A common question in estate planning is whether it is necessary for one to make a will. There are numerous reasons why it is prudent for one to make a will, but what is often overlooked is the limitations as to the powers of the estate trustee where there is no will.
The estate trustee is the person selected to administer the estate. In a will the estate trustee or trustees are specifically named. However, where there is no will, then someone must be appointed by the court.
A well-drafted will usually includes provisions with respect to powers of the estate trustee to deal with estate assets. These provisions can specifically provide for specific powers such as investment powers, powers to sell/dispose of assets, authority to allow beneficiaries to use estate property, powers to treat beneficiaries unequally and the authority to administer the estate over an extended period of time.
A significant issue is whether the estate trustee will have the power to sell estate assets, which is especially a concern when dealing with estate land. A will can provide specific instruction to sell land. Without a will, the powers of the estate trustee to deal with land are found in the Estates Administration Act, Ontario (the “ESA”). An estate trustee without a will cannot sell land for the purposes of distributing the proceeds among beneficiaries except with the approval of the majority of the persons beneficially entitled to it representing together not less than one-half of all the interests in the land (the “beneficiaries’ majority”); however, the estate trustee does have the power to sell estate assets for the purpose of distribution to the beneficiaries if the sale is also required to pay debts of the estate.
Another common issue is whether the estate trustee can transfer specific estate assets to the beneficiaries. Under the ESA the estate trustee without a will cannot convey, divide or distribute the estate of the deceased person among the beneficiaries unless the estate trustee obtains the agreement of all the beneficiaries. In a will a testator may make specific gifts of personal property to a defined beneficiary or class of beneficiaries. However, case law has made it clear that, without such instruction from a will an estate trustee does not have the power to distribute estate assets as is, or what is called in specie distribution. For, example, the estate trustee without a will cannot simply gift a deceased stamp collection to one of the beneficiaries. The role of the estate trustee without distributive powers, is to liquidate the assets as quickly as possible and then distribute the proceeds.
Another issue that is not uncommon in estate matters is whether beneficiaries may use estate assets. Under a will, specific directions can be given to the estate trustee permitting beneficiary use of estate property. For example, it may be the express wish that a certain beneficiary be allowed to live in the deceased house rent-free for a period of time or use assets belonging to the estate. However, without a will providing otherwise, the common law position is that the estate trustee must treat all beneficiaries with an ‘even-hand’. Without a will the estate trustee does not have the power to treat any beneficiary in an inequitable manner. There are many reasons that a testator may want the estate trustee to not apply an even-hand including a prior arrangement, a spendthrift beneficiary, a dependant adult or an incapable beneficiary.
The time component in dealing with estate also may differ depending on whether the estate trustee was named in the will or not. With a will, an estate trustee generally has one year from the date of death to gather in and realize estate assets (the “Executors Year”). A will can provide a longer period for the trustees to administer the estate, which may be required where there are complex estate assets, many beneficiaries or where trustee discretion may be an important component in dealing with assets. Without a will, the estate trustee, generally cannot distribute estate assets until one year has past, and then the he or she cannot unduly delay the distribution.
The decision to create a will is often neglected or people may ultimately decide to leave their estate to be distributed according to the law. In deciding whether or not to make a will, one should consider the powers of the estate trustee with or without a will, and whether it would be in the best interest of the estate to have well defined trustee powers to deal with estate assets.