What do I need to know about estate planning


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Melanie McDonald is a lawyer with BLG. She led a session on estate planning and planning for your estate.

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What do I need to know about estate planning

  1. 1. Presented by: Melanie McDonald BLG LLP memcdonald@blg.com Ph:403-232-9567 What do I need to know about Estate and Business Planning? WINK – May 2, 2013
  2. 2. AGENDA I. New Legislation – Wills and Succession Act II. Estate Planning • Wills • Powers of Attorney • Personal Directives III. Executors/Trustees considerations IV. Using Trusts in Estate Planning V. Business Issues VI. Estate Administration VII. Estate disputes VIII. Caring for older family members
  3. 3. I. Alberta’s New Wills and Succession Act, S.A. 2010 c. W12.2 • New Act in force as of February 1, 2012 • Repealed: Wills Act, Intestate Succession Act, Survivorship Act, Dependants Relief Act and s.47 of the Trustee Act • New Act has also necessitated amendments to several other Alberta laws, including the Matrimonial Property Act, the Family Law Act and the Administration of Estates Act
  4. 4. I. New Wills and Succession Act (Alberta) • Common law spouse has the right to live in the matrimonial home for six months after the date of death – even if name is not on title or they are renting • Proposed changes regarding matrimonial claims on death – were not passed and are going back to consultation
  5. 5. I. New Wills and Succession Act (Alberta) • Survivorship Rules changed • When 2 people die together the property is distributed as if each person died before the other • Joint property is treated as tenants in common • Marriage no longer revokes a Will • Instead divorce revokes provisions in a Will in favour of a spouse • Separated spouse does not benefit on intestacy • Court has broader powers to deal with: • Wills not properly signed, altered or witnessed • Rectifying mistakes – including adding and deleting words and phrases • Gifts/loans to family members and beneficiaries ** New limitation period – 6 months after the date of death
  6. 6. II. Estate Planning - considerations • Starting point – Testamentary Freedom • Limitations: • Spouses – married vs. common law (“AIP’s”) • Dower Act – right to live in the house (married only) • Matrimonial Property Act – no property division – unless separated at death (married only) – this law may change • Dependants • i) spouse; ii) AIP; ii) children under18; iv) children between 18-22 going to university full time; v) children over 18 if due to mental or physical disability unable to earn a livelihood; and vi) grandchildren where their grandparent has assumed a parental role • Dependants Relief Act – if does not have enough assets/income then support can be awarded
  7. 7. II. Estate Planning- Wills • Will • Assets passing outside Will • beneficiary designated assets – life insurance/ RRSP • Jointly owned property • Multiple Wills – uses • High probate fee jurisdictions – Ontario and BC • Real estate owned outside of Alberta
  8. 8. II. Estate Planning - Enduring Power of Attorney • Allows you to make plans in case of your incapacity • You can appoint someone you trust to look after your financial and personal affairs
  9. 9. II. Estate Planning - Personal Directive • Deals with personal affairs • Choose ‘Agent’ to make personal and health care decisions • Choose who determines incapacity • Powers – health care and where you live • Wishes regarding ‘end of life’ decisions
  10. 10. III. Executors and Trustees • Executor administers the estate • Trustee manages trust funds created in the Will • One person can be the executor and trustee • There may be tax issues if the executor/trustee does not live in Canada
  11. 11. III. Executors and Trustees Choosing your Executor and Trustee: • What skills are needed? • What are the family dynamics between a proposed executor and beneficiaries? • i.e. you may not want one sibling managing a trust fund for another sibling • Can you have too many executors?
  12. 12. III. Executors and Trustees Choosing your Executor and Trustee – cont.: • If you are considering appointing more than one executor/trustee, how do you resolve disagreements? • A number of options: • Unanimous • Majority • A key decision maker always needs to be part of the majority • Consider having a young adult child being co-trustee for learning purposes • When is it appropriate for a trustee to be the sole trustee of their own trust?
