11

INTRODUCTION

While insurance is about protecting what you have, retirement and estate planning is about protecting what you may have in the future. Insuring what you have means finding the best way to protect it. Retirement planning, on the other hand, means finding the best way to protect the life that you’d like to be living after you stop earning income from employment. Estate planning involves protecting what you have even after your death.

Both types of planning aim to address some of the following questions, even if you really can’t answer them:

• What will my life be like when I retire?
• Will I have a spouse or partner?
• Will I have dependents?
• Will I have a home?
• Will I have a mortgage?
• Will I be disabled?
• Where will I live?
• What will I do?
• What would I like to do?

Planning, especially for retirement, should start as early as possible, allowing the most time for savings to occur and accrue. Ironically, that’s when it is hardest to try to imagine answers to these questions. Understanding the practical means to planning and saving for retirement can help you get started. If your plans are flexible, they can be adapted to the unexpected as it happens, which it inevitably will.

11.1 RETIREMENT PLANNING: PROJECTING NEEDS

Retirement planning involves the same steps as any other personal planning: assess where you’d like to be and then determine how to get there from where you are. More formally, the first step is to define your goals, even if they are no more specific than “I want to be able to afford a nice life after I stop getting a paycheque.” But what is a “nice life,” and how will you pay for it?

It may seem impossible or futile to try to project your retirement needs so far from retirement given that there are so many uncertainties in life and retirement may be far away. But that shouldn’t keep you from saving. You can try to save as much as possible for now, with the idea that your plans will clarify as you get closer to your retirement, so whatever money you have saved will give you a head start.

Chris and Sam are young professionals in Regina, Saskatchewan. Their families live elsewhere in the province—Chris’s family lives in Prince Albert, and Sam’s family lives on a reserve forty-five minutes from Regina near Fort Qu’Appelle. Both Chris and Sam miss not having their families close by, especially now that they have young kids. Both would like to move closer to Sam’s reserve one day, but they have good jobs in Regina, so they agreed that for the time being, they would like to buy a second home near Sam’s reserve. They plan to go there a couple weekends each month and during holidays in order to spend more time with family. They have also discussed the possibility of Sam’s younger cousin, Jen, paying them a modest monthly rent to live there. This monthly rent would help them to pay for the cost of the home. Jen has agreed to stay with family when they visit during weekends and holidays. Chris and Sam are planning to use the value of their house in Regina to finance their second home. Now in their mid-thirties, Chris and Sam are planning to retire in thirty years. They hope to sell their home in Regina when they retire, for retirement income, and move to their second home.

As they plan, Chris and Sam need to project how much money they will need to have saved by the time they wish to retire. To do that, they need to project both their future capital needs (to buy their second home) and their future living expense in retirement. They also need to project how long they may live after retirement, or how many years’ worth of living expenses they will need, so that they won’t outlive their savings.

They know that they have thirty years over which to save this money. They also know, as explained in Chapter 4 “Evaluating Choices: Time, Risk, and Value,” that time affects value. Thus, Sam and Chris need to project the rate of compounding for their savings, or the rate at which time will affect the value of their money.

To estimate required savings, in other words, you need to estimate the following:

• Expenses in retirement
• The duration of retirement
• The return on savings in retirement

As difficult as these estimations seem, because it is a long time until retirement and a lot can happen in the meantime, you can start by using what you know about the present.

Estimating Annual Expenses

One approach is to assume that your current living expenses will remain about the same in the future. Given that, over the long run, inflation affects the purchasing power of your income, you factor in the effect inflation may have so that your purchasing power remains the same.

For example, say your living expenses are around $40,000 per year and you’d like to have that amount of purchasing power in retirement as well. Assuming your costs of living remain constant, if you are thirty years from retirement, how much will you be spending on living expenses then?

The overall average rate of inflation in Canada in June 2024 was 2.7 per cent. Two years prior, in June 2022, the inflation rate was 8.1% and, in June 2020, the rate was 0.7%. There has been significant fluctuation in recent years.

So, you would have to spend $40,000 × (1 + 0.027)³⁰ = $88,956 per year to maintain your standard of living thirty years from now. In this case, $40,000 is the present value of your expenses, and you are looking for the future value, given that your expenses will appreciate at a rate of 2.7 per cent per year for thirty years.

As you can see, you would need approximately over half of your current spending to live the life you live now. Fortunately, your savings won’t be just “sitting there” during that time. They, too, will be compounding to keep up with your needs.

Estimating Length of Retirement

How much you need to have saved to support your annual living expenses after retirement depends on how long those expenses continue or how long you’ll live after retirement. In Canada, life expectancy at age sixty-five has increased dramatically in the last century due to increased access to health care, medical advances, and healthier lives before age sixty-five.

