Chapter 15 Estate Planning 15-1


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Chapter 15 Estate Planning 15-1

  1. 1. Chapter 15 Estate Planning 15-1 Kapoor Dlabay Hughes Ahmad Prepared by Cyndi Hornby, Fanshawe College  2009 McGraw-Hill Ryerson Ltd.
  2. 2. Learning Objectives - Chapter 15 <ul><li>Analyze the personal aspects of estate planning. </li></ul><ul><li>Assess the legal aspects of estate planning. </li></ul><ul><li>Distinguish among formats of wills. </li></ul><ul><li>Appraise various types of trusts and estates. </li></ul>15-2
  3. 3. Learning Objective # 1 Analyze the personal aspects of estate planning. 15-3
  4. 4. Why Estate Planning? <ul><li>Your estate consists of everything you own. </li></ul><ul><li>Estate planning is a definite plan for the administration and disposal of one’s property during one’s lifetime and at one’s death. </li></ul><ul><ul><li>is not just for the wealthy. </li></ul></ul><ul><ul><li>includes both building your estate, and also transferring your estate upon your death. </li></ul></ul><ul><li>Used for tax purposes as well as choosing a guardian for your children and avoiding family fights over personal belongings. </li></ul>15-4
  5. 5. What is Estate Planning? <ul><li>Two components of estate planning </li></ul><ul><ul><li>building your estate through savings, investments and insurance </li></ul></ul><ul><ul><li>transferring your estate, at your death, in the manner you have specified </li></ul></ul><ul><li>Implemented by a will and trust agreements </li></ul><ul><li>Knowledge in certain areas and good record-keeping are helpful. </li></ul>15-5
  6. 6. Provincial Family Law <ul><li>Getting married will void a will made prior to getting married </li></ul><ul><li>Divorce or separation may affect the validity of all or part of a will </li></ul><ul><li>Has an impact on your capacity to order the disposition of your will </li></ul><ul><ul><li>designed to protect those financially dependant upon you </li></ul></ul><ul><li>If you die without a will (intestate) your estate is distributed through the legal system </li></ul>15-6
  7. 7. Learning Objective # 2 Assess the legal aspects of estate planning. 15-7
  8. 8. Legal Aspects of Estate Planning <ul><li>Upon death proof of claims must be produced </li></ul><ul><li>Important papers to maintain include; </li></ul><ul><ul><li>birth/marriage certificates </li></ul></ul><ul><ul><li>legal name changes </li></ul></ul><ul><ul><li>military service records and veteran documents </li></ul></ul><ul><ul><li>government benefit documents </li></ul></ul><ul><ul><li>insurance policies </li></ul></ul><ul><ul><li>safe deposit box records </li></ul></ul><ul><ul><li>bank accounts </li></ul></ul><ul><ul><li>stock/bond certificates </li></ul></ul><ul><ul><li>Registration of automobile </li></ul></ul>15-8
  9. 9. Wills <ul><li>A will is the legal declaration of a person’s mind as to the disposition of his or her property after death. </li></ul><ul><li>Intestate : if you die without a valid will established </li></ul><ul><ul><li>Provinces law of descent and distribution becomes your copy of the will </li></ul></ul><ul><ul><li>“ spouses” receive preferential share and balance is distributed to your dependants </li></ul></ul><ul><li>Marriage and divorce affect your will. </li></ul><ul><ul><li>Review your will with an attorney. </li></ul></ul><ul><ul><li>Marriage may revoke your will. </li></ul></ul><ul><li>Legal costs to prepare a will vary with how complex it is. A standard will costs $300 and up </li></ul><ul><ul><li>Does not include living will and power of attorney </li></ul></ul>15-9
  10. 10. Learning Objective # 3 Distinguish among formats of wills. 15-10
  11. 11. Formats of Wills <ul><li>Holographic Will </li></ul><ul><ul><li>A hand-written will you prepare yourself. </li></ul></ul><ul><ul><li>Must be written, signed and dated in your handwriting </li></ul></ul><ul><ul><li>May not be legal in some provinces </li></ul></ul><ul><li>Formal Will </li></ul><ul><ul><li>Can be prepared by an attorney. </li></ul></ul><ul><ul><li>Can be typed or on a preprinted form. </li></ul></ul><ul><ul><li>Names beneficiaries. </li></ul></ul><ul><ul><li>Must be signed & have two witnesses </li></ul></ul>15-11
