BC’s estate laws and your will
The rules dealing with estates received a makeover to bring estate planning into the 21st century.
In 2014 the Wills, Estates and Succession Act (WESA) introduced new rules and brought significant changes to BC's estate and succession laws. It modernized and streamlined estate law in this province;. here are some of the changes you should be aware of.
Changes to wills
Under the old WESA, a will was automatically revoked by marriage. This is no longer the case. And, a person is no longer considered a spouse if they had lived separate and apart from the deceased for at least two years. This means any gifts can be nullified if the two-year rule is satisfied.
With the new rules, the courts have more discretion to accept documents that may not meet the formal requirements of a will, but express a deceased person's wishes.
A will made prior to when the new legislation went into effect remains valid, but it may be interpreted differently. If your will predates the new legislation, now would be a good time to review it.
Dying without a will
The new rules affect intestacy, or dying without a will, considerably. Where the deceased had a spouse and children, the spouse will receive the first $300,000 of the estate and half of the remainder. If the children belong only to the deceased, the spouse's initial $300,000 share is reduced to $150,000. A surviving spouse is no longer entitled to a life estate in the spousal home, but does have an option to purchase it.
The order of claim of other relatives to an estate's assets has also been adjusted, bringing BC's intestacy law in line with other provinces and helping divide an estate more equally between both sides of a deceased's family.
Other key changes include:
- The value of any gifts received from the deceased during their lifetime is not to be deducted from the receiver's inheritance, unless the will specifically directs it.
- Land and personal property are now applied equally against an estate's debts. Previously, personal property gifts were applied first, offering more protection to those inheriting land.
Time for review
The changes brought in by the WESA in 2014 are a reminder of the complexity of estate law and the need for everyone to have an effective estate plan. It's estimated that almost half of Canadian investors expect an inheritance and 77% said it would be the key source of funds for their retirement. It's clear that estate matters aren't trivial for many of us.But, we don't always do what's needed to create an optimal plan.
Below are five common mistakes people make in estate planning.
1. Get it and forget it.
Making a will is not a one-shot deal. The birth of children or grandchildren, divorce and remarriage, buying a vacation property – they're all events that suggest an update to your will might be in order. Keep your will current and ensure your assets are passed on how you would want now.
A worse misstep is failing to make a will at all. By not having a will you lose your say in how your assets are distributed or how any minor children would be cared for when you die. Your family is also likely to face unnecessary expenses and delays when settling your estate.
2. Underestimating your wealth.
Added up, your investments, RRSPs, life insurance† payouts, pensions, real estate, business interests and other assets could represent a substantial legacy for your family. And if you're a baby boomer, you're about to become part of what's widely regarded as the largest intergenerational wealth transfer in Canadian history. You might want to check that your parents' wills are up to date. Without an estate plan, your wealth – including what you inherit – may not be adequately preserved or distributed according to your wishes.
3. Staying silent
Share your intentions and important information with your family, a trusted friend or advisor. Let someone know where critical documents like your will, financial statements, birth certificate and insurance policies are kept, and who you've appointed as your executor.
Much too often money is a taboo subject between parents and children, but it's important to discuss your wishes with family members. Leaving a prized family heirloom to one beneficiary over another may create misunderstandings or hard feelings if you're no longer here to explain your decision.
Don't forget to discuss your choice of executor with the individual before you appoint them. Being an executor is a significant responsibility; it shouldn't come as a surprise!
Snapshot: Leaving it to others to decide.
John, a successful small business owner, had built a sizeable investment portfolio and never seemed to want for cash. And with their home fully paid for, Cheryl, whom John recently married, never gave their finances a second thought. When John died suddenly, Cheryl was shocked to discover that despite his financial savvy John never made a will. A court application was needed to appoint an administrator, adding more than $20,000 in cost and several months to the settlement of John's estate.
What's more, John's adult children from a previous marriage had expected to share in a greater part of his wealth. But now without a will, statute will decide how John's children and Cheryl will share his estate.
4. Failing to tax plan.
Taxes can have a significant impact on how much of your wealth you'll pass on. With some exceptions, your assets are deemed to be disposed of upon your death, leaving any capital gains you've accumulated open to taxation. This tax hit can be substantial. Fortunately there are effective strategies to help shield your estate from taxes. Purchasing life insurance is one. Proceeds from your policy can be used to pay any taxes your estate owes, plus cover extra expenses like probate fees, funeral bills and legal costs. Without this protection your beneficiaries may be forced into selling cherished family assets just to settle the tax bill.
Snapshot: Taking a tax hit.
When Karen passed away last year, her net worth totaled nearly $5 million. In addition to her home, Karen's assets included her stock portfolio, term deposits and a cottage outside Kelowna. After reviewing her affairs, Karen's family concluded that she had accumulated over $2,000,000 in capital gains.
Her advisor had recommended life insurance years earlier, but Karen hesitated at 'paying one more bill'. Because she hadn't planned ahead, Karen's estate faced a tax bill so large that it forced her children to sell the family cottage, leaving behind disappointment and a far smaller estate than she would have hoped.
Another strategy is to look at gifting assets while you're alive. Doing so will not only reduce the size of your estate for tax purposes, but you'll also have the satisfaction of seeing your beneficiaries enjoy your generosity now. For example, helping your children purchase a first home in this expensive real estate market or assisting with their mortgage will give them a hand when they need it most.
Holding assets jointly with your beneficiaries or transferring assets to a trust are other ways to pass wealth on, but they can be tricky and have tax consequences. Get professional guidance if you're considering these strategies.
5. Leaving decisions to others
Without an Enduring Power of Attorney and Representation Agreement, your family could have to go through a potentially expensive and drawn-out court process to act on your behalf should a sudden illness or disability strike. These documents give another authority to act in your financial, legal or health matters when you can't.
When you’re ready to review your will and estate plan, a BlueShore Financial advisor is ready to help.