The term “estate” may evoke images of mansions with acres of gardens, dozens of rooms and a pool house. In reality, almost every adult has an estate, even if it’s not elaborate. As you likely know, if you own investments, real estate, vehicles, or other personal effects, then you have an estate.

If we can misinterpret the term “estate”, imagine the misconceptions that could exist around estate planning. Let’s take a look at two, and put them in perspective.

I don’t need a will

“If you die “intestate”, meaning without a will, your estate will be administered in accordance with provincial or territorial law,” says Jamie Golombek, Managing Director, Tax and Estate Planning, CIBC Private Wealth Management. “This essentially means that crucial aspects of your estate will be dealt with based on what was decided by the government.”

Richard and Courtney’s story

As an example, Richard and Courtney are married and live in Ontario with their two children, Emily, 18, and Tom, 13; neither Richard nor Courtney has a will and all assets are held in Richard’s name.

Home	$700,000
Investments	$400,000
Total	$1,100,000

If Richard dies intestate, as his spouse, Courtney wouldn’t be entitled to all of his assets. Under Ontario’s provincial intestacy laws, here’s what would happen:

• Courtney would receive the first $350,000 of Richard’s estate, known as the “preferential share” (which varies widely by province or territory)
• The remaining estate would be divided: one third to Courtney and the balance equally among the children
• At Emily’s young age she may not be prepared to responsibly manage her portion
• Tom’s inheritance might have to be paid into court to be managed by a government office until he turns 18
• Courtney’s maximum share would be $600,000 (if there were no taxes to Richard or the estate), which means she wouldn’t have enough money to obtain ownership of the family home

Courtney might also be surprised to learn that she wouldn’t automatically become the estate administrator, or the trustee of Tom’s funds. If she wanted to take on these roles, she’d have to apply for them to the court. To add to the estate nightmare, potential taxes and probate fees could significantly erode the inheritances.

Most of these pitfalls are easily avoided by preparing an estate plan. Richard could:

• Name Courtney as the primary beneficiary in his will – by taking advantage of the spousal rollover, this would allow all income taxes to be deferred until Courtney disposes of the assets or dies
• Name Courtney as a direct beneficiary of his RRSPs and transfer their home into joint ownership – generally, this would mean these assets pass outside his estate and avoid probate fees
• Name Emily and Tom as contingent beneficiaries in his will – his children would inherit if his wife didn’t survive him
• Direct the inherited assets into a trust or trusts for planned or controlled distribution
• Add insurance to supplement his estate – this might better provide for his family’s needs

 

Did you know? A 2020 CIBC poll found that only 27% of respondents are likely to seek financial advice for wills or estate planning.

 

I’ll do it myself

The above statistic suggests many believe that do-it-yourself estate planning is enough. However, family, succession and income tax laws are complex and vary based on where you live. For instance, a new marriage can invalidate your will or certain bequests in some provinces and territories. Also, if you haven’t provided sufficiently in your will for certain family members or dependants, they may be able to challenge your will in court, which could be costly and delay estate administration.

“To make matters more complicated, the laws frequently change. If you don’t understand and plan for applicable laws, your estate administrator and heirs may have to deal with unintended consequences,” says Golombek. You should always obtain legal, tax and financial advice when preparing your estate plan and documents. The cost of getting proper advice for your estate plan is most likely less than the cost of avoidable taxes or fees and disputes and misinterpretation.

At CIBC, we offer a number of services and solutions to assist you with your estate administration. As one option, you could appoint CIBC Trust as an executor, co-executor or contingent executor of your will. CIBC Trust can also be appointed as agent for an executor or trustee, to assist existing executors and trustees with their administrative, legal and tax obligations. Our experts have experience in dealing with lawyers, accountants, financial institutions, insurance companies, government and beneficiaries who may be located all over the world. To help provide you with peace of mind, our team is committed to handling (or assisting with) the administrative duties of executor with a high level of care, sensitivity and expertise.

We’re always here to help. Connect with us for more information.

 

Clients are advised to seek advice regarding their particular circumstances from their personal tax and legal advisors.