If life expectancy continues to increase, in thirty years your life expectancy at age sixty-five could be twenty-eight to thirty years or more. In that case, your retirement savings will have to provide for your living expenses for as long as thirty years. Put another way, at age thirty-five you have thirty years to save enough to support you for thirty years after that.

Estimating the Amount Needed and Annual Savings for Retirement

You can use what you know about time and value (from Chapter 4) to estimate the amount you would need to have saved up by the time you retire. Your annual expenses in retirement are really a series of cash flows that will grow by the rate of inflation. At the same time, your savings will grow by your rate of return, even after you are making withdrawals to cover your expenses.

The amount you need at retirement varies with the expected rate of return on your savings. While you are retired, you will be drawing income from your savings, but your remaining savings will still be earning a return. The more return your savings can earn while you are retired, the less you have to have saved by retirement. The less return your savings can earn in retirement, the more you need to have saved before retirement.

The more your account can earn before you retire, the less you will have to contribute to it. On the other hand, the more you can contribute to it, the less it has to earn.

The time you have to save until retirement can make a big difference to the amount you must save every year. The longer the time you have to save, the less you have to save each year to reach your goal.

The longer the time you have to save, the sooner you start saving, and the less you need to save each year. Chris and Sam are already in their thirties, so they have thirty years to save for retirement. Had they started in their twenties and had forty years until retirement, they would not have to save so much each year. If they wait until they are around fifty, they will have to save a lot more each year. The more you have to save, the less disposable income you will have to spend on current living expenses, making it harder to save. Clearly, saving early and regularly is the superior strategy.

When you make these calculations, be aware that you are using estimates to determine the money you’ll need at retirement. You use the expected inflation rate, based on its historic average, to estimate annual expenses, historical statistics on life expectancy to estimate the duration of your retirement, and an estimate of future savings returns. Estimates must be adjusted because things change. As you progress toward retirement, you’ll want to re-evaluate these numbers at least annually to be sure you are still saving enough.

 

 

---

11.2 RETIREMENT PLANNING: WAYS TO SAVE

While knowing the numbers clarifies the picture of your needs, you must reconcile that picture with the realities that you face now. How will you be able to afford to save what you need for retirement?

There are several savings plans structured to help you save; some offer tax advantages, some don’t. But first you need to make a commitment to save.

Saving means not spending a portion of your disposable income. It means delaying gratification or putting off until tomorrow what you could have today. That is often difficult, as you have many demands on your disposable income. You must weigh the benefit of fulfilling those demands with the cost of not saving for retirement, even though benefit in the present is much easier to credit than benefit in the future. Once you resolve to save, however, employer, government, and individual retirement plans are there to help you.

Defined Benefit and Contribution Plans

Employers may sponsor pension or retirement plans for their employees as part of the employees’ total compensation. In Canada, a registered pension plan “is an arrangement by an employer or a union to provide pensions to retired employees in the form of periodic payments. The Income Tax Act provides deductions in respect of both employee and employer contributions. Contributions and investment earnings are tax-exempt until such time as benefits commence to be paid” (Government of Canada, 2024a). There are two kinds of employer-sponsored plans: defined benefit plans and defined contribution plans.

A defined benefit plan is a retirement plan funded by the employer, who promises the employee a specific benefit upon retirement. The employer can be a corporation, labour union, government, or other organization that establishes a retirement plan for its employees. In addition to (or instead of) a defined benefit plan, an employer may also offer a profit-sharing plan, a stock bonus plan, an employee stock ownership plan, or other plan. Each type of plan has advantages and disadvantages for employers and employees, but all are designed to give employees a way to save for the future and employers a way to attract and keep employees.

The payout for a defined benefit plan is usually an annual or monthly payment for the remainder of the employee’s life. In some defined benefit plans, there is also a spousal or survivor’s benefit. The amount of the benefit is determined by your wages and length of service with the company.

With a defined benefit plan your income in retirement is constant or “fixed,” and it is the employer’s responsibility to fund your retirement. This is both an advantage and a disadvantage for the employee. Having your employer fund the plan is an advantage, but having a fixed income in retirement is a drawback during periods of inflation when the purchasing power of each dollar declines. In some plans, that drawback is offset by automatic cost of living increases.

To avoid the responsibility for defined benefit plans, more and more employers are moving toward defined contribution retirement plans.

Under defined contribution plans, each employee has a retirement account, and both the employee and the employer may contribute to the account. The employer may contribute up to a percentage limit or offer to match the employee’s contributions, up to a limit. With a matching contribution, if employees choose not to contribute, they lose the opportunity of having the employer’s contribution as well as their own. The employee makes untaxed contributions to the account as a payroll deduction, up to a maximum limit specified by the tax code. The employer’s contributions are a tax-deductible expense and are not a taxable benefit to the plan member. After a certain period of time, the employee obtains the right to the employer’s contribution. Employers can allow employees to make the investment decisions for the employer contributions, or the decision may be left to the employer. Employees usually make the investment decisions for their own contributions.

