Will and Estate Planning

A Will is the most important part of an estate plan.

What Every Person Should Know About Planning a Will

For most people, the thought of planning their Willis a daunting and emotional task. However, given that the primary objective is to provide for your family’s future financial well-being, it is a worthwhile endeavour. Using the services of an Advisor/Will Planner to help organize your thoughts will result in a better Will. Breaking down the task into manageable components also helps. In planning your Will, the major factors to consider are:

What is the value of your estate?
Whom do you wish to benefit?
What is the amount/type of benefit and the circumstances in which they are to benefit?
Who will act as your executor? Once you have considered the above, your Advisor/ Will Planner will inform you of ways in which these benefits may be conferred with the greatest tax advantages.

Setting a Value on Your Estate

Another part of the process involves making a list of your current assets, with their values. This is your “gross estate.” assets to include are:

Savings (Canadian and foreign bank accounts, GICs, CSBs)
Investments (Canadian and foreign stocks, bonds, mutual funds and mortgages)
Business Interests and private company interest(s) (sole proprietorships, partnership interest(s), professional practice)
Registered Funds (RRSPs, LRSPs, LIRAs, RRIFs, LIFs, LRIFs)
Real Estate (personal residence, Canadian and foreign vacation homes, commercial property)
Personal Property (jewellery, antiques, paintings, vehicles, specific items of personal value)
Pension Benefits (superannuation, etc.)

Remember that a Will is said to be “ambulatory,” meaning that it is capable of dealing with any assets you acquire after the date of your Will, provided of course that the assets are still owned by you when you die.

Note how each asset is registered, because only assets in your sole name or assets in which you hold an interest as tenant in common can be disposed of by your Will. Assets held jointly with right of survivorship, or RRSPs, RRIFs or insurance policies where you have designated a beneficiary, other than your estate, do not normally form part of your estate for Will Planning purposes.

The next step is to make a list of your current liabilities, such as mortgages and bank loans. These are deducted from your gross estate to arrive at your “net estate.” It is important to remember that after death, there will be other liabilities such as probate fees, income taxes, legal fees and executor’s compensation which will be payable from your estate. If you have given any personal guarantees, these should be noted as they are contingent liabilities on your estate.

Whom Do You Wish To Benefit?

Often the person making the Will has only a general idea of what is to happen. Perhaps the most common example is that of a married man, with three young children, who decides to make a Will. He may decide that he wants his estate to go to his wife, and then to his children. Sounds straightforward, doesn’t it? The Advisor/Will Planner’s role is to clarify these wishes by asking questions which may never have occurred to him, such as:

Is his estate to go outright to his wife? Or is his wife to have only the income from his Estate for her lifetime, without any rights to access the capital? If she has access to capital, does he have any specific purposes in mind for which capital may be used, or are her requests to be at the discretion of his executor/trustee?
What if she remarries? Are she and her future husband to continue to receive the benefit or is the estate to be distributed to the children at that point?
What if one or more of the children is still a minor at the time of distribution?

What is the Benefit and When is it to be Paid?

Once the decision is made as to who will benefit, the next decision is what benefit will be given to each beneficiary; and when are they to receive it.

For example, should cash gifts (called legacies) be paid to family members, friends, a church or favourite charity? If so, in what amount? Is the legacy to an individual to be paid at a specific age? If so, what if the person does not survive to that age?

Are there specific items such as artwork, a stamp collection or a car which are to be left to certain named beneficiaries? What about personal assets? Many a bitter feud has resulted over the disposition of these assets. In such disputes, the issue is rarely over the monetary value; instead it is those items of a sentimental value which cause rifts amongst family members. It is always wise to state who is to receive these items in the Will itself, or in a letter which has been signed on or before the date the Will is signed and is specifically referred to in the Will.

Outright Distribution or Continuing Trust?

When all the liabilities and legacies have been paid, the balance remaining in the estate is called the “residue.” The decision to be made then is whether the residue should be left outright to one or more residuary beneficiaries, or held by your executor/trustee in trust for specified beneficiaries until a specific date or until a specific even occurs.

