Estate Planning

1
Estate Planning Taxation

• Diana Mau, C.A.
• 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7
• Tel [phone]
• Fax [phone]
• www.dianamau.bc.ca

2
Estate Planning- misconceptions

• I have given away all my assets to my children
• I have a will

3
Estate planning Non-Tax Considerations

• To ensure loved ones are taken care of
• Transfer of assets to intended beneficiaries
  according to the deceaseds wishes
• To ensure liquidity cash to pay funeral
  expenses income taxes
• To avoid family disputes
• To expedite the settlement of estate

4
Estate Planning Tax Considerations

• Prior to Death tax planning to minimize taxes
  such as income splitting, trusts estate freeze
  and will planning etc.
• Year of Death to minimize income taxes payable,
  probate fees in the year of death

5
Tax Planning Ideas while Alive

• Income Splitting
• Estate Freeze
• Insurance
• Trust

6
Income Tax Rates 2012
Income range Tax rates
0 - 37,000 20.06
37,000 - 42,7000 22.70
42,000 - 74,000 29.70
74,000 - 85,000 32.50
85,000 - 85,400 36.50
85,400 - 103,200 38.29
103,200 - 132,400 40.70
Over 132,400 43.7
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Purposes of Income Splitting

• Taxes payable on a given amount of income will be
  greater if that amount accrues to one person,
  lower if that amount of income is split between
  two or more people
• Example income of 490,000
• Taxes payable one person- 196,000
• Taxes payable four persons - 35,500 x4 or
  142,000
• Tax savings of 54,000

8
Income Splitting - Problems

• Attribution Rule applicable to where an
  individual has transferred property to spouse or
  common-law partner or individuals under age 18
  and who do not deal at arms length, the income
  is attributed back to the transferor
• For spouses common-law partners, attribution
  also applies to capital gains

9
Income Splitting

• Cash gifts to children 18 or over, no attribution
  applies. Income earned is taxed in the childs
  hands. But parents would be completely losing
  control over the money

10
Income Splitting

• Free or low interest loans made to children 18 or
  over for producing property income, there may be
  attribution if one of the main reasons for making
  the loan is to reduce or avoid tax
• Free or low interest loans made to children 18 or
  over to purchase PR is OK

11
Income Splitting by gifting property

• Parents gifting rental property to Children
• Parents are deemed to have the property disposed
  at FMV, resulting in capital gains or recapture
  of CCA to parents
• Parents would also lose control over the property
• Property Transfer tax on transfer of title of
  property other than PR

12
Income Splitting of Real Property

• If the property is occupied by the children as a
  PR, then parents can take back a mortgage on the
  property as security. No attribution would apply
  as there is no rental income deriving from the
  property

13
Principal Residence (PR)

• In general, capital gains arising on the
  disposition of a PR can be exempted from taxation
• The exempted gain
• Gain x (B 1) / Y
• B is the no. of years since 1971 designed as PR
• Y is the no. of years since 1971 the taxpayer has
  owned the property

14
Principal Residence (Cont 2)

• Since 1982, a family unit can designate one PR
  for a particular year
• A PR is an accommodation owned by the taxpayer
  that was ordinarily inhabited in the year by the
  taxpayer, his spouse, a former spouse or a child
  and is designated by the taxpayer as a PR.

15
Change in Use PR to Rental

• Deemed disposition at FMV on change in use
• Elect deemed not to have commenced rental
  provided no CCA is claimed
• The property can continue to be designated as a
  PR for up to 4 years
• The 4 year limit can be extended without limit if
  you are being relocated for employment reason to
  a location where your original residence is at
  least 40 km further away from your new place of
  employment

16
Change in use Rental to PR

• In general, deemed disposition at FMV on change
  of use
• You can elect out of the deemed disposition as
  long as no CCA is claimed
• The election also allows to designate the
  property as a PR for up to 4 years

17
How to make the best use of PR gain exemption

• Children age 19 or over
• Loan to children to acquire a property
• Register a mortgage to parent for security
• Designate the property as PR for 4 years

18
Overcoming attribution

• Income attribution on loans or transfer made to
  children 18 or over can be avoided if one can
  substantiate the main reason for making the loan
  is NOT to reduce or avoid tax
• Example children use the property income for
  education and not returning the property income
  to parents