Private pension plans (including pooled registered pension plans) provided to employees whose employment falls under federal jurisdiction or for pension plans established in the Yukon, the Northwest Territories, and Nunavut, are regulated and supervised by the Office of the Superintendent of Financial Institutions. Every province, except Prince Edward Island, “has its own laws and regulations that govern pension plans in industries that are not under federal jurisdiction” (Government of Canada, 2024a). Regulations pertain to withdrawals both in retirement and in special situations.

The employer offers a selection of investments, but the employee chooses how the funds in his or her account are diversified and invested. Thus, the employee assumes the responsibility—and risk—for investment returns. The employer’s contributions are a benefit to the employee. There is a considerable choice of investment options. These typically include:

• Guaranteed investment funds
• Canadian bond funds
• Canadian balanced funds
• Canadian equity funds
• International and/or global equity funds

Many defined benefit and contribution plans are structured with a vesting option that limits your claim on the retirement fund until you have been with the company for a certain length of time. For example, Paul’s employer has a defined benefit plan that provides for Paul to be 50 per cent vested after five years and fully vested after seven years. If Paul were to leave the company before he had worked there for five years, none of his retirement fund would be in his account. If he left after six years, half his fund would be kept for him; after ten years, all of it would be.

Employers can also make a contribution with company stock, which can create an undiversified account. A portfolio consisting only of your company’s stock exposes you to market risk should the company not do well, in which case, you may find yourself losing both your job and your retirement account’s value.

Employers are increasingly moving towards defined contribution plans versus defined benefit plans because they are concerned about investment risk as well as liquidity within the plan to pay active retirees versus contributing employees.

Canadian Government: Public Pensions

The Canadian government has three different retirement income systems. The first is Old Age Security (OAS), which provides a modest monthly pension starting at the age of sixty-five. The second system is the Canada Pension Plan (CPP), a retirement plan for all citizens offered by the federal government, except those living in Quebec who must contribute to the Quebec Pension Plan (QPP). The third level of the retirement income system is composed of private pensions and savings.

Canada Pension Plan and Quebec Pension Plan

The CPP and QPP is not an automatic benefit, but an entitlement. To qualify for benefits, you must work and contribute. The CPP and the QPP are closely coordinated so that your pension is protected no matter where you live in Canada. If you have contributed to both the CPP and the QPP, the amount you receive will take into consideration all contributions made to both plans. However, if you live in Quebec, you must apply for the QPP, and if you live elsewhere in Canada, you must apply for the CPP. Your benefit will be paid depending on your place of residence (Government of Canada, 2024a). Every person over the age of eighteen (with some exceptions) who works in Canada and earns more than the minimum amount per year (it is frozen at $3,500) must contribute pensionable earnings to either the CPP or QPP. At 70 years of age, your CPP contributions will stop, even if you’re still working. It is important to note that employers and First Nations workers on-reserve are not required to pay into the Canada Pension Plan. However, if a First Nation employer chooses to participate in the CPP, all employees must contribute to the CPP through payroll deductions. If people are self-employed or their First Nation employer decides not to participate in the CPP, they can still contribute by paying both the employee and the employer’s portions of the CPP contributions. Those who are employed off-reserve or are receiving taxable employment income must contribute to the CPP (Government of Canada, 2021).

Maximum pensionable earnings are adjusted every January according to the increases in average wage. In 2024, the maximum amount was $68,500. Employers pay half the required contributions and the employee pays the other half. Prior to 2019, employees contributed 4.95% on their earnings to the CPP and employers contributed an equal amount; self-employed individuals contributed 9.9%. If you are self-employed, you contribute both the employee and employer contribution, to a maximum contribution of $7,735 as of 2024. Your contributions are based on your net business income after expenses (Government of Canada, 2024c).

The Canada Pension Plan Enhancement began in 2019. Its objective is to increase the amount that employees and employers contribute; this enhancement is gradually taking place over 7 years in 2 steps. Prior to 2019, one quarter (25%) of your average work earnings was replaced by your CPP retirement pension. The enhancement intends to grow to replace one third (33.33%) of the average work earnings you receive after 2019 which will increase the maximum CPP retirement pension by more than 50% for those who make enhanced contributions for 40 years. Between 2024 and 2025, the maximum limit of earnings will increase by 14% which means that those who earn a higher income will be eligible to earn CPP benefits on a larger portion of their income. If you take time out of the workforce to raise children or due to disability, your monthly CPP benefit is now enhanced as well. Survivor benefits will also be enhanced. There is also a one-time $2,500 death benefit payment to, or on behalf of, the estate of a deceased CPP contributor (Government of Canada, 2023).

