Advanced Estate Planning

Question 1

Gift over provision

Answer 1

who receives gift if someone predeceases testator, or if at all.

Question 2

Hotchpot

Answer 2

gift no longer in estate because it was gifted prior to death, beneficiary may say a gift was intended at death and other beneficiaries may believe there was a presumption of advancement.

Question 3

Minor Will exceptions and capacity determinations

Answer 3

marine, minors with dependents, minors with significant resources, emancipated minors. capacity based on if they know they’re making a will (addressing affairs upon death), understand they are distributing property, understand who it’s being left to .

Question 4

Trusts

Answer 4

Commercial (REITs and mutual fund trusts)
Institutions act as trustees for registered plans (TFSA, RDSP, RRSP, RRIF)

Question 5

Valid Trust Certainty Requirements

Answer 5

Certainty of intention - settlor intended to create trust (doesn’t have to be explicit)
certainty of subject matter - must specify property that is dealt with
certainty of objects - beneficiary must be identifiable (can name ‘grandchildren’ or name specific people)

Question 6

Parties to a trust

Answer 6

Settlor - person who contributes more than 50% of total value into trust becomes settlor for tax purposes. cannot alter and has no responsibilities after settlement
Beneficiary - beneficial ownership but not legal
Trustee - has fiduciary duty to the trust. trust is considered resident where the settlor is resident (if settlor continues to influence the trustee).

Question 7

Trust taxation

Answer 7

flow through to beneficiary. no disposition when transferring property out to beneficial owner. can’t flow out losses to beneficiary. LCGE can be used in personal trust (meaning non commercial, beneficiary didnt pay to become a beneficiary).

Question 8

Alter Ego Trust

Answer 8

no change of beneficial ownership transferring into the trust

Question 9

Rollover in trust rule

Answer 9

person to which the rollover applies must be the only to benefit from trust during their lifetime

Question 10

GRE

Answer 10

Trust can pick year end but can’t be more than 12 months after date of death or since last year end. Has year end of dec 31st after 3 years. no access to AMT

Question 11

Disability trust

Answer 11

joint election by trustee and beneficiary, on disabled beneficiaries can access trust capital (or taxes are undone). dec 31st year end. doesn;t necessarily need to be eligible for disability tax credit if related

Question 12

21 year rule and trusts not subject

Answer 12

settlor must be 65 or over when trust is settled. alter ego trust (take care of assets as you age, untrusting of family), spousal trust, joint spousal trust (spouse and settlor are beneficiaries), charitable trust, commercial trust.

Question 13

Taxes at the end of life interest

Answer 13

Can be borne by the trust or the personal holding the life interest personally

Question 14

Revocable Trust

Answer 14

all income/gains revert to contributor and it could lose creditor protection

Question 15

Fixed vs discretionary trust

Answer 15

discretionary - can decide, when ,whom and how much is paid out. everything could be paid to one beneficiary and the others ignored (henson trust is common example)
fixed - more specific, but can also be broad. even where conditions are in place, beneficiary still has fixed interest in the trust

with conditions (contingent trust) conditions can’t be contrary to public policy (can’t revoke a gift due to marrying a swedish person)

Question 16

US Estate taxes (situs assets included)

Answer 16

1) Situs assets over 60k (us property, cars/boats located permanently in us, shares in us companies (bought in canadian account), 401 and 403 plans, debt instruments (except CDs or t-bills), gifts that donor retains interest in, us business interests, cash in brokerage accounts. not included is cad etfs, us bank accounts(personal), adrs, t-bills or cd’s
2)worldwide assets of 13,600,000 (USD). includes life insurance policy with incident of ownership (can name beneficiaries or borrow against policy) joint property counts fully on each death.

Question 17

Estate Tax Calculation

Answer 17

US assets/total assets = (6% for example)
6% * unified tax credit (4 million) =tax credit provided
US assets * estate tax 40% - tax credit = estate tax payable.

US tax payable can be used as credit to offset or mitigate Canadian capital gains tax

Question 18

Tax planning on death

Answer 18

can rollover rrsp, rrif, lira, lif partially. can only transfer capital property at fmv or acb.

Question 19

Estate Capital Loss carryback

Answer 19

Can carry back capital loss in first year of estate and use it against terminal, can;t after first year.

Question 20

4 types of returns

Answer 20

rights and things, terminal return, partnership, testamentary trust.

Question 21

employer death benefit amount and tax status

Answer 21

tax free 10k

Question 22

medical expenses

Answer 22

can be based on any 12 month rolling period

Question 23

Estate Freeze Types

Answer 23

Inter vivos giting - could run out of money, can decide what to do while still have capacity (easiest)
section 85 rollover - used to pass company growth down to children, create a new corp and take preferred shares (can transfer any price between acb and fmv) (not good with personal assets)
section 86 rollover - like 85 except you swap one share class for another and transfer is done at acb (no opportunity to step up cost basis or use lcge) ‘offside’ version would be transferred at fmv
open a trust - revocable could make assets susceptible to lawsuits. tosi doesnt apply to cap gains.
wasting freeze- sell preferred shares over time (to trust, or children, or redeemed by corp)

Question 24

Buy Sell Formuals

Answer 24

pre determined price, fixed valuation, valuation at time of purchase

Question 25

Buy sell methods

Answer 25

insurance, promissory note (may not work in contentious situation, unless USA compels it), personal assets (rare), business assets (rare), loan (rare).

Question 26

Buy Sell structures

Answer 26

Cross purchase - partnerships or two owners, simple and tax efficient if lcge is available. buys shares from estate. acb increased by insurance paid out

promissory note - corps cda is credited and survivor buys shares from estate using note (estate inherits shares with cost basis = fmv at death). corps with multiple shareholders, value of no more than 1m per shareholder. corp has insurance (CDA is key). could be a problem if cda or lcge unavailable. remaining shareholder acb is increased by amount of promissory note paid

share redemption - half of dividend paid out from proceeds will be taxable as a dividend (stop loss rule). remaining owner has acb same as before. half of the insurance remains in cda account balance. This is due to the estate having a capital loss of = sale - proceeds of 0. capital loss can only be used in first year of estate.
( can use spousal roll to use the full cda credit)

hybrid wait and see - use note up to lcge and share redemption for amount in excess of lcge to transfer at highest possible acb

Question 27

Kiddie tax

Answer 27

minors pay tax from ccpc at highest bracket

Question 28

Revocable trusts

Answer 28

settlor is beneficiary, opens up legal liability and defeats any income splitting opportunities

Question 29

Family trust

Answer 29

split lcge among beneficiaries. property can be paid out personally or beneficiaries and trustee can elect to use lcge in trust

Question 30

Transfers of business assets

Answer 30

wind up the business - sell the assets for what theyre worth
pass on to next gen - usually favourable for buyer. could have tough time letting go.
sell to third party - complicated and difficult, could sell discounted price
sell to employees - train those remaining and develop a better succession plan

Question 31

Financial options

Answer 31

vendor financing - vendor sets conditions of sale. loan is repaid from earnings, or company is taken back
earn out - often contentious. portion of proceeds withheld based on success of business. purchaser may not have skills or contacts to operate business at first
redemption - retain preferred shares with most of voting rights, receives fixed dividends and shares are bought over time (usually a fixed redemption schedule)
preferred shares - freeze estate and stay in control of business