and disability. Your family or friends may have to go to the Ontario Superior Court of Justice to start costly guardianship proceedings.
Misconception #12: You must name your Lawyer as your Executor or Executrix. Not at all. You may name anyone you choose.
Misconception #13: The cost of your Estate plan is only the cost of drawing up the documents. No. The cost of your Estate plan is both the cost of drafting the documents and the cost of distributing property to your beneficiaries. Simple Wills are less expensive to set up, but potentially quite expensive when they go through probate. Multiple Wills and Trusts may initially cost more than a simple Will, but the overall cost of settling your estate is often substantially less.
Misconception #14: Inter Vivos Trusts are only for large Estates. No. Trusts are for anyone who wants to avoid costly probate proceedings. In appropriate cases, people with small Estates can benefit from a Trust. People with larger Estates can benefit even more.
Misconception #15: An Inter Vivos Trust is a public document. No. Your Trust can remain private because it does not have to be recorded or published. The only people who will know about your Trust are the people you choose to tell. However, some professionals may need to review your Trust to confirm that your trustee is authorized to take a particular action. This review is for the protection of all beneficiaries of the Trust.
Misconception #16: There are no costs associated with administering a Trust at the death of the original settlor of the Trust. Not true. While people commonly think that only the probate system costs money and takes time, they fail to understand that administering a Trust, distributing Trust assets to Beneficiaries named in the Trust, and terminating the Trust can result in substantial fees and costs. Trustees charge fees for their service, and many trustees hire lawyers and accountants. These costs are paid by the Trust before beneficiaries receive their inheritances.