This topic just never gets old….what happens if a person dies without a will? Many people think they have it all sorted out, but consider this….
I had a call today from an old colleague. He has a client whose husband died in very unfortunate circumstances. As a young couple, they didn’t have much, and what they did have was all in joint names. So no will needed, right? Well, almost. One of the few things of value that the husband had was a significant tax refund from CRA. Now, as anyone who has tried to deal with CRA on someone else’s behalf will know, they want consent from the taxpayer himself before they will deal with anyone else. You can see the problem, right? the deceased husband can’t consent. He had no will, so his poor (literally) widow is going to have to apply for administration of his estate. Because there is a very young child, she will have to notify the Public Guardian and Trustee (the “PGT”) (and pay a fee for the privilege). She will also have to pay probate fees. Out of what’s left, she will have to pay part of the money to the PGT to hold for her child until he’s 19. Not good.
The ability to deal with CRA on your behalf is just one reason to have a will. Applying for administration is a lot tougher than applying for probate of a will. Why? For one thing, the court needs to know that the person applying for administration is an appropriate person to do so. If you name an executor in your will, the court can be confident that you wanted that person to act as your executor. If you don’t bother to appoint anyone, then there is a class of persons who can apply, and everyone in that class has to consent to the appointment of the person brave enough to step forward. There can be clashes among family members who have an equal right to apply, so you may be setting the family up for a fight. And what if no one want the job? The Public Guardian (or public administrator in some provinces) may step in, depending on who the heirs are.
Speaking of heirs, if you don’t leave a will, the law says who gets your estate, and neither you nor your heirs have any choice in the matter. In BC, if you have children and a spouse, the estate gets divided among them in fixed proportions. What those proportions are will depend on how many children you have, and whether those children are also the children of your spouse. Step children will be left out in the cold. Other provinces have similar provisions….why let the government make those decisions for you?
It gets worse…you might think that your spouse gets to look after the children’s shares, but you would be wrong. If the children are of full legal age (ie, have reached the age of majority) they get their shares outright. Party time!!! If they are minors, the PGT will take the money, invest it, and pay it to the kids when they reach the age of majority. While the money is invested, the PGT will charge a hefty fee and if the spouse needs money to raise the kids, she or he has to go cap in hand to ask for funds. Why would you do that to your spouse and kids?
Of course you can avoid the above by having everything in joint names with your spouse, in which case the right of survivorship will apply. But consider what would happen if your spouse dies before you? or if both of you are killed in a car crash together, and neither of you has a will. Someone would still have to apply for administration when the last of you and your spouse dies.
The most common situation where I see a real need for a will is with second marriages, when there are children from earlier relationships who are intended to be the ultimate beneficiaries.
Consider the case of Bruce and his 2nd wife Hilary. Bruce made a lot of money in his business, invested well, and he and his first wife Ingrid lived a good life style. Their children, Dan and Liz, went to private school and had the best of everything. Then Ingrid died.
Eventually, Bruce met Hilary and they have since married. The kids get on well with her, but she isn’t that much older than they are. Bruce wants everyone to be happy and provided for and he spends accordingly. He worries about what will happen when he dies, but not enough to actually make a will. He figures having his business partners look after his companies will take of those interests, and he has put his house and real estate investments, as well as most of his banking and investment accounts, into joint names with Hilary. He wants her to have everything when he dies and then he wants his kids to get the estate when Hilary dies. Will that happen? Maybe, but maybe not.
If Bruce dies first, which is likely given he is 20 years older than Hilary, all of his assets that he has put in joint names will become Hilary’s sole property. Those assets will only go to Dan and Liz if Hilary feels like making a will leaving the assets to them.
What if she doesn’t make a will? everything then goes to her heirs. She has no kids, so her brother and sister will get everything if they are still alive (her parents would be in line before them but they are both dead).
What if Hilary remarries? if she still has no will, that new husband will inherit her estate, including all of Bruce’s assets. Even if she makes a will there is no guarantee she would leave anything to Dan or Liz, and they would have no claim against her estate.
Bruce, like may other Canadians, is hiding his head in the sand. He should be taking charge by getting an estate plan, including a will, in place. He would be doing his family a huge favour.