estate planning & taxation diana mau, c.a. 205-8833 odlin crescent, richmond, b.c. v6x 3z7 tel:...
TRANSCRIPT
![Page 1: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/1.jpg)
Estate Planning & Taxation
Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond,
B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769 www.dianamau.bc.ca
![Page 2: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/2.jpg)
Estate Planning- misconceptions I have given away all my assets to my
children I have a will
![Page 3: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/3.jpg)
Estate planning : Non-Tax Considerations To ensure loved ones are taken care of Transfer of assets to intended
beneficiaries according to the deceased’s wishes
To ensure liquidity – cash to pay funeral expenses & income taxes
To avoid family disputes To expedite the settlement of estate
![Page 4: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/4.jpg)
Estate Planning – Tax Considerations Prior to Death – tax planning to
minimize taxes such as income splitting, trusts & estate freeze and will planning etc.
Year of Death – to minimize income taxes payable, probate fees in the year of death
![Page 5: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/5.jpg)
Tax Planning Ideas while Alive Income Splitting Estate Freeze Insurance Trust
![Page 6: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/6.jpg)
Income Tax Rates 2012
Income range Tax rates
$0 - $37,000 20.06%
$37,000 - $42,7000 22.70%
$42,000 - $74,000 29.70%
$74,000 - $85,000 32.50%
$85,000 - $85,400 36.50%
$85,400 - $103,200 38.29%
$103,200 - $132,400 40.70%
Over $132,400 43.7%
![Page 7: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/7.jpg)
Purposes of Income Splitting
Taxes payable on a given amount of income will be greater if that amount accrues to one person, lower if that amount of income is split between two or more people
Example: income of $490,000 Taxes payable one person- $196,000 Taxes payable four persons - $35,500 x4 or
$142,000 Tax savings of $54,000
![Page 8: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/8.jpg)
Income Splitting - Problems
Attribution Rule – applicable to where an individual has transferred property to spouse or common-law partner or individuals under age 18 and who do not deal at arm’s length, the income is attributed back to the transferor
For spouses & common-law partners, attribution also applies to capital gains
![Page 9: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/9.jpg)
Income Splitting
Cash gifts to children 18 or over, no attribution applies. Income earned is taxed in the child’s hands. But parents would be completely losing control over the money
![Page 10: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/10.jpg)
Income Splitting
Free or low interest loans made to children 18 or over for producing property income, there may be attribution if one of the main reasons for making the loan is to reduce or avoid tax
Free or low interest loans made to children 18 or over to purchase PR is OK
![Page 11: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/11.jpg)
Income Splitting by gifting property Parents gifting rental property to Children Parents are deemed to have the property
disposed at FMV, resulting in capital gains or recapture of CCA to parents
Parents would also lose control over the property
Property Transfer tax on transfer of title of property other than PR
![Page 12: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/12.jpg)
Income Splitting of Real Property If the property is occupied by the
children as a PR, then parents can take back a mortgage on the property as security. No attribution would apply as there is no rental income deriving from the property
![Page 13: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/13.jpg)
Principal Residence (PR)
In general, capital gains arising on the disposition of a PR can be exempted from taxation
The exempted gain = Gain x (B + 1) / Y B is the no. of years since 1971 designed as
PR Y is the no. of years since 1971 the taxpayer
has owned the property
![Page 14: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/14.jpg)
Principal Residence (Cont 2)
Since 1982, a family unit can designate one PR for a particular year
A PR is an accommodation owned by the taxpayer that was ordinarily inhabited in the year by the taxpayer, his spouse, a former spouse or a child and is designated by the taxpayer as a PR.
