Creating an Estate plan and instructing your Wills & Estates lawyer to prepare your Will requires you to make a number of decisions. While most lawyers will send you an Estate planning questionnaire to guide the process, the decision-making responsibility ultimately rests on your shoulders. You’ll need to decide who you’ll appoint as your Estate’s Executor, or Personal Representative, whether you’ll financially compensate your Executor, and who you’d like to name as the guardian of your children.
Choosing your Estate beneficiaries, or who you’d like your assets to go to upon your death, may seem like a straightforward Estate planning decision to make, however, there are several important factors that you should consider when appointing beneficiaries in your Will.
What are the Different Types of Beneficiaries?
Before we address the considerations that should go into naming Estate beneficiaries in your Will, it’s helpful to distinguish between the different types of Estate beneficiaries:
1. Beneficiaries of Specific Bequests
You may choose to make one or more specific bequests in your Will. A specific bequest is a defined item or a set amount of money that is to be distributed to a specific beneficiary upon your death. For example, you may leave $10,000.00 to the Red Cross, or you may bequeath your 1969 Chevrolet Camaro to your nephew, John. Generally speaking, once all Estate obligations have been fulfilled, specific bequests are made before, or in priority ahead of, distributions of the residue of the Estate.
2. Residuary Beneficiaries
The residue of the Estate is whatever is left after all taxes, debts, Estate obligations, and specific bequests have been paid. In many cases, the residue of the Estate forms the bulk of the Estate’s value. You may appoint one or more individuals or organizations to receive a set percentage or fraction of the residue of your Estate.
3. Contingent Beneficiaries
Contingent beneficiaries are only entitled to receive a share of your Estate if a specific event occurs. There are two types of contingent gifts that we usually see in Wills. In the first instance, a contingent gift is dependent upon the death of another Estate beneficiary. For example, you may choose to leave the residue of your Estate to your brother, but, in the event that your brother dies (the triggering event), your brother’s son is entitled to receive the residue of your Estate. In this example, your brother’s son, or your nephew, is the contingent beneficiary.
The second type of contingent beneficiary is entitled to receive a share of your Estate on the occurrence of a specific event other than another beneficiary’s death. For example, you may make a $10,000.00 bequest to the Red Cross contingent on the total value of your Estate exceeding $1,000,000.00. In this example, the triggering event is your Estate value exceeding $1,000,000.00. If your Estate value is less than $1,000,000.00, the gift to the Red Cross won’t be made. Similarly, a Will-maker may leave a monetary stipend to someone who takes care of their pets after the Will-maker dies. In such an instance, the triggering event is the beneficiary taking custody of the pets. If the deceased’s pets aren’t taken into the appointee’s care, the monetary gift won’t be made to said contingent beneficiary.
How Do I Choose my Beneficiaries? Important Considerations:
Am I excluding an obvious choice?
While your Will contains your wishes regarding your personal property, and while the Alberta courts seek to balance the intentions of the Will-maker with broader conceptions of fairness, it’s important that you consider who you’re excluding from your Will as a beneficiary.
If you have 3 children, for example, but you’re only naming two of them as your residuary beneficiaries, your Wills & Estates lawyer can include explanatory language in your Will as to the reasons for exclusion. Doing so reduces the likelihood of your Will being successfully challenged because it demonstrates that the exclusion of a particular individual from the Will was done deliberately and intentionally after thoughtful consideration, and wasn’t simply an oversight.
Is anyone entitled to a share of my estate by law?
In many cases, your spouse, common-law partner, dependent child, or other classes of individual will have legal entitlements to your Estate regardless of what your Will says. If you’d like to exclude a close family member or loved one from your Will, your Wills & Estates lawyer can advise you as to whether doing so will prevent the excluded individual from otherwise having an entitlement to your Estate, and whether it is prudent to exclude that individual from your Will in the circumstances.
When will my minor beneficiaries receive their shares of the estate?
If you intend to name your children, or other minors, as the beneficiaries of your Estate, it’s important to consider at what age you’d like them to receive their shares of the Estate. In many cases, we’ll recommend that our clients stagger the distribution of minor beneficiaries’ Estate shares, so that they don’t receive the entire distribution at the age of 18.
If we think back on ourselves at age 18, would we have been responsible or mature enough to handle a large financial windfall? Even if the answer to that question is yes, each beneficiary is different, and may actually benefit from receiving funds at different stages of young adulthood.
Another important consideration when determining at what ages your minor beneficiaries will receive their shares of your Estate, is the responsibility that you’re placing on your Estate’s Executor. If you, for example, stipulate that your 5-year old child is to receive 50% of their share of your Estate at age 30, and the other 50% at age 40, and you pass away unexpectedly tomorrow, your Executor will be responsible for managing your child’s trust funds for several decades. That would be a significant burden to place on an Executor.
Who do I name as my contingent beneficiaries?
Many couples intend for their Estate to pass to their children in equal shares should something happen to both spouses. However, what happens if one child has predeceased their parents?
People’s lines of thinking differ on this topic. Some parents would prefer to see their surviving children receive the deceased child’s share of the Estate, while others want the deceased child’s spouse or children to receive the deceased child’s share of the Estate. While this course of decision making is largely personal, your Wills & Estates lawyer can advise you as to the legal advantages and disadvantages of each option.