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Certified Financial Planner Core Curriculum > Chapter 15: Estate Planning and Succession > Flashcards

Chapter 15: Estate Planning and Succession Flashcards

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1
Q

Is succession law rooted in common-law or legislation?

A

Much of succession law is rooted in common-law, not legislation.

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2
Q

What are the 3 basic documents at the core of estate planning?

A
  1. Will
  2. Enduring POA
  3. Personal directive (POA for health care)
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3
Q

What is another term for an enduring POA?

A

Springing POA

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4
Q

What are other terms (2) for a POA for health care?

A

Personal directive, living will.

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5
Q

What are other terms for executor/executrix (personal representative) (3) When are they used?

A
  1. Estate trustee (used in some provinces)
  2. Liquidator (personal representative for a bankrupt estate)
  3. Estate administrator (personal representative in an intestacy)
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6
Q

Who can/cannot witness a will?

A

Anyone who might be seen to be exerting influence over the testator to enrich themselves or their loved ones should not witness a will.

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7
Q

What are the legal requirements for a will to be valid?

A
  • Physically signed by testator
  • Testator must have capacity
  • Must be witnessed by 2 witnesses (who have nothing to gain from the will)
  • Should be dated
  • Must indicate jurisdiction?
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8
Q

What are the exceptions where a minor can legally write a will?

A
  • Military will (minors in the military)
  • Mariner’s will (minors in the merchant marine)
  • Married
  • Have children
  • Have unusual wealth
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9
Q

What are the 3 basic types of wills?

A
  1. Formal will
  2. Notarial will
  3. Holograph will
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10
Q

Which type of will is least likely to be challenged on legal formalities?

A

A notarial will, which is used in Quebec. It is notarized when written, which means a notary reads the will back to the testator when written and checks it for legal validity.

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11
Q

What is a holograph will?

A

A will written in the testator’s own handwriting, signed by the testator.

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12
Q

Does a holograph will need to be witnessed?

A

No.

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13
Q

When does a will become invalidated? (3 situations)

A
  1. A new will is written.
  2. The will is destroyed.
  3. The testator marries.
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14
Q

Does divorce and/or marriage revoke a will?

A

Divorce does not revoke a will, marriage does.

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15
Q

What are the 6 types of gifts that can be made using a will?

A
  1. Specific bequest
  2. Demonstrative bequest
  3. Residual bequest
  4. General bequest
  5. Devise
  6. Trust
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16
Q

Name and describe the 4 types of bequests that can be made in a will.

A
  1. Specific bequest - intention to give a specific piece of property (100 shares of RBC).
  2. Demonstrative bequest - intention to pay from a specific account or fund (proceeds of my GIC at CIBC).
  3. Residual bequest - percentages of net estate to each beneficiary.
  4. General bequest - a specific dollar value to a beneficiary.
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17
Q

Which types of bequest is the easiest to make?

A

Residual bequest

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18
Q

What is a devise?

A

A bequest using real estate.

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19
Q

What happens if a testator leaves $200,000 cash to one child and a $200,000 cottage with a tax liability and outstanding mortgage to another?

A

It is possible that the cash gift could be reduced to deal with the tax and mortgage. This would leave the child with the cash gift in a worse situation than the child with the cottage.

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20
Q

What are the two forms of “gift-over” provisions? (In the event a beneficiary predeceases the testator)

A
  1. Per stirpes
  2. Per capita
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21
Q

What does it mean if a life interest on a property is left to a beneficiary?

A

The beneficiary only gets to use that property during their lifetime. It would not form part of their estate and could not be sold.

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22
Q

What must be used when a life interest is used?

A

There must be a capital interest or remainder clause. The capital interest would pass to whoever will own the property when the life interest dies.

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23
Q

What is an ademption?

A

Property indicated in the will no longer exists in the state (is adeemed).

24
Q

What is an abatement?

A

Occurs when there is not sufficient value in the estate to meet specific or general bequests?

25
Q

What is a hotchpot clause?

A

Addresses the possibility that a testator has decided to make a gift prior to death. The clause in the will would address what should happen.

26
Q

What is an exoneration clause?

A

Addresses the handling of debts associated with specific assets. If a property was listed as a specific bequest and had a mortgage on it, the clause would indicate whether the estate should deal with the debt or if the beneficiary should inherit the debt.

27
Q

What may a testator do if they can’t find a single executor who they trust to carry out the responsibility of executing their will?

A

The testator will choose a committee of executors, and should specify how much agreement is required to make decisions.

28
Q

What happens if the named executor of a will predeceases the testator or does not agree to be the executor?

A

An alternate must be found. If no alternate is named in the will, the courts will look at family relationships to find an executor. If no family member is available, the courts will pass the responsibility to the Public Trustee.

29
Q

What is a professional executor and when is naming one appropriate?

A

A professional (corporate) executor is often a corporation that will charge a fee to fill the role of executor. They will often only do this if they have seen a copy of the will in advance and the will includes specific measures to compensate the executor. This is most appropriate for complicated estates.

30
Q

How much is an executor paid and what is required to be paid?