![Page 15: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/15.jpg)
Change in Use – PR to Rental
Deemed disposition at FMV on change in use Elect deemed not to have commenced rental
provided no CCA is claimed The property can continue to be designated
as a PR for up to 4 years The 4 year limit can be extended without limit
if you are being relocated for employment reason to a location where your original residence is at least 40 km further away from your new place of employment
![Page 16: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/16.jpg)
Change in use – Rental to PR
In general, deemed disposition at FMV on change of use
You can elect out of the deemed disposition as long as no CCA is claimed
The election also allows to designate the property as a PR for up to 4 years
![Page 17: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/17.jpg)
How to make the best use of PR gain exemption Children age 19 or over Loan to children to acquire a property Register a mortgage to parent for
security Designate the property as PR for 4
years
![Page 18: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/18.jpg)
Overcoming attribution
Income attribution on loans or transfer made to children 18 or over can be avoided if one can substantiate the main reason for making the loan is NOT to reduce or avoid tax
Example: children use the property income for education and not returning the property income to parents
![Page 19: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/19.jpg)
Other Tax Planning Ideas
Splitting pension income- Commencing 2007, it is possible to transfer up to 50% of qualified pension to a lower income spouse
RESP – Registered Educational Savings Plans
TFSA – $5,000 Tax Free Savings Accounts per year
Spousal RRSP
![Page 20: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/20.jpg)
Estate Freeze
Objective: To freeze the value the of estate for tax purposes at a particular time
Arrangements are made for all future appreciation to accrue to related parties such as a spouse, children or grandchildren
![Page 21: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/21.jpg)
Estate Freeze ExampleMr. Chan
Chan Inc
Net Assets 10M
Common shares 2 M
R/E 8 M
![Page 22: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/22.jpg)
Estate Freeze Example
Mr. Chan
Chan son 1 Chan son 2
Chan Inc
PreferredACB 2 MRedeem 10M
Common Common
Using Section 86 rollover , Mr. Chan’s old common Shares are exchanged for preferred shares, while Sons subscribed for new nominal common shares
![Page 23: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/23.jpg)
Benefits of Estate Freeze
To transfer future growth of a corporation into the hands of intended beneficiaries with no immediate tax effects on the transferor
The beneficiaries will be taxed in income earned subsequent to the estate freeze
Multiple use of $750,000 of lifetime capital gains deduction for qualified small business corporation
![Page 24: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/24.jpg)
Insurance - Benefits
Will bypass probate if a beneficiary is designated
Creditor protection- exempt from seizure if the designation is in favour of a life insured’s spouse, child grandchild or parent
Tax preferred treatment for Whole or Universal life policies
Privacy- insurance does not flow into the estate and the probate registry
Insurance declaration- testamentary trust
![Page 25: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/25.jpg)
Insurance Declaration
To desire to establish an insurance trust outside the will, the concern was it would be an inter-vivos trust
CRA’s position is trusts funded from the proceeds of life insurance on death of an individual will be viewed as a testamentary trust
A powerful & inexpensive tool to set up a testamentary trust
![Page 26: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/26.jpg)
Trust- what is a trust? Settlor
Trustee
Beneficiaries
A trust is a relationship that arises when a settlor transfer property to a trustee to hold for the benefit of the beneficiaries.
![Page 27: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/27.jpg)
Trusts
Settlor is the person who sets up the trust and make the initial transfer of property to the Trustee
Trustee is the person who holds the formal legal title to the property
Beneficiaries are persons who will benefit from the property that is held by the Trustee
![Page 28: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/28.jpg)
Income splitting of a trust
A high income individual transfer investments property to a family trust
The father is the settlors The father & 2 other investment advisors
are trustees to avoid reversionary trust. The trustees hold title to the investment property
The adult children are the beneficiaries
![Page 29: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/29.jpg)
Income splitting of a trust-Cont Assuming the father is at the top tax
bracket, the father can save $5,000 every year on $50,000 eligible dividends if the dividends would be earned by an adult child if the child has no other income
The same tax savings can be achieved with or without the family trust, but a discretionary trust can provide the father more control over the capital & the income allocation
![Page 30: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/30.jpg)
End of family trust for minors
In 2000, the federal Govt ended the tax benefit of income spitting of private corporations by introducing the “KIDDIE TAX”, taxing the dividends from private corporations to children under age 18 received directly or through a trust at the top tax rate and restricting personal credit
![Page 31: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/31.jpg)
Understanding taxation on death What are the CPP & OAS benefits on
death?
What are the tax consequences on death?
![Page 32: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/32.jpg)
Termination of CPP on death
If the deceased has commenced receiving CPP, CPP benefits to a contributor will cease upon death
There are CPP benefits for surviving spouse or common-law partners & children
![Page 33: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/33.jpg)
CPP benefits for survivors
CPP provide benefits for the surviving family members of a deceased contributor. Benefits based on contributions made by contributors.
