You have spent a lifetime accumulating assets, and as you look at your will and estate plan, you want to make sure that your wealth transfers efficiently to your beneficiaries. You may have heard that on death, some assets can transfer outside of a will. Given that is the most simple process, should all assets transfer outside of the will? First, let’s identify some common assets that transfer outside of the will.
It is common for spouses to put many assets into joint names, including their residence, bank accounts, some investment accounts and even automobiles. When assets are intended to transfer automatically on death, they are said to be in joint tenancy. Upon the death of the first spouse, generally, a visit to land titles, a service bureau and your bank, with a funeral director’s statement of death and the will, are what is required to transfer ownership into the name of the surviving partner.
While joint tenancy is efficient, there are perils, particularly if the asset transfers to a co-holder outside of the matrimonial or common-law relationship. Such a transfer can result in immediate and unintended tax consequences, a potential loss of control as the original owner no longer owns that asset solely in their name and the asset may be subject to creditors of the new co-holder. Always seek qualified advice before changing ownership.
Some categories of assets often have restrictions or limitations to joint ownership, such as pensions, life insurance and a variety of tax-sheltered investments like RRSPs and TFSAs. Nonetheless, such asset classes provide the option to designate a beneficiary or beneficiaries, upon the death of the account holder. Such account holders, who may be called an annuitant or a subscriber, can elect to name their spouse as a beneficiary, their estate, children or even a charity.
Those asset classes that provide beneficiary designations enable the efficient transfer of assets on death of the owner. However, caution must be taken when selecting the beneficiary as unintended consequences may result, including taxation that could otherwise be deferred or eliminating the creditor protection relating to the transfer. Also, seek qualified advice when exercising the beneficiary designation in such plans.
The will is designed to transfer assets to your beneficiaries and deals only with assets in your sole name and assets which name your estate as the beneficiary.
In many spousal relationships and with prudent planning, upon the death of the first partner, the will may not need to be probated if the beneficiary designations and joint tenancy elections have been exercised.
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