Written by Amy-Alexandra Jaworsky, a Victoria lawyer practicing in the areas of wills, probate, residential real estate, and corporate matters. firstname.lastname@example.org, 250.858.0344
Legaleseis language used by lawyers and in legal documents that ordinary people find difficult to understand. Sad, but often true. For many lawyers, legalese creeps into their vocabulary during law school and continues throughout their law career. One reason is that using a legal term often captures a collection of concepts with a very specific meaning. One bit of legalese commonly used by estate lawyers is the phrase “passing inside or outside the estate?” when talking about what happens to your assets when you pass away. A good way to understand this concept is if you think about packing some of your assets into a virtual bucket (one that is dimensionally larger on the inside!) and leaving some of them outside the bucket. The items in the bucket are the things that “pass inside your estate” and these items are handled by your executor. The items outside the bucket are things that “pass outside your estate”, items that are usually dealt with by someone other than your executor (more on this below).
Inside the bucket would be things like bank accounts in your name, your vehicle, your household contents, and basically anything that is held in your name alone. Things outside the bucket include, for example, property held in joint names (this could be real property held in “joint tenancy” with your spouse or another person, joint bank accounts where the intention is for the joint owner to keep the money after you pass away), registered plans that name a beneficiary (like your RRSP, life insurance, or your TFSA) as well as assets that have been transferred to a trust set up during your lifetime. Note that assets held in more than one name are only outside the bucket if they are held as “joint tenants”- sometimes you can have assets that are in more than one name but they are not joint tenants, so it’s important to check if you are not sure which kind you have.
So why does it matter if something is inside or outside of the bucket? Here are two reasons to consider: 1: Your Will only controls the things that are in the bucket and not the things outside the bucket; and 2: money will be taken out of the bucket before your beneficiaries receive their share of what is left in the bucket. Let’s explore this some more:
1. Unless your Will says differently, your Will does not control the items outside the bucket. So your house held in joint tenancy will pass to the other person on title, your RRSP will go to the person listed as a beneficiary in your bank’s paperwork, your life insurance will go to the person listed as a beneficiary on the insurance company’s forms, etc. These items will get transferred by the entity controlling the item, usually fairly quickly, and without waiting for your Will to be approved by the court.
2. There is a specific order as to how money gets taken out of the bucket. Debts, income taxes, and probate fees get paid out of the bucket first. Probate fees are calculated based on the total value in the bucket (with some exceptions) If you are giving cash gifts or specific items to people, those are taken out of the bucket next. What is left in the bucket after that is called the “residue” of the estate- this is what the remaining beneficiaries divide according to the terms of your Will.
Knowing what is in the bucket and what is out of the bucket is important to understand, particularly when you are aiming to treat your beneficiaries equally. So consider, what’s in your bucket?