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Estate Planning > test > Flashcards

test Flashcards

1
Q

Estate planning purposes

A
  • Transfer assets in accordance with your wishes
  • Preserve Wealth, minimize taxes at death
  • Provide financially for dependents
  • Ensure sufficient liquidity to eliminate debts, fund trusts or special bequests, e.g. donation to charity
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2
Q

Factor to consider for estate

A

Life expectancy, cost of care, outstanding debts, gifts to kids, Blended family, Dying without a will
- Will, PO Attorney for property and personal care, Trust agreement, succession plan for any business interest

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3
Q

Separation, Divorce not Invalidate a will or a bequest

POA-Attorney for Property and for Personal Care

A

legal document, give attorney the right to act on ‘grantor’s behalf

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4
Q

Power of Attorney for Property has LIMITED and GENERAL

A

Effective immediately, terminated automatically if grantor dies, attorney dies, grantor revokes and GRANTOR BECOMES INCAPACITATED
- POA for Property has ENDURING and CONTINUING PA

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5
Q

Power of Attorney for Personal Care

A

Unlike POA for Property, POA for personal Care only becomes effective when the grantor becomes incapacitated due to ILLNESS, INJURY, DEMEMTIA

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6
Q

Per Stripes Designation is Per branch, if kid pass away, leave kids’ portion to grand kids,
Each branch of beneficiaries receives equal share, whether or not they Survive the testator
- if child predeceases the testator, child’s share will be split among child’s kids–testator grandchildren

A

Per Capita= Per person

  • each living member of beneficiaries receive equal share
  • if child predeceases the testator, child share will be split among his/her siblings, the TESTator’s surviving children
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7
Q

What is a WILL

A
  • Legal document
  • Appoints Executor and Trustee
  • Outline how testator’s assets are to be distributed at death
  • Recommends guardian of minor children
  • Describes specific powers entrusted to executor
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8
Q

Testator

A

Person who make a will
must conform to the laws of the province, e.g. age of majority
- mentally competent when written
cannot be under the influence of another person
- witnessed by authorized person, in ON, a lawyer

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9
Q

Holograph Will

A

Handwritten, signed and dated

- some provinces may have additional requirements, e.g. require witnesses

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10
Q

Executor/Liquidator/estate trustee

  • family, responsible, reliable member- advantages objectivity coupled with family knowledge
  • trust compnay - objectivity + Longevity
  • if no will, Public Trustee
A
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11
Q

Role of the Estate/Public Trustee

A
  • gather assets
  • pay debts and fees
  • Distribute estate assets
  • Coordinate work of estate professionals, e.g. accountant who prepares deceased’s income tax returns
  • Fees 1% - 2.5% of estate assets
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12
Q

Trustee

A

Manage the Trust

  • Has fiduciary relationship with beneficiaries
  • Act in best interests of beneficiaries
  • Act imaprtially between beneficiaries
  • authority to make payments to parent/guardian of minor beneficiary
  • CAN also be beneficiary, guardian and executor
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13
Q

Common types of trust property

A

Investment portfolio
Real estate
Life insurance proceeds
Business interest

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14
Q

Beneficiary’s interest

A

Stated in Will –fixed amount or
Discretionary amount
- trustee determines if and when the beneficiary receives property, proceeds and income

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15
Q

Disadvantage of trust

A
  • Costs, 1% to 2.5% of value of trust property, legal, accounting fees
  • may last many years, limiting flexibility in changing world
  • Trustee requires expertise and people skills
    All INCOME retained in the Trust is taxed at the HIGHEST marginal tax rate
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16
Q

Taxation of property when transferred to Testamentary trust

A

Deemed sold by deceased
Received by Trust at Fair Market value
Top tax rate, marginal rate
- exception for Graduated Rate Estate and QUALIFIED DISABILIYT TRUST

17
Q

What is graduated Rate Estate

A
  • auto created at death, asets not distributed directly to beneficiares
    Must designate the trust as GRE on its first tax return
    taxation, graduated rates on income retained in trust , apply for 36 months after the date of death
  • if GRE still exists after 36 month, lose preferred GRE states, deemed sipositon of all assets, all income taxed at top orate
18
Q

Ontario EAT estate Administration Tax

A
  • 0.5% on first 50,000

- 1.5% on the excess

19
Q

Which assets subject to EAS

A

assets of deceased, do not roll over to beneficiary or joint owner
- with real estate, outstanding mortgage is deducted from value of estate
assets owned by deceased as tenant in common
- each owner control respective portion
-

20
Q

What assets are NOT subject to EAT

A

assets gifted prior to death
assets transferred prior to death to Inter Vivos trust
Assets owned jointly - JWROS
Registered funds payable to named beneficiary, RRSP, RRIF, RPP, TFSA
Life Insurance paid to named beneficiry

21
Q

7 What is constructive trust?

A

a. A constructive trust may be formed when one person benefits at the expense of another
b. Carried cared the children while mike built his business. Upon marital breakdown, Carrie could claim a constructive trust on mike’s business

22
Q

8 What is a resulting trust – based upon the presumption that a person has a share in asset

A

a. Ex. Fred and barney each put 10,000 down to purchase a condo but only fred’s name on the deed.
b. Barney could claim a resulting trust on the condo

23
Q

4 what is QDT trust?
a. Qualified disability trust (QDT) is a type of trust for individuals with disabilities that permits lower tax rates to apply to the trust.
b.

