If you're bored in quarantine, there's always this...

Why do people make wills that say the opposite of what they really want?

Everyone has heard the word "legalese". It refers to the kind of language that is often found in legal documents such as contracts and wills. Legalese is generally thought to be impossible to read or understand by anyone but lawyers and judges. This is ironic, considering that legalese developed because lawyers were doing mental and linguistic gymnastics to try to convey a person's position or wishes with precision.

I believe in clarity and precision of language, as do pretty much all lawyers. The longer we practice law, the better we get at drafting and writing with confidence and effectiveness.

Given the amount of time and energy that go into a legal document, I have to wonder about clients who sign a document as being their wishes, then tell me about "side" deals and promises and arrangements that don't show up anywhere in the document. For example, a Mom signs a will leaving her house to her son. I review the will with her and confirm these instructions. At that point she confides in me that she really wants him to share the house with his siblings. Or that she promised her brother he could have the house for a dollar. Or she told one of the other kids they could live there for free after she died.

So why would she want to make a will that says the OPPOSITE of what she really wants?

I almost always get the same answer. "Because it's simpler", the clients tell me. No. They are wrong. That is not simpler. What is simple is making a document that says what you want, that leaves no room for guessing and does not pit your children against each other. What is simple is creating legal rights you intend to create and not leaving your children twisting in the wind with nothing legal to rely on when it all falls apart.

The fundamental error underlying the attitude that it's simpler to do it this way is that parents are too optimistic. They believe nothing will really change when they pass away. All of their children will get along. Everyone will understand and agree with the parent's wishes. Nobody will question why they have a will that leads them in the wrong direction. Everybody's memory of the side deals will be accurate and fair to everyone. For sure nobody will be greedy! There will never be a need to rely on the legal system because all will be rainbows and unicorns.

Let's be realistic. I wouldn't even have a job if people behaved that well. If things do fall apart, the children need a document that creates and defines the legal rights of the various beneficiaries.

Everyone needs a solid will. The backbone that makes it solid is that the wishes it contains are truly the wishes of the testator. In my opinion, avoiding legalese helps too.

Pandemic causes many to update their wills

A number of factors have conspired to make Canadians more aware of the need for wills, and for health care directives that deal with end-of-life decisions. Those factors are the terrifying news of people falling victim to the COVID-19 virus all over the world, and more free time as many people are off work.

This was the subject of an article in the Glove and Mail recently. Click here to read it. They report that there is an increase in the number of Canadians looking for those documents.

We've seen an uptick here in our office, but it's not a surge by any means. This may be because at the time of my writing this post there are only 4 cases in our province and no deaths, compared to much more frightening statistics west of us. It's not as serious here yet as it already is for our fellow Canadians in Ontario, British Columbia, and Alberta.

I've spoken with a number of people this week who have said that they've been meaning to get their wills done for years but just never seem to find the time. Now that they are off work, they can take care of things on their "to do" list. Others say that they are taking care of this now because "you never know what will happen".

We decided to stay open during this crisis in large part because we are in the business of making wills. This is exactly the time that people need us. As the Globe article discusses, we are doing a lot of meetings by way of telephone. Wills law requires that wills are signed with two people in the presence of the testator to act as witnesses, so we are still holding those meetings. We deal with that by using the biggest table we could find in the biggest room we have, creating lots of distance between everyone. That's just one of several steps we have taken to protect our clients and ourselves. In one case today, I talked a testator and their witnesses through the signing process on the phone.

Having your will prepared almost always brings peace of mind, even when there isn't a pandemic to stress over. Having a healthcare directive brings the same kind of reassurance. It's a grim sort of thing in a way, but it's a realistic and practical response to our world right now. At least if the worst happens, you've done all you can to prepare. Having your will prepared or updated is not panic; it's an orderly and logical step.

Is money I get from an estate taxable? (updated March 2020)

I'm frequently asked this question, and I'm not surprised. Every beneficiary wants to know what the impact of a gift will be.

A general rule for estates that are administered in Canada and paid to Canadian beneficiaries is that inherited money is not taxable. So if one of your relatives leaves you $100,000 in cash in their will, you don't have to pay tax on the $100,000.

Another general rule is that when there is a gift that gives rise to tax, the tax is paid by the estate. For example, let's look at what would happen if the $100,000 that was left to you was not held in cash, but was held in an RRSP. If you are the spouse of the deceased (or in limited circumstances, a disabled child of the deceased), the full $100,000 of the RRSP can roll over to you without you having to pay tax at the time it's rolled to you. The tax payment is deferred until you pass away or take the money out.

But if you are not the spouse of the deceased, then the tax situation is completely different. Everyone who has an RRSP knows that when the money goes in, it is not taxed. When it comes out, it's taxed. On estates, the law says that the deceased's RRSP is considered cashed out at the time of death. That means the tax has to be paid. Debts of an estate, including taxes, are normally paid out of the residue of an estate. For a beneficiary inheriting an RRSP this should mean that he or she gets the full value of the RRSP and the tax is paid by the estate. This assumes, of course, that there is actually enough money in the residue to pay it.

If there is not enough money in an estate to pay the tax arising on an RRSP, Canada Revenue Agency will pursue the individual who received the RRSP for the tax bill. This is because when you accept the funds from the RRSP, you also accept joint liability for the tax. CRA's policy is to collect from the estate first if possible, but as I said, that's not always possible. So this is an exception to the general rule that inherited money is not taxed.

The tax questions also arises with capital gains tax on real estate. If you inherit the house that was the deceased's principal residence, then there is no capital gains tax to worry about because a principal residence is exempt from it. But you might have been left the cottage or a revenue property or other real estate. On those properties, capital gains tax will arise. Normally this tax is paid from the residue of the estate, assuming there is cash enough to pay it. Unlike the RRSP situation, you are not liable for the tax in this situation. However, the duty of the executor is to use assets to pay taxes and debts first before beneficiaries receive their inheritance. This means that the cottage or revenue property might end up being sold to pay for those capital gains taxes. In a way, this means you've paid them personally simply because they were taken out of the gift you would otherwise receive.

Keep in mind that in particular circumstances, a beneficiary could be directly affected by tax arising from the gift. So far we have just talked about general rules that apply where the will itself doesn't say anything beyond the usual "pay my debts from my estate". The wording of a will can make a big difference. In some wills, the deceased will state that each person who inherits something under the will (such as a cottage or an RRSP) has to pay the tax on his or her own inheritance, instead of the estate paying it. That is perfectly legal, though it is not done very often.

Another important note about estate money is that the fees taken by an executor for his or her work on the estate are taxable. They must be included as earned income on the executor's personal income tax return.

Estate taxes are tricky. Executors should be careful and consult accountants or estate lawyers if things get complicated.

We're open during the pandemic - by phone, email, or videoconference

This is a very stressful time for everyone. Making important legal matters sit on the back burner doesn't help. If you have legal matters you want to attend to, we are here for you. Call us at 709-221-5511 or email me at lynne@butlerwillsandestates.com. If you'd like to schedule a conference, please email chelsea@butlerwillsandestates.com.