Estate Planning Checklist
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.
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.
For example, if you remarry, your existing Will becomes automatically invalid and should be redrafted if your distribution intentions have changed.
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
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 In British Columbia, Powers of Attorney have been replaced by Representation Agreements.
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, there is a flat fee of $208 on the first $10,001 to $25,000 plus 0.6% on the next $25,000 and 1.4% over $50,000. In Ontario, these fees are 1/2 of 1% of the total Estate’s value up $50,000 plus 1.5% over $50,000. Consequently, an estate valued at $500,000 would incur $7,000 in probate fees. Assets excluded from your Estate and thereby exempt from probate fees include:
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.
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.
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.
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:
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