Benefits provided in 3 categories 1. Death benefit 2. Survivor’s pension 3. Children’s benefit
![Page 34: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/34.jpg)
You have to apply for get CPP Benefits (not automatic) Retroactive benefits are available for up
to 12 months
![Page 35: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/35.jpg)
CPP Death Benefit
Is a one-time lump sum payment upon the death of a qualifying contributor to the deceased estate.
The max amount is $2,500. Amount included as income of the
estate.
![Page 36: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/36.jpg)
Survivor’s Pension
Survivor’s pension is a monthly benefit paid to the legal spouse or common-law partner of the deceased contributor
Survivor’s benefit depends upon the deceased’s contributions to CPP, age of the surviving spouse, whether the surviving spouse is supporting dependents and whether or not the surviving spouse is receiving any CPP benefits
Max CPP for surviving spouse age 65 & over, 60% of the contributors’ CPP
![Page 37: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/37.jpg)
Children’s Benefit
A dependent child is a natural or adopted child of the contributor and who is:
Under the age of 18 or Is between 18 to 24 and is in school full-
time The children’s benefit is a flat amount,
$225 per month in 2013
![Page 38: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/38.jpg)
CPP Payment Rates - 2013
Type Avg Amount Max Amount
Survivors < Age 65 378 557
Survivors > Age 65 307 608
Combined survivors & retirement
722 1,013
Children 225 229
Death benefit – one-time payment
2,275 2,500
![Page 39: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/39.jpg)
Old Age Security (OAS)
Federally funded from general revenue A social security program designed for
lower & middle income Canadians who have resided in Canada for a minimum of 10 years after age 18
![Page 40: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/40.jpg)
OAS Benefit Payment RatesType Average
Monthly Amount
Max Monthly benefit
Max annual income
OAS for single 514 546 See note
GIS, age 65 & over -single
500 740 16,560
Allowance for survivors
619 1,161 22,320
Note: 15% clawback from $70,000, no OAS if income over $113,000
![Page 41: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/41.jpg)
Taxation on Death
No Gift Tax No Inheritance Tax Probate - probate is a court process
that proves the validity of a will Income Tax on Deemed Disposition on
Death
![Page 42: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/42.jpg)
Probate Tax
Probate tax is proportional to the value of the estate, so that lower the value of the estate, the lower the probate tax.
Probate planning is aimed at reducing the value of the estate.
![Page 43: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/43.jpg)
Probate Tax in B.C.
Assets < $25,000
$25,000 - $50,000
Over $50,000
Filing fees of $208
$0
0.6%
1.4%
![Page 44: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/44.jpg)
No Probate Tax
No probate tax on joint assets & designated assets as they pass outside your will and they do not form part of your estate
![Page 45: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/45.jpg)
Probate Planning By having estate assets passing outside wills
(wills substitutes) Inter vivos gifts Inter vivos trusts Registering assets in joint tenancy with right
of survivorship Beneficiary designations such as RRSP,
RRIF and insurance Multiple wills –will discuss in the Will Section
![Page 46: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/46.jpg)
When is probate necessary
Intestacy – where the deceased died intestate & there are assets in the estate
When an estate is involved in litigation Real estate other than joint tenancy with
right of survivorship Bank account over $10,000
![Page 47: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/47.jpg)
Income Tax on Death
Final or Terminal personal income tax return from January 1 to the date of death of that year
Death causes a deemed disposition at fair market value (FMV) relative to capital property owned by the deceased taxpayer (except for those properties qualifying for spousal rollover)
![Page 48: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/48.jpg)
Income Tax on Death (Cont 2)
Deemed disposition at FMV may result in capital gains on capital property or recapture of capital cost allowance (CCA) on depreciable property
50% of the capital gain is taxable
![Page 49: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/49.jpg)
Spousal Rollover
Exception to deemed disposition on death at FMV – Spousal Rollover
No deemed disposition at FMV when the property is left to a spouse or common-law partner or to a trust for the benefit of the spouse or common-law partner
![Page 50: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/50.jpg)
Tax Consequences of a Spousal Rollover The deceased taxpayer’s capital property is
deemed disposed at adjusted cost base (ACB) or undepreciated capital cost (UCC) of depreciable property, resulting in no capital gain or recapture to the deceased’s terminal tax return
The receiving spouse assumes the deceased’s old ACB or UCC cost for the property, or simply inheriting the old cost base of the deceased
![Page 51: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/51.jpg)
Electing out of the Spousal rollover If it is beneficial to have deemed
disposition at FMV, then make an election to opt out of the rollover