Leaving the estate to a spouse, whether outright or in a trust from which no other person than the spouse can receive income or capital during her lifetime, has certain tax advantages and should be considered. Once your intentions have been clarified, your Advisor/Will Planner will consider the tax implications of the benefits you are conferring.

Who Will Act as Your Executor?

Once you have made these decisions, it is time to consider who you should appoint as your executor/ trustee to administer your estate and carry out the provisions in your Will.

Administering an estate or trust can be a very complex and time-consuming task, undertaken very often when the executor, if a family member, is under great emotional strain. If your executor doesn’t know what has to be done and how to go about it, the financial cost to your estate could be significant and could also have an adverse effect on family relationships.

In choosing an executor, here are some factors which you should consider:

The nature of your assets – for example, private company interests, foreign assets or commercial properties.
Your family situation– are there children from more than one marriage? Are they adults or minors? Do they have an amicable relationship?
Would the appointment of a spouse or adult child cause family tension in the future?
Does your Will provide for an outright distribution or the setting up of one or more trusts?
If your Will establishes trusts, what is the expected timeframe before distribution?
What is the age of the individual(s) you select as executor(s)? (This is important if trusts are established under your Will.)
What is your executor’s business experience? Will he or she have the time to devote to the administration of your estate?

Bear in mind that individual executors are entitled to claim the same fees for administering your estate as a corporate trustee such as Scotiatrust, which has the professional expertise to carry out all aspects of estate and trust administration efficiently and impartially.

What are Probate Fees?
When Can They Be Avoided?

Probate fees are payable in all Provinces except Quebec. The rates vary from province to province but generally are based on the gross value of a person’s assets on death. In some provinces probate fees apply to the value of the assets situate in the province while others levy the fees on all assets regardless of where they are located. With the exception of mortgages outstanding against real estate assets no debts may be deducted from the gross value.

Probate fees are levied when an executor applies to Court for confirmation of his/her authority given by the Will, to deal with the assets belonging to the deceased. The document issued by the Court is called Letters Probate (in Ontario, Certificate of Appointment of Estate Trustee with a Will). Where there is no Will, an administrator must be appointed by the Court to administer the deceased’s estate. The document evidencing the appointment of an administrator is called Letters of Administration (in Ontario, Certificate of Appointment of Estate Trustee without a Will).

Where there are assets such as real estate or marketable securities, Letters Probate/Letters of Administration are usually required to transfer the title. Financial institutions often insist upon receiving a notarial copy of Letters Probate/Letters of Administration before they will pay funds out to the executor/administrator. By paying out funds to the persons named in the Letters Probate/Letters of Administration they are protected from claims from other parties.

A number of strategies can be employed in an attempt to reduce, or avoid, probate fees. In considering ways in which to reduce or avoid probate fees, it is important to take into account not only your own circumstances, but also those of the persons you wish to benefit, as well as potential income tax considerations which may outweigh any savings in probate fees. Before implementing any of the following strategies we recommend that you seek professional advice.

Making Gifts in Your Lifetime

You can reduce the value or your estate by making gifts of your property in your lifetime. Once you have given the property to the donee you no longer have any ownership or control over it. The donee can do whatever he or she wishes with it. Cash gifts are not subject to income tax but gifts of personal property such as stamp and coin collections or marketable securities may have income tax consequences which should be taken into account before making the gift. The income taxes payable may well exceed the savings in probate fees.

Joint Tenancy with Right of Survivorship

Where title to property is held in this way, upon the death of the first joint tenant the property passes automatically, by operation of law, to the surviving joint tenants. No probate fees are payable on the first death although they will be payable upon the death of the last surviving joint tenant. Before putting title to any of your assets into joint tenancy, it is important to consider not only the integrity of, but also your relationship with, the proposed joint tenant. Before you put any assets into joint names you should carefully consider if your intention is to make a gift of the property to the joint tenant or if the transfer is merely for convenience. It is important to make your intention clear. Once title has been put into joint names, the property will be subject to the claim of the joint tenant and if conflict arises between the joint tenants it could result in expensive litigation.

