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 have 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.

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 to together. It’s a good idea to have both spouses name successor beneficiaries in their Wills.

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!

Estate Protection

Granddad and Grandma pass away. CRA says the property is valued at $1.5 million.

The estate owes the government $1.5 million, less the adjusted cost base, divided in half, times 40% marginal tax rate = $249,960 Tax - PAY!

The family now needs almost $250,000

What is the answer? Life Insurance. Life insurance on Granddad and Grandma - a joint last to die policy will give the family the cash to pay the tax bill immediately. Simple Estate planning.

If you have a surviving spouse it’s not like that, 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 the Estate.

"It's immediate and tax-free."

Insurance is also used for a tax-free Wealth transfer

When you want to give your money to your children or grandchildren after your passing without having to pay huge tax and probate fees.

If you don't set up some proper estate planning here what can happen!!!

Cost to the Estate

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

The farm had been in the family for many years. At the time there was some land speculation going on in the area. The farm was 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 at 75% then, not the current 50% level.

The Accountant and his brother decided to sell the farm to pay the tax bill and collect some profit. Unfortunately Real Estate prices had dropped considerably in the previous year. The real estate appraisal came in at $200,000.

The Accountant went back to C.R.A. with the new figures to reduce the tax bill. CRA denied the new appraisal, 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.

That's why 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!

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Estate Planning for liquid assets

Probate Fees in Ontario are 1.5% the value of the estate. The first $50,000 is exempt.Let’s suppose you’re at that point in your life where you have sold all your assets and are now living in retirement home. When you die your Estate will consist of:

Bank account                                 $80,000
Investment Account - at the Bank  $600,000

Total                                             $680,000

Upon your death

Probate              1.5%  $680,000 less $50,000  $9,450
Legal Fees          3.0%  $680,000                     $20,400
Accounting Fees  2.0%  $680,000                    $13,600

Total              $43,450 Paid out in Fees only! Then come the Taxes

You can avoid those fees with Estate Planning using Segregated Funds , because Seg Funds are an insurance product, when you die they are paid out as a death benefit and bypass the estate process completely.

Without Seg funds Non registered investments are exposed to creditors upon death.

The guaranteed "Death Benefit" that comes with 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. The account 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.

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Estate Planning for Wealth Transfer
How does someone transfer their accumulated wealth to their beneficiaries most efficiently?

To avoid probate fees and undue taxation methods were designed to allow the transfer of wealth to beneficiaries. Some folks do things like this:

Set up 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 principle residence - Home.

Mom and dad name the kids as joint owners of the house. Junior winds up in a wicked divorce. the home is now an asset of junior’s. The ex could entitled to his share.

Junior has debt, unknown to the parents. The creditors place a lien against the house or worse.

Junior decides to rent out his portion of the home!

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 - unbeknown to the parents, CRA comes in and takes the money from the bank account.

Joint ownership can have dire consequences. It’s best you never lose control of your assets.

Sometimes parents have money piling up in the bank and would like to pass it over to their children, but the kids refuse because they don’t want mom and dad to run short. So the cash just piles up at the bank.

Gifting children or grand children while your are still alive can be a great Estate Planning strategy.

To see how to transfer the money to the kids.

Click here ===> Wealth Transfer

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