Wills and Intestacy (34 questions)

Question 1

Residuary estate or residue

Answer 1

is all property and cash left in the estate after specific bequests have been granted. Substitute gifts are bequests to alternate beneficiaries in the event the original beneficiary has died.

Question 2

Mirror will

Answer 2

is a will that provides that each testator is the beneficiary of the other’s residue estate. The mirror wills have identical provisions for specific bequests, and they may or may not have identical provisions for substitute gifts.

Question 3

Mutual will

Answer 3

is a mirror will that includes and agreement between the spouses that prevents each other from changing his/her will without the consent of the other.

Question 4

Personal representative or executor

Answer 4

is the person appointed to administer an estate according to the provisions of a will. For simple estates, the personal representative will usually be the spouse or close family member

The duties of a personal representative include:

• making funeral arrangements
• identifying and securing assets
• obtaining authority to distribute the estate from the Court
• filing the final tax return
• identifying and paying creditors;
• distributing the balance of the estate to the rightful heirs and beneficiaries

Question 5

Things to consider when selecting and executor

Answer 5

• is the person trustworthy
• doe that person understand the moral values of the testator
• does the person have sufficient knowledge to hand the needed administrative and and financial responsibilities
• will the person be able to carry out his duties if he is grieving over the death
• does that person have the time necessary to devote to the required administrative duties
• Will that person be willing to undertake those duties
• is that person conveniently located in order to be able to undertake those duties
• if the duties are expected to continue for a long period of time, will that person be likely to remain in sufficiently good health to complete those duties over an extended period of time.

Question 6

What happens if assets are bequeathed to a beneficiary but still have outstanding debt when the owner passes away?

Answer 6

Debts must be settled before ownership of assets can be transferred.
Creditor’s claims take precedence over the bequests of a will. The assets may have to be sold to settle the debts and only the balance of the proceeds will pass to the beneficiary.

Question 7

Calculation of preferential and distributed shares

Answer 7

Only takes place when an individual dies without a a valid will, so this information is not included in a will.

Question 8

Sections in a will

Answer 8

• initial matters section, which covers the revocation of previous wills, the appointment of personal rep, clarification of ambiguous terms, instructions to the personal rep to pay all debts, and other introductory matters
• a section that provides instruction for the disposition of estate assets, including domestic articles, the personal residence, investment assets, specific bequests, testamentary trusts, etc
• an estate administration section that covers the powers of the personal rep and trustees
• a section dealing with the guardianship of minor children,
• a section dealing with miscellaneous provisions

As a Financial Planner, should not step into the boundary of law. Financial planners do not have the authority to prepare wills.

Question 9

Common disaster clause

Answer 9

specifies an alternate beneficiary in the event that the original named beneficiary predeceases or dies simultaneously with the testator. This is also sometimes called the extreme contingency clause.

The common disaster clause may include a provision that specifies that the beneficiary must survive the testator for a specific period of time, such as 30 days, to qualify for the inheritance.

Question 10

Assigning a beneficiary in a will on assets owned joint tenancy.

Answer 10

It is not possible to use a will to bequeath assets that are held in joint tenancy, such a bequest would be void.

Question 11

Life insurance - does it ever become part of the estate

Answer 11

If there is a named beneficiary on the life insurance policy, the life insurance proceeds will not form part of the estate and bypass probate and will be paid directly to the beneficiary.

It is possible the life insurance has not named beneficiary and is left to the estate as well.

Question 12

Discrepancy of a beneficiary of a life insurance policy (life insurance contract vs the will)

Answer 12

If the will was written after a named beneficiary was designated on the life insurance policy and the will names a different beneficiary of that policy, the designation in the will takes precedence over the designation on the policy.
As long as the new beneficiary in the will is someone other than the estate of the deceased, the proceeds of the policy will be excluded from the estate and will not be subject to probate.

The life insurance company will be protected if it pays the death benefit in good faith to the beneficiary that is named on the policy because it has not received a notice of a later beneficiary designation in the will. The beneficiary who was named in the will can then sue the beneficiary who was named in the policy to recover the death benefit.

Question 13

Trustee’s investment power

Answer 13

Provincial trustee legislation limits the trustee’s investment powers. The objective is to ensure that the trustee does not place the estate in risky investments at the expense of the beneficiaries.

The trustee legislation of some provinces specifies an allowable list of investments (often referred to as the legal list) which is very conservative and the list varies from province to province.

