If you’ve got your ducks in a row, you hopefully have your will up to date and you’ve made sure that all of your investment and insurance products have beneficiary designations in place. But how are they actually going to receive all of the assets in your estate?
In this article, we will see how the various objects of your estate will be distributed to your family.
It’s important to understand that the best-laid plans can go haywire if there isn’t enough cash in your estate. So, when considering your will, also talk to a financial advisor (and possibly a lawyer if your situation is more complex) to make sure there is enough money in your estate. Keep in mind that the debt must be settled upon your death and that there will be several inheritance costs (funeral costs, death bed costs, executor costs, taxes) that will need to be paid in cash.
If there isn’t enough cash in your estate, the executor will have to make the difficult decision of what assets to sell to meet those expenses. So even if you intended to leave the house to your surviving spouse, he may find himself in a difficult situation if the house has to be sold to generate cash for the expenses.
If you don’t have enough cash on hand, life insurance is the easiest way to make sure there is enough cash in your estate. An advisor can help you calculate how much you need and you can then purchase a life insurance policy to make sure the expenses are covered when you die.
Next, we will see which assets / investments are not part of your estate and how they will be distributed to your beneficiaries.
Following your death, the liquidation of your estate may take several months, or even several years. Fortunately, some assets are not processed by the executor of your estate but are distributed directly to your beneficiaries. Remember, we’re not talking about whether an asset is part of your estate for tax purposes (inheritance tax) – it’s a discussion in its own right. We’re just talking about how the assets practically get to your family after you die.
The first products they are likely to receive will be funeral insurance policies and life insurance, including your life annuity. Funeral policies are generally paid within 24-48 hours of the submission of the claim and, provided there is no investigation into the circumstances of the death, life insurance policies can be paid in a few weeks. These products will be paid to the person (s) you named without asking questions. Your will does not govern the funds and the executor is not involved in paying the money. This is why it is so important to check your beneficiary designations from time to time to make sure that they are always up to date. If you don’t, the benefit can be caught up by the lengthy estate process, which can have a huge impact on your family’s cash flow after your death.
Depending on the complexity of your estate, the next distribution to your family will likely be discretionary assets. This includes fixed real estate, investment products, art, jewelry, etc. Once again, remember that these assets will only reach your family the way you want them to if there is enough cash in the estate to pay off debts and costs.
Fixed ownership will have to be transferred to the new legal owner. It involves a process similar to when a property is bought / sold during your lifetime. There may be legal fees and, in some cases, transfer duties that must be paid by the executor.
Investments (eg mutual funds) can be transferred to the beneficiary “in cash”, that is, as an investment or in cash. This will generally be done according to the wishes of the recipient to the extent possible.
In practice, personal items such as art / jewelry etc. are usually simply delivered to the recipient. Depending on the asset, some items may need to be re-registered (eg cars) in the name of the new owner.
Retirement funds are great because they are not governed by your will and your beneficiary designation may be revoked by the investment trustees. Under the Pension Funds Act, trustees have an obligation to ensure that your “dependents” receive your benefit. The definition of dependent is very broad and can include anyone who can prove that they were receiving some form of regular financial support from you.
While you are completing a beneficiary designation form, this is only a guide for trustees. They also have complete discretion as to the percentage of the benefit they will allocate to each dependent. Some trustees take the beneficiary designation form and some very basic direct family statements at face value and the benefit is distributed fairly quickly, but in some cases they can launch a thorough investigation to make sure it isn’t. There are no dependents who can show up in the line. They have 12 months to complete the process, so it can take that long for your family to receive their benefits.
What if I forget to include an asset in my will?
Fortunately, you don’t need to list every item you own or the investment you have in your will. You can get a pretty accurate list of your assets in detail, but it can get complicated. If you bequeath an asset in your will, but then sell the asset after the will is written, you may have a scenario where a beneficiary is inadvertently left out. You should discuss this with the lawyer or advisor who will assist you in drafting your will.
Every will has a catch-all clause at the end to avoid a scenario where there are assets that cannot be distributed because they have not been specified. This is done by bequeathing the “residual” of your estate to a beneficiary. Anything that is not covered in detail in the will itself will be left with that person so that the executor can liquidate the estate.
It all starts with the will. Update yours today!