A

A QDT will be subject to graduated rates as long as the bene. of the trust continues to qualify for the disability tax credit, ie. Disabled

c. To qualify, the trust must
i. Be a testamentary trust
ii. Resident of Canada
iii. Make it election in T3 return to be QDT for the tax year
iv. Have income for the taxation year, excluding income from a preferred beneficiary election, which does not exceed the depended tax credit

24
Q

2 How does the 21 year rule impact a spousal trust

A

b. Under the income tax act, a trust is taxed every 21 years as if it had disposed of all the capital property at FMV.
d. The 21 year rule does not apply to spousal trust till the death of the surving spouse, at which time the rule is applied accordingly.

25
Q
  1. you have second marriage, and have a newborn, you want to set up a trust that would be trigged upon his death and be in favour of new born son. You best friend has been appointed as the trustee.
A
  • Testamentary Trust
  • Various types of Trusts can be divided into two main categories : testamentary Trust and Inter Vivos trust (Living trust)
26
Q
  • Spousal Trust
    o Can be established as either a testamentary or inter vivos trust
    o Qualifies as spousal trust as long as certain conditions are met
    o Spousal Trust has some tax advantages over a regular trust
    o To be considered a spousal trust, the agreement must state that only the beneficiary spouse is entitled to receive the trust’s income during his/her life time
A

• Any assets that are distributed via the will are subject to probate fees, which vary form province-to province, so the best to avoid probate fees is to have assets go directly to be beneficiary without going through the will first
- An individual can reduce probate fees by:
o Transferring ownership of assets to beneficiaries or to a living trust prior to death
o Donating cash/assets to charity prior to death
o Holding property as joint tenants with beneficiary so the surviving owner gains full title upon the death of the individual
o Naming beneficiaries, other than the estate, on applicable assets, e.g. RRSPs, life insurance policies, segregated fund..etc

27
Q

A living Trust can be revocable or irrevocable. If not specifically stated, it is Irrevocable

A

executor of a will and a trustee for an estate may be the same person, they can also be two/more different people

28
Q

b. Testator may want to leave the surviving spouse with life interest in a specific asset, but not ownership of the asset it self.

A
  1. Scot had 2 children from previous marriage, in the event of death, he would like to give new spouse the unencumbered use of cottage. When she dies, wants the ownership of the cottage to go to his children. What clause should he include in the will.
    a. Life interest in a specific asset
29
Q
  1. There are various clauses that can be included in a will. What is survivorship clause?
    a. A survivorship clause states that a spousal beneficiary must survive the deceased by a minimum period of time, usually 30 days
    b.
A

If the beneficiary dies within this time frame, then he is deemed to have died before the testator and therefore would not have any entitlement under the will
c. This is to avoid double probate fees if the beneficiary dies within a very short time period after the testator

30
Q

a. Separation does not generally have any impact on a will

A

b. If dies without a will, intestate, the courts distribute the assets under each province’s statutory rules. This could cause assets or inheritances to go to a beneficiary whom the deceased did not intend to benefit

31
Q
  1. What is a CODICIL?
    a. An amendment to an existing will
    b. How can a will be amended by testator? – By codicil, rather than create a whole new will, an existing will can be amended by codicil.
A
  1. How des divorce impacts an existing will?
    a. Divorce act is federal statute that applies to all provinces.
    b. Divorce does not revoke a will if revokes certain parts of a will in all provinces
32
Q
  1. How does marriage impact will?
A

a. Marriage after a will was written invalidates the will. If someone was take on a new spouse, the will drafted prior to that marriage probably does not reflect his /her current wishes.

33
Q
  1. Probate fees are calculated on the gross value of the assets without a deduction for outstanding debts with the only exception being mortgages on real property.
    a. A 50K vehicle with a 10K car olan registered against it: the full 50,000 would attract probate fees
    b. A 500K home with 200K mortgage registered against it, probate fees would be applied only to the difference of 300K
A
  1. What clauses gives the executor the discretion to use assets for the benefit of minor beneficiaries?
    a. Discretionary Encroachment clause
    b. Normally, minors cannot receive funds form the estate until they become adults, 18 or 19 depending on the province, this clause gives the executor the discretion to encroach upon the estate, use assets for the benefit of minor beneficiaries.
34
Q

USUFRUCT – usufruct is the right of use and enjoyment of a property, which owned by someone else for a certain period

A

Estate Planning (3 decks)

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