19
Other Tax Planning Ideas

• Splitting pension income- Commencing 2007, it is
  possible to transfer up to 50 of qualified
  pension to a lower income spouse
• RESP Registered Educational Savings Plans
• TFSA 5,000 Tax Free Savings Accounts per year
• Spousal RRSP

20
Estate Freeze

• Objective To freeze the value the of estate for
  tax purposes at a particular time
• Arrangements are made for all future appreciation
  to accrue to related parties such as a spouse,
  children or grandchildren

21
Estate Freeze Example
Mr. Chan
Chan Inc
Net Assets 10M Common shares 2 M R/E
8 M
22
Estate Freeze Example
Mr. Chan
Chan son 2
Chan son 1
Common
Common
Preferred ACB 2 M Redeem 10M
Chan Inc
Using Section 86 rollover , Mr. Chans old common
Shares are exchanged for preferred shares, while
Sons subscribed for new nominal common shares
23
Benefits of Estate Freeze

• To transfer future growth of a corporation into
  the hands of intended beneficiaries with no
  immediate tax effects on the transferor
• The beneficiaries will be taxed in income earned
  subsequent to the estate freeze
• Multiple use of 750,000 of lifetime capital
  gains deduction for qualified small business
  corporation

24
Insurance - Benefits

• Will bypass probate if a beneficiary is
  designated
• Creditor protection- exempt from seizure if the
  designation is in favour of a life insureds
  spouse, child grandchild or parent
• Tax preferred treatment for Whole or Universal
  life policies
• Privacy- insurance does not flow into the estate
  and the probate registry
• Insurance declaration- testamentary trust

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Insurance Declaration

• To desire to establish an insurance trust outside
  the will, the concern was it would be an
  inter-vivos trust
• CRAs position is trusts funded from the proceeds
  of life insurance on death of an individual will
  be viewed as a testamentary trust
• A powerful inexpensive tool to set up a
  testamentary trust

26
Trust- what is a trust?
Settlor
Trustee
Beneficiaries
A trust is a relationship that arises when a
settlor transfer property to a trustee to hold
for the benefit of the beneficiaries.
27
Trusts

• Settlor is the person who sets up the trust and
  make the initial transfer of property to the
  Trustee
• Trustee is the person who holds the formal legal
  title to the property
• Beneficiaries are persons who will benefit from
  the property that is held by the Trustee

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Income splitting of a trust

• A high income individual transfer investments
  property to a family trust
• The father is the settlors
• The father 2 other investment advisors are
  trustees to avoid reversionary trust. The
  trustees hold title to the investment property
• The adult children are the beneficiaries

29
Income splitting of a trust-Cont

• Assuming the father is at the top tax bracket,
  the father can save 5,000 every year on 50,000
  eligible dividends if the dividends would be
  earned by an adult child if the child has no
  other income
• The same tax savings can be achieved with or
  without the family trust, but a discretionary
  trust can provide the father more control over
  the capital the income allocation

30
End of family trust for minors

• In 2000, the federal Govt ended the tax benefit
  of income spitting of private corporations by
  introducing the KIDDIE TAX, taxing the
  dividends from private corporations to children
  under age 18 received directly or through a trust
  at the top tax rate and restricting personal
  credit

31
Understanding taxation on death

• What are the CPP OAS benefits on death?
• What are the tax consequences on death?

32
Termination of CPP on death

• If the deceased has commenced receiving CPP, CPP
  benefits to a contributor will cease upon death
• There are CPP benefits for surviving spouse or
  common-law partners children

33
CPP benefits for survivors

• CPP provide benefits for the surviving family
  members of a deceased contributor. Benefits based
  on contributions made by contributors.
• Benefits provided in 3 categories
• 1. Death benefit
• 2. Survivors pension
• 3. Childrens benefit

34
You have to apply for get CPP Benefits (not
automatic)

• Retroactive benefits are available for up to 12
  months

35
CPP Death Benefit

• Is a one-time lump sum payment upon the death of
  a qualifying contributor to the deceased estate.
• The max amount is 2,500.
• Amount included as income of the estate.