The lists typically allow most bank deposits and government debt securities, as well as some corporate bonds, but they exclude all but the most conservative of shares and may even exclude mutual funds.

The trustee legislation in several other provinces grant the trustees broader investment powers by relying on prudent investor principal, which basically allows the trustee to invest in any kind of property, provided that he exercises the judgement and care that a person of prudence, discretion, and intelligence would exercise when administering the property of others.

Question 14

Retaining assets in their existing form in the estate.

Answer 14

The provincial trustee legislation gives trustees limited discretion when it comes to retaining assets in their existing form or converting some assets to cash prior to their distribution. As a result, a trustee may be required to sell estate assets simply because they do not conform to the legal list of investments. To solve these problems, a will can include a separate provision that gives the trustee or executor the discretion to retain or convert the assets.

If a will fails to expand upon the investment powers of the estate trustee, the trustee’s ability to invest the estate assets will be restricted by provincial trustee legislation. Depending on the province, this legislation will either include a list of permitted investments, or it will indicate that the trustee must follow the prudent investor principal.

Question 15

guardianship named in wills - best way to leave estate assets

Answer 15

If a single mother with a minor child bequeathed her estate to an adult, the adult would have no legal obligation to use the estate assets for the support of her child. The adult could reject the role of guardian and still have full access to the funds for his own use.

By bequeathing her estate to a testamentary trust with an adult as the trustee and her child as the beneficiary, a single mother with a minor child can be assured that the adult will use the assets for her child’s benefit. The guardianship role will not place a financial burden on the adult because her child will be financially supported by assets of the trust.

If a single mother with a minor child created an intestacy, the public trustee would assume control of her estate.

Question 16

Power of attorney for property

Answer 16

is a power that deals with the principal’s financial affairs. It gives the attorney or agent the authority to act on behalf of the grantor. Powers of attorney for property can cover a wife range of duties, or the can focus on a single transaction, such as the sale of a piece of real estate.

Question 17

Power of attorney for personal care

Answer 17

is a legal document in which the grantor of the power of attorney gives the attorney the authority to make personal care or health care decisions on behalf of the grantor in cases where the grantor is incapacitated.

Personal care decisions include where the grantor will live, how the grantor will dress, what the grantor will eat, and what health care the grantor will receive and how the grantor’s safety will be assured.

A POA for personal care can contain instructional directives and proxy directives.

Question 18

Living will

Answer 18

also known as an advance directive, instructional directive, and health care directive

addresses one’s treatment and personal care wishes and does not need to name anyone or be written in any specific way.

Question 19

When does a POA become effective

Answer 19

Unless specified, comes into effect immediately when signed. Or in some provinces, when it is registered. This means that if the grantor signs a general, enduring POA without any restrictions, the attorney has immediate authority over the grantor’s financial affairs.

One way to avoid this is for the grantor to leave the signed document with her lawyer, with specific instructions as to when to enact the POA.

Question 20

Springing or contingent POA with a triggering event

Answer 20

A springing POA or contingent POA is a POA that includes directions for when the POA can come into effect. A triggering event is a specific event, such as the grantor’s incapacity.

Question 21

Enduring POA

Answer 21

Is a POA that is effective even if the grantor becomes legally incapable of making decisions.

Question 22

Non-enduring POA

Answer 22

is a POA that ceases to be effective if the grantor becomes legally incapable of making decisions.

Question 23

What is a proxy directive

Answer 23

is a directive that appoints a substitute decision maker or attorney. The proxy directive specifies who you want to make decisions on your behalf if you can longer do so.

Question 24

What are the four unities that are required to form a valid joint tenancy.

Answer 24

-Unity of time
requires that all co-owners receive their interests in the property at the same time.

-Unity of title
requires that all co-owners acquire their interest in that property from the same instrument, such as through a Will or by a transfer of deed

-Unity of possession
means that each co-owner must be entitled to possess the entire property, subject to the equal right of possession of the other co-owners

-Unity of interest
requires that each co-owner must have an equal interest the property.

Question 25

What happens when one joint tenant passes away

Answer 25

Although ownership of a capital asset that is held in joint tenancy automatically flows to the surviving joint tenant, the deceased joint tenant will still be deemed to have disposed of his share in that property at its FMV just prior to death, unless the property can be rolled over at it’s ACB to the spouse or common-law partner of the deceased. Any capital gains realized upon this deemed disposition must be reported for income tax purposes.

