Hi everyone, I’m Sabrina, a lawyer at Varity Law. Recently, there are many clients who came to our office after their loved ones passed away. Upon examining their wills, we discovered that most of the wills are done incorrectly, making them useless. So what is required for a correct Will? Today, we will answer that and more.
After we passed away, most of our assets will be frozen. Our beneficiaries – the people we want to inherit our estate (e.g. our children) – cannot receive our assets until they file a probate application with the Court and receive an approval letter.
When applying to the Court, having a correct will vs. not having a correct will makes a world of difference:
- Time: the Court processing time with a Will is usually 1-3 months, whereas without a Will is 6 months or more – during this time, the estate assets will remain frozen and cannot be assessed by our beneficiaries
- Fees: the legal fees for filing probate with a Will is on average $2500, whereas the legal fees without a Will is on average $5000
- Penalties: during the time that the estate assets are frozen, the estate debts cannot be paid and will accumulate interest. In the worst case scenarios, the creditors (e.g. banks) can sell off estate assets (e.g. the deceased’s house) to recover their losses. So, the faster you can unfreeze the estate assets, the better.
So, what are the requirements of a correct Will? Let’s go through a quick checklist:
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The Five Mandatory Requirements
For a Will to be done correctly, it must satisfy all of the following:
- The Will must be in English or French, and not in another language.
- The Will must be hand-written or printed. Printed is better, as some handwriting are very hard to read.
- The person who makes the Will, called testator, must be conscious and can think clearly when making the Will. So it’s not a good idea to put this off until the testator is very old or is already in the hospital.
- The testator must sign the Will at the same time as two witnesses. The witnesses cannot be any named beneficiary in their will, or their spouses. So, if dad is giving his house to daughter, the witnesses cannot be the daughter or the son-in-law.
- At least one witness must sign an affidavit in front of a licensed lawyer. Thus, it’s much easier to get your Will done at an Estate law firm, because they will provide the two (unrelated) witnesses and complete the affidavit at the same time.
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Simple Will vs. Comprehensive Will
So now we know the requirements of a basic will. But what separates a simple will vs. comprehensive will? In general, a professional and comprehensive Will should have the following:
The Will must be logically sound, and not have any contradictions.
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- Sam and his spouse have a joint bank account. In their Wills, they stated that the money in their joint account will go to their children, not to each other. However, the definition of a joint bank account is that if one person passes, the money goes to the surviving account-holder. Given this, the Will clause giving the joint account money to their children is useless and invalid.
- Sam own a business, and the business documents say that when Sam want to transfer shares, it must be pre-approved by all the existing shareholders. In contrast, Sam stated in his Will that all his shares will go to his daughter. But if the existing shareholders reject this share transfer, it’s going to create many problems for his daughter when he passes away.
A good estate lawyer should go over any potential conflicts with you during the estate planning process and resolve it before it’s too late (aka before the testator passes away).
The Will should have practical and important clauses, such as:
Exemption from Bond: Sam passed away, and his daughter filed for probate, claiming that Sam had no spouse and no other children, making her the only beneficiary under the law. Because there is no Will, the Court does not know if the daughter is lying, or if she knows the whole truth. Perhaps Sam had a spouse, or he had other children. If Court approves the probate application and the daughter walks away with the entire estate, what happens if Sam’s spouse or other child demands a share? Thus, whenever there is no will and the risk of mistake is high, the Court will require the daughter to buy a bond insurance, which can cost as high as 5% of the entire estate. If there is a mistake, then the payout from the bond insurance can cover the other child’s losses.
In contrast, if there is a valid Will with a clause that says no bond is required, then the Court will not ask the daughter to buy bond. The Court can simply rely on the Will for accuracy. If Sam says everything goes to the daughter, then it’s very unlikely anyone else can have a valid claim for a share of the estate.
Divorce protection clause: The daughter finally received the estate, but now her husband is eyeing the money with interest. He says that the estate is now matrimonial property, so he would get a share. To prevent this, it’s best for Sam’s Will to include a clause – stating that anything the daughter receives from the Will would not become matrimonial property, and only belongs to her. So, if there’s a divorce, or should she die before her husband, Sam’s assets only belong to her and her estate.
