You’ve written a will and laid out your plans for who gets what. But did you know that sometimes your will alone may not be enough to determine how your assets will be distributed? Treva Newton, Tax and Estate Planner with TD Wealth discusses the limitations of your will.
- Many people believe that your will spells it all out. Who gets what after you die? Well, in some cases, that's not true. And you might be surprised at the special circumstances where your will will not determine who gets certain assets. Treva Newton is a Tax and Estate Planner with TD Wealth, and she told me, it's far from that straightforward, as the wheel does not determine everything.
- No, it's not always the case that the will decides everything. It depends on how you own the assets, will depend on whether or not it's actually going to go through your will. I was at a soccer field, and I had a friend come up to me. And she was quite distraught because her sister's husband had recently passed away, and they just read the will. And the will, he changed it, so everything went to their son, not to her. And she couldn't-- she was distraught. What am I going to do? I have no money to live off anymore.
And so I asked them, well, don't they own the money things jointly between each other. And they're like, well, yes. They owned everything joint. Well, then, it's going to go to her anyway. But the will says. Everybody thinks because the will says it, it's what's going to happen.
KIM PARLEE: And that's not always the case.
- Let's talk about some specifics. Your house-- or your home, I should actually be more specific right now. Why doesn't a will determine who gets the house?
So again, goes down to who owns it. A lot of time, couples owned the home jointly between each other. So on the death of the first spouse, it's just going to automatically go to the survivor. It's not going to go through the will. Only if they own the home themselves will it go through the will.
- Investments, same kind of idea? It depends who owns them or who is put the money into them, I assume, as well?
- Well, no, not who would put money in, but who actually owns it. Because with your will, it goes only with ownership, not with who originally contributed to it.
KIM PARLEE: OK.
- So you've got to be very careful. So sometimes when there's a second marriage, and you have kids from your first marriage, and you want to make sure that money goes to your kids-- say your will says it does. Your will says that 50% of my assets are going to go to my kids. But if you own that jointly with your spouse, it's not going to go to your kids. It's going to go to the survivor, not through the will.
- What about company shares? I'm assuming this is a scenario where, let's say, someone who owns their own company, and they passed away. What happens to those?
- So again, they own the shares themselves, and it's fine. It's going to go through the will. But a lot of estate planning is done for people who own their own businesses, private company shares. And a lot of times, there is a trust set up. There's an estate freeze.
And the assets are-- the company shares are actually held by the trust, not by the individual. I have a lot of clients who come in and talk to me, and we go through their estate planning. We go through how they want to leave the assets. And they say, my company's shares are going to go to my wife, or to my children, wherever it's going to go.
And then I talk to them about, OK, well, how do you actually own the shares, and realize, oh, I have this family trust set up. Well, what does the family trust own? And we talk the accountant. Oh, the family trust owns the shares, not you.
And so it's actually be the family trust that determines where the assets go, not your will. And I find a lot of people are very surprised by that.
- Yeah, not a great surprise to have if you've been planning on something, I'm sure, at the same time.
- What about life insurance, RSPs, TFSAs? So how do those get determined?
- So they can either be determined through the will, if you've made a designation under the will as to what it's going to say. But most people actually do it in the plans themselves. So your RSP, your TSFA, you've probably named a beneficiary under those plans, and that's who's going to get the assets.
It doesn't matter what your will says if the beneficiary designation is done through the plan itself. And you do need to be a little careful about taxation of it, because tax-free savings accounts are fine. But RSPs or RIFs, the beneficiary actually gets the full amount of the RSP or RIF, and the estate pays the tax. So you want to be careful that you're not mismatching
- There's a lot of things you're talking about here that sounds as though the designation of them is taken through a trust, taken through beneficiary, designation, nothing to do with the will. Which leads me to the question, do you need to have a will?
- Well, of course, you do need to have a will. The will is a very important document. It does name who your executor is going to be, and it is going to deal with any assets that are yours on your death, possibly on the death of the first spouse, if we're talking first marriages here. There won't be a lot to go through the will, because everything's probably joint. But on the death of the second spouse, the will will determine where assets are going to go. So it is still a very important document.