Named Beneficiaries

Naming or designating a beneficiary to receive the proceeds of insurance policies, pensions or RRIFs/RRSPs is an effective way to reduce your estate for probate purposes. The proceeds pass directly to the named beneficiary and do not form part of your estate. However, bear in mind that the named beneficiary under a RRIF or RRSP will receive the gross proceeds of the plan. The gross proceeds may be taxable in the deceased’s final income tax return and the tax is payable from the residue of his/her estate. This liability should be taken into account in planning your estate.

Duties of an Executor

A few of the more common activities which executors must deal with include:

Reviewing the Will, meeting with co-trustee(s) and beneficiaries to advise them of the terms of the Will. Where required, arranging for insurance to protect estate assets.
Listing the contents of the deceased’s Safe Deposit Box(es); ascertaining and valuing all of the deceased’s assets and liabilities.
Providing the estate solicitor with an inventory of assets and liabilities and giving instructions to make application for Probate, where applicable, and to advertise for creditors.
Assembling all assets and arranging for sales as required. Reviewing all the deceased’s financial records and previous tax returns to determine the tax liability of the deceased and the estate.
Raising cash to pay or settle the deceased’s debts and pay legacies. Filing a Canadian income tax return to date of death and paying taxes due; where required, filing foreign estate or income tax returns and paying taxes due. Obtaining tax clearance certificates to date of death from all jurisdictions.
Collecting income and maintaining records to prepare an accounting of the administration of the estate for approval by the beneficiaries or the Court. Filing annual income tax returns for the estate and obtaining clearance certificate when the final return is filed. Making final distribution in cash or in specie to beneficiaries in accordance with the Will and obtaining their releases.
Where the estate is not immediately distributable, setting up one or more trusts for a spouse or other beneficiaries as directed by the Will; remitting or accumulating income; making tax elections; investing and reinvesting the assets of the estate; filing annual income tax returns. Providing beneficiaries with an accounting of the administration from time to time until the trusts are finally distributable and final releases obtained from beneficiaries.

Will Half Your Estate go to the Tax Man?

Tax Protector insurance can keep more of your hard-earned assets in your family.

Registered assets such as RRIFs and RRSPs can pass tax-free to a surviving spouse upon death. But on the death of the surviving spouse, the entire value of the RRIF/RRSP is considered taxable income by Revenue Canada. This can push someone with even a modest income while living into the highest tax bracket in their final year.

Since your RRIF or RRSP is likely to be the biggest asset in your estate, this could leave your estate with a big tax liability. If you would like your heirs to receive the full value of your registered assets, you need a way to protect them from these taxes.

That’s where a new application for life insurance called RRIF/RRSP Tax Protector insurance, available through Scotia Discount Brokerage Inc., can help. Life insurance proceeds at death are not subject to taxes and can be used by your estate to pay income tax liabilities. RRIF/RRSP Tax Protector insurance pays a death benefit equal to your future anticipated tax liability.

The most cost-effective policy is one that covers both you and your spouse with the death benefit payable when the second death occurs, which is when the tax liability is due. The annual cost for this coverage is usually 1-2% of the death benefit.

What About Funeral Planning?

The pre-arranged funeral is an important part of estate planning. Many Canadians believe that funeral arrangements should be made in advance rather than leaving important decisions to be made under emotional stress.

Inquiry before need provides an opportunity to compare the facilities, services, merchandise and experience of funeral service establishments serving your community, under circumstances free of the sense of urgency.

Pre-planning avoids hurried arrangements, decisions made under emotional stress and last minute details.

Pre-payment is an option.

Pre-payment of funeral arrangements avoids uncertainty about paying for a funeral and may guarantee costs.

A complement to your estate plan, the prearranged/pre-paid funeral provides peace of mind. Pre-paid funeral deposits are tax sheltered. Your funeral director will advise you of provincial regulations governing pre-paid funerals.

Your funeral director will advise you of provincial regulations governing pre-paid funerals.