Estates and Taxes

Estate planning is an essential part of wealth management.

Particularly important to seek advice from an estate lawyer when you are
leaving behind:

Significant assets (such as cottages or small businesses)

Complex issues (such as foreign beneficiaries)
Multi-faceted relationships (such as blended families
Disabled dependents over the age of 18
An estate plan is a documented expression of your wishes and personal
financial goals.

When properly structured, it can simplify the distribution of your estate,

provide for family members, minimize taxes and expenses and protect
beneficiaries’ inheritance.

Getting organized is often the most difficult part.

Good planning involves more than just making a Will.

Powers of attorney, for continuing health care and property

Beneficiary designations on registered savings and trusts (supersede the

Will)

Determining most appropriate type of property ownership (sole ownership

vs. joint tenancy or tenancy in common)

Selecting the right executor

Probate planning (process that confirms executor’s authority to distribute

assets of a deceased’s estate granted by provincial governments with a
Certificate of Appointment of Estate Trustee With (or Without) a Will.)

Income tax minimization using spousal rollover.

If you die “intestate” or without having a valid will in place, your estate is
divided according to provincial legislation.

The Ontario Succession Law Reform Act (SDA), sets out the following
distribution for deceased parties that have

Spouse only: Entire estate goes to the spouse.

Spouse + one child: First $200,000 goes to spouse. Remainder is split equally
between spouse and child.

Spouse + children: First $200,000 goes to spouse. Remainder is split: one-third

to spouse; two-thirds to children equally.
Children, but no spouse: Children share equally.

No spouse or children: Entire estate goes to the deceased’s surviving

parent(s).

If parents have predeceased, siblings share equally. Children of a deceased

sibling share their parents’ share.

If only nieces and nephews survive, they share equally.

No lawful heirs: The estate becomes property of the province.

Other factors applicable without a Will
Spouse doesn’t have the right to determine how property is divided among children, or at what age(s).
A child’s share is paid into court and held until the child attains the age of majority (18) and then it is
dispersed. The province may apply fees to administer and has investment control until this time.

A spouse, or any other heir, doesn’t have the right to determine who should handle the administration
of the estate.

Without a will, parents who die in common cannot appoint guardians for minor children.

The distribution of the estate may be more costly and can be delayed until one year from the date of
death.

There is no ability to establish testamentary trusts for special needs beneficiaries.

Income tax and probate planning opportunities are forfeited.

“Spouse” is narrowly defined to mean legally married. Common-law spouses are only entitled to a
share if there is a Will that designates them as a beneficiary.
Own an Incorporated Business or Partnership?
Estate issues to consider:

Is there a buy-sell agreement in place, allowing partners/ other owners to buy

out your share?

Are there any other shareholder agreements that govern the effective and
efficient windup or sale of your business? Are they structured properly?

Is the proper amount and type of insurance in place to provide the business
liquidity ”key person insurance” and to implement a contingency plan?
Should consideration be given to an estate freeze to minimize your tax
liability for capital gains and allow the future growth to accrue to your
children or successors?

If your family carries on your business, will there be enough liquidity to

see them through the transition period after your death?

Does your business allow for the use of the $10,000 tax-free death
benefit or the ability to pay out tax-free dividends through the capital
dividend account? Include your accountant in the planning process.
Personal Asset Ownership, Beneficiary Designations and Trusts

Did you know that if you hold an asset “joint with right of survivorship
(JTWROS)” the survivor will inherit it, as opposed to it being distributed
according to your will?

If probate fees are a concern: Changing the ownership of your assets (to
JTWROS) at the suggestion of your bank, may cause existing estate plan to
be ineffective as you are giving ownership to another party now, as such
they will not be included in your estate. You may want to designate some
accounts joint with survivor to avoid probate, but be aware that assets are
now subject to marriage breakdown asset split and the creditors of the
joint party
Is there an opportunity to save probate and other estate costs on
certain assets that don’t require probate—private company shares for
example (family business)? Does your jurisdiction legislate this type of
planning? Consult your estate lawyer.

