The Seven Deadly Sins of Estate Planning

The Seven Deadly Sins of Estate Planning Douglas Hancock Daigle & Hancock Professional Corporation 51 Village Centre Place Mississauga, Ontario L4Z 1V9 (905)273-3339 www.daiglehancock.com

The Raymond Soroka Breakfast Series

GREED “ Having lost all sensitivity, they have given themselves over to sensuality so as to indulge every kind of impurity, with a continual lust for more” (Ephesians 4:19)

GREED
Definition: Excessive or reprehensible acquisitiveness.
Joint Tenancy with Rights of Survivorship
Automatically passes to surviving tenant and outside the estate
Joint tenant does not have to be a spouse, it can be anyone, even a child.

GREED
Intent
Clear intent to create joint tenancy
Beneficial owner
Clear intent to not sever joint tenancy
“ Examine dealings with estate over years leading up to death”
Pecore v. Pecore , 2004 CanLII 5047 (ON S.C.)
Tax Implications
Spouse = Joint Tenant
No tax implications because of spousal rollover
Child = Joint Tenant
May trigger tax liability because essentially disposing a portion of the property at FMV. If asset appreciated in value, then pay taxes.

GREED
Thelma Goes to the Cottage
You bought a cottage in 1985 for $50,000, which is now worth $400,000. You decide to add your daughter, Thelma, as joint tenant.Upon your death, Thelma receives the cottage without probating the cottage since she is the survivor.
Penny wise. Pound foolish.

GREED
You thought by adding Thelma as the joint tenant on the cottage, you would avoid paying probate fees and the system would lose!
However, with Joint Tenancy you:
lose complete control over the property;
need Thelma’s consent to sell the property;
If Thelma already owns a house, then the cottage could be considered an investment property and Thelma may have to pay income tax on profits earned

WRATH “ A gentle answer turns away wrath, but a harsh word stirs up anger” (Proverbs 15:1)

WRATH
Definition: Strong vengeful anger or indignation
Support Obligations
The Estate assumes support obligations
Part V of the Succession Law Reform Act
Prudent Testator will address support obligations

WRATH
Spousal Election
Testator leaves the spouse less than what is stipulated in the Family Law Act
Section 6(1) Spouse’s Will “ When a spouse dies leaving a will, the surviving spouse shall elect to take under the will or to receive the entitlement under Section 5 ”
Section 5(2) Death of spouse “ When a spouse dies, if the net family property of the deceased spouse exceeds the net family property of the surviving spouse, the surviving spouse is entitled to one-half the difference between them .”

WRATH
To Elect or Not to Elect
Andre’s Will leaves Lisa, his wife, property and assets valued at $150,000. The net family property calculation at death indicates that Andre held $450,000 of the net family property and Lisa held $50,000. Under the FLA , Lisa is entitled to half the net family profit ($450,000 - $50,000)/2 = $200,000. Since Andre’s Will leaves Lisa $150,000, Lisa would be better off making the election to receive equalization payment of $200,000.

WRATH
Old wife not replaced by new wife
RRSP
Life insurance

LAZINESS “ The way of the sluggard is blocked with thorns, but the path of the upright is a highway” (Proverbs 15:19)

LAZINESS
Definition: disinclined to activity or exertion; not energetic or vigorous
Failure to Plan – No Will
Succession Law Reform Act – Part II
Deceased next of kin
Wife only – entire estate
Wife and child(ren) – wife receives preferential share and the remainder is split with the child(ren)
Preferential share = $200,000
If no next of kin, Estate reverts to Government
Minor Children
Who gets custody?

LAZINESS
Failure to Plan – Poor Estate Planning
Avoid Probate Fees
To the extent possible, plan your estate so that assets pass outside the Will
Spousal Trust
A trust account that you set up for your spouse to defer tax. All income must be paid to your spouse and no one else can have use of the money, even by way of loan, during his or her lifetime. No tax due until your spouse gifts or sells the assets, or dies.
Minor Children
Trust

LAZINESS
Failure to change beneficiary on life insurance policy
In general, a divorce does not automatically "defeat a spouse’s rights as a designated beneficiary in a policy on the other spouse’s life." This means that even after a divorce, the former spouse who is the designated beneficiary retains the rights to the payment. Therefore, the owner must change the beneficiary.