36
Survivors Pension

• Survivors pension is a monthly benefit paid to
  the legal spouse or common-law partner of the
  deceased contributor
• Survivors benefit depends upon the deceaseds
  contributions to CPP, age of the surviving
  spouse, whether the surviving spouse is
  supporting dependents and whether or not the
  surviving spouse is receiving any CPP benefits
• Max CPP for surviving spouse age 65 over, 60
  of the contributors CPP

37
Childrens Benefit

• A dependent child is a natural or adopted child
  of the contributor and who is
• Under the age of 18 or
• Is between 18 to 24 and is in school full-time
• The childrens benefit is a flat amount, 225 per
  month in 2013

38
CPP Payment Rates - 2013
Type Avg Amount Max Amount
Survivors lt Age 65 378 557
Survivors gt Age 65 307 608
Combined survivors retirement 722 1,013
Children 225 229
Death benefit one-time payment 2,275 2,500
39
Old Age Security (OAS)

• Federally funded from general revenue
• A social security program designed for lower
  middle income Canadians who have resided in
  Canada for a minimum of 10 years after age 18

40
OAS Benefit Payment Rates
Type Average Monthly Amount Max Monthly benefit Max annual income
OAS for single 514 546 See note
GIS, age 65 over -single 500 740 16,560
Allowance for survivors 619 1,161 22,320
Note 15 clawback from 70,000, no OAS if income over 113,000 Note 15 clawback from 70,000, no OAS if income over 113,000 Note 15 clawback from 70,000, no OAS if income over 113,000 Note 15 clawback from 70,000, no OAS if income over 113,000
41
Taxation on Death

• No Gift Tax
• No Inheritance Tax
• Probate - probate is a court process that proves
  the validity of a will
• Income Tax on Deemed Disposition on Death

42
Probate Tax

• Probate tax is proportional to the value of the
  estate, so that lower the value of the estate,
  the lower the probate tax.
• Probate planning is aimed at reducing the value
  of the estate.

43
Probate Tax in B.C.

• 0
• 0.6
• 1.4

• Assets lt 25,000
• 25,000 - 50,000
• Over 50,000
• Filing fees of 208

44
No Probate Tax

• No probate tax on joint assets designated
  assets as they pass outside your will and they do
  not form part of your estate

45
Probate Planning

• By having estate assets passing outside wills
  (wills substitutes)
• Inter vivos gifts
• Inter vivos trusts
• Registering assets in joint tenancy with right of
  survivorship
• Beneficiary designations such as RRSP, RRIF and
  insurance
• Multiple wills will discuss in the Will Section

46
When is probate necessary

• Intestacy where the deceased died intestate
  there are assets in the estate
• When an estate is involved in litigation
• Real estate other than joint tenancy with right
  of survivorship
• Bank account over 10,000

47
Income Tax on Death

• Final or Terminal personal income tax return from
  January 1 to the date of death of that year
• Death causes a deemed disposition at fair market
  value (FMV) relative to capital property owned by
  the deceased taxpayer (except for those
  properties qualifying for spousal rollover)

48
Income Tax on Death (Cont 2)

• Deemed disposition at FMV may result in capital
  gains on capital property or recapture of capital
  cost allowance (CCA) on depreciable property
• 50 of the capital gain is taxable

49
Spousal Rollover

• Exception to deemed disposition on death at FMV
  Spousal Rollover
• No deemed disposition at FMV when the property is
  left to a spouse or common-law partner or to a
  trust for the benefit of the spouse or common-law
  partner

50
Tax Consequences of a Spousal Rollover

• The deceased taxpayers capital property is
  deemed disposed at adjusted cost base (ACB) or
  undepreciated capital cost (UCC) of depreciable
  property, resulting in no capital gain or
  recapture to the deceaseds terminal tax return
• The receiving spouse assumes the deceaseds old
  ACB or UCC cost for the property, or simply
  inheriting the old cost base of the deceased

51
Electing out of the Spousal rollover

• If it is beneficial to have deemed disposition at
  FMV, then make an election to opt out of the
  rollover
• Election is to be made in respect of each
  property
• A partial rollover is available by electing out
  of the rollover on some pieces of property and
  not others

