By: Christine Manners
Partner, HGR Graham Partners LLP
Could you list EVERY asset you own and not miss one? Have you recently made a few purchases – are they in your Will?
These and others are the types of questions we find our clients often miss when we review their wills. These are also some of the top reasons why there often becomes disputes among beneficiaries (often kids).
In completing your estate plan you must be careful to take an inventory of all of the assets you own, including life insurance polices, registered retirement savings plans and retirement income funds upon which you have made designations. This is particularly important when it is your desire to treat all of your beneficiaries equally but it is your intention that specific beneficiaries are to receive specific assets.
Specified Asset to Only One Beneficiary
You may want to leave a cottage, a home or another specific asset to one of your children in your Will but ultimately treat each of your children equally on your death. It is possible to include a provision in your Will that requires that the value of that specific asset to be deducted from the child’s share of the residue of your estate. This provision is called a “hotchpot” clause. It is important to note that the “hotchpot” clause will not work if the value of the specific asset you leave to one child exceeds the value of that child’s share of your estate.
Loans to Beneficiaries
It is also important when preparing your Will that you consider any loans which you have made to the beneficiaries of your estate. If you have made any loans, you must consider whether you intend to forgive such loans on your death or whether such loans will be deducted from the beneficiary’s share of your estate. If you wish to loan money to an intended beneficiary of your estate (such as your child), ideally you should have the beneficiary sign a Promissory Note or IOU indicating the amount of the loan, the date of the advance, the interest rate (if applicable) and the agreed upon repayment plan. This is especially important when you have loaned a sizeable amount of money. It is also important to keep accurate records of the payments made on the loan. By doing so, you will avoid any potential conflict between the beneficiary and the executor of your estate after your death. If you intend to forgive the loan on your death, your Will should so provide. If you do not intend to forgive the loan, the “hotchpot” clause can also be used in your Will to equalize the benefits to each of your children by requiring the child who has received the loan (or an advance on his or her inheritance) to deduct the benefit from his or her share of your estate.
Income Tax Liability
Your death may trigger capital gains tax in relation to a cottage property that you own. The burden of paying that tax is on your general estate. Income tax will also be triggered on your death as a result of any RRSP’s or RRIF’s owned by you. Regardless of whether you have designated a beneficiary on those plans the income tax triggered will be paid by your general estate. It is only if your estate does not have sufficient funds will the beneficiaries of the plans be personally responsible for the income tax. Therefore, if you name only one of your children as the beneficiary of your RRSP or RRIF, or leave your cottage property to one of your children, that child will receive the asset free from the tax liability. If it is your intention that the child receiving the specific gift bear the income tax liability related to that gift, then your Will must specifically so provide.
Recommendation
The above examples illustrate how vital it is to review all of your assets, title to those assets and designations when you are making your Will. By not doing so, you could inadvertently confer a benefit (or hardship) on one or more of your beneficiaries that you do not intend. You may also leave a legacy of very bad feelings among your beneficiaries, which can be extremely unfortunate particularly when those beneficiaries are your children.
**This article is not intended to provide legal advice. For more information please contact HGR Graham Partners LLP
Phone: 705.327.6656 ext. 323
Email Christine