Estate Planning - Some Points of Interest

Charitable Donations and Income Taxes

Over the last few years, the charity lobby has been working to convince the Federal Government to change the rules concerning donations, in an effort to encourage people to give to charitable organizations. As a result, the Government has made some significant changes to tax law with respect to charitable donations.

A taxpayer may now claim donations up to 75% of net income for gifts given in any year. A testator’s estate may apply up to 100% of donations against income in the year of death, and the preceding year.

In planning your estate, a sizeable charitable donation in your will, may significantly reduce your tax liability.

Power of Attorney for Personal Care

The Government of Ontario has passed legislation, which permits you to appoint an attorney for personal care. This is a document, which is separate from your will, and is made pursuant to the Substitute Decisions Act. In the document, you may appoint a person (the “attorney”) to make medical and hospitalization decisions on your behalf, should you lack the capacity in the future, to make these decisions for yourself. The Attorney will also have visiting priority to you in the hospital. The attorney is required to make decisions based on what he or she knows you would wish, and not on the basis of what he or she personally would wish. It is, therefore, important to appoint someone, whom you believe will carry out your wishes.

Power of Attorney for Property

This is a good planning tool, which may protect you during your lifetime. However, a Power of Attorney for Property is a powerful document, and may be used by your Attorney to sell, and mortgage, your property. Therefore, you should only appoint an Attorney that you trust implicitly with your finances and property. That being said, for most of you, it will be important to have a Power of Attorney for Property in place, should your partner need access to your money. It is an even more important document for those who are single, and have no one who would naturally look after their finances for them. The Power of Attorney for Property is generally exercisable during your lifetime. It can be revoked at any time. It is a collateral power to your own right to use your property as you choose.

Joint Tenancy v. Tenancy in Common

Owning property together with other individuals can be difficult, and rewarding, at the same time. If you own property as Joint Tenants with another individual, on your death the surviving owner becomes the sole owner of the property, subject only to any encumbrances on the property. In this situation, no estate administration tax is payable on the value of the deceased’s share of the property. In certain situations, capital gains tax may be payable. Speak to me if you wish to know if a change in tenure of ownership would be to your benefit.

Co-Ownership Agreements

If you are contemplating owning property together with another individual, it is recommended that you enter into an agreement, setting out your respective rights and obligations. Such an agreement should deal with such questions as, “What happens to the property on the death of one party? Does the survivor have an option to buy the deceased’s share? How will it be financed? What if one partner becomes disabled, and cannot pay their share of costs? Does the other party have an option to buy? At what price?”

These questions are fundamental, and should be asked at the time of purchase. Don’t wait until there are problems, before you deal with these, and other, issues.

Life Insurance and Creditors

Life insurance proceeds need not be available to creditors of an estate.

A substantial portion of many estates consists of life insurance. One of the main benefits of this, is that the insurance benefit is not necessarily subject to the claims of creditors. If the policyholder designates a beneficiary (other than his or her estate), upon death, the proceeds do not pass to the personal representative. They pass directly to the beneficiary, and, therefore, are not generally accessible by creditors of the deceased. It is possible that your Registered Retirement Savings Plans can be protected as well, through an insurance-type Registered Retirement Savings Plan.

RRSP as an Asset

Many people do not realize that on your death, all money remaining in your Registered Retirement Savings Plan is deemed realized just prior to your death, for income tax purposes. Unless a spousal rollover is available, this money is reportable as income in your terminal T1 income tax return. This can mean a substantial tax liability on death.

Subsequent Marriage Invalidates Your Will

The Succession Law Reform Act stipulates that if you marry after your last will and testament is executed, your will becomes invalid. Please determine whether this situation affects you. If so, it is advisable to exercise a new will immediately.

QUESTIONS:

Please contact me and I will be pleased to advise you regarding estate planning, reducing income tax and probate fees, and facilitating the easy conveyance of your property to your beneficiaries.