Understanding will and estate planning terms

If you’re like many Canadians, you know you should create an estate plan, but may keep putting it off. Having a will or estate plan reduces confusion, ensures your wishes are known, and takes an enormous burden off your loved ones during a difficult time.

If you’re thinking about having your will or estate plan prepared, here are some basic terms and concepts to help you get started.

An estate plan is a set of documents that outlines your final wishes for after your pass way, and can speak for you if you become incapacitated, due to a car accident or stroke, for example. Your complete estate plan has several components, including a will, power of attorney documents, and more. 

You'll want an estate plan to protect your family and loved ones, even if you don’t think you have much material wealth right now. Without one, no one has the responsibility of making decisions on your behalf, which can lead to stress and unrest, as well as the expense of a court application. Many are surprised to learn that if they pass away without a will, their estate will be distributed according to provincial or territorial laws, which may or may not align with their wishes.

This primer will introduce you to terms you should understand so you can prepare for the creation of your estate plan confidently.

Your last will and testament (commonly referred to as a will) is a legal document that outlines how you wish to distribute your assets, such as property, money, or heirlooms, as well as who should care for any minor children or pets after you die. It’s a key part of an estate plan.

Your estate includes all of your assets at your time of death — which includes anything you possess of financial or other value.

Your will is also where you:

• Name your executor, who will be in charge of managing your assets and settling your affairs on your behalf
• Designate beneficiaries for inheriting assets
• Name guardians to take care of your dependent children or pets
• Designate any charitable gifts to causes or organizations you support
• Outline your funeral and burial wishes

When you execute powers of attorney documents, you are giving someone else legal authority to make decisions on your behalf should you become unable to make and carry them out yourself. There are two types of powers of attorney, each with its own responsibilities.

Your power of attorney for property names someone (your attorney, not to be confused with your lawyer) to handle your physical property and financial affairs. For example, this person might pay your bills, maintain your house, and make any applications for programs or benefits on your behalf.

The power of attorney for healthcare names someone to make decisions related to your physical well-being. This POA will handle your medical decisions (including life support), your meals, and your housing. If you have a living will, that document will guide the person who is your POA for healthcare.

One way to provide for the support of your loved ones is with a trust . Simply put, a trust is when you transfer ownership of your assets – typically investments, cash, life insurance proceeds or real estate – to a trustee for them to administer with the purpose of taking care of your beneficiaries. The trustee can be an individual or a trust company. 

There are many different types of trusts you can use depending on your goals. Testamentary trusts are part of your estate plan and come into effect when you die. Living trusts (also known as inter-vivos trusts) come into effect during your lifetime and can be made revocable or irrevocable. While setting up a trust can be complicated and incur a cost, if set up during your lifetime it bypasses probate, which makes administering your estate after death simpler.

With a revocable living trust, you place your assets in the trust along with instructions on what to do with them. You retain control over your assets and, depending on the terms of the trust deed, you can change the terms of the trust at any time (including voiding the trust). As the assets are still yours, you are subject to taxes on them, and they are not protected from creditors. 

Irrevocable living trusts are similar except that you may not have the ability to change it once it’s established and, depending on the terms of the trust deed, you may have to get consent from those named as beneficiaries in the trust should you wish to. However, these trusts can reduce estate taxes, also known as probate fees, because the assets are owned by the trust, not the deceased.

One of the primary considerations when preparing your estate plan is naming your executor and, if applicable, trustee for trusts established under your will. An executor is the person who will manage administering the elements of your will, including arranging your funeral, paying off debts, and distributing inheritances to your beneficiaries. Most people select someone close to them for this task, like a spouse, child, or close friend.

Sometimes the named person is too far away, too busy, or too grief-stricken to carry out their executor duties and they renounce their right to act. In this case, if there is no alternate executor named in the will, the court will appoint an administrator. 

If you have assets in a trust, you will need to name a trustee. This is often the same person as the executor, but it can be someone different. This person manages the trust, including the property or assets, on behalf of the beneficiaries. 

Beneficiary means a person who benefits. In the context of your will, this refers to individuals, such as a spouse, children, relatives, friends or organizations, like charities, to whom you wish to leave your assets. Assets don’t have to be monetarily valuable. In addition to properties, investments, and valuables, consider heirlooms or items of sentimental value that you’d like to pass on.

Naming your beneficiaries is crucial when preparing your estate plan. It protects your loved ones, ensuring they receive their inheritance and removes doubt about your wishes. Communicating your wishes to your beneficiaries while you are able is an important step in maintaining family harmony after you are gone.

Those with minor children may appoint a guardian in their will. A guardian is a person (or people) who will take care of a minor child or children if their parents pass away. They are typically a family member or close friend of the testator (the person who created the will).

The guardian will take on the responsibility of raising the children. The specific responsibilities may vary depending on the age of the children and their unique situation.

When a person passes away, their executor can submit their will to the courts for probate. This is the process of verifying that the will being presented is the last valid will of the deceased. Once the executor receives the grant of probate, they can carry out the testator’s last wishes with confidence.

If you pass away without a will, you are said to die intestate and there will be a court process to appoint your executor. Additionally, the estate will be administered without your input and provincial legislation will determine who and how much they inherit. Going to court can be costly and time consuming. Simplifying probate is one of the most compelling reasons to prepare a will and an estate plan.

Estate planning does not have to be a difficult process, but there is a lot to consider, so you want to take your time and plan mindfully. Make sure you review your plan regularly, especially if your circumstances change. For example, if you get married or divorced, have children, or acquire or sell property, you'll need to update your documents. Preparing a will and having an estate plan will help to secure your family's future and ensure your wishes are honoured.