  12. 12. Formats of Wills <ul><li>Notarial Will </li></ul><ul><ul><li>Available only in Quebec </li></ul></ul><ul><ul><li>Made in the presence of a notary and at least one witness </li></ul></ul><ul><ul><li>Does not require probate </li></ul></ul><ul><li>Beneficiary </li></ul><ul><ul><li>a person who has been named to receive property under a will </li></ul></ul>15-12
  13. 13. Probate <ul><li>Probate </li></ul><ul><ul><li>The legal procedure of proving a valid or invalid will </li></ul></ul><ul><ul><li>Probate court generally validates wills and make sure your debts are paid </li></ul></ul>15-13
  14. 14. Choosing an Executor <ul><li>Find out if an executor is willing to accept this major responsibility. </li></ul><ul><li>Find out if he/she is capable. </li></ul><ul><li>If you don’t name one the court will. </li></ul>15-14
  15. 15. Responsibilities of an Executor <ul><li>Prepare an inventory of assets and liabilities </li></ul><ul><li>Collect any monies due and paying off any debts </li></ul><ul><li>Prepare and file all income and estate tax returns </li></ul><ul><li>Liquidate and reinvest other assets to pay off debts and provide income for family </li></ul><ul><li>Distribute estate </li></ul><ul><li>Make final accounting to beneficiaries and probate court </li></ul>15-15
  16. 16. Selecting a Guardian <ul><li>If you have children you need a will to name their guardian. </li></ul><ul><li>A guardian assumes the responsibility for providing the children with personal care and managing the estate for them. </li></ul><ul><li>Be sure the person is willing to accept the responsibility and their values and child rearing practices match yours. </li></ul><ul><li>Trustee: a person who holds or manages property for the benefit of someone else under a trust agreement </li></ul>15-16
  17. 17. Altering or Rewriting Your Will <ul><li>Add a codicil . </li></ul><ul><ul><li>A document that modifies provisions in an existing will. </li></ul></ul><ul><li>Prenuptial Agreement </li></ul><ul><ul><li>waives rights to each others property that was acquired before the marriage </li></ul></ul><ul><ul><li>agree on a settlement if you should divorce </li></ul></ul>15-17
  18. 18. A Living Will <ul><li>A document that enables an individual, while well, to express the intention that life be allowed to end if he or she becomes terminally ill </li></ul><ul><li>Discuss your living will with those close to you, and your family doctor. </li></ul><ul><li>Sign and date it before two witnesses. </li></ul><ul><li>Give copies to those close to you. </li></ul><ul><li>Requires careful thought. </li></ul>15-18
  19. 19. Power of Attorney <ul><li>Power of attorney. </li></ul><ul><ul><li>Legal document authorizing someone to act on your behalf. </li></ul></ul><ul><ul><li>Usually if you become ill or incapacitated </li></ul></ul><ul><ul><li>Power can be special (to carry out certain acts or transactions), or general (to act completely for you) </li></ul></ul><ul><li>Conventional Power of Attorney is automatically revoked in case of legal incapacity </li></ul>15-19
  20. 20. Letter of Last Instruction <ul><li>Not legally enforceable. </li></ul><ul><li>Provides heirs with information. </li></ul><ul><li>Should include... </li></ul><ul><ul><li>Your funeral preferences. </li></ul></ul><ul><ul><li>Names of people you want notified. </li></ul></ul><ul><ul><li>Location of safe deposit box & bank accounts. </li></ul></ul><ul><ul><li>Assets and debts. </li></ul></ul>15-20
  21. 21. Learning Objective # 4 Appraise various types of trusts and estates. 15-21
  22. 22. What is a Trust? <ul><li>A trust is a legal arrangement through which a trustee holds your assets for your benefit or that of your beneficiaries. </li></ul><ul><li>Settlor (grantor) is creator of the trust </li></ul><ul><li>All trust assets added together are known as an estate. </li></ul><ul><li>Benefits of trusts: Reduce estate taxes, avoid probate, free you from managing assets, and provide income for a surviving spouse, ensure property serves a desired purpose after your death. </li></ul>15-22