Election is to be made in respect of each property
A partial rollover is available by electing out of the rollover on some pieces of property and not others
![Page 52: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/52.jpg)
General Treatment of capital gain or capital loss 50% of capital gain is taxable 50% of capital loss is allowable Generally, allowable capital loss can
only be applied against taxable capital gain, an cannot be claimed against any other type of income
![Page 53: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/53.jpg)
Treatment of Allowable Capital loss in the year of death Where an allowable capital loss is
realized in the year of death or a net capital loss is carried forward into the year of death, the allowable portion is deductible against any income in that year
![Page 54: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/54.jpg)
Death of an RRSP Annuitant
Assets of unmatured RRSP pass to someone other than a spouse/common-law partner or a qualified child or grandchild, the FMV of the plan assets must be included in the annuitant’s income in the year of death
![Page 55: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/55.jpg)
Death of an RRSP Annuitant – Refund of Premiums A refund of premiums is used to define
assets from an unmatured RRSP on the death of a RRSP annuitant and which are paid to a qualified beneficiary
There are 3 categories of qualified beneficiaries
![Page 56: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/56.jpg)
3 Categories of Qualified Beneficiaries 1. The deceased annuitant’s spouse or
common-law spouse 2. The deceased annuitant’s financially
dependent child or grandchild 3. The deceased annuitant’s financially
dependent child or grandchild who is mentally or physically disabled
![Page 57: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/57.jpg)
Taxation of Refund of Premiums Generally refund of premiums are taxable in
the hands of the recipients unless the funds are applied to into an RRSP, RRIP or a qualifying annuity by the spouse/ common-law partner or disabled child
Financially dependent child has an option to transfer the fund into a term certain to age 18 annuity
![Page 58: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/58.jpg)
RRSP Contributions after Death A taxpayer’s legal representative can
make contributions to a spousal RRSP on behalf of a deceased taxpayer in the year of death
The contribution can be claimed as a deduction in the deceased tax return
![Page 59: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/59.jpg)
Death of the RRIF Annuitant
Tax treatment similar to RRSP A term “Designated Benefit” replaces
that of refund of premiums in RRSP
![Page 60: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/60.jpg)
No roll-over of RRSP/RRIF to spousal trust
Where the terms of a will specify the transfer to an RRSP/RRIF spousal trust, the FMV value will be added to the deceased income
![Page 61: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/61.jpg)
Tax plan for RRSP/RRIF
Generally, designate spouse or disabled children as the beneficiary directly on the RRSP/RRIF contracts
Doing so enjoy the spousal roll-over and avoid probate tax
![Page 62: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/62.jpg)
Employee Death Benefit
$10,000 exemption on death benefit in recognition of service
Amount included in the income of the recipients
See if part of an employment income be called death benefit or retiring allowance
![Page 63: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/63.jpg)
Charitable Giving
A deceased taxpayer can claim charitable donations up to 100% of the taxpayer’s net income in the year of death
Excess can be carried back one year up to 100% of net income
![Page 64: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/64.jpg)
Elective Returns
Other than the final return, there is an opportunity to elect 3 additional returns
Benefits to opt for filing additional tax returns include lowering the marginal tax rate, full personal exemptions claimed in the elective returns
![Page 65: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/65.jpg)
3 Elective tax Returns
Rights or Things – most common Proprietor or Partnership Income A Testamentary Trust
![Page 66: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/66.jpg)
Rights or Things
Include items of income which have been earned and are receivable at the time of death
Examples of Rights or Things are: Matured but unclipped coupons Dividends declared but unpaid Salaries, commission & vacation pay
owing but unpaid
![Page 67: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/67.jpg)
Proprietor or partnership Income (Fiscal year other than calendar year)
Business income for the stub period from the end of the fiscal year to the date of death
Example: John dies on May 1, business has Jan 31 Y/E. Income for the year ended Jan 31 must be included in the terminal return. Income fro the stub period from Feb 1 to May 1 can be included in a separate return
![Page 68: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/68.jpg)
Testamentary Trust Income (fiscal year other than calendar year) Income for the stub period from the end of the
fiscal year to the date of death can be included in a separate return
Example: Sam was beneficiary of a Testamentary Trust of May 31. Trust allocated $15,000 interest income on May 31. Trust further allocated $10,000 income on July 1. Sam died Sept 1.
