This Blog was written by: Gali Gelbart, Estate and Trust Consultant, Scotia Wealth Management
Survivorship clauses help ensure that the testator’s intentions are carried out, namely by preventing a gift under the will from falling into the beneficiary’s estate and incurring higher administration costs. By specifying a minimum survival period in the will, the gift can instead pass directly to any contingent beneficiaries if the original named beneficiary has passed away during the time period specified.
In the absence of a survivorship clause in the will, the default survivorship period included in the provincial legislation will apply. The provincial survivorship period can often be very short, for example five days. Thus, it is important to address the survivorship period in the will to avoid any potential uncertainty in interpretation. The survivorship period most typically used is thirty days as it is unlikely that an estate can be completely administered within this time period. In this way, the will provides a built-in waiting period for the beneficiaries to inherit their intended gifts. This highlights the importance of naming alternative beneficiaries or ensuring there is a residuary beneficiary named in the will.
It the survival clause is not triggered, but the beneficiary passes away during the administration of the estate, the beneficiary’s share would become part of his or her estate and distributed in accordance with the beneficiary’s will, if there was one. If that beneficiary dies without a will, the beneficiary’s share would be subject to the rules of intestacy.
In the case of spousal wills, there are other potential issues to consider. Double gifting arises where both spouses include a specific gift to a beneficiary or charity, and this legacy ends up being paid twice out of each estate. This is more likely to occur if the spouses both die within the survivorship period provided for in their wills. A provision in both wills can expressly state that it is the willmaker’s intention such legacy is to be paid once upon the death of both spouses. For this reason, it is useful to review each spouse’s distribution scheme in their wills to prevent double payment of a bequest.
Even with a survivorship clause, very rarely all the beneficiaries named in a will die in one event, for example in the case of a family travelling together and suffering a tragedy. A common disaster clause, or total failure clause, is an important fail-stop used in the will to address this very unlikely scenario. Typically, charities or other alternate beneficiaries are named in a total failure clause to ensure that the bequests do not fail for lack of a beneficiary.
It is important to remember certain assets will not pass through the estate, such as registered accounts and life insurance with a designated beneficiary. If there is a trust already in place, such as a Joint Partner Trust, the assets held by the trust will also be excluded from the deceased’s estate. Certain types of property might also be jointly owned.
For example, spouses often hold their real property held as joint tenants with the right of survivorship. If one of the owners of the property dies, their interest in the property automatically passes to the surviving owner. Occasionally, I’ve had clients hold their real property as tenants in common, so that each spouse’s share can be distributed in accordance with their will. This is typically more common where one spouse would like their ownership share to pass to directly to their children rather than give their spouse a right of survivorship.
By giving some thought to what happens to a gift if the beneficiary does not survive the testator, the will can better meet the willmaker’s intentions for their estate distribution. Both alternative beneficiaries and executors should be included in a carefully drawn will, as well as a clearly defined survivorship period.