  13. 13. III. Executors and Trustees Situations where a corporate trustee may be appropriate: • Complex assets such as an active business or assets in a number of jurisdictions • There isn’t a family member or friend who is suitable • You do not want your family member to have the responsibility or spend their time on this task • Note – you can consider a corporate trustee acting as agent • Due to family dynamics or estate planning wishes it is anticipated that there could be estate disputes • Practical tip – negotiating fees
  14. 14. III. Executors and Trustees What are the duties of an executor/trustee? • Protect assets, collect assets, pay bills and taxes, follow the terms of the Will/Trust • Address any estate claims/disputes • Prepare an estate accounting • Act in the best interest of the beneficiaries and act impartially as between beneficiaries • Act with ordinary care and prudence • Can not delegate decisions making and key duties
  15. 15. III. Executors and Trustees Risks when acting as executor/trustee: • Personal liability if money given to beneficiaries when there are debts and taxes outstanding • Tax Clearance Certificate • Claims by beneficiaries – improper investing of assets, not protecting assets (i.e. no insurance), wasting estate assets, not following the terms of the Will/Trust • Executors/trustees can purchase insurance to protect against this risk Executors can ask the Court to provide direction and also to pass the estate accounts
  16. 16. III. Executors and Trustees What do you do if you think an executor/trustee is not acting appropriately: • Ask for a copy of the Will/Trust • Ask for an estate accounting • This shows every dollar in and out • Beneficiaries are allowed to view all supporting records • Gives you an opportunity to review conduct of the executor/trustee • If issues can not be resolved with executor/trustee you can go to Court • To obtain damages if the executor/trustee acted improperly • To have a new executor/trustee appointed
  17. 17. IV. Using Trusts in Estate Planning • A relationship which arises when a settlor transfers property to a trustee who manages the property for the benefit of the beneficiaries. • Inter Vivos Trust • created while you are alive by a Trust Deed • Testamentary Trust • created as a consequence of death • typically contained in the Will – children, grandchildren, spousal, spendthrift, etc.
  18. 18. IV. Using Trusts in Estate Planning Many options for trusts in Wills: • Trust for spouses • Trust for children/grandchildren – age related • Spendthrift/responsibility issues • For care of family members with mental or physical disability • Consider RRSP/RRIF – rollover to RDSP • Adult children • Income splitting, asset protection, flexibility • Charitable/Family Foundation to support charities
  19. 19. IV. Using Trusts in Estate Planning Inter vivos trusts – created while you are alive: • Alter Ego Trust – used probate planning and if potential estate claims • Family Trust – family business scenario • Family Foundation – charitable giving • US planning • Considered if a person owns US real estate or directly owns shares of US companies • Trusts can reduce assets in a person’s estate if drafted properly
  20. 20. IV. Using Trusts in Estate Planning Trust Issues: • 21 year deemed disposition of the trust assets • Is this an issue? What type of assets will be in the trust? • Family business shares – could be an issue • Investment portfolio – may not be an issue if investments bought and sold on an ongoing basis • Options - include: • Pay the tax • Roll out before 21 year anniversary to capital beneficiaries • Other ? - Need to get tax advice so all options can be considered
  21. 21. IV. Using Trusts in Estate Planning Trust Issues - Asset protection • Key concept • Generally, if a claim is made against you personally creditors can only make a claim against assets that are in your name • Therefore, if assets are in a properly structured trust (as compared to in your name) then a creditor may not be able to make a claims against the trust assets • Need to be aware of some legislation that prevents you from transferring assets to a trust in certain situations • Matrimonial property transfers • Transfers if you are insolvent/bankrupt (and during a certain period before bankruptcy) • Transfers that prefer one creditor over another
  22. 22. IV. Using Trusts in Estate Planning Trust Issues - Asset protection cont. • Types of creditors that a person could have – business creditors, professional liability and matrimonial claims • Need to carefully structure who are trustees and beneficiaries to maximize protection of assets • Considering offshore trusts for asset protection purposes
  23. 23. V. Business Issues • Creating and re-organizing business structure • Shareholders Agreements • Business succession issues • Who will take over the business? • Who can I sell my business to so that I have funds for my retirement? • Life insurance – buy-out and key man • A Family Trust may be a part of the corporate structure
  24. 24. VI. Estate Administration - What is Probate? • Probate is a process where the Court certifies that a Will is valid and also confirms of the authority of the executor • Involves submitting an application to the Court, along with notification to the beneficiaries listed in the Will and others who may have a claim (spouses/dependants) • Not mandatory in all cases but will be required if there is land personally held or in circumstances where third party such as bank or broker requires probate to transfer assets
  25. 25. VI. Estate Administration - Probate Fees- Alberta • VALUE OF THE ESTATE FEE estates under $10,000 $ 25.00 estates between $10,000 and 24,999 $ 100.00 estates between $25K and $124,999 $ 200.00 estates between $125,000 and $249,999 $ 300.00 estates $250,000 and over $ 400.00 Max. • Note: other provinces it is a percentage of the value of the estate i.e. Ontario 1.5% and B.C. 1.4% - that is why in other provinces more of a focus on certain estate planning techniques to reduce probate fees