During the creation of Will and estate planning, there should be considerations for reducing the time, fees, and taxes involved in inheritance. Let’s take a comparison:
Without a Will
- Daughter pays $5000 + HST legal fees for probate application;
- Daughter pays $15,000 for probate taxes (for estate assets above $50,000 – it’s currently 15% of the estate value)
- Daughter cannot pay for Sam’s mortgage, so she had to incur interest penalties for 6 months before receiving the Court approval. The bank also threatened to do Power of Sale unless the daughter can give them a concrete plan for mortgage repayment.
- Sam did not do tax planning. Daughter must file for Sam’s last year of income taxes (the year that he passed). CRA considered that Sam sold his assets to the daughter for fair market value, and this amount becomes part of Sam’s taxable income for that year. So, the daughter must use the estate funds to first pay off the income taxes, and then she can have the rest.
With a Valid and Good Will
- Daughter pays $2500 + HST legal fees for probate application;
- With proper estate planning, daughter pays much lower probate taxes;
- As there is a valid Will, the Court only took 1 month and approved probate; daughter now have access to the estate funds and can pay off the mortgage
- Sam did a lot of estate tax planning, so the income taxes payable to CRA in the year of his passing is much lower, leaving a lot more estate funds to his daughter
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When Do I Need to Update My Will?
If you completed your Will with Varity Law, then you only need to update your Will when the following happens:
You are updating your executor. After Sam passes, all of his estate goes into an estate account, and the executor would be the signing officer who controls the funds. So, to avoid a conflict of interest, we suggest that the executor and the beneficiary be set as the same person. In this case, Sam’s daughter can be the executor and the beneficiary. If Sam needs to change executors in the future, then he needs to update his Will.
You are updating your beneficiaries. For example, if Sam gets remarried, and he wants his new spouse and his daughter to each get ½ of his estate, then he needs to update his Will to reflect this.
Your asset type or distribution rules changed. Each asset type have a different way of passing down to your beneficiary. For real estate, you go to the real estate lawyer; for liquid funds, you go the bank. At Varity Law, ownership transfer of real estate and business assets can be done all at once, with the same law firm.
Because of this, it’s important for Sam to list each type of asset in his Will, for instance, real estate, vehicles, bank accounts, companies, etc. If he need to update his asset type, — he never had vehicles before, but now he does — then he should update his Will.
In addition, if Sam now likes his new spouse a little less, and want to give her 30% of his estate and 70% to his daughter, then he needs to update his Will.
But what if Sam needs to update the details of his asset? He bought or sold a house, or he opened a new bank account? For those things, he does not need to update his Will, unless his Will specifically said house A goes to spouse, house B goes to daughter (vs. all houses under my name goes to spouse and daughter 50/50).
Nevertheless, Sam should keep a detailed asset list for probate. In Canada, there is no centralized system where one can easily look up all the assets Sam own, especially private information such as bank accounts. So, instead of putting his daughter through the agony of going to every bank (and banks will be very strict with protecting Sam’s privacy), Sam should keep a detailed asset list. He can keep this strictly confidential and only provide it to his daughter. And he can update this asset list anytime he wants, for free.
Conclusion
One of the inevitable in life is that we all eventually pass. When we do, most of our assets will be frozen, and our beneficiaries will need to apply for probate and get Court approval before they can inherit them. During probate, having a correct Will and not having a Will makes the world of difference.
Another FAQ is what happens when the lawyer who wrote your Will retires. Well, that doesn’t matter, because you or another lawyer can apply for probate. It doesn’t need to be the same lawyer as one who wrote your Will. But you should double check against this blog, to ensure your Will was done correctly, as an incorrect Will would be treated as if there’s no Will.
This blog provides general legal information and not specific legal advice. For legal advice that would apply to your situation, we invite you to book a 1st free consult by clicking HERE.
