What is a Will, anyway?
Is it the document setting out how all of your assets will be taken care of and distributed after you pass on?
Well, it can be that document. It most definitely can.
However, in our modern world, there are other documents that are often used - alongside Wills - to transfer assets or properties upon death.
They are the documents most people don’t readily bring to mind - single pieces of paper with a few questions asked and answered, that are then typically filed away or lost in the shuffle of life.
They are called “designations”.
See, in addition to the contents of your Will, there are a number of ways to pass assets on to specific family members, friends, or charities. One such vehicle - that we have already looked at - is through a trust. A designation is another such vehicle.
Much like a trust, a designation can be used to bypass the probate system. That is, the court system that includes the paying of taxes related to the value of the estate.
Think RRSP? TFSA? Life insurance? Think designations. When you open those accounts or take out those policies, you are often required to select a beneficiary who would inherit the funds if you were to pass away. The document on which you make that selection is the designation.
So, it goes without saying that all of your designations are important to your overall estate plan. If it suits your circumstances, you can choose to designate your estate as the beneficiary, ensuring all of your assets flow through your Will. If your circumstances are different, it might be better to leave your designations out of your Will.
There are some benefits in designating a loved one as a beneficiary of a specific asset. As mentioned below, the skirting of the probate system is one. Another is the fact that the transaction is kept private. A third is the fact that it is a much faster transaction compared to the process using a Will. The fourth is the fact that it is usually protected from court claims against the estate.
Planning for Time and Chance
So, designations can be just as important to your estate plan as your Will.
Apart from the reasons already enumerated above, they carry such weight (a) because of the size of the assets they can transfer, and (b) the outsize impacts a mistake or change can have on the distribution of an estate.
A designation can transfer assets valued anywhere from a few hundred to millions of dollars. For many in Ontario for instance, the remainder of a pension can constitute a sizable asset.
Also, similar to a Will, designations are susceptible to life changes. A designation made twenty years ago may no longer reflect a person’s preference, for instance. Also, at the age of 71, funds must be withdrawn from a Registered Retirement Savings Plan, but may be transferred to a Registered Retirement Income Fund. This will, of course, require a new designation and that can trigger the need to update a Will.
In addition, and also similar to a Will, designations must be set out in the final state a person would like to have them in before any incapacity sets in. Especially but not exclusively for the elderly, dementia can be a cause for concern long before death. Accidents constitute another set of possible life occurrences that can lead to mental incapacity. To prepare for such eventualities, people would typically prepare Powers of Attorney for Property. Well, the person appointed in such a document as the “attorney” can do a whole lot, but she or he cannot change a Will or a designation. The result is that a designation in place at the time a person becomes incapable of managing property is effectively “locked in”.
Live in Toronto, Ottawa, or elsewhere in Ontario, and think you might need some estate planning assistance that would see your designations plugged into your overall estate strategy in a smart and efficient way? Get started here, at afolabi.law