Estate & Wealth Planning

Estate Planning

A well planned estate plan can protect loved ones, maintain a family business, save taxes, avoid conflicts between beneficiaries, take care of charitable interests and accomplish many other objectives. After some careful estate planning discussions there are a number of elements of a comprehensive and thoughtful estate plan which may be appropriate in certain cases including wills, domestic contracts, life insurance, gifts during your lifetime, estate freezes, family and other trusts, and powers of attorney for property and personal care.

Wills and Multiple Wills

A will is an important part of any estate plan. The following are common reasons you should have a will:

• to ensure that as large a part of your assets as are legally permissible is transferred upon death to those whom you care for;


• to appoint guardians for your minor children;


• to avoid legislation, such as the Succession Law Reform Act (Ontario), arbitrarily determining the division of your assets;


• to place the administration and control of your assets in the hands of someone you trust;


• to create suitable trust provisions to prevent your children from spending their inheritance prematurely and to avoid the Ontario Office of the Public Guardian & Trustee from controlling your children's assets until they reach the age of majority;


• to save taxes or at least defer them including by means of multiple testamentary trusts;


• to avoid conflict, litigation and unnecessary expense among family members after your death;


• to make sure certain items of special significance are given to designated individuals;


• to make charitable donations in your will to organizations that you care about and have supported during your lifetime; and


• if you have no heirs and family on death to avoid all their assets being transferred to the government.

If you live in Ontario and have valuable private corporation shares it is sometimes useful to have a second will which covers such shares. This technique applies to other assets that can be transferred without a probated will. Usually how this works is that you have two wills - the primary will covers all your assets except the private shares, and the secondary will only covers your private corporation shares. After your death your executor when probating your will only probates the primary will and thus it is possible to avoid paying probate taxes on the private corporation shares which are covered under the secondary will. As an example if your private corporation shares are worth $2 million if you only had one will covering all our assets you would pay probate of approximately $30,000 on the private corporation shares. If such shares were in your secondary will, which was not probated, you could save the $30,000 probate fee. The more the shares are worth the greater the probate savings that can be realized in Ontario. Any Ontario shareholder with over a million dollars in private corporation shares should seriously consider using multiple wills.

Some of the questions that we will ask when you come into our office are:

• who would you like to benefit from your estate;


• what family members are you obligated either legally or morally to support;


• what are your assets and debts;


• how are your assets held and have you made beneficiary designations;


• who would be an appropriate executor; and


• who would be a good guardian, if you have children for whom a guardian is required.

Powers of Attorney

There are three commonly used powers of attorney in Ontario namely the Continuing Power of Attorney of Property, Power of Attorney for Personal Care and a Special Power of Attorney.


The Continuing Power of Attorney for Property

A Continuing Power of Attorney is a legal document in which you give one or more persons the legal authority to make decisions about your finances either in the case of you becoming unable to make those decisions yourself or effective upon the creation of the Continuing Power of Attorney. The reason it is referred to as a "Continuing" power of attorney is that the power of attorney survives the mental incapacity of the person who gave the power of attorney. All powers of attorney cease upon the death of a person who gave the power of attorney. The Continuing Power of Attorney for Property is very useful if you are incapacitated, or going to be outside of the province for an extended period of time. In such case it covers who will take care of your investments, real estate, pay funds to your dependents, pay other financial obligations etc.

Some of the provisions in a Continuing Power of Attorney including provisions dealing with appointment (who is appointed and whether joint, joint and several, or several), substitution, powers, the continuing nature of the power of attorney, family law act consents, conditions and restrictions, effective date provisions, revocation provisions, compensation for the attorney, and whether a bond or security will be required. Not all provisions are appropriate for all circumstances.

As with a will it is extremely important that the Continuing Power of Attorney for Property be properly witnessed and stored. Typically, Continuing Powers of Attorney for Property are broad in scope and therefore they are an extremely important legal document that can give tremendous powers and responsibilities to the attorney. There is a real danger that a Continuing Powers of Attorney for Property can be abused. It is important that safeguards be put in place to avoid such abuse.

