Estate Planning Flashcards
Is a will voided after a marriage (Ontario)? Divorce?
No; No
Estate distribution without a will?
Provincially determined
Ontario: first 200K goes to spouse, remainder shares between spouse and children.
Division of assets in divorce (ON.)?
Equal division of net family property (assets acquired during marriage and increase in value of property owned at the time of marriage). Each spouse ends with half, after an equalization payment is made.
Spousal protest of a will?
Spouse can elect to take an equalization payment for half the difference in net family property rather than what was left in the will.
Ontario probate fees?
0% up to 50K
1.5% over 50K
Concern about JTWROS between parent and child?
Unless stated in the will, that the child is the beneficial owner can be challenged in court as there is an expectation that the child will distribute assets in accordance with the will.
Three parties to a trust?
Trustee: creates trust
Settlor: puts assets into trust (can be the same as trustee)
Beneficiary
Testamentary trust?
Created by the settlor’s will
Trust made while alive?
Inter Vivos (“among the living”)
How are trusts taxed? (I & T)
As individuals but cannot claim credits.
Flat taxed at top combined tax rate for individual; year end must be December 31st.
Amounts paid to beneficiaries are deducted from trust income and taxable by beneficiaries (generally carrying its character, e.g., capital gains)
Exception to testamentary taxation?
An estate that designates itself as a graduated rate estate are taxed at individual marginal tax rates for the first 36 months of existence.
If beneficiary receives disability tax credit then taxed at graduated rates.
When does deemed desposition occur?
Every 21 years
What is an alter ego trust? Joint partner trust?
Assets remain in your control, income (etc) taxed in your hands (no tax on contributions)
At death, it performs the same function as a will, but avoids probate (trust does file a final return and pay tax, however)
JPT: same as alter ego, but for a spouse.
When is an estate freeze usually used?
By business owners whose family will contribute to own after you die (and you expect to increase in value)
What is an estate freeze?
Basically, a holding company and a family trust are set up. The result is that the value of the estate is frozen and any future growth is payable by the beneficiaries when they sell the business.
What to do if you have an estate freeze but value of estate has decreased?
A refreeze, where you basically set it up again but to reflect the current, lower price.
How are TFSA taxed at death?
No taxation (except any growth/interest after DOD, which is taxed in beneficiaries hands)
How are RSPs/RIFs taxed at death?
taken as a withdrawal and included in final return.
Exception is successor annuitant, who takes over the RIF without any tax implications.
Estate planning for for primary residence?
Registering it in joint tenancy
Can transfer ownership on a tax free basis to a child (then, taking back a promissory note or to an inter vivos trust) but these are more complex strategies
Estate planning for non-reg assets?
Transferring ownership generates a tax implication (today) but would avoid probate.
Can, alternatively, transfer beneficial ownership which avoids taxation but not probate.
Transfer to a trust ill trigger immediate taxation
Advantages of transferring a rental property into joint tenancy?
- income splitting opportunities
- asset avoids probate * transfers automatically (no delays or disputes)
Disadvantages to transferring a rental property to joint tenancy?
- Can lose control of the property if other onwers sell it or make changes
- If marriage breakdown, prop may be included in the family assets
- Liability of joint owners (do they run businesses, creditors?
- Are the joint owners the one(s) who you want the asset to flow to?
- is a taxable event in proportion to % of asset transferred.
Downsides of trusts?
- costs to set up/ maintain
Deemed disposition?
Trusts have deemed dispositions of all assets every 21 years, even if assets remain in trust.
Advantage to trusts?
Can split income between trust and beneficiaires
* graduated rate state allow for less tax during first 3 years
