Posted: October 22, 2021
By Kirsty Vogelesang, Associate
Different types of assets are treated differently in your estate when you pass away. Knowing the nature of your assets is therefore fundamental to your estate plans. When you meet with a lawyer to prepare your Will, your lawyer will ask you questions about what assets you have and how you own them in order to determine how best to advise you on structuring the distribution of your assets when you pass away. Your lawyer will work out how each of your assets will be distributed when you pass. However, estate planning may include more than just what your Will says.
There are 4 main categories of assets when it comes to estate planning:
- Assets you own solely in your name;
- Assets that allow you to designate a beneficiary on the assets themselves;
- Assets that you co-own with someone else / tenancy-in-common; and
- Assets that you own jointly with someone else.
The following provides more insight in to the 4 main categories of assets:
1. Assets you own solely in your name
Assets which you own entirely in your own name speaks for itself; these are assets that you own by yourself, with no other owners. This may include real property such as your house, banking and investment accounts, and so on. You have more power to decide what to do with assets which you own entirely as compared to assets which you own with someone else (as further explained below). Sole ownership is contrasted with co-ownership or joint ownership.
2. Assets that allow you to designate a beneficiary on the assets themselves
Assets which allow you to designate a beneficiary include pensions, life insurance, RRSPs, TFSAs, and other registered investments. Designating a beneficiary means the asset itself directs where the asset goes when you pass, rather than leaving it up to the directions in your Will. You can, however, designate a beneficiary in your Will or in a contract rather than designating the beneficiary in the asset itself. You are not required to designate a beneficiary if you do not want to, and you can leave it up to the general instructions in your Will.
When you designate a beneficiary in the asset itself it “passes outside” your estate, meaning it does not form part of the pool of assets which is given to the beneficiaries outlined in your Will. However, if you have a designation in the asset itself, and also a designation in your Will, which ever one is the most recent will govern.
Having beneficiaries named in the asset itself can have unintended consequences if you are designating more than one beneficiary who ends up pre-deceasing you. Further, any taxes paid on these assets are paid out of the estate. As such, residual beneficiaries under your Will might end up having to pay the tax bill for the beneficiary that was named under the asset. Such distribution of the tax burden may not be what you intended, and could result in the residual beneficiaries in your Will getting nothing if the taxes devour the estate.
Designating a beneficiary in the asset may provide some creditor protection if you have creditors that would otherwise have a claim against the estate. For example, it is possible to create a life insurance trust which creditor-proofs your life insurance proceeds and ensures it goes to the intended beneficiaries and not your creditors. A life insurance trust requires careful planning and wording to ensure it is eligible and should therefore be drafted by your lawyer.
3. Assets that you co-own with someone else / tenancy-in-common
Assets can be owned by more than one person. When more than one person owns an asset, the owners can have an interest in the property in one of two ways: co-ownership/tenancy-in-common or joint ownership. The characterization of ownership of assets will affect how those assets get divided when you pass away. A surprising amount of people are uncertain whether they own property with another person, or how they own property with another person. If someone else owns property with you, you cannot simply gift that property entirely to someone else in your Will because a gift in your Will does not eliminate the other owner’s interest.
Co-ownership/tenancy-in-common means that each owner has a divisible share of the property. For example, you can co-own a house with another person such that you own 30% and the other person owns 70%. With tenancy-in-common you can gift your share in that property to another person in your Will. Your share in the property will also form part of your estate. A distinguishing feature of tenancy-in-common versus joint tenancy is that the owners can have unequal shares, as in the previous example.
Tenancy-in-common is not specific to real property such as a house, but can also apply to other types of property such as bank accounts.
4. Assets that you own jointly with someone else
The primary distinction between joint tenancy and tenancy-in-common is that joint tenants get a right of survivorship, meaning the interest in the property flows to the surviving owner(s) upon the death of the other owner. A further distinguishing feature is that joint tenants cannot have unequal shares, as each owner has an equal interest in the property (technically everyone owns 100%); a joint tenant could not have a 70% or 30% share as in the above example for co-owners/tenants-in-common.
Your Will only deals with assets that you own or co-own, not assets owned jointly. If you jointly own a house with someone else, the surviving owner will get the entire interest in the house when you pass, and your interest in that house will therefore not pass to the beneficiaries in your Will. The surviving owner does not need to go through the probate process either, and can proceed with the much simpler process of filing an Affidavit of Surviving Tenant at the Land Titles office. It is imperative that you know how you own property as it will determine what you can gift in your Will, what forms part of your estate, and who gets your property. If you want, for example, two beneficiaries to share your entire estate, but only one of them is joint owner with you, then that joint owner will get ALL of this particular piece of property and might get a bigger share of your assets overall.
If you and the other joint owner(s) pass away in a common disaster where it is not clear who passed away first, jointly owned assets are deemed to convert to a tenancy-in-common, and the rules outlined above will govern.
There is sometimes a dispute about whether an asset is owned in joint tenancy vs. tenancy-in-common.
There are 4 unities required to make joint ownership valid:
- Interest: each joint tenant must have an equal interest including equality of duration and extent;
- Title: the interests must arise from the same document;
- Possession: each joint tenant must have an equal right to occupy the entire property; and
- Time: the interests of the joint tenants must arise at the same time.
How can Emery Jamieson LLP help?
Emery Jamieson LLP has extensive experience assisting clients in planning their estates. If you are looking for guidance in how to plan for the future, we can help you understand how to distribute your estates to meet your estate planning goals. If you are considering preparing a Will, contact a member of our Wills & Estates Planning Practice Group.