$15,000 has to be included in the terminal return and $10,000 in a separate return
![Page 69: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/69.jpg)
Beware of filing final returns
There are as many as 4 tax returns and full personal exemptions can be claimed in each return
There would be BIG tax savings!
![Page 70: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/70.jpg)
Will Planning - Understanding your Assets
Wills are generally thought as means by which individuals
dispose their property at death.
Now, more frequently, the bulk of one’s estate passes outside his/
her will- Will Substitutes
![Page 71: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/71.jpg)
Will Substitutes
Making inter vivos gifts Transferring property into joint ownership with
right of survivorship such as joint tenancy or joint bank account
Transferring assets to an inter vivos trust Making RRSPs, RRIFs, and life insurance
payable to a named beneficiary
![Page 72: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/72.jpg)
Will Substitutes - benefits
A reduction of probate fees Protection from wills variation claimants,
transfers via will substitutes may be less open to being overturned due to transferor lack of mental capacity or undue influence
No delay in the distribution of assets Privacy – probate is a public process,
allowing anyone to see who gets what
![Page 73: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/73.jpg)
Income tax consequences of Inter Vivos Transfers Although for Probate purposes, assets
disposed prior to death will not be included in the estate and will not be subject to probate tax
Generally, except for roll-over to spouse or spousal trust, alter ego trust etc, transfers of properties are deemed to be disposed at FMV, & will be subject to taxation.
![Page 74: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/74.jpg)
Deemed Disposition will not be a problem where The gifted property consists of cash or
near-cash assets The gifted property is a capital property
but has not yet increased in value The gifted property was the transferor’s
principal residence The transfer is to a spouse or common-
law partner
![Page 75: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/75.jpg)
Transfer of a Joint Interest
A simple way to avoid probate tax is to transfer property into joint tenancy with say a child. On death, the property passes automatically to the transferee without any need for probate
For tax purposes, CRA’s position is that the parent has disposed 50% of the parent’s interest in the property at the time of transfer
![Page 76: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/76.jpg)
Document your gifts
Inter vivos transfers may be intended gifts or for other reasons such as to avoid probate tax or to allow a child to more easily aid a parent manage the financial affairs as joint bank accounts
Family disputes often arise whether the transfer was really intended as gifts or for other reasons
Costly litigations among family members when the donor is already dead
![Page 77: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/77.jpg)
Risks of transfer of a joint interest to a spouse If the surviving spouse has the bulk of
the assets, the assets ultimately be distributed according to his/her will, children may be cut out, particularly in the 2nd marriage.