You can apply to begin collecting a monthly retirement pension from the federal government at the age of sixty if you have paid into the CPP. However, the earlier you begin collecting your pension before the age of sixty-five, the less you will receive on a monthly basis. The later you begin collecting, the larger your monthly pension. If you begin collecting at age sixty, your pension payments could be reduced by as much as 36 per cent. If you begin collecting CPP after seventy, it could be as much as 42 per cent greater (Government of Canada, 2024c). The CPP has three different types of benefits: disability benefits (for disabled contributors and their children), a retirement pension, and survivor benefits (which include the death benefit, the surviving spouse’s pension, and the children’s benefit). Given this information, it is critical that you understand that CPP and other public pensions cannot meet all of your financial needs in retirement. You must combine private savings with public pensions in order to be prepared for retirement. A statement of your CPP contribution is available through the Service Canada website; this statement must be used as a personal finance tool in order to properly plan for retirement and set realistic goals (Kapoor et al., 2023).

Old Age Security, Guaranteed Income Supplement,and Spouse’s Allowance

According to the Government of Canada, the Old Age Security program is its largest pension program and is funded out of its general revenues; Canadians do not pay directly into it. OAS is available to seniors aged sixty-five and older who meet the Canadian legal status and residence requirements and the amount one receives is determined by how long one has lived in Canada after the age of eighteen.

OAS benefits are adjusted quarterly (in January, April, July, and October) if there are increases in the cost of living as measured by the Consumer Price Index. Seniors who have low income may be eligible to also receive the Guaranteed Income Supplement (GIS) and Spouse’s Allowance (SPA). The GIS is a monthly, non-taxable benefit for Old Age Security pension recipients who have a low income and are living in Canada. The SPA is also a benefit available to low-income individuals aged sixty to sixty-four who are the spouses or common-law partners of GIS recipients (Government of Canada, 2024b). Seniors who have high income must pay back all or a portion of their OAS through the Old Age Security Pension Recovery Tax (TurboTax Canada, 2020).

Traditionally, many plans for public employees have been defined benefit plans providing annuities upon retirement.

Personal Retirement Plans

Registered Retirement Savings Plan

Any individual can save for retirement without a special “account,” but since the government would like to encourage retirement savings, it has created tax-advantaged accounts to help you do so. Because these accounts provide tax benefits as well as some convenience, it is best to use them first in planning for retirement, although their use may be limited.

A registered retirement savings plan (RRSP) is a personal investment vehicle that allows you to shelter your savings from income taxes. RRSPs allow you to shelter your money in a wide range of financial products such as: stocks, government and corporate bonds, guaranteed investment certificates (GICs), and mutual funds. Savings accounts, term deposits, and GICs are examples of guaranteed funds because you are ensured the return of your principal plus a guaranteed rate of return, and they are offered by most financial institutions. Mutual funds do not guarantee a rate of return or the return of your principal and are available through most financial institutions including investment dealers and life insurance companies. Life insurance and life annuity products, which are sold through life insurance companies, may also qualify as RRSP investments, but they might not be the best financial plan due to various restrictions on these types of investments (Kapoor et al., 2023).

An RRSP allows you to realize immediate tax benefits at a time when your income is generally highest. Your annual contribution can be deducted from your gross income at tax time, reducing the amount you pay in income tax that year. The income earned in your RRSP is not taxed until you begin to withdraw funds at retirement and will likely be taxed at a lower rate given that most people will be earning a reduced income compared to when they worked full-time. However, one will certainly be receiving taxable income and not everyone will be in a lower tax bracket upon retirement. Your RRSP investments can grow and are tax-sheltered until retirement. If one is paying little to no income tax, likely an RRSP is not needed. As mentioned above, an RRSP is best utilized when your income is generally highest. An additional advantage of the RRSP is that principal appreciation (interest, dividend income, or capital gain) is not taxed until the funds are withdrawn.

Types of RRSPs

The most common type of RRSP held by Canadians is a “regular” RRSP due to the fact that fees are minimal and it requires minimal management. However, because of the type of low-risk and lowreturn investments available within the regular RRSP, there is a limited return on investment. “Self-directed” RRSPs allow for greater scope of categories, such as cash, T-Bills, bonds (including Canadian Savings Bonds), mortgages, mutual funds, and stocks (Kapoor et al., 2023). The fees are higher and require more management, but the return on investment is often higher. Spousal RRSPs are available to common-law couples and same-sex couples, and they allow one to contribute to an RRSP and name one’s spouse/partner as the beneficiary. This can be a useful type of RRSP when one spouse/partner does not participate in the labour market. However, this type of contribution will reduce one’s allowable contribution to his or her own plan.

