Estate Planning Checklist   Wills   Probate Fees    Income Tax Strategies    Trusts    Executor Duties at Death

Estate Planning Checklist

• Ensure your estate plan is up to date
• Prepare and sign a Will naming a trusted executor or administrator
• Prepare and sign a Durable Power of Attorney
• Name an alternate executor in both your Will and Durable Power of Attorney
• Consider preparing a Living Will and document your organ donation wishes
• Register ownership of your assets in the most tax effective manner
• Consider making a planned charitable gift
• Calculate your income tax due on death
• Allocate sufficient funds (e.g. life insurance) to cover the cost of burial, income tax, and executor/probate fees to preclude the sale of estate assets
• Preplan and inform your executor and spouse of your funeral wishes
• Ensure your executor and spouse know the names and contact information of your advisors (e.g. insurance rep, accountant, banker, lawyer)
• Ensure your executor and spouse can easily locate your Will, financial records, funeral information, real estate documents, income tax returns, bank accounts, insurance policies and safety deposit box

Wills

If you die without a Will (i.e. intestate), the court appoints an administrator to assist in the disposition of your Estate. This costs money to the Estate and can also result in distribution delays. Moreover, there is no assurance your assets will be distributed to your intended beneficiaries.

A proper Will incorporates the desired distribution of your Estate in an orderly and cost efficient manner. It names an executor(s) who you trust and will ensure your estate is handled according to your wishes. This process becomes even smoother and less costly if you have prearranged your funeral and covered off all the decisions required for your final arrangements. Always ensure your Will is updated should your circumstances or distribution intentions change. Otherwise, the original terms will still apply. For example, if you remarry, your existing Will becomes automatically invalid and should be redrafted if your distribution intentions have changed.

A Living Will should also be prepared. It states how you wish to be treated medically if you become severely incapacitated by illness, injury or old age and are likely to die. It may also include an organ donation statement.

Finally and importantly, ensure that you have a Power of Attorney available should you become incapacitated and unable to manage your affairs. In British Columbia, Powers of Attorney have been replaced by Representation Agreements.  

Probate Fees

When you die, all personal Estate assets (what you own) less liabilities (what you owe) are subject to significant probate fees (court certification that your will is legally valid). For example, in British Columbia, fees are $6.00 for every  $1,000 exceeding $50,000 and 1.4% over $75,000. In Ontario, fees are $5.00 for every $1,000 up to $50,000 and 1.5% thereafter. A $500,000 Ontario estate would pay $7,000 in probate fees. Assets excluded from your Estate and thereby exempt from probate fees include:

	Jointly held assets (i.e. house), owned by both you and your spouse or other individual which automatically pass to the joint owner without probate costs;
	Personal RRSP’s, Pension Plans, Life Insurance policies and Living Trusts which have named beneficiaries. These assets will pass to your intended heirs without being included in your Estate, thereby avoiding probate fees.

Income Tax Strategies 

We no longer have estate taxes per se in Canada. However, most individuals will incur some income tax liability as all RRSP and RRIF assets become fully taxable at death. You are also considered to have sold all your assets such as investments and real estate (cottage) that may trigger a large capital gains tax. A major exception applies if you leave assets to you spouse. However, if left to any other individual, including your children, tax will result. 

By carefully setting out which assets should pass to each beneficiary, tax can be minimized. Example: if you want to leave some assets to your spouse and your children, consider leaving the RRSP's and capital assets with gains to your spouse. In this way, these assets will not attract tax. Cash or other assets without capital gains such as bonds or GIC's can be left to your children. If you don’t have a spouse or you want to leave assets to your children such as a business, it may be difficult to avoid tax. In this situation, life insurance is an ideal vehicle to cover the tax liability. It provides a tax-free death benefit and is payable at death, the time that the tax is due. 

Charitable Donations

There are no capital gains tax on donations of eligible securities (publicly traded shares, bonds mutual fund units, employee stock options) to registered charities. Example: if you donate an asset worth $15,000 that you purchased for $10,000, there is no tax on the $5,000 gain and you or your estate receive a tax receipt for $15,000 to reduce your personal income.

Trusts 

Instead of willing your estate to your beneficiary directly, Trusts can provide more flexibility and control in the way your assets are ultimately distributed, while reducing your tax burden. When you establish a Trust account, all income and other gains are taxed within it as a separate entity.  

There are two kinds of Trust arrangements: i) Testamentary (become effective when you die) and ii) Living (take effect while you are alive). Each must be administered by an appointed Trustee. 

i) Testamentary Trusts

ii) Living Trusts

'Alter Ego Trusts' or 'Joint Spousal Trusts'

Where an individual is at least 65, an Alter Ego or Joint Spousal Trust can be established. This avoids probate fees without triggering tax on accrued capital gains as the property is transferred to the Trust. These Trusts are alternative substitutes for Wills and Powers of Attorney since set-up does not trigger any deemed disposition tax liability. As no Will is involved, primary benefits are avoidance of both: i) provincial probate fees (as ongoing entities, they are not included in the Estate) and ii) probate and multiple jurisdiction proceeding delays (thus enabling liquid assets to be distributed virtually immediately to the beneficiaries).

These two Trust agreements provide the Trustee with specific powers and responsibilities beyond typical P.A. financial decisions and are more readily acceptable to involved institutions outside your province. Primary downsides are set-up/maintenance costs and capital gains taxation at the individual’s highest marginal rate versus a graduated rate for testamentary trusts.

Asset Protection Trusts

Canadians may set up Trusts offshore, not to reduce taxes, but to protect assets from creditors. These are commonly known as Asset Protection Trusts. This may be useful if you  are a professional or serve as a director of a company and may potentially be exposed to a large lawsuit. Although the income of the Trust would still be subject to Canadian tax, the assets are protected from claims.

Executor Duties at Death

The executor(s) named in your will is the administrator of your estate. An executor's job can be greatly facilitated by maintaining an updated list of all your assets and where they are located. Typical responsibilities include:

• Arrange funeral

• Locate and probate the will

• Inform beneficiaries

• Inform organizations with a financial relationship (Employer, Life Insurance, Financial Institutions, etc.)

• Apply for immediate death benefits (e.g. Pension Plans, Life Insurance, etc.)

• Compile thorough asset list for income tax filing

• File final tax return, pay taxes and distribute estate bequests and/or arrange Trust account.