52
General Treatment of capital gain or capital loss

• 50 of capital gain is taxable
• 50 of capital loss is allowable
• Generally, allowable capital loss can only be
  applied against taxable capital gain, an cannot
  be claimed against any other type of income

53
Treatment of Allowable Capital loss in the year
of death

• Where an allowable capital loss is realized in
  the year of death or a net capital loss is
  carried forward into the year of death, the
  allowable portion is deductible against any
  income in that year

54
Death of an RRSP Annuitant

• Assets of unmatured RRSP pass to someone other
  than a spouse/common-law partner or a qualified
  child or grandchild, the FMV of the plan assets
  must be included in the annuitants income in the
  year of death

55
Death of an RRSP Annuitant Refund of Premiums

• A refund of premiums is used to define assets
  from an unmatured RRSP on the death of a RRSP
  annuitant and which are paid to a qualified
  beneficiary
• There are 3 categories of qualified beneficiaries

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3 Categories of Qualified Beneficiaries

• 1. The deceased annuitants spouse or common-law
  spouse
• 2. The deceased annuitants financially dependent
  child or grandchild
• 3. The deceased annuitants financially dependent
  child or grandchild who is mentally or physically
  disabled

57
Taxation of Refund of Premiums

• Generally refund of premiums are taxable in the
  hands of the recipients unless the funds are
  applied to into an RRSP, RRIP or a qualifying
  annuity by the spouse/ common-law partner or
  disabled child
• Financially dependent child has an option to
  transfer the fund into a term certain to age 18
  annuity

58
RRSP Contributions after Death

• A taxpayers legal representative can make
  contributions to a spousal RRSP on behalf of a
  deceased taxpayer in the year of death
• The contribution can be claimed as a deduction in
  the deceased tax return

59
Death of the RRIF Annuitant

• Tax treatment similar to RRSP
• A term Designated Benefit replaces that of
  refund of premiums in RRSP

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No roll-over of RRSP/RRIF to spousal trust

• Where the terms of a will specify the transfer to
  an RRSP/RRIF spousal trust, the FMV value will be
  added to the deceased income

61
Tax plan for RRSP/RRIF

• Generally, designate spouse or disabled children
  as the beneficiary directly on the RRSP/RRIF
  contracts
• Doing so enjoy the spousal roll-over and avoid
  probate tax

62
Employee Death Benefit

• 10,000 exemption on death benefit in recognition
  of service
• Amount included in the income of the recipients
• See if part of an employment income be called
  death benefit or retiring allowance

63
Charitable Giving

• A deceased taxpayer can claim charitable
  donations up to 100 of the taxpayers net income
  in the year of death
• Excess can be carried back one year up to 100 of
  net income

64
Elective Returns

• Other than the final return, there is an
  opportunity to elect 3 additional returns
• Benefits to opt for filing additional tax returns
  include lowering the marginal tax rate, full
  personal exemptions claimed in the elective
  returns

65
3 Elective tax Returns

• Rights or Things most common
• Proprietor or Partnership Income
• A Testamentary Trust

66
Rights or Things

• Include items of income which have been earned
  and are receivable at the time of death
• Examples of Rights or Things are
• Matured but unclipped coupons
• Dividends declared but unpaid
• Salaries, commission vacation pay owing but
  unpaid

67
Proprietor or partnership Income (Fiscal year
other than calendar year)

• Business income for the stub period from the end
  of the fiscal year to the date of death
• Example John dies on May 1, business has Jan 31
  Y/E. Income for the year ended Jan 31 must be
  included in the terminal return. Income fro the
  stub period from Feb 1 to May 1 can be included
  in a separate return

68
Testamentary Trust Income (fiscal year other than
calendar year)

• Income for the stub period from the end of the
  fiscal year to the date of death can be included
  in a separate return
• Example Sam was beneficiary of a Testamentary
  Trust of May 31. Trust allocated 15,000 interest
  income on May 31. Trust further allocated 10,000
  income on July 1. Sam died Sept 1.
• 15,000 has to be included in the terminal return
  and 10,000 in a separate return

69
Beware of filing final returns

• There are as many as 4 tax returns and full
  personal exemptions can be claimed in each return
• There would be BIG tax savings!