As mentioned in Chapter 9 “Buying a Home,” you can use RRSP funds for a down payment on your first home under the Home Buyers’ Plan. Up to $35,000 can be withdrawn as a loan from your RRSP without tax being withheld; no interest is required on the loan and it must be paid back within fifteen years. A certain payment must be paid every year; if it is not, that amount due will be included in your income for that year.

RRSP funds, up to a maximum of $20,000, can also be used for full-time training or educational purposes for you or your commonlaw partner or spouse under the Life-Long Learning Plan, up to $10,000 per year. Withdrawals have to generally be paid within ten years and the withdrawn amounts do not have to be included in your income, and tax will not be withheld on these amounts by the RRSP issuer. However, any amount not repaid the year when it is due will be included in your income and tax will have to be paid on this amount (Canada Revenue Agency, 2024).

Contribution Limits

If you are already contributing to a registered pension plan, the CRA will calculate, along with the help of your employer, the allowable contribution using a pension adjustment. If you do not have an RPP, then you can contribute up to 18 per cent of your earned income or the stated maximum (Kapoor et al., 2023). You can exceed your contribution limit by $2,000 without penalty, but anything beyond this amount will incur a 1 per cent fine. If you do not contribute the maximum contribution in a given year, you can carry forward your contribution shortfall and invest more in a year when you are able to.

Deregistering an RRSP

Cashing in or “deregistering” your RRSP must take place before the end of the calendar year of your seventy-first birthday. Upon deregistering an RRSP, you have a number of options:

1. Withdraw the funds and pay the income tax. If a lump-sum payment is withdrawn, it is likely a high marginal tax rate will apply. The tax consequences of doing this could be quite expensive.
2. Purchase a single-payment life annuity from an insurance company. This life annuity will allow you to receive a fixed level of payment on a regular basis for the rest of one’s lifetime and you only pay taxes on your annual income.
3. Purchase a fixed-term annuity from an insurance company that pays you an income for a fixed-term. Unlike life annuities, life expectancy or the pooling of funds with others is not taken into account.
4. Set-up a registered retirement income fund (RRIF) that allows you to withdraw a minimum amount from the RRSP and invest that money. That minimum amount increases over time. The amount and frequency of payments to your RRIF can be adjusted. Earnings in a RRIF are tax-free and amounts paid out of a RRIF are taxable upon receipt (Kapoor et al., 2023).
5. One could also choose a combination of the options mentioned above, such as withdrawing funds, buying an annuity, and putting the rest in a RRIF.

For more information regarding your options when deregistering an RRSP, see Options for your own RRSPs on the Government of Canada website.

Fixed-Term and Life Annuities

Fixed-term and life annuities can be purchased with a lump sum from any Canadian life insurance company; the lump sum can be from either registered or non-registered sources. Examples of registered funds used to purchase both fixed-term and life annuities are: individual RRSPs, locked-in RRSPs, RRIFs, pension plans, or deferred profit sharing plans. Fixed-term annuities specify to the insurance company how long the purchaser wishes this type of annuity to pay them. The insurance company is obligated to pay out all capital used to pay for this annuity. All income payments cease and the annuity contract ends once the payment period has ended. Fixed-term annuities are purchased when a guaranteed income is needed for a specific time period. Any guaranteed payments that have not been paid due to the death of the annuitant will be paid to a named beneficiary or his or her estate (Canadian Annuity Rates, 2024).

Life annuities can be purchased as either single life or joint life. “Single Life annuities pay a periodic income as long as the sole annuitant is alive. Joint Life annuities continue to pay as long as one of the two joint annuitants is alive” (Canadian Annuity Rates, 2024).

Other Types of Savings Vehicles

As mentioned in Chapter 6 “Taxes and Tax Planning,” a tax-free savings account (TFSA) is a flexible investment account where one’s investment income—interest, dividends, or capital gains—is not taxed, even when withdrawn. TFSAs are an increasingly popular investment strategy because your money grows more quickly inside a TFSA than in a taxable account due to tax-free compound growth. Through a TFSA, one can invest in various vehicles, such as GICs, bonds, mutual funds, stocks, and exchange-traded funds. Furthermore, eligibility for federal income-tested benefits (e.g., OAS), or credits (non-refundable tax credit for taxpayers sixty-five years and older) are not affected by investment gains within the TFSA or by withdrawals (Kapoor et al., 2023). The following are important facts about contributions to your TFSA:

• The current contribution limit is $7,000 per year; contributions to your RRSP/RPP do not limit your TFSA contribution.
• Any unused room can be carried forward.
• You can contribute up to your TFSA contribution limit. A tax applies to all contributions exceeding your TFSA contribution limit.
• Withdrawals will be added to your TFSA contribution room at the beginning of the following year.
• You can replace the amount of the withdrawal in the same year only if you have available TFSA contribution room.
• Direct transfers must be completed by your financial institution (Government of Canada, 2024d).

