Estate Planning Flashcards
What is unique about Spousal Trusts?
Transfers into trust can be done at settlors ACB without triggering any capital gains
Benefits of an Estate Freeze include:
- ability to manage tax liability
- the use of rollover provisions
- parents can still maintain control of frozen asset through the use of votes and shares
- could possibly income split (but must be aware of attribution rules)
- EF may allow parent to crystalize capital gains exemptions
May use of Estate Freezes?
- Reduce tax liability that arises at death by reducing the size of an estate before someone dies
- transferred assets are assumed to have significant growth
- Estate Freezes and Family Trusts are usually used in conjunction - Family Trust owns asset but parents can continue to control asset by being the trustee and have voting shares
Gifts and inheritances pros and cons
Pros:
- simple
- straightforward
- able to do while giver is alive and see the benefits of their gift
Cons:
- give up all rights of the asset
- matrimonial risk - reciever might want to keep these assets separate
- spendthrift beneficiaries
- creditor claims
Joint Assets pros and cons
Pros
- simple
- avoids probate until death of last surviving
Cons
- joint tenant has control of asset too
- no creditor protection
When are Representative Agreements used?
Typically when someone has no family or close relative they can trust to look after them
What are your three possible taxes at death?
- Income tax due to deemed dispositions
- Probate
- US Estate Tax on your US assets
What is an example of Rights and Things?
It’s income earned but not received on date of death
Rights or Things
- declared dividends not yet recieved
- bond coupons matured and not cashed
- salary commissions
- CPP and OAS pmts recieved after death
What is probate based on?
Total value of assets that flow through the Will
- anything over $25K
- probate fee is 1.4%
How to lower costs of probate?
- Designate beneficiaries for RRSPs TFSAs etc and any life insurance policies
- Transfer property to Joint Tenancy
- Create a Trust
- Write a dual will for art etc
- Give away stuff before death
US Estate Taxes - what is considered US Situs Property?
- US real estate
- ## share of US corp EG Apple (unless held in a Canadian ETF) , but this applies even if held in a Canadian brokerage account (eg RRSP TFSA)
Where does a possible US Estate Tax situation apply?
If a client is investing in US securities such as IBM or Microsoft in their Canadian brokerage account, which may result in a US tax liability for their estate
How to lower your US death tax bill
- life insurance
- sell US assets before death
- if you have a lot of US assets consider having a Canadian corp hold the assets
- Hold Canadian MF instead as they can house US assets but not have the tax consequences
- hold assets jointly
What is a tax deduction?
Expense subtracted from total income to arrive at a taxable income
eg:
- child care
- union dues
- attendant fees
- alimony
- spousal support payments (tax deductible for payer, taxable for receivers)
What is a tax credit?
Dollar for dollar reduction in amount of tax that needs to be paid