ENVY “ Therefore, rid yourselves of all malice and all deceit, hypocrisy, envy, and slander of every kind. Like newborn babies, crave pure spiritual milk, so that by it you may grow up in your salvation.” (1 Peter 2:1-2)

ENVY
Definition: painful or resentful awareness of an advantage enjoyed by another joined with a desire to possess the same advantage.
Treat children equally
Equally does NOT = Fairly

ENVY
Example: A Foolish Fond Old Man
John of JCorp had three daughters, only one of whom, Ally, had what it takes to run the family business. Although he knew he should leave the business to Ally, he didn’t have the heart to exclude his other two daughters, so he told his daughters he was leaving control of the business to all three jointly. Ally, disgusted with his decision, joined a competing business, CCorp. The other two daughters let their rivalry take over and managed to force each other out of JCorp. When John died, his business died with him.

ENVY
Questions to consider when bestowing the family business
Sell it or Keep it?
If Keep it, who gets it?
What if more than one interested child?
Why does it matter?
Will challenged
Relationships disturbed

ENVY
Possible Solutions
You may have other property, money or life insurance to compensate the other children for the value of the family business
You may gift only part of the value of the business and require chosen successor to buy the rest of the business. The purchase money to be divided among remaining children.
Ownership to all children with clear understanding only one of the children will operate the business.

PRIDE “ Pride goes before destruction, a haughty spirit before a fall” (Proverbs 16:18)

PRIDE
Definition: quality or state of being proud – inordinate self esteem.
Don’t look a gift horse in the mouth
Father offers both his sons a pre-death gift to help in the purchase of their respective homes.
The elder son refuses the gift due to his pride, but the younger son accepts the gift.
Upon the death of the Father, the Estate is divided equally between the two sons.
So what’s the problem?

PRIDE
The younger son received the pre-death gift + ½ of the estate.
The elder son only received ½ of the estate.

GLUTTONY “ for drunkards and gluttons become poor, and drowsiness clothes them in rags” (Proverbs 23:21)

GLUTTONY
Definition: excess in eating and drinking.
Undue Complexity
Control assets after giving away
When you give money away, you can’t keep it in your account or mattress or safety deposit box
When you give real property, you can’t live or visit, without the permission of the recipient
Must actually transfer property and/or legal ownership

GLUTTONY
Can’t Speak from the Grave
Trusts can no longer defer deemed disposition until the death of the last preferred Beneficiary, which could be generations later
Trusts are required to report a deemed disposition of assets at FMV, 21 years after creation.

LUST “ But I tell you that anyone who looks at a woman lustfully has already committed adultery with her in his heart” (Matthew 5:28)

LUST
Definition: to have an intense desire or need
The Wandering Eye
Billionaire Leo, a former football player, was engaged to marry society-lady Julia. Shortly before his wedding, he met social activist Betty and fell in love with her. He bankrolled her cause of saving the environment and made a Will leaving her his entire estate. However, he felt obliged to marry Julia. Shortly after the wedding he drowned in the bathtub. His last thoughts were of Betty and how she would make much better use of his money than Julia.
Who gets Leo’s estate?

LUST
The story continues…
Julia, after scooping Leo’s estate, gave Betty Leo’s favorite musical instrument. Betty started dating a football player and forgot Leo.
Marriage REVOKES a Will
Unless the Will contemplates marriage.

LUST
RATS!
Nina and Jamie were madly in love and soon married. They signed mutual Wills leaving everything to each other. Soon, Jamie began to drive Nina crazy and she finally kicked him out. Nina found Mark and decided to dedicate her life to Mark and advocacy for the mentally disabled. Nina, many years later, died due to a rat bite.
Who receives the Nina’s estate?

LUST
The story continues…
Unfortunately, Nina never changed her Will and her entire estate went to Jamie rather than to Mark. Mark would have used the money from her estate to build a drop-in center for adults with Down syndrome, but Jamie spent it on games and a video library.
Separation does not revoke the Will.
Divorce will revoke certain Will provisions related to your ex-spouse if the Will was signed before the divorce.

QUESTIONS?

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The Seven Deadly Sins of Estate Planning

by douglashancock on Aug 10, 2011

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The Seven Deadly Sins of Estate Planning — Presentation Transcript