Many different groups can benefit from TFSAs, and they should be considered as a viable retirement savings strategy for young and old as well as low- to high-income Canadians.

Another type of saving savings vehicle is the registered disability savings plan (RDSP) which provides those who are eligible for the Disability Tax Credit (DTC) and their families the opportunity to contribute to their savings plan and have those contributions matched by the federal government up to a $70,000 in one’s lifetime. Low- and modest-income individuals can receive an additional lifetime contribution of $20,000 to their RDSPs from the government through Canada Disability Savings Bonds; contributions from individuals are not required to receive the bond. Taxes are deferred on RDSP investment income and capital gains.

 

11.3 ESTATE PLANNING

Your estate includes everything you own. Other aspects of financial planning involve creating and managing your assets while you are alive. Estate planning is a way to manage your assets after your death. Age is not really a factor, because death can occur at any time, at any age, by any cause. Arranging for the disposition of your estate is not a morbid concern, but a kindness to those you leave behind. Death is a legal and financial event as well as an emotional one. Your loved ones will have to deal with the emotional aftermath of your loss and will appreciate your care in planning for the legal and financial outcomes of your death.

Legal Considerations

Provincial family law varies from province to province when it comes to the distribution of one’s estate. For example, British Columbia and Ontario consider common-law or same-sex unions when determining when one has matrimonial rights; this is particularly important for the purposes of distributing an estate without a will. While these provincial laws differ, the motive behind provincial laws is to fairly distribute your estate to those who are financially dependent on you at the time of your death. It is important that you make known your desires regarding the distribution of your estate so that it is not left up to the legal system to make sensitive decisions.

Wills

Elder Norma Jean Byrd emphasizes the importance of a will in order to plan for the future of loved ones (Video 4).

Since you won’t be here, you will need to leave a written document outlining your instructions regarding your estate. That is your will, your legal request for the distribution of your estate—that is, assets that remain after your debts have been satisfied. If you die intestate, or without a will, the laws of your province or territory of legal residence will dictate the distribution of your estate. In the case of First Nations people, if a status First Nation person dies while living on-reserve and this person has no will, the Department of Indigenous Services Canada will manage the distribution of the estate. If a First Nation person is living off-reserve without a will, the province/territory will manage the distribution of the estate (Indigenous Services of Canada, 2023).

Please see the following sites for more information on provincial or territorial laws that apply when someone dies:

• Alberta: What to do when someone dies
• British Columbia: After a Death: What to Do When Someone Dies
• Manitoba: Dealing with death
• New Brunswick: Service New Brunswick Vital Statistics Unit
• Newfoundland & Labrador: Government Services Vital Statistics Division
• Northwest Territories: Registrar General of Vital Statistics
• Nova Scotia: Nova Scotia Vital Statistics
• Nunavut: Death Certificate
• Ontario: What to do when someone dies
• Prince Edward Island: Vital Statistics
• Quebec: What to do in the event of a death
• Saskatchewan: Dealing with death
• Yukon: Vital Statistics

You can write your own will so long as you are a legal adult and mentally competent. The document has to be witnessed by two or three people who are not inheriting anything under the terms of the will, and it must be dated and signed and, in some provinces, notarized. A holographic will is handwritten, and as such, it may be more difficult to validate. A formal will is usually prepared on a typed or pre-printed form with the assistance of an attorney. A statutory will is a pre-printed form that you can buy from a store or in a software package. Online will-writing services, such as Canadian Legal Wills or Make Your Own Wills, provide easy, affordable access to statutory wills. Consider, however, that a will is a legal document. Having yours drawn up by a lawyer may better insure its completeness and validity in court. A notarial will is only available in Quebec and must be signed in the presence of a notary, who keeps the original copy to share with heirs, and at least one witness (Kapoor et al., 2023).

Probate is the legal process of validating a will and administering the payment of debts and the distribution of assets by a probate court. The probate court process legally confirms the authority of the executor of an estate by granting the executor letters probate (or in Ontario, a certificate of estate trustee with a will). In Quebec, probates are not common because notarial wills do not require probate (Financial Post, 2013). Probate courts also distribute property in the absence of a will. However, probate is not required if the deceased:

• owned assets of little value, allowing for transfer without court supervision;
• owned assets jointly with or “payable on death” to another person;
• owned assets naming another person as beneficiary; or
• held all assets in a living trust (a legal entity for managing assets on behalf of beneficiaries).

