Today’s post was written by Diana Leopardi – Estate and Trust Consultant at Scotiatrust.
What can be worse than having a Will that does not reflect your wealth transfer wishes…that is, not having a Will at all! Suppose you have a Will in place, it is prudent to ensure that your Will properly reflects your wealth transfer wishes. As a best practise we encourage our clients to review their Wills every 5 years or at the occurrence of a major event. Such major events can include marriage, divorce, birth of a child or grand-child and proposed tax changes that may negatively impact your gift giving at death or transfer of wealth to the next generation.
While all is fair in love and war, note that in the event of a divorce your Will may not automatically revoke the transfer of wealth to your ex-spouse. If the beneficiary in the Will was referred to as spouse, as in, “I gift and bequeath to my spouse…” then the gift will automatically be revoked due to the dissolution of the marriage and since the person is no longer a “spouse”. Then again, what should happen to this bequeath? Is it intended to be transferred to another specific person or should it amass as part of the residue of the estate? Therein lies the reason to review your Will.
Consider another important life event, a 2nd or 3rd marriage. In this situation multiple beneficiary interests are at stake; the new spouse, possibly children born of a previous marriage and/or children born of the present union. It is important to remember that once you have stated your intention to transfer assets to the surviving spouse, you can no longer control what that spouse may (or may not) dictate in their own Will. This may be an opportunity to speak with a professional and discuss ways to separate one’s inheritance so that spouse and children receive some transfer of wealth with the least amount of tax implications. Setting up a testamentary trust may be an appropriate solution whereby the (new) spouse would be the revenue beneficiary and the children would ultimately receive the capital from the trust. This way the current spouse would be financially looked-after while also ensuring the transfer of some assets to children born from a previous marriage. As we are all aware, the preferred beneficiary will always be the tax agency and they will inherit (or otherwise receive payment) before your loved ones. Why not ensure that proper legal structures or insurance policies (for example) are in place to safeguard the transfer of assets to the intended beneficiaries and not the government.
At times, international policies can also impact local estate planning. For instance, the proposed changes to the US estate tax scheduled to come into effect January 1st, 2026, may impact Canadian wealth transfers. Currently, US estate tax is imposed if the global value of the estate exceeds 12.92M USD/person and US assets are worth more than $60,000 USD. The proposed change would lower this global value from 12.92M USD to approx. 5M USD/person (indexed to inflation). This may have a significant fiscal impact on Canadians who may own property in the US. Let us imagine a fictive scenario whereby a Canadian family that lives and owns their family home in Quebec, also owns a secondary cottage in Quebec, runs a local business and holds an investment portfolio; all assets worth a total value of 10M. Included in their assets is a Florida condo worth $350,000 that the family uses once per year. While most of their assets are Canadian and the American asset only accounts for a portion of their total wealth, they may be subject to the US estate tax under the new threshold (which could amount to an estate tax rate of 40% on American assets).
Luckily, there are ways to plan whereby trusted professionals can help propose ways to avoid US estate tax such as, for example, ensuring that assets are held in a Canadian Corporation or Trust or by utilizing various tax credits against US tax liabilities. It simply requires that we are mindful of changes and that we have meaningful conversations with people who can propose adequate solutions.
So, while you work on your Holiday wish list this year, ask yourself does my wealth transfer wishes reflect what is currently stated in my Will? If it does not, include a Will review as one of your New Years resolutions for 2024.