Settling an Estate

Following the death of a friend or family member, few people want to deal with financial issues. Settling an estate can be a large task. It will be easier for your family, if you have consulted with a financial planner and written a comprehensive will.

A will sets out your wishes for the distribution of your estate. The will answers the questions: Who will administer the property and with how much authority? Who are the heirs? How much will they receive and when? How should unique assets be handled? Who should care for a child or other dependants?

If there is no will

If you die without a will, provincial law determines how your assets will be shared. In most provinces, your spouse will get a portion of your assets and the remainder will go to your children. Other living relatives may inherit if you do not have a spouse or child. And remember that rules for a married spouse may not apply to an opposite-sex or same-sex common-law partner. The amount awarded to each person varies by province and is determined through a lengthy court process that can leave your dependants unsure of their future.

If both you and your spouse die without appointing a guardian for your children, the province will determine who will take care of them. Your estate will be put in trust for them and they will inherit the full amount (with no controls) at the age of majority.

Many planning options

A will lets you plan for all these variables. With the help of your Marsh advisor, you can ensure your family has enough to live on if you should die. You can divide your assets in a way that will avoid misunderstandings among your heirs. You can use life insurance to cover debts that may affect the settlement of the estate. See Preparing for your Death. You can create a trust for dependent children or other relatives. There are many options to ensure the orderly settlement of your estate.

Appointing an executor

An integral part of the will is the appointment of the executor. The executor is the individual chosen to administer your property after you die. This responsibility includes gathering assets and paying any outstanding debts, including income and other taxes. Without a stipulated executor, a court can appoint someone to administer the property. This may result in a conflict among family members over who will be responsible for the property and add further tension at an already difficult time.

The executor(s) will often be the spouse or children of the deceased. Due to their interest in the estate, they will not neglect its administration. Close friends may also be chosen.

More than one executor may be selected. This provides extra security. For example, your executor may die before you and you may forget or be unable to update your will. Or your executor may die before the final distribution of your estate. The person selected may also be unwilling or unable to act as executor. Choosing an additional or alternate executor helps reduce these risks.

Probate rules

One of the tasks that executors face is handling the probate of your estate. Probate is a court's declaration that the will is valid. The province will charge a fee or tax for this service. In Ontario, the probate tax is $5 per $1,000 for the first $50,000 of the estate's value and then $15 per $1,000 (with no upper limit) after that. The probate on a $500,000 estate would be $7,000. With skilled planning, you can keep these taxes to a minimum.

There is no probate tax on insurance policies where a beneficiary is named in the contract. That's one reason why it is important to name beneficiaries and not leave any portion of the benefits to your estate.

Final settlement of the estate

When the estate is settled, the executor will apply to the provincial court for release from the executor's duties. Compensation may be based on provisions in the will or a judge may determine an appropriate amount. It is unlikely that family members will claim executor compensation.

The estate settlement process can be complex. It is important to address concerns before a family controversy begins. A member of the Marsh team who specializes in estate planning can help you with some of the basic concepts and will recommend appropriate legal help depending on the complexity of your situation.

Some things your executor must do

• Find your will and act on it ;
• Notify your lawyer, banker, broker, insurance agent, etc. of your death;
• Arrange your funeral (if your family has not already done this);
• Arrange payment for the funeral;
• Pay your outstanding debts and taxes;
• Prepare a statement of assets and liabilities;
• Sell any property you want sold;
• Distribute your estate to the heirs;
• Find an accountant or other qualified person to file your final tax return; and 
• Fill out life insurance and government forms.

Choosing a Beneficiary

After your death, it's too late to finish the things left undone or fix the things done poorly. This includes choosing a beneficiary under your life insurance policy. You should know the correct way to designate a beneficiary, the different types of beneficiaries, and the unique arrangements you can make for each.

Failing to name a beneficiary

Naming a beneficiary ensures that the proceeds from your insurance policy will go to that individual. They will not form part of your estate, and will not be subject to the claims of creditors. If you fail to name a beneficiary, the money you planned to provide for the person you love could end up in someone else's hands.

