Estate Planning

Estate Planning can be as simple as buying a Life Insurance policy and writing your Will or as complex as hiring a Lawyer, setting up trusts and selecting a trustee to oversee your Will.

What ever it is you need an Estate when you die.

The purpose of the Estate Plan is twofold; one to protect your Estate from over taxation and creditors. Two to see to it that your assets are dispersed to who you wish.

First Step in a proper plan is a Will.

A Will becomes part of your Plan.

Why do you need a will?

Let say you named your spouse as beneficiary of all your assets, Life Insurance, RRSPs, everything. Then the two of you died together.

The coroner will have to try to determine who died first to facilitate proper succession of the assets. If you were to die together.

It’s a good idea to have both spouses name successor beneficiaries in their Wills. That way if you do both die there will be an orderly transition of your assets.

Canada Revenue Agency says that everything you owned was sold at fair market value five minutes before you died, GIVE US OUR MONEY. NOW!! That's CRA Estate Plan for you and your beneficiaries!

Estate Protection

Granddad bought three acres on Lake Muskoka in 1943, for $200. Since then the family has built a four bedroom cottage, a boat house, dock, magnificent deck, brought in water, sewage, electricity. For years family and friends have gathered at the cottage for weekend parties, vacations, etc.

Granddad and Grandma pass away. CRA says the property is valued at $3 million.

The estate owes the government on $3 million, less the adjusted cost base.

Because the gain is considered capital gains you only have to pay t on half the gain. So suppose the gain is $2.5 million, divided in half, times 40% marginal tax rate = $500,000 Tax - PAY!

The family now needs $500,000 to pay the tax bill. If there is no cash the government will seize and sell the property. Not a cheery prospect.

What can you do?

That's why you need to speak with a financial planner sooner rather than later. The family can buy a joint-last-to-die life insurance policy on Granddad & Grandma which will provide the tax money needed.

If you have a surviving spouse it’s not the issue, but rather there are rollovers - RRSPs RRIFS, jointly owed bank accounts, the house, the car - to the spouse, but you still need a Will.

Life Insurance is the best way to provide cash for an Estate.

"It's immediate and tax-free."

Insurance can also used for a tax-free Wealth transfer

to your children or grandchildren.

You transfer your money to your children or grandchildren after your death bypassing:

• Probate fees
• anyone contesting the Will
• an keeping everything private

There are simple techniques that can guarantee this.

Cost to the Estate

His parents moved from their home to a 100 acre farm near Tillsonburg, Ontario.

This farm had been in the family for many years. At the time there was some land speculation going on in the area. The farm had an appraised at $500,000.

Just to be clear this was not a working farm. There are different tax rules for a working farm.

Both parents passed away with 30 days of each other. The adjusted cost base of the farm was minimal and there was an issue with the probate court which caused a year long delay in settling the estate.

By the time the estate was settled, CRA was looking for approximately $200,000 in Capital Gains Tax. Capital gains tax was charged on 75% of the gain-at that time-not the current 50% level.

The Accountant and his brother had to sell the farm to pay the tax bill. Real Estate values in the area had declined considerably in the previous year. The new real estate appraisal came in at value $200,000.

The Accountant appealed this to C.R.A. with the new figures to reduce the tax bill. CRA denied the appeal, on the basis if property values had increased CRA would not be looking for more tax. The original appraised value on the date the parents died would stand.

The Accountant and his brother fought CRA in tax court for 10 years at a cost of over $100,000. They lost.

The farm had to be sold for the reduced amount. All of the proceeds from the sale went to pay the tax bill.

There is nothing fair about our tax system and CRA will collect its tax money.

Had the parents been covered with Life Insurance there would have been cash available to pay the tax bill.

See why Tax Planning is so important before you die.

This guy was a Chartered Accountant with a good understanding of the tax laws, (but little understanding of Estate Planning) and he had to pay!

Top of Page

Segregated Funds are great for Estate planning because unlike Mutual Funds:

• they bypass probate
• they are creditor proof as long as you were solvent on the day you bought them
• when you die they are guaranteed to be worth your original investment less any withdrawals

The guaranteed "Death Benefit" of Segregated funds is of enormous importance in Estate Planning.

Case Study

I had a client pass away during a market downturn. The guaranteed death benefit kicked in and even though the account had gone down-upon her death-it was topped up by the Insurance company under the provisions of the "Death Benefit" guarantee, by $40,000.

This is money would have been lost to the beneficiaries, if the client had been invested in Mutual funds. This is Estate Planning.

Estate Planning for Wealth Transfer

• probate fees
• undue taxation
• someone contesting the Will--causing enormous delays
• creditors seizing cash or placing a claim against cash assets

To avoid this some folks do things like this:

• joint ownership of their home
• bank accounts
• give the kids the money now
• set up a trust

There are inherent problems with all of these methods.

Joint Ownership of the house:

• Junior winds up divorced with the "EX"going after one of his assets "Your house" and she could well get it.
• turns out your daughter has-debt, unknown to you. Her creditors place a lien against the house or worse
• Junior decides to rent out his portion of the home! To earn some extra money.

These are just some of the pitfalls of parent-child joint ownership.

Many a parent has been left with a broken heart and a financial mess because “Oh my son would never do that”

Joint Bank account

• Junior has a huge tax bill - unknown to the parents, CRA comes in and takes the money from Your bank account.
• Your daughter falls head over heals for a nice young man. Who just needs a few dollars to start his own business and sadly he can't get any credit himself. He does guarantee he will pay her back as soon as the business gets going.

Joint ownership can have dire unforeseen consequences

Never give up control of your assets.

To see a great way to safely transfer the money to the kids, while never losing control, Click here ===> Wealth Transfer

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