Explaining Common Will Clauses – Part 3

In my last post, I covered some common legal terms used in wills. Let’s continue with a few more important concepts:

• Transfers to Trustee
• Payment of Debts and Taxes
• Conversion of Assets

Transfers to Estate Trustee (or Trustee)

The estate trustee is often required to sell assets, pay debts, and distribute the estate. To do this effectively, the estate trustee is authorized to take title to estate assets. The law provides that a deceased person’s property vests in the estate trustee, who is responsible for collecting the deceased’s original will and other assets.

If the estate trustee has the power to sell, convert, and invest assets, they should also have the authority to postpone a sale until the timing is appropriate. Until then, the estate trustee holds the assets on behalf of the estate.

An estate trustee may also act as a trustee on behalf of beneficiaries under trusts created by the will. In these cases, the estate may be divided into separate shares or trust funds. For example, the estate trustee may establish separate investment funds for each surviving child. Separate trustees could be named for each child’s trust. The estate trustee closes the estate after creating and transferring assets to the trust.

Payment of Debts and Taxes

Death does not eliminate the deceased’s taxes or outstanding debts so you cannot avoid paying bills by not making your will. A well-drafted will should clearly state who is responsible for paying them. Taxes, debts and estate expenses are paid first. If there are insufficient funds, gifts under the will may need to be reduced. There are rules to do this proportionally.

Where a specific asset creates a tax liability, the will should state whether the beneficiary receiving that asset is responsible for the tax. If that is your intention, it must be clearly expressed.

Similarly, if life insurance is intended to cover taxes on a particular asset, that should be stated in the will. Otherwise, taxes are generally paid from the estate as a whole before estate distribution.

This may be acceptable, provided you understand that other beneficiaries may subsidize the taxes associated with an asset passing to a designated beneficiary. In some cases, an asset may even need to be sold to satisfy a tax liability, resulting in the loss of the intended gift. Clear drafting can help avoid these outcomes.

Conversion of Assets

An estate trustee is generally allowed a reasonable period to administer the estate and liquidate assets. This period is commonly known as the executor’s year. During that time, the trustee will normally validate the will, sell assets and pay specific gifts or cash legacies. A cash legacy is simply a gift of money. For example:

“I give my friend Doreen the sum of five thousand dollars.”

If Doreen does not receive payment within a year, she may be entitled to interest. Without a valid reason for the delay, the trustee could be personally liable.
In some estates, however, an immediate sale may not be advisable, particularly where assets include speculative investments, stocks, or rental properties. This clause allows the trustee to postpone the sale of assets when appropriate.

Where the trustee has discretion over when to sell assets, they should also be protected from liability for losses resulting from the reasonable exercise of that discretion. This clause is often combined with a provision allowing the trustee to retain assets in the same form in which they were held at the time of death. This authority is important because trustees are otherwise subject to strict investment rules and limitations.

Book Your Discovery Meeting

Do you have questions about making your will? I have helped clients since 1978 plan their estates to protect their loved ones. I wrote the book called, Estate to the Heart: How to Plan Wills and Estates for Your Loved Ones.

I can offer you a discovery meeting to discuss your needs by Zoom or in-person in my Toronto west-end office. Request your no-obligation discovery meeting today to avoid making any scary estate planning mistakes. Contact my office today.

I am a Certified Specialist in Estates and Trusts Law. I can give you expert tips to end your estate worries.