Besides the details of “who gets what,” a will should name an executor, the person or persons who will administer the payment of your debts and the distribution of your remaining assets according to your wishes as expressed in your will. If you have legal dependents, you should name a guardian for them who will assume responsibility for providing for your children and managing the estate for them. A great deal of thought and consideration should be put into the selection of a guardian for your children to ensure you are choosing someone who has a similar parenting philosophy and who would be willing to accept responsibility for your children. You may also include a “letter of last instruction” stating the location of important documents, safe deposit keys, and bank accounts, and specifying your funeral arrangements.

You may change or rewrite your will at any time, but you should definitely do so as your life circumstances change, especially with events such as marriage or divorce, the birth of a child, and the acquisition of significant assets, such as a house. If the changes in your circumstances are substantial, you should create a new will.

There are several types of wills. A simple will leaves everything to a spouse.

It is possible that you will become mentally or physically disabled before you die and unable to direct management of your assets. To prepare for this possibility, you may create a living will with instructions for your care in that event. You may appoint someone, usually a spouse, child, or sibling, who would have power of attorney—that is, the right to act on your behalf, especially regarding financial and legal decisions. That power may be limited or unlimited (such as a “durable power of attorney”) and is restricted to certain acts or dependent on certain circumstances. The two major types of powers of attorney are ordinary and enduring. An ordinary power of attorney is no longer valid if the donor becomes mentally incompetent while an enduring power of attorney remains valid regardless (LawDepot, 2024).

An ethical will is a way for one to pass along values and beliefs as well as emotional and spiritual wishes that may be helpful when estate planning; an ethical will is not legally binding (Kapoor et al., 2023).

Along with granting power of attorney, your living will may include a health-care proxy, requesting that medical personnel follow the instructions of a designated family member who expresses your wishes concerning your end-of-life treatment. Many people request, for example, that they not be revived or sustained if they cannot experience some quality of life. But be sure to update your living will, as over time your views may change and medical and technological advances may change our notions of what constitutes “quality of life.”

Wills for First Nations People Living on Reserve

In the case of First Nations people, if a status First Nation person dies while living on-reserve and this person has no will, the Department of Indigenous Services Canada will manage the distribution of the estate according to the Indian Act. If a First Nations person is living off-reserve without a will, the province/territory will manage the distribution of the estate (ISC, 2023). If a will exists for status First Nations people living on-reserve, they can indicate who they wish to inherit their land on-reserve as long as the land is registered in the Indian Land Registry System or under the First Nations Land Management Act which give bands the authority to manage their own land. In the case of traditional land-holdings on reserve, i.e. custom allotments, they are legally owned by the band. A custom allotment, such as a house that is owned by the will-maker, “would have to be dealt with through the band (usually, under the band’s housing program)”; in some cases, First Nations have have clear custom allotment rules “that allow a will-maker to decide who in their family will get to live in their house after they die. Other First Nations do not have such clear rules” (AFOA BC, 2019, p. 16).

A Certificate of Possession (CP) is a “document that a person’s parcel of land on reserve has been surveyed and registered in the Indian Land Registry” (AFOA BC, 2019). CP land can only be held by a person who is a member of the band. A person with a CP has the right to decide who will inherit it in their will. According to AFOA BC, if one has a Certificate of Possession (CP) for land on reserve, with a will, “you can leave CP land to any family members as long as they are able to inherit your CP land (they must be members of your band)” (2019, p. 5). According to Crown-Indigenous and Northern Affairs Canada (CIRNAC), Certificates of Possession are more common in Ontario and British Columbia. Saskatchewan First Nations, for example “seem to prefer land designations” which one key informant interviewed by CIRNAC suggested was due to the historic treaties in the province having “created a tradition of land that is communally-held rather than being divided into individual holdings” (CIRNAC, 2017). Land designations are communally-held lands that are subject to restrictions but can designated for a specific purpose such as commercial, industrial, residential, etc. (CIRNAC, 2017).

Trusts and Gifts

A trust is a legal entity created by a trustor, or grantor, who owns assets managed by a trustee or trustees for the benefit of a beneficiary or beneficiaries. A trust is often preferred to probating a will, which can be a costly and lengthy process that could make the contents of the probate a matter of public record. A testamentary trust may be established by a will so that beneficiaries who are unable to manage assets (minor children or disabled dependents) can benefit from the assets but have them managed for them. This type of trust becomes effective upon one’s death. A living trust is established while the grantor is alive. Unlike a will, it does not become a matter of public record upon your death. A spousal trust is a trust created for one’s spouse and “requires that 1) all income of the trust is paid to the spouse during the spouse’s lifetime, and 2) that none of the capital can be distributed to anyone else during your spouse’s lifetime” (Kapoor et al., 2023, p. 517-19).

