Do I Need A Will?

As you think about your estate, you may be wondering whether you should give away your assets before you die (called making “inter vivos” gifts) or gift them through your Will (called making “testamentary” gifts). Every estate plan is different, but here are some points that you should consider.

Advantages of gifting assets during your lifetime

Gifting assets during your lifetime can be an effective estate-planning tool. There are several advantages that you should consider, including:

• The gift will not be part of your estate when you die, so it will not be subject to probate fees. This is a savings to your estate of roughly one-and-a-half per cent of the value of the asset gifted.
• For income tax purposes, gifts to anyone other than a spouse, such as gifts of real estate (excluding your principal residence), will be treated as though you have sold the property at fair market value. Therefore, the person gifting the property will pay tax on 50 per cent of the capital gains.
• If you anticipate that a capital asset will significantly increase in value with time, you may consider gifting it earlier so that you pay the capital gains owing as of the date you make the gift. Thereafter, the recipient of the gift will bear the capital gains tax on any increase in the value of the property when they later dispose of it.
• • If you decide to gift the asset after your death, you could, during your lifetime, plan for the taxes by buying an insurance policy to cover the tax that your estate will bear.
• One of the greatest advantages of gifting in your lifetime is seeing how the gift benefits the recipients.

Risks of gifting assets before death

Gifting assets during your lifetime could also expose you to risks. There are several disadvantages that you should consider, including: You will need financial resources to maintain a good standard of living throughout your lifetime. Optimistically, you may live to 100 or beyond.

You will want to preserve sufficient financial resources to cover your future costs of living at the lifestyle you want to live. Consider contingencies such as the cost of a retirement residence or uninsured medical costs. Because these costs can be unpredictable, gifting too early carries the risk of allocating too little for your own standard of living and future care.

Family dynamics might impact your decision to gift before or after death. For example, consider how your relationship with those to whom you are gifting or between family members might change depending on when and how you gift. If, for example, you gift to one child and not your other children, there may be conflict between your children and conflict for you.

The person you are gifting to, may expect you to pay any land transfer tax. Also, depending on your finances and the nature of your assets, it may be advantageous to defer taxes until after your death.

Remember that neither method of estate planning is all or nothing. You can choose a combination of gifting during your lifetime and gifting through your Will, in a way that best suits your needs. You can also explore other options, such as joint ownership or trusts.

How you gift is important

It is important that you formally document any gifts you give. While it is not pleasant to think about, it is all too common for future beneficiaries of your estate to later allege, even months or years after you have made a gift, that a gift was never intended. Typically, they allege you lacked capacity or were unduly influenced by the recipient, and that therefore the “gift” should be deemed invalid and the asset should be returned to the estate, for their benefit.

Formally documenting the gift can help protect your intentions and the recipient of the gift if your gift is later scrutinized. In particular, if you lose capacity in the future, it may be questioned whether you gifted while you still had capacity. If your estate is contested in court, the recipient of the gift will require collaborating evidence of the gift, like a formal document — not simply your word. Further, formal documentation can serve as evidence for tax purposes.

You can document your gift through a “Deed of Gift.” This is a legal document, easily drafted by a lawyer, that shows your intention to gift. To help avoid potential disputes, you should document the gift independently of the person you are gifting to — meaning the recipient should not be present when you instruct or sign the Deed of Gift.

A lawyer has a duty to satisfy themself that you have capacity and are not being unduly influenced into making the gift. If your gift is later scrutinized or litigated in court, the lawyer’s notes to file, along with the Deed of Gift, could become evidence in support of your intention to gift. In addition, the lawyer should ensure that the gift is made by you personally, not through a Power of Attorney. By this we mean that the person you have appointed as your attorney for property should not be the one instructing or signing the Deed of Gift. You should gift while you have capacity and can sign the Deed of Gift yourself. This will help your gift withstand scrutiny if anyone questions whether you were unduly influenced when deciding to gift.

What about charitable giving?

Charitable giving can be a way to support the causes you care about, while simultaneously reducing the tax implications of your estate. Charitable gifts may carry significant tax benefits and can be in the form of many types of assets, such as registered retirement savings plans (RRSPs), registered retirement income funds (RRIFs), stocks, bonds, and mutual funds. As with any gifts, carefully consider the amount and timing to ensure your financial needs are met. A tax lawyer or an accountant can advise you on the tax benefits of making charitable gifts during your lifetime or through your Will.

Get your Will updated

Regardless of whether you choose to gift some or all of your assets during your lifetime — you should still have a Will. This is vital where you are in a second marriage or similar relationship, as conflict very often arises between the families.

It is also important where you own assets that will require a grant of probate before such assets will be released to your estate (typically this includes stocks and real estate). A Will can be critically important where any beneficiary has a disability and receives government assistance, such as under the Ontario Disability Support Program (ODSP), since the inheritance, if not structured through a trust, could disentitle the beneficiary to government assistance. Lastly, if you own assets in another jurisdiction — other Canadian provinces and U.S. states are in fact different jurisdictions — you should make a Will dealing with the assets in each jurisdiction, made through local legal counsel to ensure compliance with the estate and probate laws in each jurisdiction. Another crucial function of your Will is to appoint an executor, now known as an “estate trustee” in Ontario. If you die without a Will, or die “intestate,” you will not have any choice over who acts as a trustee for your estate. Family or friends may not agree who will act as an estate trustee and this can greatly increase conflict, expense, and delays in the administration of your estate.

It is also important that you keep your Will updated to reflect your current wishes, to stay current with tax planning strategies, and to adjust for any life changes, such as marriage or divorce. A Will is a critical part of your larger estate plan.

If you would like more information on planning your estate: contact a lawyer with experience in handling Estate Planning issues.

Eden C. Maher and Amanda Le are associate lawyers with the Ottawa law firm of Nelligan O’Brien Payne LLP (nelliganlaw.ca) and members of the Estates Law Practice Group.

NOTE TO READERS: THE VIEWS OF THE AUTHOR DO NOT NECESSARILY REFLECT THOSE OF COYLE MEDIA GROUP. THIS ARTICLE IS PROVIDED AS A GENERAL SOURCE OF INFORMATION ONLY AND SHOULD NOT BE CONSIDERED TO BE PERSONAL INVESTMENT OR LEGAL ADVICE, OR A SOLICITATION TO BUY SERVICES. READERS SHOULD CONSULT WITH THEIR FINANCIAL OR LEGAL ADVISOR TO ENSURE IT IS SUITABLE FOR THEIR CIRCUMSTANCES.