70
Will Planning - Understanding your Assets

• Wills are generally thought as means by which
  individuals dispose their property at death.
• Now, more frequently, the bulk of ones estate
  passes outside his/ her will- Will Substitutes

71
Will Substitutes

• Making inter vivos gifts
• Transferring property into joint ownership with
  right of survivorship such as joint tenancy or
  joint bank account
• Transferring assets to an inter vivos trust
• Making RRSPs, RRIFs, and life insurance payable
  to a named beneficiary

72
Will Substitutes - benefits

• A reduction of probate fees
• Protection from wills variation claimants,
  transfers via will substitutes may be less open
  to being overturned due to transferor lack of
  mental capacity or undue influence
• No delay in the distribution of assets
• Privacy probate is a public process, allowing
  anyone to see who gets what

73
Income tax consequences of Inter Vivos Transfers

• Although for Probate purposes, assets disposed
  prior to death will not be included in the estate
  and will not be subject to probate tax
• Generally, except for roll-over to spouse or
  spousal trust, alter ego trust etc, transfers of
  properties are deemed to be disposed at FMV,
  will be subject to taxation.

74
Deemed Disposition will not be a problem where

• The gifted property consists of cash or near-cash
  assets
• The gifted property is a capital property but has
  not yet increased in value
• The gifted property was the transferors
  principal residence
• The transfer is to a spouse or common-law partner

75
Transfer of a Joint Interest

• A simple way to avoid probate tax is to transfer
  property into joint tenancy with say a child. On
  death, the property passes automatically to the
  transferee without any need for probate
• For tax purposes, CRAs position is that the
  parent has disposed 50 of the parents interest
  in the property at the time of transfer

76
Document your gifts

• Inter vivos transfers may be intended gifts or
  for other reasons such as to avoid probate tax or
  to allow a child to more easily aid a parent
  manage the financial affairs as joint bank
  accounts
• Family disputes often arise whether the transfer
  was really intended as gifts or for other reasons
• Costly litigations among family members when the
  donor is already dead

77
Risks of transfer of a joint interest to a spouse

• If the surviving spouse has the bulk of the
  assets, the assets ultimately be distributed
  according to his/her will, children may be cut
  out, particularly in the 2nd marriage.

78
Risks of transfer of joint interest to a child

• Properties are deemed disposed at FMV, resulting
  in taxation
• Property Transfer Tax on real property
• Childs consent will be necessary to mortgage or
  sell
• Exposure to childs creditor
• Loss of tax benefit from testamentary trust

79
Risks of transfer of a joint interest to a child
(Cont)

• If the property is a RP, and the child
  (transferee does not live there, ½ of the PR
  exemption will be lost for years following the
  transfer
• If the property is occupied by the child and his
  spouse as their matrimonial home, and if the
  child predeceases the parent, the deceased
  childs interest may then pass to his/her spouse

80
Transferring assets to an inter vivos trust

• Property that an individual has transferred to a
  trust during his or her lifetime will not form
  part of his/her estate at death, and therefore
  will not be subject to probate tax
• Is less vulnerable to attack on the grounds of
  the settlors lack of mental capacity
• Shelter assets from claims of creditors
  dependents

81
Understanding Trusts

• Settlor is the person who sets up the trust and
  make the initial transfer of property to the
  Trustee
• Trustee is the person who holds the formal legal
  title to the property
• Beneficiaries are persons who will benefit from
  the property that is held by the Trustee

82
Legal perspective- Trust is not a separate entity

• Trust is not a separate entity from the legal
  perspective
• A trust cannot own property, nor enter into any
  legal contract
• Trustee holds the legal title to the property for
  the benefit of the beneficiaries

83
Tax perspective of trusts

• Tax perspective, a trust is deemed to be an
  individual
• A trust has to file a separate tax return

84
Types of trust

• Testamentary Trust - a trust that arose as a
  consequence of death of an individual
• Inter Vivos Trust a trust that is established
  by a living individual

85
Testamentary Vs. Inter Vivos

• Testamentary
• Spousal or common-law (rollover of properties to
  trust at cost)
• Other beneficiaries (deemed disposition of
  properties at FMV)

• Inter Vivos
• Spousal, common-law , Alter Ego (Age 65
  rollover of properties to trust at cost)
• Other beneficiaries (deemed disposition of
  properties at FMV)

86
Taxation of Inter Vivos Trusts

• Inter Vivos trusts are subject to the highest top
  tax rate, 43 in B.C.
• No progressive tax rates benefit
• Forego the possibilities of having the
  testamentary trusts
• One can mitigate the top rate taxed in a trust by
  paying out the income from the trust to the
  beneficiaries.

