wills

Canada reports thousands of new COVID-19 cases every day and more than 14,000 deaths to date. With these numbers, it’s no surprise that more Canadians are getting their wills done. As Global News reported in April 2020, they’re flocking to estate planning services such as Willful. Some companies reported a fourfold increase in business since March 2020. But is a will your only estate planning option? Living trusts work a little differently than wills, but they offer unique advantages. Learning more about trusts can help you make wise decisions for your family’s future.

Differences Between Wills and Trusts

Both wills and trusts do the same thing – transfer assets to beneficiaries. But a will only takes effect after its creator dies. Yet even then, this doesn’t happen right away. There’s the probate process, which verifies whether a will is legally valid. It all oversees an estate’s debt payments and asset distribution. The entire probate process can take more than a year to finish. If your estate is more complicated than usual, probate can last several years.

Like a will, a living trust is a legal document. You may hear it called an “inter vivos trust.” The grantor, or the person creating the trust, must write a trust agreement. Investopedia clarifies that the trust itself is a legal entity that owns whatever assets are put into it. Trusts can contain physical assets, financial accounts, and investments. A living trust may also hold intangible assets such as digital files, social media accounts, and intellectual property. Your trust can even include ownership stakes in private businesses.

How Living Trusts Work

A trust agreement spells out how and when to transfer the grantor’s assets. This agreement usually includes three or four parties:

Trustor
Trustees
Successor trustees
Beneficiaries

Asset transfers usually happen when the grantor dies. However, they can also occur if that individual becomes incapacitated. Of course, all this depends on the specific instructions contained in the trust agreement.

Revocable living trusts are the most common type in estate planning. That’s because trustors can update them at any time. You can add or remove assets, change distribution instructions, update beneficiaries, and more. Investopedia adds that a revocable trust’s grantor can also be a trustee. Successor trustees take over the trust’s management when the primary trustees cannot. For instance, you could name your adult children as successor trustees.

Benefits and Disadvantages of Living Trusts

Like any other estate planning tool, living trusts have their pros and cons. MoneySense explains that assets in a trust do not go through the probate process. The trust itself also remains private. Information about its contents doesn’t become public knowledge unless it’s legally contested.

The major drawback to living trusts is their cost. MoneySense mentions that annual tax filings are required. As a result, many trust creators need professional tax and legal advice. Canadians may also take a bigger hit in the pocketbook at tax time. That’s because trust incomes are taxed at a combined federal and provincial rate, which works out to around 50%. This is much more than what U.S. trustors pay – that’s why living trusts are more popular south of the border. Some assets can’t be put into a trust, MoneySense adds, so you still may need a will and an executor to make sure your wishes are carried out.

Choosing the Right Planning Tools

Estate planning is as individualized as designing a wedding or a funeral. Wills and living trusts are powerful planning tools, but they use different approaches. Understanding how these tools work, plus their benefits and drawbacks, is important. Selecting the best methods and strategies is key to ensuring that your family is taken care of after you’re gone.

Your Quick Guide to Wills in Canada

Do you have a plan for your estate? Global News reported in April 2020 that 51% of Canadians do not have a will. But COVID-19 has prompted more people to make their wills. Having one is essential, but you must understand what it does and how it works. This quick guide to wills in Canada can help as you’re making your estate plan.

Why You Should Have a Will

Canadian law doesn’t require you to make a will, but it’s still a good idea to have one. Your will tells your family and legal authorities how to divide your estate after you’re gone. If you have children, a will should name a guardian to raise them. You can also set aside trust funds for your children, as well as any family pets.

Dying intestate means you don’t leave a valid will – and your province or territory laws govern your estate’s distribution. The first $50,000 usually goes to your surviving spouse. Investopedia adds that remaining assets get distributed between your spouse and children. If you have neither, your parents and siblings will receive your estate.

What Counts as an Asset

Your estate contains two key things: your assets and your liabilities. People typically think of physical assets like vehicles, jewelry, and antiques. Other assets include bank accounts, investments, and real estate. The scope of assets also encompasses computers, photographs, audio-visual equipment, musical instruments, and even furniture. Businesses you own, whether alone or as a partner, are also part of your estate. Canadian law considers animals as property, so you should leave your pets to someone you trust.

Don’t forget about intangible assets – patents, trademarks, and copyrighted materials. Digital assets include photos, music files, e-books, and documents as well as social media, email, online gaming, and blog accounts. CIBC explains that Canadian estate laws don’t address digital assets, but you should include them in your will. You’ll need to leave explicit instructions for their distribution. It’s also wise to create a separate inventory of all your accounts, including provider and login information. Be sure to check each provider’s terms of service before adding digital assets to your will.

What Makes a Will Valid

Your will must meet some basic criteria to be valid. Ontario-based Steps to Justice mentions that it must contain some key elements:

Your name
A date
Your signature
Signatures of two witnesses

Both witnesses have to watch you sign it. Meanwhile, one must sign an affidavit of execution stating that you signed the will in front of them. The COVID-19 pandemic has made it harder to have witnesses physically present. That’s why many provinces have passed emergency orders to allow virtual witnessing. Mondaq lists Quebec, Ontario, British Columbia, Alberta, and Saskatchewan. Check your province or territorial laws for guidelines. The Financial Consumer Agency of Canada has more information on wills in each province and territory.

How To Make a Will

There are three different ways you can create your will in Canada. Retire Happy mentions holographic wills, entirely handwritten by the person making the will. Alberta, Manitoba, New Brunswick, Newfoundland, Ontario, Quebec, and Saskatchewan honor these wills. A holographic will must do four important things:

List the testator’s full name
Declare that it is the “last will and testament”
Name an estate trustee
Spell out the person’s wishes

You can also look to online services if your estate is relatively simple. For more complex estates, experts recommend hiring a lawyer.

Smart Planning for Your Family’s Future

Your will probably isn’t the first thing on your mind every day, but it’s critical to your financial planning. Doing your homework is essential, but so is choosing trusted professionals and resources. These steps can help you compose a will that best meets your needs and those of your family.