Questions for Professionals

Michael Bronstine April 2023

How do you get from where you are today, to where you want to be with your estate planning? Your family will have enough to deal with on your passing and the foresight to plan will provide much-needed relief during a challenging time.

Here are some questions to review to get you on the right track:

Do you have a will?

A will documents how you want your assets distributed when you pass away. The instructions in your will should be consistent with your current wishes and capture your entire estate. If you die without a will, provincial legislation may dictate the distribution of your assets.

Certain assets can be distributed outside of your will. For example, you can designate specific beneficiaries for a Registered Retirement Savings Plan (RRSP), Registered Retirement Income Fund (RRIF), Tax Free Savings Account (TFSA), and life insurance policy.

Alternatively, you may want to consider transferring your assets prior to death.

Do you have two wills?

Many provinces allow for multiple wills. Multiple wills have been utilized as a technique to minimize probate fees in certain provinces. A probate fee is based on the value of the estate’s assets, and it is separate from income tax.

When was your will last updated?

It is a good idea to regularly review and update your will as your family circumstances and wealth could change over time. Further, tax laws are constantly changing, and legislative amendments may render results that are not compatible with your original wishes.

Have you thought about the tax implications to your estate when you pass away?

For income tax purposes, you are deemed to dispose of your assets at fair market value immediately prior to death. An income tax liability is generated on the deemed disposition of the assets. One exception is a spousal rollover, which allows assets to transfer to a spouse or common-law partner on a tax-deferred basis.

Often overlooked are the income tax implications and complexities of owning private company shares on death. For example, if you are a professional, you may have operated your practice through a professional corporation. When you die, you are deemed to dispose of your professional corporation shares and will be required to pay income tax on the capital gain arising on the deemed disposition of those shares. A double tax issue may result when your professional corporation later distributes its assets. A well thought out income tax strategy can minimize the double tax issue.

You should also consider that the allocation of your assets to beneficiaries may have different income tax implications because each asset could be taxed differently.

Will your estate have the cash to fund the tax liability on death?

Ideally, your estate has access to enough cash to pay the income tax liability arising on your death without causing financial issues. Otherwise, you need to determine how to fund the income tax liability.

For example, you may need to borrow against real property or sell certain assets. If neither borrowing money nor selling assets is viable, purchasing a life insurance policy to fund the income tax liability on death could be an option.

Are you concerned about any of your beneficiaries’ receiving assets on your death?

You may have family members who are not able to assume and manage the responsibility that comes with inheriting wealth. Family members could have health concerns and/or be in an unpredictable marriage. There are mechanisms available in these circumstances, such as the establishment of a trust that may allow control of your assets by others (at your direction) after you pass.

Are you concerned about privacy and the administration of your estate after you pass away?

Property that is placed into an alter ego trust (AET) will not pass through an estate on the death of an individual as the assets are not legally owned by the testator at the time of death. As a result, benefits of an AET include minimizing probate fees, maintaining confidentiality of assets owned and the value of such assets at death, expediting distribution of assets on death, and management of assets in case of future mental incapacity. An AET may also avoid complications arising in the administrate of an estate in some jurisdictions. Talk to your tax advisor prior to transferring the ownership of assets to an AET.

Have you thought about transferring assets during your lifetime?

You may want to transfer assets to family members or others during your lifetime. This can provide you with certainty that your assets are being transferred according to your wishes and allow you to support others in your lifetime. Be aware there may be income tax and other implications of transferring or changing ownership of assets. Talk to your tax advisor prior to transferring or changing ownership of assets.

Do you have a Power of Attorney?

A Power of Attorney is a legal document that gives authority to another person to act on your behalf for financial decisions. It becomes important if you become physically or mentally incapacitated. In some provinces, you may need a separate document (similar to a Power of Attorney) for personal care/health decisions.

How do I get started on formalizing my estate plan?

Estate planning is much more than implementing strategies to minimize income tax. A good starting point is undertaking a fact-finding mission to confirm your assets and liabilities and summarizing this information in a net worth statement. The net worth statement can be used to estimate your estate’s income tax liability.

Tax planning solutions can then be contemplated to defer or minimize income tax. An integrated approach to estate planning must consider non-tax objectives, such as maintaining a desired lifestyle and deciding how assets should be distributed amongst family members.

Your estate plan must also consider family dynamics and other areas of law such as estate and family law. To ensure your estate plan is meeting all your objectives, it is prudent to periodically review the plan, especially if your personal or financial circumstances change.

GBK Strategic Financial Partners can help. We have access to experts that work together to help you navigate through your Estate Planning. We have income tax specialists, succession planning experts, and a family office practice – all available to help you reach your goals.