Getting started

1) Compile a list of all your assets and liabilities

Before beginning to draft your will, it is always a good idea to take the time to draw up a complete list of your assets and liabilities. This will help you to make smart decisions from both a tax and a personal perspective as to the best way to divide your assets among your heirs. The list should include:

• all your investments, RSPs, pension plans etc;
• life insurance policies;
• bank accounts;
• credit cards and all other forms of debt including mortgages with the names and addresses of the lending institutions;
• any real estate other than your primary residence including land, secondary residences or rental properties with their complete addresses;
• any other personal assets of importance to you and your heirs.

Note: If you hold assets in any foreign jurisdictions, it may be a good idea to draw up a will in that country as well. For US holdings, it would also be wise to consult a specialist in US estate tax.

2) Choose a liquidator

The liquidator (previously known as the executor) is responsible for all the legal and tax obligations of your estate. It is the liquidator who pays the debts of the estate, prepares the final tax return(s) and distributes assets to the legal heirs. As such, choosing a liquidator is one of the most important decisions you have to make in preparing your will. Most people choose their spouse as liquidator, if you have one. But you still need a second choice in the event your partner is not able to take on the task. The person(s) you choose should be people you trust implicitly and who are not easily phased by financial or legal matters. If you do not have family members or close friends you would be comfortable asking, you can also ask a legal or financial advisor to assume this role. In that case, you will need to make provisions in the will to pay that individual a salary.

3) Protect minor children and other dependants

If you have minor children, the children’s surviving parent automatically becomes their sole legal guardian. In the event that both parents pass away, the will needs to name a legal guardian for the children.

When naming minor children as beneficiaries, it is best to set-up a testamentary trust to receive these assets. Creating a testamentary trust is a matter of a simple clause in the will. This trust can stipulate at what age you want the children to gain control of the capital as well as the manner in which income should be paid and for what purposes. There are typical instructions you can ask the notary to recommend.

You will need to appoint an administrator, called a trustee, for any trust created by the will. This person could be the liquidator. For minor children, some parents prefer not to name the legal guardian as the trustee to avoid any potential conflict of interest. Ultimately this is a question of trust and practicality.

Minor children are not the only heirs who could benefit from the creation of a testamentary trust. If there is a handicapped adult child, the testamentary trust is one way to protect the interests of this person throughout his or her lifetime.

In other instances, where there is a second spouse, a testamentary trust can protect the needs of the spouse without shutting out the children. For example, a trust can provide for an income to the surviving spouse until his or her death, at which time the children would inherit the remaining capital. (Still another solution, in this sticky kind of family situation, is to buy life insurance for the spouse and bequeath assets directly to children. More on that later…)

4) Make tax-smart choices

For tax reasons, it usually makes sense to leave all your RSPs and pensions to your spouse so that these can be transferred to him or her without tax consequence. Whether you are legally married, or living in common law this roll-over is possible. If you have no spouse, it could also be advantageous from a tax perspective to leave the RSPs to children under the age of 18.

The testamentary trust, in addition to the many benefits discussed above, also allows for some tax benefits. This is because a trust created by the will is taxed in a favorable manner allowing your heirs to “split income” between the estate and their own personal sources. Your heirs do not have to be rich to benefit from this tax advantage. In fact, the testamentary trust can be adapted to a multitude of situations – another excellent reason to have a notary draft your will.

5) Storing the will

Once you are done – phew! - keep the will in a safe place that is known to your liquidator as well as key family members. Store it with an up-to-date list of assets and liabilities, your insurance policies as well as the names and numbers of important contact persons, ex. your financial advisor, insurance agent, notary etc.