Naming a beneficiary

A beneficiary is named in a written document called a "declaration." This may be part of the insurance contract, or in a separate document. You can change the beneficiary at any time by completing a "change of designation" declaration. For example, separation or divorce does not automatically revoke the designation of your former spouse. If you want to change your beneficiary, a new declaration is essential.

Irrevocable beneficiaries

You can name an "irrevocable" beneficiary. However, while that person is living, you cannot change your beneficiary without his or her consent.

You should make an irrevocable designation carefully. Certain provinces require a signed statement verifying that you understand the effects. Your financial advisor must sign a similar statement confirming that all outcomes have been explained. An irrevocable designation is not effective until it is filed with the insurance company's main Canadian office.

You can also make an insurance beneficiary declaration in your will. But this declaration cannot be irrevocable. For example, you name your spouse as life insurance beneficiary in your will. A year later, you change the beneficiary to your child on the insurance company's declaration form. The insurance money will go to your child at the time of your death.

Contingent beneficiaries

A contingent beneficiary is another option to consider. If your primary beneficiary dies before you do, the contingent beneficiary will receive the benefits. This ensures your wishes will still be met if you are unable to change your designation. For example, you may have been seriously injured in an accident that killed your beneficiary. More commonly, you may simply forget to change your declaration after a loved one dies.

Minor children

Generally speaking, a minor should not be designated as a beneficiary. In most situations, a better alternative would be to appoint a trustee to receive the insurance proceeds on behalf of a minor. The trustee is then responsible for managing and using the funds in accordance with your instructions. The laws covering minors and trustees are complex, and differ from province to province. If you want to leave funds to a child, ask your advisor to help ensure your wishes will be met.

You should choose your life insurance beneficiary carefully. Your Marsh advisor can help you ensure that your money goes to the people you choose. Marsh advisors have specialized training to answer your questions about beneficiaries and your life insurance policy.

Preparing for Your Death

We often hear stories of people who die and leave financial problems for their families to settle. Sometimes it's these stories that make us stop and think. Who will take care of my family? What kind of choices will my family have without my income?

A time of great stress

Preparing for your own death is part of any well-made financial plan. There are two elements that you must discuss with your financial advisor. The first is life insurance. The second is preparing a will. This is true whether you are the major breadwinner, working part-time or staying at home with children.

The recovery process after a death can be long and difficult. Emotions, decisions, and details can be overwhelming and confusing. In case of your death, you can help protect the people you care about. Make some provision to replace your income or the value you have to your family as a caregiver. Remove one major worry from your family.

Life insurance the first step

Life insurance is about easing financial stress during a highly emotional and difficult time. A life insurance policy can provide financial security and stability to your family. Proceeds from the policy can go towards mortgage payments, the creation of an income stream, or anything that will make coping with the loss of a loved one easier.

With financial concerns alleviated, family members can focus on piecing their lives back together. The grieving process is made easier when your family's financial future is secure.

Need for a written will

Having a written will that names your executors and spells out the disposition of your estate will also make the process easier for your family. Instead of trying to guess what your wishes might have been, your family can follow clear instructions that you have worked out after careful consideration. Your financial advisor can't prepare your will—that is the job of a lawyer. However, your Marsh advisor can help you with the financial planning that goes into writing a will.

If you die without a will, provincial law determines how your assets will be divided. The rules vary from one province to the next. If you are married, your spouse will get some portion of your assets and your children will get the rest. This division may be very different from what you would have wanted.

In addition, the provincial court process can be lengthy and complex. Your estate may be tied up for a long time before your family can gain custody over your assets. This may cause significant hardship and heartache for them.

For more on wills and naming your executors go to Settling an Estate

Part of any comprehensive plan

There are so many uncertainties if you should die unexpectedly. And it's too late to change things after you're gone. Put your mind at ease about your own family's future by taking care of your insurance needs and writing your will. Contact a qualified financial advisor to help you create a comprehensive plan that addresses insurance along with your other financial planning needs. Your Marsh advisor has the training and experience essential to help you make the right choices.