Before you make a Will - some definitions for non-lawyers

Writing your Will can be a very simple process, but because it is only done a few times in your life, it can be intimidating. It can seem daunting because there are so many unfamiliar terms used in the estate planning world. Expressions that are second nature to the legal community, but are not in everyday use for the rest of us. Before you make a Will, it is important to familiarize yourself with some of the more common expressions.

Just because the terms are unfamiliar, they are not complicated concepts. In this article we will explain a few of the words that you will need to know before you make a Will. We hope that we can demystified the process a little.

Intestate

The term intestate is typical of much of the legal language in that it is derived from Latin, and in today’s World it means that you have died without a Will. But, in a sense, you never really die without a plan, it’s just that if you didn’t make a Will, your plan will be taken care of by the courts. This means that your beneficiaries, guardians, administrators and ultimately the distribution of all of your property will be decided by a judge instead of by you.

Your Will serves some critical functions. It firstly names a person to take care of everything on your behalf (your Executor). If you don’t name anybody in a Will, the courts will appoint somebody for you. Whether or not you choose to make a Will, you need somebody to take care of your estate for you. It’s just a matter of whether you decide to do it, or let the courts make the decision for you.

Your Will may name guardians for children. Again, if you choose not to make a Will, then the courts will appoint guardians for your children on your behalf. Of course, they won’t be able to make as informed a judgement as you would have made, but regardless, a judge will decide who will raise your children.

You can set up trusts for children in your Will, describing the ages that you feel would be most appropriate for any minors to inherit. If you don’t make a Will, this age will be 18 or 19 depending on your Province.

The crux of your Will though is the description of how your estate will be distributed. If you choose not to make a Will, the courts already have a plan in place for you. But don’t assume that if you are married everything will go to your spouse. In a couple of Provinces this is indeed the case, but not always.

So dying intestate effectively means that the courts and a judge will make a Will for you.

Estate

We’ve already mentioned the word estate a few times in this article. Your estate isn’t restricted to real estate when mentioned in the context of a Will. It means everything that you own that is managed by your Will. This includes property, vehicles, bank accounts, possessions, cash. All of this will become your estate to be distributed according to the instructions in your Will (or according to the intestate distribution laws of your Province). The only exceptions are any policies that have beneficiary designations associated with them. So if you have a life insurance policy with a beneficiary, this will not be included as part of your estate.

Last Will and Testament

Your Last Will and Testament is a written signed document that primarily expresses your intentions for the distribution of your estate. In its most basic form, it can be a handwritten note that identifies itself as a Last Will and Testament, and it then signed at the end. Famously, in 1948, a Saskatchewan farmer Cecil George Harris was pinned under his tractor. He carved his Will into the fender of the tractor, and this was deemed to have fulfilled all of the requirements of a legal Will.

The Will of Cecil George Harris carved into the fender of a tractor

But there are well written Wills, and poorly drafted Wills. A good quality Will would include key appointments, alternate plans, trusts, powers to the Executor, guardianships. Our Wills are usually about 6 pages, and include over 20 legal clauses (paragraphs).

You can legally prepare your own Canadian Will, you can use a lawyer to make a Will, you can use a blank form kit, or it would come as no surprise that we recommend that you use an online service like ours that bridges the gap between a well drafted document at an affordable price.

Living Will

One of the most commonly mis-used terms is the unfortunately named “Living Will” which has absolutely nothing to do with a Last Will and Testament.

The Living Will, Healthcare Power of Attorney, Advance Directives, are different documents to help with your end of life care. Specifically an advance directive and Living Will allow you to express the types of care you wish to receive if you are ever in an irreversible terminal condition. It includes your preferences on resuscitation, tube feeding and being artificially kept alive.

It is generally recommended that everybody prepare a Living Will, or Advance Directive, just in case. But the vast majority will never be used. This is why we usually say that everybody absolutely needs a Last Will and Testament, but a Living Will is a “should have”. Every once in a while we see news coverage of a bitter family dispute centred around the handling of a dying loved one. The stories are always tragic and could all have been avoided with the creation of a Living Will and Healthcare Power of Attorney.

