If you’ve put effort into writing your Will, you may be interested in knowing what will happen with it when you pass away. It can be far more complicated for your executor to manage than you imagined. Kim Parlee talks to Treva Newton, a Tax and Estate Planner with TD Wealth, about how a Will is executed and what you can do to ensure yours is managed correctly.
Treva Newton is a Tax and Estate Planner with TD Wealth. She joins me now from Victoria with today's Ask MoneyTalk question.
Treva, great to see you. Today's question is, I've completed my will. But what exactly happens with the will after I die?
Right. As you said at the beginning, a lot of people think that there's going to be this big reading of the will, and the family is going to gather around. That doesn't happen. Really, it's the executor's responsibility to read the will and then make sure that it's distributed to all the beneficiaries who are benefiting under the will.
And it's really important that you've put the will somewhere where the executor can find it and that the executor knows that they're the person who is named to act. I'm going to tell you a little story about when I was a trust officer and was responsible for administering an estate. We had the lawyer contact the trust company and say that the client had passed away, and here's a copy of the will.
So I take a copy of the will, and I start doing the things that you need to do. One of the first things you have to do is safeguard the assets. So I went to her care home where she lived and went into her room and started looking for all of her possessions that needed to be safeguarded, all her valuables.
As I'm going through the desk drawer, at the very bottom, behind everything else, I see this envelope, and written on it is "will." So I'm like oh, OK. This must be another copy of the will.
I take it out, look at it, and realize, this name's a completely different executor, and it was actually done after the will that I had done by a different lawyer. So I had to stop doing everything, contact that executor, and hand everything over to her so that she could start the administration of the estate. So just pointing out, you really need to keep your executor informed as to who the executor is and where that will is located.
- I would say that's a good first step. Understand who that is. Can I ask you-- that clearly wasn't the best case scenario in terms of how things unfold, but maybe you could take me through what you think is the optimal process or the optimal best case scenario.
- All right, so let's go with a little example here. So you have a mom. She has a daughter and two sons.
She's named the daughter as her executor. She's told her daughter that the will is located in her safety deposit box. So that's great.
So after mom passes away, she's going to go to the safety deposit box, and she's going to be allowed to withdraw the will from the safety deposit box-- only the will, because everything else is going to be part of the estate. She's going to take that will, and she's going to have to send copies to the beneficiaries under the will. And in BC-- like, each province has its own legislations that set out what the administration of estate is going to be. So in British Columbia, we're a little bit different here.
And what you have to do is send a copy of the will to anybody who would have benefited had there been an intestacy. Intestacy means that you've died without a will or that all of your assets haven't been distributed through your will. So in this case, we said that mom had three children.
Let's say she left one of her sons out of the will. She would actually, the daughter, have to send a copy of the will to that son so that he knows about it and that he's been left out of it. The next thing they're going to have to do as an executor is after you've done the will, you're going to have to locate all the assets and do a statement of liabilities as to everything that the mother owned at her death.
Once you have that, you can apply for probate. Probate is the process of the courts determining that this is the last will and that the executor is the executor and can start dealing with the estate. And probate fees come into play there.
So probate fees are different in every province. In British Columbia, they're 1.4%. In Ontario, they're 1.5%. And in some provinces, they're a flat fee as low as $400. So it really depends on what province you're in as to what the probate fees are going to be.
After probate, then the person is going to have to-- there's different timelines that you have to follow, depending on the different legislation that's put in place in different provinces, to wait to do any distributions from the estate.
- I know that, for a lot of people, there's the paying out to the beneficiaries that you're talking out but also the fact that there is a big tax bill that often comes to people. And I know you and I have spoken.
This is, I think, one of the biggest tax bills people will ever pay, when they're doing the-- so how do you balance that? How does that happen?
- Yes, so the date of death tax bill is going to be really probably the highest one that's going to be payable because all of your assets are deemed to have been disposed of. So if you've had a RRIF, RSP, anything like that, all of that is now taxable in the estate. So it's going to bring you up to a higher tax bracket.
So you really, as executor, have to be mindful before you do distributions as to what that tax bill is going to be. So let's say that all the time periods have passed for you to be able to distribute from the estate. So that's all cleared away.
Now you're looking at doing the distributions. So you're going to have to really have an accountant at this point in time to take a look at how much should you be holding back from your distributions to make sure that Canada Revenue Agency gets the amount that they're supposed to get
- You've accounted-- in this example, you said you've notified everybody. You've done everything you're supposed to at this point. You've put moneys aside to pay for the things that need to be done. Can now things be distributed?
- Yes. So now you can start distributing according to the will. So the first thing you're going to do is the legacy payments, which are basically dollar amounts that go out to individuals. Say she left $500 to a charity. That's going to be distributed first.
And then you're going to do residue amounts, which is basically a little percentage. In this case, it's divided amongst-- we're going to say all three kids. And so you can take an equal amount to divide amongst all of them. But you're going to make sure that you hold back enough to pay those taxes, because you want to make sure that you have money there because the executor is actually personally liable for the taxes.
- Hm. What if there are challenges to the will?
- Yes, so people can challenge a will, and each province has reasons why people can challenge and receive funds for it. So that's one of the time periods you have to wait for.
In a lot of provinces, It's around six months after the grant of probate is when somebody can-- time period to challenge the will. So you want to make sure that those time periods have lapsed before you do any distributions. Otherwise, again, if you distribute to somebody and then the court says, actually, more money is going to go to somebody else, you're in trouble because you're going to have to either try to get that money back or be responsible yourself.
- It sounds as though even at a straightforward-- and I use that word almost comically, because I don't know if anybody's situation is completely straightforward-- requires some help. So maybe just give a sense of just what the role of a trust company could be or a role of a lawyer and how they can help facilitate this.
- Yes, so people say, oh, I have a simple estate. It's not going to be that complicated. As you said, no estate is simple. Everything does have to go through a process.
And depending which province you live in, if you live in a different province than the person died in, you don't know the rules of that other province. So trust companies, lawyers can be very useful for you. So you can hire a trust company or a lawyer to help you with the administration of the estate.
If you're already named as the executor and you're finding it too onerous to do all the work that needs to be done, a trust company lawyer can come in and help you with everything that needs to be done. It's really great because this is what they do. They know how to administer an estate.
They know all the steps that need to be followed. And so they'll make sure it's done properly. Or somebody can appoint a lawyer or a trust company to be the executor under their will so they know with peace of mind that their estate is going to be dealt with properly.
- Treva, thanks so much. Really insightful. Treva Newton-- she's a Tax and Estate Planner with TD Wealth. She joined us from Vancouver.
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