What Happens If You Die Without a Will?
Written by Robin Taub
Monday, April 2nd, 2018
A recent survey released by Lawyers' Professional Indemnity Co. found the majority of Canadian adults (56%) don't have a signed will. If you die without a valid will, or if your will can't be located, you're considered to have died "intestate."
When you die, all of your assets and liabilities go into a separate legal entity called your estate. When you die intestate, an estate administrator will be appointed to wind up your estate and make any distributions to your beneficiaries. Dying intestate may mean higher costs and delays in distributing assets to beneficiaries, compared to having a will appointing an executor of your choice.
Your will reflects how you want your estate to be distributed upon your death. However, when you die intestate, the distribution is decided by a formula laid down by the Provincial Government—not you—and this formula can vary from province to province.
According to Sandra Foster, author of You Can't Take It With You: Common-Sense Estate Planning for Canadians (6th ed), "the rules in your province will determine who gets what and who is considered family. In some provinces, a common-law partner is considered a spouse for estate purposes after you've lived together for 2 or 3 years, or have a child together. In other provinces, common-law partners are not considered to be a spouse."
Some provinces, like Ontario, use the next of kin formula for distributions from the estate, while other provinces, like Alberta, use the parentelic system. Wherever you live, the bottom line is that your wishes for how your property, possessions and personal effects are given away will not be considered.
What Are the Consequences?
"People assume that their spouse will inherit everything if they die without a will," says Sandra. "But if you have a spouse and children, in some provinces, the spouse and the kids may end up splitting the inheritance. Many people would prefer that their spouse inherit everything when the children are young, and the formula doesn't work well for most blended families."
Furthermore, any assets inherited by children under the age of majority will be held in trust by the public trustee. And once a child turns 18 (or 19 depending on where you live), they can take the money and run. Is this too young for your kids to inherit money?
If you don't have a will, you can't plan your estate to minimize taxes. For example, taxes are normally deferred on death when the assets pass to your spouse, but this doesn't happen when assets pass to your children or other family members.
Everyone Needs a Will
Contrary to popular misconception, wills are not just for people with lots of money.
"A will does more than just lay out who gets your money when you're gone," explains Sandra. "A well thought-out will also considers your overall goals and objectives, including charitable bequests, appoints executors who are willing and able to take on the responsibility of managing your estate, and names guardians for your minor children."
A will should be written to be good for the next 5 years, not just for today. It should also be updated periodically, or when your personal circumstances change, such as separation, divorce or remarriage. As with all things financial, it pays to do some planning.
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