The Healthcare Power of Attorney is a single decision maker who has the authority to make these difficult decisions of your behalf. By having one person with the final say, you can avoid the emotional trauma faced by so many families.

Power of Attorney

A Power of Attorney (PoA) is a document that grants authority for somebody to act as if they are you under certain conditions described in the document. The Healthcare Power of Attorney we have already covered, but when people talk about a PoA they are usually referring to a Financial Power of Attorney.

When we help you create your Power of Attorney at LegalWills.ca we are usually creating a “springing” PoA. This is a document that comes into effect if you were to ever lose the capacity to handle your own financial affairs. Usually, two doctors would have to certify that you have lost capacity, and then the person named in the document becomes your “Attorney” or “Attorney-in-fact” (which rather confusingly has nothing to do with a legal attorney).

This person will then be able to pay bills for you, transfer money on your behalf and have access to your financial assets. If you are incapacitated, it is usually critical for somebody to be granted this power, especially if any of your financial transactions require joint signatures with your spouse.

Of course, you must have complete trust in the person being appointed. Just last week we saw the family of BB King locked in a legal battle over alleged theft by the person appointed in his financial Power of Attorney.

Estate Plan

The expression “estate plan” is generally used as a collective term for your Last Will and Testament, Living Will and Power of Attorney. If you have all three of these documents in place, you should feel comfortable that your estate plan is in place.

Some words you need to know when you make a Will

Executor/Personal Representative/Trustee

One of the most important functions of your Will is for you to appoint a person to carry out your instructions. This can be a friend or family member, a legal professional, or even most banks offer these services – for a fee of course. We will be writing more about ways to choose an Executor, and it can depend on the complexity of your estate. If you feel that you need a professional, and no friends or family members have the skills to perform the role, be aware that they will be taking a significant percentage of your estate as payment.

The term “personal representative” is another name for the Executor, as this person will be representing your interests after you have passed away.

After you have died, everything you own will be placed in trust. This means that it is protected and cannot be accessed by anybody other than the Trustee. So the Trustee is in fact your Executor, but described in a different context. It is the person looking after your estate, now that it has been placed in “trust”.

Beneficiary

A Beneficiary is somebody benefitting from the distribution of your estate. So any person or organization receiving an item, or amount of money from your estate is a beneficiary. Typically, if you make a Will you would include specific gifts going to named beneficiaries, for example, $1,000 to the Humane Society, and then a “residual beneficiary” the recipient of everything after taxes, debts, funeral expenses and specific bequests have been paid out. Often the “residual beneficiary” is the main beneficiary of your estate.

Guardian

You can use your Canadian Will to express your preferences for the person to raise your children if neither legal parent is available. In fact, your Will is the only legal document that you can use to state this.

In reality what happens is that a judge at the family courts will appoint a guardian. Hopefully people will come forward and offer themselves as the guardian and the judge will grant guardianship to the person or family that he/she considers to be the most appropriate. However, a stated appointment in your Will would be the over-riding factor in making that appointment. But of course, this will likely not happen for a few years and a number of things can happen in the meantime. If the person that you have appointed in your Will was inappropriate for whatever reason, or unwilling, then the judge will have to select somebody else.

Trust

A trust is part of the estate than cannot be touched. In a sense, your entire estate goes into a trust as soon as you die. It is protected and can only be touched by your Executor and then it is distributed according to your directions.

More commonly though in Canadian Wills you will see trusts set up for minor beneficiaries. A child cannot inherit directly and so their inheritance must be held for them until they reach an age that you have specified in your Will. Some people feel that 18 is a little young to receive a major inheritance, so change the minor trust to “expire” as one third at 21 years old, one third at 25 years old and the remainder at 28. You can set up this minor trust any way you wish.

You can also grant powers to the trustee (the person looking after the trust for you) so that they could release some of the funds for the healthcare, education and other needs of the child while they are growing up, while still trying to protect the balance as much as possible, so that there is still something left when the child reaches the appropriate age.

There are countless other trusts that can be set up when you make a Will. Another common one is to give a person a lifetime access to a property, but it then goes to your children when the person dies.