Question 26

Income produced from a property that is held joint tenants in common - how is the income attributed

Answer 26

Income that is produced from a property that is held in tenancy in common or a joint tenancy is attributed to each co-tenant in proportion to his ownership interest.

Question 27

Main difference between joint tenancy and tenancy in common

Answer 27

How they dispose of the property at death.

Joint tenancy and joint tenancy in common, each co-owner has the right to dispose of their share however they see fit during life.

However, during death, in joint tenancy, the interest of the deceased co-owner passes to the surviving co-owner.

During death in joint tenants in common, the interest of the deceased co-owner can be appointed through a will.

Question 28

Post mortem control

Answer 28

is the ability to dispose of an interest in property however one wishes upon death. If an individual owns an interest in a property as a tenant in common, he will have post mortem control over that property. this means that he is free to bequeath his share of the property to whomever he choses through a beneficiary designation through his will.

Question 29

Having a property joint tenants in common with a common law partner - dying intestate

Answer 29

provincial intestacy legislation does not recognize common-law partners as having the same rights as legally married spouses when it comes to the distribution of an intestate estate. Thus, if an individual dies intestate, her common law partner would not have any entitlement to he estate.

If an individual dies intestate and is not survived by a spouse, children, or other issue, the provincial intestacy legislation specifies that her estate will be distributed to her ascendant heirs (parents or grandparents). If she has not ascendant heirs, then her estate will be distributed to her siblings on a per stirpes basis.

Question 30

Dying intestate

Answer 30

Provincial intestacy legislation requires that a set amount of the estate - called the preferential share, go directly to the surviving spouse. If the value of the estate is larger than the preferential share, the balance of the estate would be divided between the spouse and the children of the deceased in the for of distributive shares, the entire estate is distributed in the form of distributive shares as equal shares per stirpes.

Distributive shares are allocated between the children of the deceased as equal share per stirpes, which means that an equal share of the estate goes to each child of the deceased, or to each family line descended from the deceased. If one of the deceased’s grandchildren predeceases him, but left children of his own behind, the deceased’s child’s share will go to his own children on a per capita basis, meaning that each surviving member of the next generation will receive an equal share of his parent’s distributive share.

Question 31

Partial intestacy

Answer 31

In a partial intestacy, if the surviving spouse receives some benefits under the will, the entitlement to the preferential share under intestacy legislation will be reduced by the value of the assets that were received under the will.

Question 32

Collateral relatives

Answer 32

are those who are descended from a common ascendant, but who are not in a direct line with the deceased. Collateral relatives include:

• aunts and uncles (who have descended from his grandparents)
• brothers and sisters (who have descended from parents)
• cousins (who have ascended from grandparents through aunts and uncles), and
• nieces and nephews (who have descended from parents through brothers and sisters)

Question 33

Distribution of an estate (no will, no spouse)

Answer 33

intestacy legislation gives preference as follows

• descendant heirs (children or grandchildren)
• ascendant heirs (parents or grandparents)
• collateral relatives (siblings, nieces and nephews)

Question 34

When is probate required

Answer 34

• the estate is intestate
• the estate is involved in litigation
• assets held by a bank or trust company are in excess of an exempt amount (often somewhere between $10,000 and $30,000, depending on the policy of the FI) and;
• in the case of Canada Savings Bonds or Government of Canada bonds, unless the bonds are going to a surviving tenant, or unless the following conditions are met:
• –the value of the bonds to be transferred does not exceed $20,000 and the beneficiary is entitled to receive the entire estate; or
• –the value of the bonds does not exceed $75,000, the beneficiary is the deceased’s surviving spouse, and the surviving spouse is entitled to received the entire estate.

Question 35

What is probate

Answer 35

Probate fees are charged by a province to cover the cost of reviewing the estate and of issuing probate letters. However, probate fees vary tremendously from province to province, and the difference in probate fees charged on large estates of the same value can be quite dramatic.

Probate fees are generally applied to the value of the entire estate, not just those assets that give rise to the requirement of probate in the first place. In the case of real estate, most provinces only charge probate fess on the value of real estate holdings net of mortgage debt, and some provinces exclude the value of real property that is located outside of the province.

Question 36

Having a property in joint tenancy with someone other than a spouse and passing away - how to avoid a deemed dispositon

Answer 36

The registration of the joint tenancy must be accompanied by an agreement that denies the new co-tenant a beneficial interest in the property. If this is done, CRA will consider that no disposition has taken place for tax purposes.