Things to Think About Before Making a Will
Executor and Trustee
An executor is the person responsible for gathering the assets, paying debts and distributing the estate to the beneficiaries. When a person is managing a trust, we refer to this person as the trustee of the trust. A trust is a relationship which arises where the legal and beneficial ownership of property is divided. One party in the relationship, the trustee, holds title and is obligated to maintain the property for another’s benefit (the beneficiary). A beneficiary in this relationship, is the person who is to benefit from the trust property.
Will makers should think about who they want to act as the executor and trustee for their estate. Additionally, think about alternatives or backups. Our office normally recommends having at least one alternative executor/trustee in case the first is unable or unwilling to Act.
When choosing an executor there are many factors to consider. One of the main things to ask is do you trust this person to do a good job. The relationship between an executor/trustee and a beneficiary is a fiduciary relationship. Executors and trustees must act in the best interests of the beneficiaries when carrying out their duties. Executors and trustees should put the interests of the beneficiaries ahead of all others. Another factor to consider is the complexity of the estate and the capabilities of the person being named. Naming an executor/trustee who is close to the will maker’s age may be appropriate if the will-maker is young, but may not be appropriate when the will-maker is of an advanced age.
If the proposed executor resides outside of Canada, he or she is considered a foreign executor and in order to obtain a grant of probate may have to post a bond. Having a foreign executor/trustee might result in the residence of the estate and any trusts created under the will being changed. This can cause considerable complexities for the estate and beneficiaries and could have detrimental tax consequences.
Sometimes a trust company might be a very good choice of executor. In such situations, the trust company is referred to as a corporate executor or corporate trustee. Generally, the advantages include experience, objectivity, skill, continuity and longevity. On the other hand, retaining a corporate executor or trustee can be expensive and may not be appropriate for all estates.
As many people are reluctant to act as executors, the testator should obtain the consent of all proposed executors to ensure they are willing to accept the appointment and act when needed. However, acceptance at the time may not prevent the executor from renouncing the role down the road.
Lastly, another important issue to think about when appointing an executor/trustee is compensation. Under Manitoba legislation, an executor is entitled to be paid “fair and reasonable” compensation for his or her efforts.
Guardianship
Should you currently have or expect to have children in the near future, you should think about those persons who you would wish to have guardianship of your children should you pass away. Please also consider alternatives to your first choice for guardian, in case the person appointed is unable or willing to act as guardian.
Specific Gifts
A specific gift is a gift where you are gifting a piece of specific property (e.g., jewelry, specific monetary amounts, antiques, vehicles etc.). There is no requirement that you need to make a specific gift; often clients will choose to gift the entirety of their estate through a residual clause (discussed below).
Residual Gifts
Residual gifts are gifts of everything that has not been gifted prior. It is the remainder of the estate. Residual gifts are often done through percentages or shares. Often will makers set out certain percentages or shares that are to go to a certain person.
Please note, there are many different ways to draft a will, and what makes sense for one family may not make sense for another; shares can be unequal taking into account many different factors such as prior gifts, prior loans, or sweet equity put into a business. It should also be noted, as your circumstances change your estate plan may change.
Trust Conditions
A will can contain provisions for holding certain property in trust for the benefit of another person (the beneficiary). It is often the case that parents with minor children include restrictions in their wills with respect to when and how their children can receive their share of the estate. If you do not set an age, a child would be entitled to receive the gift when they turn 18 years old. Often parents do not want their child receiving their estate at 18 years old. They would rather see a trust be put in place to provide for the necessities of the child prior to them reaching a certain age.
One common approach is to have the funds held for the benefit of the child and have the funds released to the child when they reach a certain age (21, 25, 30, or any other age that would be appropriate in the circumstances). Another approach is to have certain amounts payable at different ages. For example, the child can receive one-fourth of the trust at 18 years old, one-fourth at 21 years old and the balance at 25 years old.
Prior to giving instructions for a will, it is often advisable to think about if you would like to include trust conditions in your will. If you would like to include trust conditions, a lawyer can review the various options available and assist you in finding an option that works best for you.
Asset Ownership
It is important that will makers ensure that those assets intended to form their estate actually form their estate. If a will-maker wants a specific piece of property or a specific share of property to go to a beneficiary under their will, it is very important that the estate is composed of the property that they intend to make up their estate. With that goal in mind, there are a couple of important principles regarding asset ownership to keep in mind when making a will:
You cannot gift what you do not own. A common trap is where a will-maker gifts an asset under their will but dispose of the asset before they die (e.g., a will-maker gifts their “red convertible” but they subsequently sell the red convertible). Another example is gifting assets that are not held by the will-maker but rather by a third party (e.g., farmland thought to be held by the will-maker, but actually held by a corporation or a trust controlled by the will-maker).
Joint assets and assets with beneficiary designations pass outside of the will. For example, if a joint bank account is held by two parties, the bank account would not form part of the estate of the deceased, but rather pass to the surviving joint account holder. With that said, there are some limitations and exceptions to this rule, but these are outside of the scope of this article.
Closing
If you have any questions or concerns about the information included in this article, or you would like to book an appointment to discuss your estate plan, please feel free to contact us.
DISCLAIMER: The information provided within this article is for general information purposes only and is not intended to be a substitute for legal and other professional advice. Legal and other professional advice is recommended. While every effort is made to ensure that the information provided is current and accurate, all persons involved in the preparation of this article disclaim any warranty as to the accuracy, currency, or absoluteness of the information. The author shall not be responsible nor liable for decisions resulting from, or related to, the information or opinions within the article.