Have the appropriate beneficiary designations been made for

registered plans (RRSPs, RPPs, DPSPs, TFSAs) and insurance policies?

Could your beneficiaries benefit from a structure that reduces taxes on

income from their inheritance? Should your will make use of trusts to
provide greater control over your estate and protect it from creditors,
including situations such as a marital breakdown?
Estate Administration Tax (Probate) Rates

$5 for each $1,000, or part thereof, of the first $50,000 of the value of the estate, and
$15 for each $1,000, or part thereof, of the value of the estate exceeding $50,000.

Note: There is no estate administration tax payable if the value of the estate is $1,000 or less.

The tax is imposed on the estate of the deceased person not on its beneficiaries.

The tax is paid as a deposit when the estate representative applies for a Certificate of
Appointment of Estate Trustee with the Superior Court of Justice.

Ex. An estate valued at $500,000 would have an estate administration tax of $7000.

General information: http://www.fin.gov.on.ca/en/tax/eat/

Estate Administration Tax

Estate administration tax is charged on the total value of the deceased's estate. The total value
of the estate is the value of all assets owned by the deceased at the time of death.

Real estate in Ontario (less encumbrances)

Bank accounts
Investments (e.g., stocks, bonds, trust units, options)
Vehicles and vessels (e.g., cars, trucks, boats, ATVs, motorcycles)
All property of the deceased which was held in another person's name
All other property, wherever situated, including:
goods
intangible property
business interests, and
insurance, if proceeds pass through the estate, e.g., no named beneficiary other than
'Estate'.
In the past, assets were often underestimated for the purpose of calculating
administration tax so new legislation was incorporated that took effect this past year.

Effective January 1, 2015, Once the court issues a Certificate of Appointment of Estate
Trustee, the executor has 90 days to file an Estate Information Return that details how
value of property has been determined.

Complex estates requiring property ownership transfer and the sale of business assets
should involve an estate lawyer and accountant to assist the executor (s).

https://www.youtube.com/watch?v=ITq0KnmRjhc
Family Considerations

Should you make special arrangements to protect the inheritance of minor

children until they attain responsible ages.

Do you want to provide your beneficiaries with ongoing financial support

while ensuring additional access to capital while growing up.

Are special arrangements required for infirm beneficiaries, including

protecting their social assistance or other government support on a long-
term or permanent basis.

Do you have any other dependants such as physically, mentally or

financially dependent parents.

Are arrangements necessary in a second marriage and/or blended family

situation for support of your spouse, while ensuring your capital passes to
your children from a first marriage.
Considerations for the Distribution of Assets
Prepare a household balance sheet including all your assets, liabilities and insurance policies. This
will help get a financial snapshot and determine the amount and type of assets that make up your
estate.

With the help of a qualified professional, determine the amount of taxes and fees owing on your
estate.

Determine, from a financial perspective, what your family’s income needs are. Is there enough
income from your estate to meet financial obligations? Would your beneficiaries have ample
liquidity to service personal debt, provide an income for dependants and allow for necessary
savings for children’s education.

Will there be adequate liquidity to pay the expected taxes and estate costs and still leave a
legacy? What is the impact of passing on certain assets (a business or family cottage). Include
stakeholders in the conversation.

Do you have the proper amount (and type) of insurance to meet your specific needs, including
income replacement, estate preservation, estate equalization and leaving a legacy?
Are you interested in making tax-efficient charitable donations upon your death, including
establishing charitable remainder trusts, private foundations, donor-advised funds or making
charitable gifts of securities in your estate plan?

Do you want your executors, trustees or beneficiaries to secure financial or other advice from
specific advisors or do they have the necessary skill set? Does your estate plan provide your
executors and trustees with the necessary powers to make your estate plan effective and
efficient?

Review Estate Checklist in Moodle And more details on estate planning

https://www.getsmarteraboutmoney.ca/plan-manage/planning-basics/wills-estate-planning/