87
21 year deemed disposition

• Without the deemed disposition rule, trusts may
  allow capital gains to accumulate without tax
  consequences
• In order to place limits on the deferral process,
  a trust is deemed to its capital property
  disposed at FMV every 21 years

88
Deemed disposition

• Spousal common-law partner trusts the deemed
  disposition occurs on the death of the spouse or
  the partner
• Alter ego trusts the death of the settlor
• Joint partner trusts at the later of the the
  death of the settlor or the spouse/partner

89
Why setting up Inter Vivos trusts if taxed at top
tax rate

• Control! Control! Control!
• Avoid the possibility of disgruntled dependents
  litigating under Wills Variation Act (likely in
  blended families) leave assets to your desired
  beneficiaries
• Protection from creditors
• Privacy if assets are bequested in a will, they
  will be subject to probate which can be made
  public
• Minimize the value of the assets in the probate

90
Use of Inter Vivos Trust (1)

• H1 W1 both had a standard mirror will, one is
  the beneficiary of the other, and if both died,
  the estate would go to their children.
• W1 died. H1 inherited the whole estate.
• H1 remarried W2. W2 has her children.
• H1 W2 prepared s standard mirror will.
• H1 died. W2 inherited everything.
• Now, guess who would be left out of the
  inheritance ?

91
Use of Inter Vivos Trusts (1) Answer

• If H1 W1 would have set up an Inter vivos Joint
  Spousal Trust that upon the death of the last
  spouse, the assets of the Trust would have gone
  to their children.
• Or H1 W1 would state upon his/her death, the
  estate would be rolled over to a spousal trust.
  The surviving spouse is entitled to all income of
  the trust in his/her life-time, and upon the
  surviving spouses death, the trust assets would
  go to the children.

92
Use of Inter Vivos Trust (2)

• Mr. X dies, and leaves her with an old house that
  Mr. X sold for 2 M.
• Mrs. X annual income is in excess fo 40,000 that
  would disqualify her from GIS other benefits
• Mrs. X plans to give away her money to her
  children so that she would qualify for GIS. But
  she is concerned that her children may not look
  after her.

93
Use of Inter Vivos Trust (2)

• If Mrs. X sets up a discretionary Inter Vivos
  trust with her and the children as beneficiaries
  of the trust
• Mrs. X and two other people are trustees of the
  trust
• The trustees can determine the amount of income
  distributed to beneficiaries
• In fact, Mrs. X can control the amount of her
  income and continue getting her GIS

94
Principal Residence Exemption to Trusts

• A residence held in a trust will qualify for the
  PR exemption of the residence was ordinarily
  inhabited in the year by a specified beneficiary.
  
• The full gain on a PR will qualify for the PR
  exemption where the trust has more than one
  beneficiary, but only one of the beneficiaries
  occupies the residence.

95
Use of the PR exemption to trusts

• 1 If a trust is establish to hold a residence
  exclusively for the benefit of 2 children. Child
  A lives in the residence while Child B has her
  own PR. The whole residence would qualify for PR
  even though Child B does not live in the
  residence.
• 2 Separate trusts can be used for each residence
• 3. A PR is transferred to a trust to protect from
  creditors

96
Beware of Property Transfer Tax on transfer of
property

• There are special PPT exemptions for the transfer
  of a PR among related individuals, such as
  spouses, children, parents, grandfathers, but not
  brothers or sisters.

