While more than half of Canadians don’t have a Will, dying without one can bring hardship to your family and cause financial problems. Kim Parlee speaks with Georgia Swan, a Tax and Estate Advisor with TD Wealth, about what happens to your estate when you don’t have a legal Will.
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- It may not surprise you that more than half of Canadians have not done their wills. What may shock you, though, is the chaos, the hardship, the loss of control and loss of money that happens when somebody dies without one. Georgia Swan is a tax and estate planner with TD Wealth. She joins us from Barrie, Ontario for this Ask MoneyTalk. And Georgia, our question is, what actually happens if I die without a will?
GEORGIA SWAN: Well, in the first place, It can cause a lot of hardship and issues for your family. Maybe the best way to start this is to provide an example of a matter that I was involved in a number of years ago, where a parent passed away quite suddenly in their late 30s from an accident. And they were divorced at the time they passed away. They had no obligations to their previous spouse. But they were the custodial parent of a very young child.
And basically what ended up happening in that case, because they didn't have a will, is that, while according to the laws of the province that they lived in, the child was the sole, basically, beneficiary of their estate, there was nobody to actually manage that estate. So in this particular case, their ex-spouse ended up applying to be the executor of the estate, which I can tell you that person probably wouldn't have wanted. They were appointed to administer the estate along with another person from that perspective.
But what also happened was-- because a lot of people don't realize that, as a parent, you are not the automatic guardian of your child's property-- that parent also again applied to court and became the trustee of their child's money, which also would not have been the choice of the deceased parent. And because there was no planning put in place, the estate in this case ended up being fairly substantial because of some insurance money, almost $2 million. And this child now will have an entitlement to gain control of that money at 18. So while, yes, the money went to the person that we assume would have been the person that they would have wanted it to get anyway, all of the supports around that were absolutely not, I think, what that deceased parent would have wanted.
- I think a lot of ears perked up on that cautionary tale, because it's a pretty dire one. Let me ask you, what are some of the other hardships, though, that can face surviving family members? I know one of them you have to deal with is that accounts get frozen.
- Absolutely. I mean, I think as the years go by, within family units, we're dealing with our finances differently. Where it used to be that spouses owned everything jointly-- and in that case, if one spouse dies without a will, most of the assets go to the surviving spouse, because they survived if they're joint assets-- that's not so much the case anymore.
Even with married spouses now, I think a lot of people are keeping some or maybe all of their respective finances separately and then contributing in some way to the household budget. So in this case, where someone dies and their assets are their own-- they have it solely in their name-- assets are frozen. And where, for example, the contribution of that deceased spouse represented a real amount of money to the family budget, there can be significant financial hardship to the people left behind until the situation is dealt with.
- What about the child side of things? You alluded it, too, in your first cautionary tale that you told us. Most people do choose their relatives as executors or as guardians for their minor children. But again, if you don't say that, what happens?
- You just touched on the most important part of having a will, and that's actually appointing an executor. I think a lot of people don't realize that, when you die, a new entity is born. In my case, it'll be the estate of Georgia Swan. And just because I might leave behind next of kin, it doesn't mean that that next of kin-- my husband, parents, or whoever it is, my children-- it doesn't mean that those people are able to legally deal with the estate, which will include my assets, the requirement to file my tax returns, the requirement to pay off any debts that I may have, and the ability to get information from banks, from institutions, from governments, from whoever I dealt with during my lifetime.
And so the first thing that a will does is it appoints that executor. And if you don't have a will, then there is no person who is automatically entitled in any way to get that information, to have that authority. So that's the first thing that you do in a will and why, when you die without one-- which is known, in law, as dying intestate-- it can create a lot of issues.
Also, for most parents, one of the most important things is, who's going to be the guardian of my child? And in that particular case, you can put somebody in the will that you would like to do that job. But if you don't have a will, then conceivably it could be a child surviving parent, which may or may not be a good thing if you're not with that parent anymore. Or it could be somebody else in the family that might not have been your first choice.
- There's really, when you run through the reasons, it makes me want to run and make sure that everything's in place and that everything is as it should be. But there's one more thing to keep in mind, too, is that it can be costly from a tax perspective. Explain what happens there.
- Well, there's a lot of things. First of all, whereas, when you have a will, it provides you the opportunity to do some estate planning and to potentially avoid the probate process, which is basically a court recognition of the will and comes along with it, depending on the province where you live, a tax liability-- in Ontario, it's estate administration taxes or probate fees-- you don't get that choice. When you die without a will, your estate does have to go through probate because that executor has to be appointed.
The other issue is really that your assets might not be divided the way you had hoped, because each province has a different process a little bit in terms of how the estate is divided. But for example, in Ontario, where you die without a will, if you have a spouse and children, your spouse is entitled to the first $200,000 of value of your estate. And then your spouse and your children divide the rest.
So you have a situation where you may assume that your spouse is just going to inherit everything, but they don't. And if your children, for example, are over 18, they don't have to renounce their entitlement under the estate. And a surviving spouse may find themselves having to sell off assets in order to give their own children the entitlement that that child has according to the provincial laws of the province that you live in-- or that you died in, actually.
- A lot to absorb there, but everything leading to the path of making sure this is in place and that you're protected. Georgia, thanks so much.
- Thank you.
- That's Georgia Swan. And if you have any questions and you would like to ask MoneyTalk your question, you can send an email to moneytalk@td.com with "Ask Money Talk" in the subject line. Or check on moneytalkgo.com, where you can find answers to so many questions about life and money.