  23. 23. Types of Trusts <ul><li>Living (Inter Vivos) Trust </li></ul><ul><ul><li>is created and provides benefits while you are alive </li></ul></ul><ul><li>Testamentary Trust </li></ul><ul><ul><li>established by the creator’s will that becomes effective on death </li></ul></ul><ul><li>Spousal Trust </li></ul><ul><ul><li>all income from trust must be paid during spouse’s lifetime </li></ul></ul><ul><ul><li>capital cannot be distributed to anyone else during spouse’s lifetime </li></ul></ul>15-23
  24. 24. Make an Inventory of Your Estate <ul><li>Cash, bank accounts, GIC’s, money market funds </li></ul><ul><li>Stocks, bonds and mutual funds. </li></ul><ul><li>Life insurance, employee benefits and annuities. </li></ul><ul><li>Your home and any other real estate. </li></ul><ul><li>Business and farm interests. </li></ul><ul><li>Corporate interests, partnerships </li></ul><ul><li>Interests and trusts. </li></ul><ul><li>Antiques, art, collections, cars. </li></ul>15-24
  25. 25. Estate Assets not Distributed by A Will <ul><li>Life insurance, annuities and RRSP’s go directly to the named beneficiary </li></ul><ul><li>Assets held in joint tenancy </li></ul><ul><ul><li>confers rights of survivorship </li></ul></ul><ul><li>Life insurance and employee benefits </li></ul><ul><ul><li>free of income tax </li></ul></ul><ul><ul><li>excluded from probate </li></ul></ul><ul><li>Lifetime gifts and trusts </li></ul>15-25
  26. 26. Settling Your Estate <ul><li>If you have a will the executor will carry out your wishes </li></ul><ul><li>Probate and Administrative Costs </li></ul><ul><ul><li>fees for attorneys, accountants, appraisers, executors and administrators (3-5%) </li></ul></ul><ul><ul><li>probate costs rise with size of estate </li></ul></ul><ul><li>If you die intestate your estate is distributed according to provincial law </li></ul><ul><ul><li>Under control of court-appointed administrator </li></ul></ul>15-26
  27. 27. Summary of Learning Objectives <ul><li>Analyze the personal aspects of estate planning </li></ul><ul><ul><li>Essential part of retirement planning and integral part of financial planning </li></ul></ul><ul><ul><li>First step is to build your estate </li></ul></ul><ul><ul><li>Second step is to transfer your estate </li></ul></ul><ul><ul><ul><li>At your death in the manner you have specified </li></ul></ul></ul><ul><ul><li>Personal aspects depend on if you are married or not </li></ul></ul><ul><ul><ul><li>If married involves interests of two people or more if children </li></ul></ul></ul><ul><ul><ul><li>Even if not married need to organize your affairs </li></ul></ul></ul>15-27
  28. 28. Summary of Learning Objectives <ul><li>Assess the legal aspects of estate planning </li></ul><ul><ul><li>In the event of death proof of claims must be produced or claims not processed </li></ul></ul><ul><ul><li>Papers required include birth and marriage certificates, legal name changes, military service records </li></ul></ul><ul><ul><li>Every adult should have a written will </li></ul></ul><ul><ul><ul><li>Legal declaration of wishes with respect to the disposition of property after death </li></ul></ul></ul>15-28
  29. 29. Summary of Learning Objectives <ul><li>Distinguish among formats of wills </li></ul><ul><ul><li>Holographic – hand written and requires no witnesses </li></ul></ul><ul><ul><ul><li>Poor choice and not recognized in some provinces </li></ul></ul></ul><ul><ul><li>Formal – typed document signed by you and witnessed by two individuals not spouse or beneficiaries </li></ul></ul><ul><ul><ul><li>Lawyer usually employed to draft formal will </li></ul></ul></ul><ul><ul><li>Notarial – typed and signed in the presence of a notary and one witness </li></ul></ul><ul><ul><ul><li>Available only in Quebec </li></ul></ul></ul>15-29
  30. 30. Summary of Learning Objectives <ul><li>Appraise various types of trusts and estates </li></ul><ul><ul><li>A trust can be an excellent way to manage your estate </li></ul></ul><ul><ul><li>Popular forms of trust include; </li></ul></ul><ul><ul><ul><li>Living trusts </li></ul></ul></ul><ul><ul><ul><li>Spousal trusts </li></ul></ul></ul><ul><ul><ul><li>Testamentary trusts </li></ul></ul></ul><ul><ul><li>An attorney’s help is needed to establish a trust </li></ul></ul>15-30