In the US, you’ll hear a lot about “Living Trusts” which have been developed to address people’s fear of probate (covered below). Probate fees are typically a percentage of the estate, so a common strategy to reduce probate fees is to give everything away before you die so that nothing is left in your estate. The way this is done is to put it in a living trust so that nobody can actually touch it, but it no longer exists in your estate. When you die, the Living Trust is released. This is a less frequently used strategy in Canada.

Witnesses

Just below your signature at the end of the Will is the “attestation” clause. For a Canadian Will to be legal, you will need two witnesses to “attest” that they saw you sign the document, you knew what you were doing, and nobody was forcing you to sign something you didn’t want to sign.

This is the part of the process that when done wrong, can be catastrophic, but it is not complicated. All three of you need to be in the same room at the same time, and your witnesses cannot be beneficiaries, nor the spouse of a beneficiary. In general, we recommend that the witnesses have nothing to gain from the contents of the Will, so family members are generally a poor choice. But the witnesses do not have to be lawyers, or notaries. They can be any two adults of sound mind with no vested interest in the Will. Once signed and witnessed, you have a legal Last Will and Testament.

Notarizing

This is an optional step that confuses people. The role of a Notary varies significantly from Province to Province, as does the qualifications to become a Notary. For example, in BC they seem to have extended powers and set themselves up as Will writers. In Ontario, their role seems to be restricted to taking sworn affidavits.

There is no requirement to have a Canadian Will notarized to make it legal, but it is an extra step where the witnesses swear under oath (and have their credentials verified). If there was a dispute over the signing of the Will, the witnesses would have pro-actively testified that the signing process was all above board. They would do this by signing an “Affidavit of Execution” that is then attached to the Will. The Notary would then add their seal to the affidavit.

Probate

This is a frequently misunderstood process, but is actually very simple. We often hear of people wanting to “avoid probate” because there is a perception that the process is onerous and expensive. In reality, probate fees are really not too bad, but the process is critical. In most cases, a Canadian Will must be probated.

Imagine that a person has died, you find their Will and see that you are the Executor of their estate. How would you go about collecting up the assets in the estate? I can assure you that if you show up at a bank with the Will in hand asking to empty the bank accounts, you will be out of luck. A bank is not in a position to check the validity of the Will. For example, they would not know if it was the last Will and Testament, or if another one had been written afterwards. Banks have to deal with a liability, and so most have a policy of requiring a court authorization before releasing funds.

This court authorization is known as the “grant of probate” “letters of administration” or any other combination of these words depending on which Province you are located. And the process by which the Executor is given this document is “probate”.

So unless an entire estate is made up of jointly held bank accounts that will be passing to the other account holder, the Will is almost certainly going to have to go through probate in order for any financial institution to release funds from an account.

In the US there is a paranoid fear of probate with many sophisticated legal tools to minimize the impact. But it is worth noting that probate fees in Canada are not egregious, although they are based on a percentage of your estate.

In Ontario the probate fees are now called the estate administration tax (probably a more honest description) and is set at $5 per thousand on the first $50,000, and $15 per thousand on the remainder. So a one million dollar estate will pay nearly $15,000.

In British Columbia, the basic fee to apply for probate is $200. In addition to the basic application fee, there is a requirement that the following fees be paid: $6 for each $1,000 of the value of the estate in between $25,000 and $50,000, plus: $14 for each $1,000 of the value of the estate in excess of $50,000. So in BC a one million dollar estate will pay about $13,500

In both cases, it’s more or less 1.5% of the estate.

Any other confusing terms when you make a Will?

In our experience, the list of definitions above are the most frequently misunderstood terms and we end up clarifying them through our support team on a daily basis. Maybe there are some other legal expressions in a Canadian Will that you are unsure about. If so, please add a comment, and we will add our explanation to the article.

About
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Tim Hewson

President and CEO at Canadian Legal Wills

Tim Hewson is one of the founders of LegalWills.ca.

He has over 20 years of experience helping people to write their Will and other estate planning documents. He has been interviewed by many of the major news media outlets including CTV, Global News, The Toronto Star, and other leading Canadian publications. He has also contributed to a number of financial planning books.

Throughout his career, Tim has written extensively on the subject of Will writing and estate planning.