97
Property Transfer Tax PR Exemption

• The transferee (purchaser) and the transferor
  (vendor) must be lineal related, either direct
  ascendants or direct descendants
• The property must have been occupied by either
  the transferee or transferor as their PR , for a
  period of at least 6 months prior to the transfer
• The building accommodate no more than 3 families

98
Inter-Provincial Tax Planning using Trusts

• Trusts can be located in a low-tax province (e.g.
  Alberta) by having individual trustees living in
  Alberta, bank investment accounts in Alberta,
  meetings of trustees in Alberta etc.
• Alberta individual top tax bracket _at_ 10 vs. B.C.
  rate of 14.7

99
Will Assets

• These are all assets in your wills after will
  substitutes
• They are to be distributed according to the will
• Will assets are the deceased estate assets and
  may be subject to probate tax

100
Purposes of a Will

• How the testators assets are to be divided
• Appointment of an executor
• Recommendation for the preferred guardian of any
  minor children
• Specific powers entrusted to the executor or any
  trustee

101
Purposes of a Will (cont)

• A will is fundamental to estate planning as it
  minimizes expense and delay in the transfer of
  assets upon testators death
• While a will communicates the testators
  intentions, other legislations such as the Family
  Law Act must be considered as wills can be
  contested

102
Multiple Wills

• You can have more than one will
• Multiple wills to deal with different property in
  different jurisdictions so as to expedite the
  administration of such assets
• Can reduce probate tax
• Example a will in H.K. for H.K. property

103
Multiple Wills - Example

• B.C. resident with rental properties in H.K.,
  Vancouver and shares of a private corp.
• It might be possible to execute multiple wills,
  2 in B.C. and one in H.K.
• In B.C., one would govern assets which probate is
  necessary, e.g. rental property
• The other one would govern the non-probate assets
  such as shares of a private corporation that
  probate is not necessary
• One will in H.K.

104
Taxation of Testamentary trusts

• Testamentary trusts are taxed using the same
  progressive rates that apply to individuals,
  rates range from 21 to 43 in B.C.
• Personal credits are not available
• Multiple testamentary trusts would provide
  multiple applications of the low rates to
  individuals

105
Taxation of Testamentary trusts (cont)

• Multiple trusts can be created if the will
  establishes a separate trust for each child (
  Mitchell v. MNR 56 DTC 521) and each trust would
  have its independent investment objectives
  suitable to the needs of the respective
  beneficiaries.
• Each trust should be created with separate terms
  and condition. To prevent multiple trusts, CRA
  may designate the multiple trusts as a single
  trust if income from the trusts will ultimately
  accrue to the same or group of beneficiaries

106
Example of a testamentary trusts

• In Joe Smith, in his will he states a spousal
  trust be set up and that his entire estate be
  rolled over to a spousal trust. His spouse is
  entitled to all income in her life-time, but upon
  her death, the trust assets would go to his
  children. This may ensure that if she remarries,
  the children are surely looked after.

107
Sample of testamentary spousal trust (Cont)

• The testamentary spousal trust benefits from
  progressive tax rates. If the spouse has too high
  an income that may affect her old age security
  (OAS), i.e. income in excess of 67,000, the
  trust can designate amounts to be deemed not paid
  when they are in fact paid to the beneficiary.
  The trust will include the amount as trusts
  income.

108
Testamentary trusts (cont)

• If Joe Smith is wealthy enough, he may consider
  to set-up multiple trusts, one for each of his
  children so that there would be multiple use of
  progressive tax rates have experienced trustees
  to look after the trust
• Assets willed to testamentary trusts will not
  reduce value of the estate and hence will not
  reduce probate fees

109
Incapacitating Issues

• A will is effective only upon death
• Individuals does not automatically have the right
  to handle spouses legal financial affairs in
  the event that the spouse is not able to because
  of illness or unavailable
• Without proper legal documents, the healthy
  spouse has to apply to the court for permission
  to act on behalf of the incapacitated spouse

110
Two types of Power of Attorney

• Persons property- Enduring Power of Attorney
• Persons health Power of Attorney for Personal
  care or a Living Will

111
Action Plan

• My experience with my parents estates
• Power of Attorney / Representation Agreement
  will for everyone
• Trusts are not just for the rich. Trusts can be
  used for individuals to access GIS other
  benefits and PR trusts
• Rich can consider multiple wills trusts
• You will benefit from a good accountant.

112
Estate Planning Taxation

• Diana Mau, C.A.
• 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7
• Tel [phone]
• Fax [phone]
• www.dianamau.bc.ca