Power of Attorney for Personal Care

The Power of Attorney for Personal Care in Ontario is a binding legal document in which you give someone else the power to decide, if you are incapacitated, matters such as health care, nutrition, shelter, clothing, hygiene, and safety. It does not cover issues related to property which should be covered under a Continuing Power of Attorney for Property. It is important that you pick an attorney for personal care who you have confidence in their ability to make personal care decisions affecting you. People sometimes use the term "living will" or "advanced medical directive" to describe the Power of Attorney for Personal Care. However, we would point out that unlike some other jurisdictions a properly prepared and executed Power of Attorney for Personal Care is legally binding in Ontario. It can deal with issues such as whether heroic measures should be used to sustain your life, circumstances in which medical care or intravenous feedings should be discontinued if there is no hope of recovery, and other important medical and care issues. Having a Power of Attorney for Personal Care will help avoid a fight between loved one's, not only as to who has the power to decide medical and care issues, but also on the course of action to be followed.

Special Powers of Attorney

A special Power of Attorney is a power of attorney for property, that can be continuing or not, and which usually is more limited in scope than the broad Continuing Power of Attorney for Property. Special Powers of Attorney would be used in cases such as when you will be out of the country for a few months and you want to appoint an attorney to sell a piece of real estate or a business.

Trusts

In general a trust can be set up during your lifetime (inter vivos trust) or upon your death (testamentary trust). It can be created by yourself either verbally or in writing, by statute or by the court. With a trust a settlor asks a trustee to hold certain property in trust for a beneficiary. There are many types of trusts to suit different circumstances including family trusts, alter ego trusts, Henson trust (for a child with a disability), life insurance trusts, etc. It is important that if trusts are set up that they are fully integrated with a proper estate plan.

Charities and Private Foundations

For some people the estate planning process is the ideal time to consider charitable interests. Some clients include a charitable bequest in their will, while others set up a private foundation or endow a community foundation. There are many other planned giving opportunities to suite different people's objectives including gifts of life insurance, gifts of marketable securities, charitable remainder trusts and RRSP/RRIF designations.

Blumbergs has recently launched www.globalphilanthropy.ca a website aimed as assisting Canadian individuals, non-profits and charities that are conducting, or interested in conducting, foreign activities including international development, humanitarian assistance, and education. The website will focus on Canadian legal, ethical and practical issues in global philanthropy.

For further information on planned giving and charities visit our Non-Profit and Charity page.


Estate Freezes

Entrepreneurs who have built successful companies should consider succession planning and an estate freeze may be useful in passing on a business to the next generation with the least tax consequences. There are a number of ways to accomplish a freeze. It is important to receive legal and accounting advice as to your particular situation. The most common estate freezes involved the Canadian controlled private corporation (small business) to reorganize the share structure of the corporation. First the owner exchanges his or her existing common shares in the business for new voting, redeemable preferred shares which have the same value. Then the owner creates a new class of common shares, which would be purchased by your children or grandchildren or a specially created family trust for their benefit.
The future growth in your business will accrue to the common shares held by the children/grandchildren or family trust. Any future capital gains tax liability on the new shares will be deferred until the holders of the new common shares sell their shares. The estate freeze will assist in helping you determine your income tax obligations on death as the value of your shares would have been already determined and consequently you can purchase life insurance or make other arrangements to pay those taxes. The preferred shares can provide a dividend to owner for retirement income or the shares can be redeemed over time to provide additional income. It is important that an estate freeze be carefully thought out or you can underestimate your financial and retirement needs. As well the estate freeze should carefully arrange that although you are transferring the future growth of the corporation you are not giving up control of the corporation.