[MUSIC PLAYING]
- It may not surprise you that more than half of Canadians have not done their wills. What may shock you, though, is the chaos, the hardship, the loss of control and loss of money that happens when somebody dies without one. Georgia Swan is a tax and estate planner with TD Wealth. She joins us from Barrie, Ontario for this Ask MoneyTalk. And Georgia, our question is, what actually happens if I die without a will?
GEORGIA SWAN: Well, in the first place, It can cause a lot of hardship and issues for your family. Maybe the best way to start this is to provide an example of a matter that I was involved in a number of years ago, where a parent passed away quite suddenly in their late 30s from an accident. And they were divorced at the time they passed away. They had no obligations to their previous spouse. But they were the custodial parent of a very young child.
And basically what ended up happening in that case, because they didn't have a will, is that, while according to the laws of the province that they lived in, the child was the sole, basically, beneficiary of their estate, there was nobody to actually manage that estate. So in this particular case, their ex-spouse ended up applying to be the executor of the estate, which I can tell you that person probably wouldn't have wanted. They were appointed to administer the estate along with another person from that perspective.
But what also happened was-- because a lot of people don't realize that, as a parent, you are not the automatic guardian of your child's property-- that parent also again applied to court and became the trustee of their child's money, which also would not have been the choice of the deceased parent. And because there was no planning put in place, the estate in this case ended up being fairly substantial because of some insurance money, almost $2 million. And this child now will have an entitlement to gain control of that money at 18. So while, yes, the money went to the person that we assume would have been the person that they would have wanted it to get anyway, all of the supports around that were absolutely not, I think, what that deceased parent would have wanted.
- I think a lot of ears perked up on that cautionary tale, because it's a pretty dire one. Let me ask you, what are some of the other hardships, though, that can face surviving family members? I know one of them you have to deal with is that accounts get frozen.
- Absolutely. I mean, I think as the years go by, within family units, we're dealing with our finances differently. Where it used to be that spouses owned everything jointly-- and in that case, if one spouse dies without a will, most of the assets go to the surviving spouse, because they survived if they're joint assets-- that's not so much the case anymore.
Even with married spouses now, I think a lot of people are keeping some or maybe all of their respective finances separately and then contributing in some way to the household budget. So in this case, where someone dies and their assets are their own-- they have it solely in their name-- assets are frozen. And where, for example, the contribution of that deceased spouse represented a real amount of money to the family budget, there can be significant financial hardship to the people left behind until the situation is dealt with.
- What about the child side of things? You alluded it, too, in your first cautionary tale that you told us. Most people do choose their relatives as executors or as guardians for their minor children. But again, if you don't say that, what happens?
- You just touched on the most important part of having a will, and that's actually appointing an executor. I think a lot of people don't realize that, when you die, a new entity is born. In my case, it'll be the estate of Georgia Swan. And just because I might leave behind next of kin, it doesn't mean that that next of kin-- my husband, parents, or whoever it is, my children-- it doesn't mean that those people are able to legally deal with the estate, which will include my assets, the requirement to file my tax returns, the requirement to pay off any debts that I may have, and the ability to get information from banks, from institutions, from governments, from whoever I dealt with during my lifetime.
And so the first thing that a will does is it appoints that executor. And if you don't have a will, then there is no person who is automatically entitled in any way to get that information, to have that authority. So that's the first thing that you do in a will and why, when you die without one-- which is known, in law, as dying intestate-- it can create a lot of issues.
Also, for most parents, one of the most important things is, who's going to be the guardian of my child? And in that particular case, you can put somebody in the will that you would like to do that job. But if you don't have a will, then conceivably it could be a child surviving parent, which may or may not be a good thing if you're not with that parent anymore. Or it could be somebody else in the family that might not have been your first choice.
- There's really, when you run through the reasons, it makes me want to run and make sure that everything's in place and that everything is as it should be. But there's one more thing to keep in mind, too, is that it can be costly from a tax perspective. Explain what happens there.
- Well, there's a lot of things. First of all, whereas, when you have a will, it provides you the opportunity to do some estate planning and to potentially avoid the probate process, which is basically a court recognition of the will and comes along with it, depending on the province where you live, a tax liability-- in Ontario, it's estate administration taxes or probate fees-- you don't get that choice. When you die without a will, your estate does have to go through probate because that executor has to be appointed.
The other issue is really that your assets might not be divided the way you had hoped, because each province has a different process a little bit in terms of how the estate is divided. But for example, in Ontario, where you die without a will, if you have a spouse and children, your spouse is entitled to the first $200,000 of value of your estate. And then your spouse and your children divide the rest.
So you have a situation where you may assume that your spouse is just going to inherit everything, but they don't. And if your children, for example, are over 18, they don't have to renounce their entitlement under the estate. And a surviving spouse may find themselves having to sell off assets in order to give their own children the entitlement that that child has according to the provincial laws of the province that you live in-- or that you died in, actually.
- A lot to absorb there, but everything leading to the path of making sure this is in place and that you're protected. Georgia, thanks so much.
- Thank you.
- That's Georgia Swan. And if you have any questions and you would like to ask MoneyTalk your question, you can send an email to moneytalk@td.com with "Ask Money Talk" in the subject line. Or check on moneytalkgo.com, where you can find answers to so many questions about life and money.
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