Perhaps influenced by ‘reading of the Will’ scenes in movies, clients often come to us with the idea that they will give away their estates asset by asset; for example, the house to their son, the cottage to their daughter, a bank account to a cousin, the car to a friend — you get the idea. There are exceptions, of course, but generally it is not a good idea to mention particular assets in your Will.
There are a number of problems with distributing your estate on an asset-by-asset basis. Firstly, your assets are constantly changing. As a result, you may not have the same assets at your death that you had on the day you signed your Will. Also, all assets do not have the same tax consequences at death. Without considering the tax consequences for each asset, one beneficiary may get much more or much less than you intended. Specifying that an asset is to be left to a particular beneficiary is only advisable in certain circumstances. For example, you may decide to gift your stock portfolio to a charity so that your estate receives the very favourable tax benefits for doing so and, of course, you want to benefit the charity. Or you may want a particular family heirloom to go to a certain cousin so that it stays in the family.
To ensure that an RRSP or RRIF goes to a specific person, name the person as a beneficiary so that the RRSP or RRIF passes outside your Will and is not subject to probate. However, be aware that although the beneficiary receives the entire RRSP or RRIF, your estate (what passes through your Will) pays the income tax owing on the RRSP or RRIF at death which be nearly 50% of its value. The beneficiaries named in your Will might then receive far less than you had intended.
Although we do not recommend including beneficiary designations for a life insurance policy be included in a Will, occasionally this is necessary. This could occur if there wasn’t time to register a change of beneficiary with the insurance company, such as just before a trip or urgent surgery. Generally, we recommend that beneficiary designations be filed directly with life insurance companies or RRSP holders so that the correct beneficiary designation is on their records as it may be overlooked if included in a Will.
So, don’t do your estate planning Hollywood-style, see an estates specialist today for real world advice about how best to distribute your assets!
Reproduction of this blog is permitted if the author is credited. If you have questions or if you would like more information, please call us at 613 836-9915. This blog is not intended to be legal advice but contains general information. Please consult a lawyer or other professional to determine how the information in this blog might apply to you.
Blog posts pre-dated December 1, 2015 were originally published under Neff Law Office Professional Corporation.
