How to Draft a Will: The Basic Terms Every Canadian Business Owner Should Know

DISCLAIMER

This information is intended for business owners in Canada and serves as general guidance only. Always consult with a qualified advisor before making any legal decision. 

In this article, we’ll cover the following topics:

• What makes up an estate?

• What is an executor of an estate?

• What is power of attorney?

• How is power of attorney involved in estate plans?

The first thing to know about drafting a will is that it can be complex, so it’s best to work with a professional who can help guide the process. That said, before you begin working with a professional, it may be helpful to already have some foundational knowledge. Let’s dive in. 

What makes up an estate?

There are two portions of an estate. The first is what is commonly referred to as specific gifts, which can be items (i.e. paintings, cars, etc.) or cash bequests, that are willed to specific people or organizations. 

The other portion of an estate is called the residue, which constitutes the estate in its entirety after removing the specific gifts. The residue can be divided however you please – for example, you can give it to your spouse and children, divide it into shares to siblings, charities, etc. You can also setup ‘trusts’ which control the timing and otherconditions for the distribution of these gifts (e.g. a trustee can distribute certain amounts for education, starting a business etc. to a child)

What is an executor of an estate?

Generally, you’ll want to appoint two executors. Most people will name a spouse or other close family member as the primary executor, and name one of their adult children as the secondary or backup executor. Note that in most cases, the two executors should not be granted the power to act jointly. This can potentially slow down the estate distribution and lead to conflict. In general, it’s best to have a primary executor then a secondary executor as an alternative in the event that the primary is unable or unwilling to act. 

Most couples will appoint one another as executor and name a child or sibling who is mature and of good judgment as the backup. 

Executors should reside in British Columbia. Administering an estate can take a substantial amount of time and can be quite difficult if the executor does not reside in the province of the deceased.

Additionally, it’s wise to avoid naming executors who are older than you – unless, for instance, you are very young (20s or 30s) and intend to change the terms of your will once you’ve become a little older, in which case it’s not unusual to name parents. It’s best to name executors who are closer to you in age, for two reasons: because the administrative duties of executorships can be quite demanding, which is not ideal for elders; and because you want to take as many steps as you can to ensure your executors outlive you. 

Finally, note that in many cases, the executor will also be named as the trustee for any trusts that you have set up (for example, trusts for minor children).. However, this is not always the case, and you might prefer to delegate these powers separately, having one individual act as executor to administer the estate, and having another individual act as trustee to manage any trusts. 

What is a power of attorney?

Power of attorney is one of the most important ways people plan for a time in their lives that hopefully never comes but almost always does: the day when they are physically or mentally incapable of making decisions on their own. Establishing a power of attorney essentially entrusts another person to be seen, through the eyes of the law, as the person who makes all of your decisions, including those that deal with finances and other legal matters. Read “Power of Attorney: Everything Canadian Business Owners Need to Know” for more. 

How is a power of attorney involved in estate plans?

Power of attorney is an essential part of any estate plan. Without it, in the event that you become mentally or physically unable to manage your affairs, then nobody, not even your spouse or children, will be able to step up and begin legally making decisions on your behalf.

Note that a person appointed by a power of attorney can not make changes to your will.

In the above scenario, your family would have no choice but to deal with a time-consuming and expensive legal process involving a committeeship application which requires a court application. They’d also need to acquire affidavits from licensed medical doctors verifying the fact that you are incapable of managing your affairs. 

Many people wrongly assume that these matters can simply be resolved by listing a co-owner on a bank account, house, or other asset. Joint ownership of something does not carry the same weight as power of attorney. In order to guarantee that someone who you deeply trust can legally assume your decision-making, you need to establish power of attorney.Ideally you will put in place a primary power of attorney as well as an alternative power of attorney, should something happen to the primary, or they move out of BC or otherwise are not suitable to act.

Want to learn more about wills? We’re here to guide you. Help with drafting wills is among the many wills-related services we provide. Contact us today using the below form.