What happens if you die without a will?
Dying without a will (“intestate”) will cost your estate more money through taxes and legal costs and create unnecessary work for whomever the government appoints as your estate administrator or trustee (this could be a family member or friend, if one applies, but it could also be someone who did not even know you). Dying intestate also means it will take longer to administer your estate. If you do not have a legal will, your estate will be distributed strictly according to provincial legislation. If you have minor children, the court will appoint a guardian, possibly not the person you would have wanted.
Who will receive your estate?
Some people may think they don’t need a will because they “don’t have anything worth inheriting” or because their spouse will “get everything” when they die. Both of these ideas may be partly true – but consider a “common disaster,” in which you and your spouse both die, such as a car accident. Who inherits then? If you have children, and they die too, your family’s entire estate could end up in the hands of unknown distant relatives, or even the government.
In your will, you can specify exactly who is – and who is not – to receive what from your estate. If you don’t have a will, the court will make no exclusions or additions to the list of heirs as defined by legislation. So a lifelong friend will receive nothing, your common law partner will receive nothing in most provinces and a relative you dislike may receive a good share.
The succession legislation in Ontario, for example, begins as follows:
- If you are legally married and have no children (biological or legally adopted), your spouse will receive your entire estate.
- If you are married and have one child, your spouse will receive the first $200,000 and the rest will be split equally between your spouse and child.
- If you are married and have more than one child, your spouse will receive the first $200,000 plus one-third of the rest. The other two-thirds will be divided among your children.
- If you have no spouse or children, and your parents are alive, they will receive your entire estate.
- If you have no spouse, children or parents, your siblings will receive everything.
Succession laws continue to more distant relatives. If there are no relatives at all, the provincial government takes everything.
If your children are young, you may not want them to inherit their portion of your estate all at once. Without a will, you have no opportunity to create a trust for your children or to specify staged release of their inheritance – when they turn 18 (19 in some provinces), they will receive the entire amount they are entitled to under law.
It’s possible that the court will order the sale of assets such as your house to cover any debts you have or to more easily distribute your estate, even if you might have wanted those assets to stay in the family.
What are the extra costs?
If you have minor children, the government will administer their inheritance until they are adults – and will take a portion of that inheritance as a fee.
If there is no will, lawyers must be involved with every step of the estate’s administration, leading to much larger legal bills than if you had a will and had appointed an executor.
One of the greatest threats of extra costs is litigation. Most provinces do not include common law partners in succession legislation, but will allow them – and possibly others – to petition the court for a share of the estate, possibly leading to litigation, which is expensive for all concerned.
What else do you give up?
The investment powers of the administrator are limited by provincial legislation. That could cause unnecessary income tax and probate tax. With a will, you can give your executor additional powers to retain, sell and purchase investments to manage your estate tax-efficiently and also pass on those investments to beneficiaries in-kind if that is beneficial. A will can also give the executor the power to make tax elections that would reduce income taxes on death.
If you don’t have a will, you don’t have the opportunity to plan in ways that may reduce probate fees. It is possible in some cases to transfer assets that do not require probate, such as shares of a privately held corporation or family business, separately from assets that do require probate. But without a will this is impossible. You also give up the possibility of reducing probate fees by creating trusts through your will.
Many resources are available for preparing a will, both in books and online. Gather information from them, but then meet with an estate planning expert and your lawyer to prepare your will. If you have a spouse, make sure they are part of this process and have their own will prepared.