Estate Administration

If you are an executor and need to deal with an estate we can assist you with the legal and administrative issues that arise in an estate matter. There are many issues that can arise in the administration of an estate including understanding your role, obligations and potential liabilities as an executor, obtaining and understanding the will, opening estate bank accounts, notifying appropriate governmental authorities, listing and dealing with assets, claims and debts of the estate, notifying beneficiaries, advertising for creditors, informally or formally passing of accounts, preparing releases, paying appropriate compensation to the estate trustee and advisors, and obtaining tax clearance certificates. Whether it is understanding your obligations as an executor, deciding whether probate is necessary and if necessary obtaining probate, dealing with inadequately drafted wills, dealing with creditors and beneficiaries, Blumberg Segal LLP can assist you with the estate process. As lawyers in Toronto we have assisted local estate trustees, foreign executors and beneficiaries. As executors can be held personally liable for their conduct it is important to obtain timely legal advice to ensure that the estate is administered according to the terms of the will and Ontario law.

Comprehensive Estate Planning

It is typically not enough to just have wills and powers of attorney. In the case of high net worth individuals or more complicated fact situations there needs to be more extensive review and planning.

Some of the elements of a comprehensive estate planning process include:

1) understanding your assets, their location (jurisdiction), their value, how they are held and how they will be taxed on your death and your spouses death and whether your assets will be part of your estate or will go directly to certain beneficiaries;
2) understanding your values, those who you want to benefit and the causes you care about;
3) careful assessment of the appropriate executor;
4) working with other professional advisors such as accountants, insurance advisors, financial planners to craft the most effective estate plan;
5) how your life insurance affects your estate;
6) the impact of different beneficiary designations;
7) how trusts affect your estate or how they can be used for various purposes including creditor protection, tax savings, probate avoidance;
8) family law issues such as separation agreements and divorce, equitable treatment of children from different marriages;
9) integrating business succession planning with estate planning;
10) working with your accountant to minimize estate taxes and making provision for the necessary liquidity to pay such taxes;
11) working with your insurance advisor to ensure that adequate insurance is in place to fund your obligations including taxes, support of dependents and charitable causes etc;
12) probate minimization;
13) guardianship issues;
14) special consideration for particular assets such as sentimental personal property and cottages;
15) carefully considering stages in life and how your needs and concerns may vary; and
16) planned giving including setting up foundations, providing a legacy in your will, donating life insurance or marketable securities.

This list is hardly comprehensive. One spends decades accumulating assets to provide for yourself and your beneficiaries. It makes sense and is cost effective to spend a few hours to review your estate plan and ensure that you are on the right track.



The Importance of Avoiding Estate Litigation

Estate litigation has become far more frequent in Ontario. Some of the most common situations that result in litigation include siblings not being treated equally, large estates, the disposition of sentimental properties such as cottages, dramatic changes in a testator's will, inadequate provision for dependents, testator's not having testamentary capacity, poorly chosen executors, and situations involving a second spouse in conflict with children of a first marriage. Another potentially dangerous time is the period between seperation and divorce. If the death of a testator is a spark then a poorly drafted will or ill-conceived estate plan is often the kindling that will promote and sustain animosity and estate litigation. Everyone should have a will and powers of attorney but properly drafted wills and powers of attorney are especially important when one or more of above mentioned factors pertain to your situation.


Estate Planning Questionnaire

Prior to meeting with one of our estate planning lawyers you may wish to review our client questionnaire. Completing the questionnaire can assist us in understand more about you. It is by no means required and some of the questions are not relevent to all individuals.

http://www.blumbergs.ca/images/uploads/Client_Questionnaire-MAB_in_PDF.pdf

Estate Planning Power Point Presentation

Here is a copy of a power point presentation that I recently delivered entitled
ABCs of Estate Planning in Ontario.


Estate Planning Review

If you are interested in discussing any matter related to estate and wealth planning please contact Mark Blumberg at mark@blumbergs.ca or call 416-361-1982 x. 237

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