A

The amount is generally limited by legislation, but the will may override that legislation. Executors can bill for direct costs and their time, but will need to provide a full accounting.

31
Q

Why would the sole beneficiary of an estate not want to be paid to be an executor?

A

Executors’ fees are deductible to the estate and taxable to the recipient, unlike inheritances that are tax-free.

32
Q

What often happens to shares of small businesses on the death of the owner?

A

The executor’s ability to own and control these assets is restricted, so the estate will not be allowed to own the assets. The executor may have to liquidate them on the death of the testator.

33
Q

What is an investment discretion clause?

A

A clause written into the will providing guidance to the executor on how investments should be handled. This is done to protect the executor against potential torts for mishandling funds.

34
Q

What could happen if a will does not acknowledge other documents such as buy-sell agreements, trust documents, insurance contracts, etc.?

A

The will could supersede those documents or vice versa.

35
Q

When might a testator require multiple wills?

A

Testators who own property in multiple jurisdictions or testators who have some property that is probatable and some that is not.

36
Q

What is a memorandum clause?

A

A clause in a will that refers to a separate document that lists personal effects that can be distributed outside of the will. This list should only include items with primarily sentimental value.

37
Q

What can a will include to help with disputes that an executor cannot resolve? What are other options?

A

Some form of tie-breaker or dispute resolution mechanism. Possibly a drafting system for property where beneficiaries cannot agree. The executor may also hire a professional mediator.

38
Q

Why would “values statements” be included in a will?

A

Although not legally binding, they can potentially help the executor or the courts decide how to react when there is some ambiguity or dispute.

39
Q

Which events warrant updating an individual’s will?

A
  • Marry or enter a common-law relationship
  • Birth or adoption of child (first child)
  • Separation and divorce
  • Death of a party to the will
  • Change in circumstances of a party to the will
  • Change of residency
  • Starting a business or changing a business structure
  • Change in financial position
40
Q

Where should a will be kept?

A

Options include…
- Lawyer’s office
- Safety deposit box
- With the executor
- With the testator (preferably in a fire-proof safe)
- Wills registry (register of where the will is stored)
Electronic storage of wills is generally not permitted at this time. A signed and notarized paper copy is required.

41
Q

What is the proper title of the person who gives POA?

A

Grantor

42
Q

What are 4 events in which a normal POA would end?

A
  1. It expires (if an expiry date is indicated)
  2. Grantor becomes incompetent
  3. POA is revoked (if grantor is competent)
  4. Grantor dies
43
Q

What is a “springing” or “enduring” POA?

A

POA that will last through the grantor’s loss of capacity, many of which only trigger at the loss of capacity.

44
Q

How are POAs compensated?

A

Generally limited in how they can be compensated, generally not allowed to advance funds in their own favour. POA document may outline a fee schedule though to allow the attorney to take compensation.

45
Q

What are 2 other names for a POA for health care?

A

Living will and personal directive.

46
Q

What is an estate considered to be from a tax perspective?

A

A trust

47
Q

What happens if an executor cannot locate a will?

A

Probate courts must be advised and an intestacy generally begins.

48
Q

What are some of the responsibilities of an executor?

A
  • Acquire death certificates
  • Take an inventory of assets and liabilities
  • Freeze financial accounts (notify institutions)
  • File claims for insurance
  • Obtain appropriate documentation to proceed with probate (Letters Probate)
  • Open an estate account at a FI
  • Meet with accountant to determine tax handling
  • Distribute personal effects + assets to meet immediate needs
  • Pay estate’s bills
  • File the estate’s tax return
  • Pay taxes
  • Obtain a clearance certificate from the CRA
  • Take executor’s compensation that is due
  • Finish distributions to residual beneficiaries
49
Q

What can beneficiaries request if they are not confident the executor handled the estate properly?

A

Passing of accounts. This is an application to the courts to which the executor must respond before the estate can be settled.

50
Q

What are some major considerations when a testator owns property in multiple provinces and multiple countries?

A
  • Presence of multiple wills
  • Different trust laws
  • Different succession laws
  • Tax differences
  • Cultural differences
51
Q

What is the legal requirement of “primogentiture”?

A

Succession law where the eldest son has some entitlement to the estate beyond other children. This is still a legal requirement in some regions of the world.

52
Q

What is an estate freeze?

A

An estate freeze refers to a transaction where you lock-in or “freeze” the value of appreciating assets with the intent to transfer future gains to beneficiaries.

53
Q

What does an estate preservation objective entail?

A

Refers to the desire by a client to keep their estate at a certain level.

54
Q

What is a buy-sell agreement?

A

Used in business to ensure continuity of the business should an owner be unable to continue their duties. Typically, the buy-sell agreement would see one owner buy another one out at a predetermined price when a predetermined event happens.

55
Q

What are some reasons a person may not draft a will?

A
  • Becomes public document once probated
  • Probate fees
  • Cost of writing a will
  • Complexity of an estate (may not be able to handle all aspects with one will)
  • Failure to plan
56
Q

What is “donatio mortis causa”?

A

Spoken declaration of testamentary intention. Only applicable in cases where death is imminent.

Certified Financial Planner Core Curriculum (16 decks)

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