  26. 26. VI. Estate Administration Estate -Assets that are in the name of the deceased alone - Property owned as Tenants in Common - the Will governs distribution - Probate may be required (if institution holding assets insists or land needs to be transferred) - Estate pays all of deceased’s debts Assets Passing outside the Estate - life insurance, pensions, RRSP’s or other assets with named beneficiary - accounts or land that are owned as Joint Tenants - death certificate needed to transfer assets and funds
  27. 27. VI. Estate Administration • What are potential issues with transferring assets outside the Will: • i.e. RRSP with a adult child beneficiary • Child receives the RRSP and the estate pays the tax • Estate can not make the child to pay the tax attributable to the RRSP • Jointly owned property with adult child • Law states that it is presumed that the property is an estate asset unless documentation confirming that it is a gift to a child • Property subject to claims of child’s creditors • Can not force the child to transfer the property back to you
  28. 28. VI. Estate Administration • Beneficiary designations • Best to change with bank or insurance company • Can change designations in a Will but the rules about priority of designations are complicated – in particular when a Will with beneficiary designations is revoked • Ongoing cases where former spouse is still the named beneficiary and the Court finds that the former spouse gets the funds • Double check all beneficiary designations as part of estate planning review
  29. 29. VI. Estate Administration • Summary • Beneficiary designations and jointly held property with spouse • typically a good planning strategy • Beneficiary designations and jointly held property with adult children or other beneficiaries • Typically not a good planning strategy unless done for a specific purpose and in consideration of the overall estate plan • Overall it is easier for all assets to come into the estate and the Will addresses the distribution of assets in a holistic manner
  30. 30. VII. Estate Litigation • How can a Will be challenged? • Interpretation of Will provisions (i.e. ‘child’) • The testator lacked capacity • Not properly signed (form of Will, witnesses) – NEW LAW • Suspicious circumstances – knowledge/approval • Higher onus • Factors: mental & physical impairment, significant changes as compared to previous Will, ‘does it make sense’, Will signing details, and whether beneficiary involved in Will preparation process • Example • Undue influence • Interpretation of a Will – NEW LAW – adding/replacing and deleting words and phrases • Claim against estate by spouse or dependant • If Will invalid – any previous Wills? Intestacy?
  31. 31. VII. Estate Litigation • Unequal distributions in a Will • Consider amount to give to second spouse (who may have brought assets into the marriage) and what you want to give to children from the first marriage • Want to give more to one beneficiary • Want to give a particular assets to one beneficiary – i.e. Family farm/business to child who works with the family farm/business • Want to take into account gifts made during lifetime • Want a beneficiary to be responsible to pay the taxes or costs related to an asset being given
  32. 32. VII. Estate Litigation • Planning tips: • Collect background information that justifies plan and the amounts being considered • Consider wording that can be added to the Will: • Explain distribution clearly • Give trustee authority to determine values (by valuation) and make final decision about relevant amounts • Other options: • If there is a will challenge then the challenger is responsible for all legal fees and the legal fees can be deducted from the challenger’s share of the estate • If there is a will challenge then the challenger does not get their gift outlined in the Will – this type of clause can only be used in certain circumstances
  33. 33. VII. Estate Litigation • Planning tips – cont.: • Consider preparing a separate document explaining reasons in greater detail in case there is a lawsuit • For privacy reasons you may not want to put all of the details in a Will • If there is any possibility of challenging mental capacity it is best to get a doctor’s opinion confirming capacity
  34. 34. VIII. Caring for elderly family members • Do they have an Enduring Power of Attorney and Personal Directive? • If not and they become mentally incapable then a Court order is needed to appoint a person to manage their affairs – much more expensive then having these documents prepared • Does the executor know where all assets located, safety deposit boxes, names of advisors, location of keys, etc. • Onset of dementia and reliance on those who are closest – there can be associated paranoia which may affect decision making – radical changes in estate plan may show lack of capacity
  35. 35. VIII. Caring for elderly family members • Are there concerns about how affairs being managed: • Ask for an accounting from the Attorney • Review ongoing care – activities, health care, spending money • There should be no gifts or loans to the Attorney named in the power of attorney • Even if the person is a named beneficiary in the Will • Is the Attorney taking compensation? If so how much? Is the Attorney reimbursing themselves for excessive expenses (i.e. paying for the Attorney’s travel expenses) • Potential area of concern – Attorney manages finances and Agent makes decisions regarding where a person lives therefore both Attorney and Agent are involved in decision of where a person lives
  36. 36. • On average people update every 5-10 years as circumstances in their life changes • These issues may first arise in your family in relation to the care of parents, grandparents or other older family members • Documenting intent is more important than ever as the new laws focus on intent – why did you do that? • Major life decisions should be reviewed for tax issues: buying real estate, making gifts, family members moving, etc. IX. Conclusion
  37. 37. Questions?
  38. 38. What do I need to know about Estate and Business Planning? Presented by: Melanie McDonald Borden Ladner Gervais LLP memcdonald@blgcanada.com Ph:403-232-9567