Most trusts, whether testamentary or living, are created to avoid either the probate process or to avoid wills from becoming a public record. The probate process can be long and costly and therefore a burden for your executor, your beneficiaries (who may have to wait for their distributions), and your estate. Living trusts are also easier to change than the contents of a will.

First Nations Trust Moneys

There are individual and First Nations moneys collected, received or held in trust by Indigenous Services Canada (ISC). ISC receives or holds in trust individual moneys “on behalf of registered minors under the Indian Act, dependent adults (based on a provincial designation as such), and estates of certain deceased individuals. These moneys are administered and accessed through the Estates Program according to sections 42 to 52 of the Indian Act” (ISC, 2024). When a minor reaches the age of majority where they reside, the account balance is paid to them through the Minors Account Payout Initiative and the account is then closed. Indigenous Services Canada establishes trusts on behalf of minors in one of two situations: 1) When it is perceived as necessary to exercise jurisdiction (i.e. manage and make decisions) regarding the property of a minor, 2) When asked by a First Nation to hold a minor’s share of per capita distributions in trust. Trusts may also be established on behalf of dependent adults when it is found that they are unable to manage their own finances. In such cases, ISC will help to manage their daily income and expenses on their behalf. In both the cases of minors and dependent adults, trust accounts administered by ISC accrue interest (ISC, 2024).

Indigenous Services Canada also has the responsibility to manage First Nation moneys held in trust according to sections 61 to 69 of the Indian Act; these sections provide an overview of ISC’s responsibilities for the “collection, maintenance, disbursement and accounting of these moneys” (ISC, 2024). The 2 types of First Nation moneys held in trust are: 1) capital moneys and revenue moneys. Examples of capital moneys are oil and gas revenues and proceeds from the sale gravel. Examples of revenue moneys are proceeds from the sale of renewable resources, reserve land activities such as leases and permits, and interest earned moneys (capital and revenue) held by ISC (ISC, 2024). First Nations can access their trust funds in a variety of ways beyond what is provided by the Indian Act as noted in the below acts:

• First Nations Oil and Gas and Moneys Management Act
• First Nations Land Management Act
• First Nations Fiscal Management Act
• Policy on the Transfer of Capital Moneys Through Paragraph 64(1)(k) of the Indian Act
• Band Council Resolution requesting access to capital and revenue moneys per sections 64, 66 and 69 of the Indian Act (all First Nation moneys)
• Self-government agreements

The Manual for the administration of First Nation moneys also provides information on the management and access to trust information (ISC, 2024).

According to a 2013 evaluation of Indian Moneys, Estates and Treaty Annuities by CIRNAC, key informants indicated that some First Nations prefer ISC over an outside trust because they do not have to pay fees to ISC and must do so otherwise (CIRNAC, 2017).

Estates

An estate includes everything you own, such as property, life insurance, annuities, employee benefits, etc. Unlike the United States, Canada no longer has any form of estate or inheritance tax. However, there are three potential taxes that may be incurred at death:

• Income tax due to deemed disposition (Income Tax Act)
• Provincial probate taxes
• US estate tax (on your US assets)

Your primary objective is to see that your dependents are provided for by the distribution of your assets and that your assets are distributed as you would wish them to be were you still there to distribute them yourself.

Estate Services for First Nations Peoples

In Canada, under the Indian Act (sections 42 to 50) and the Indian Estates Regulations, the Department of Indigenous Services Canada (DISC) is required to manage the estates of First Nations people who lived on reserve upon their time of death as well as the estates of dependent adults or a minor. DISC will get involved in managing an estate if no one is identified in the will or if no other eligible person is willing and able to. If First Nations individuals live off-reserve upon their time of death, the province or territory where an individual lives will be responsible and provincial/ territorial laws will apply (ISC, 2023).

While DISC will assist First Nations people to administer the estates themselves, DISC provides the following services as part of its Deceased Estates Service:

• appoints estate administrators or executors,
• approves wills so they can take effect,
• transfers reserve lands from the estate to the heirs or beneficiaries,
• if someone dies without a will, DISC will determine the heirs,
• if the family does not or cannot settle the estate, DISC will serve as administrator,
• if DISC is the administrator, it will distribute estate assets according to the will or the intestacy provisions of the Indian Act. (ISC, 2023)

According to AFOA BC, a written will helps to make clear one’s wishes and decreases the likelihood of disputes over property amongst family. When there is a written will, ISC’s Estates Branch is less likely to be involved in your estate. Please listen to the AFOA’s Money Smarts Podcast on First Nations Estate Planning for more information.