![Page 78: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/78.jpg)
Risks of transfer of joint interest to a child Properties are deemed disposed at
FMV, resulting in taxation Property Transfer Tax on real property Child’s consent will be necessary to
mortgage or sell Exposure to child’s creditor Loss of tax benefit from testamentary
trust
![Page 79: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/79.jpg)
Risks of transfer of a joint interest to a child (Con’t) If the property is a RP, and the child
(transferee does not live there, ½ of the PR exemption will be lost for years following the transfer
If the property is occupied by the child and his spouse as their matrimonial home, and if the child predeceases the parent, the deceased child’s interest may then pass to his/her spouse
![Page 80: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/80.jpg)
Transferring assets to an inter vivos trust Property that an individual has transferred to
a trust during his or her lifetime will not form part of his/her estate at death, and therefore will not be subject to probate tax
Is less vulnerable to attack on the grounds of the settlor’s lack of mental capacity
Shelter assets from claims of creditors & dependents
![Page 81: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/81.jpg)
Understanding Trusts
Settlor is the person who sets up the trust and make the initial transfer of property to the Trustee
Trustee is the person who holds the formal legal title to the property
Beneficiaries are persons who will benefit from the property that is held by the Trustee
![Page 82: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/82.jpg)
Legal perspective- Trust is not a separate entity Trust is not a separate entity from the
legal perspective A trust cannot own property, nor enter
into any legal contract Trustee holds the legal title to the
property for the benefit of the beneficiaries
![Page 83: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/83.jpg)
Tax perspective of trusts
Tax perspective, a trust is deemed to be an individual
A trust has to file a separate tax return
![Page 84: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/84.jpg)
Types of trust
Testamentary Trust - a trust that arose as a consequence of death of an individual
Inter Vivos Trust – a trust that is established by a living individual
![Page 85: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/85.jpg)
Testamentary Vs. Inter Vivos
Testamentary Spousal or
common-law (rollover of properties to trust at cost)
Other beneficiaries (deemed disposition of properties at FMV)
Inter Vivos Spousal, common-law
, Alter Ego (Age 65 & rollover of properties to trust at cost)
Other beneficiaries (deemed disposition of properties at FMV)
![Page 86: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/86.jpg)
Taxation of Inter Vivos Trusts
Inter Vivos trusts are subject to the highest top tax rate, 43% in B.C.
No progressive tax rates benefit Forego the possibilities of having the
testamentary trusts One can mitigate the top rate taxed in a
trust by paying out the income from the trust to the beneficiaries.
![Page 87: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/87.jpg)
21 year deemed disposition
Without the deemed disposition rule, trusts may allow capital gains to accumulate without tax consequences
In order to place limits on the deferral process, a trust is deemed to its capital property disposed at FMV every 21 years
![Page 88: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/88.jpg)
Deemed disposition
Spousal & common-law partner trusts – the deemed disposition occurs on the death of the spouse or the partner
Alter ego trusts – the death of the settlor Joint partner trusts – at the later of the
the death of the settlor or the spouse/partner
![Page 89: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/89.jpg)
Why setting up Inter Vivos trusts if taxed at top tax rate Control! Control! Control! Avoid the possibility of disgruntled dependents
litigating under Wills Variation Act (likely in blended families) & leave assets to your desired beneficiaries
Protection from creditors Privacy – if assets are bequested in a will, they
will be subject to probate which can be made public
Minimize the value of the assets in the probate
![Page 90: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/90.jpg)
Use of Inter Vivos Trust (1)H1 & W1 both had a standard mirror will, one
is the beneficiary of the other, and if both died, the estate would go to their children.
W1 died. H1 inherited the whole estate.
H1 remarried W2. W2 has her children.
H1 & W2 prepared s standard mirror will.
H1 died. W2 inherited everything.
Now, guess who would be left out of the inheritance ?
![Page 91: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/91.jpg)
Use of Inter Vivos Trusts (1) Answer If H1 & W1 would have set up an Inter vivos
Joint Spousal Trust that upon the death of the last spouse, the assets of the Trust would have gone to their children.
Or H1 & W1 would state upon his/her death, the estate would be rolled over to a spousal trust. The surviving spouse is entitled to all income of the trust in his/her life-time, and upon the surviving spouse’s death, the trust assets would go to the children.
![Page 92: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/92.jpg)
Use of Inter Vivos Trust (2) Mr. X dies, and leaves her with an old
house that Mr. X sold for $2 M. Mrs. X annual income is in excess fo
$40,000 that would disqualify her from GIS & other benefits
Mrs. X plans to give away her money to her children so that she would qualify for GIS. But she is concerned that her children may not look after her.
![Page 93: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/93.jpg)
Use of Inter Vivos Trust (2) If Mrs. X sets up a discretionary Inter
Vivos trust with her and the children as beneficiaries of the trust
Mrs. X and two other people are trustees of the trust
The trustees can determine the amount of income distributed to beneficiaries
In fact, Mrs. X can control the amount of her income and continue getting her GIS
![Page 94: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/94.jpg)
Principal Residence Exemption to Trusts A residence held in a trust will qualify for
the PR exemption of the residence was ordinarily inhabited in the year by a specified beneficiary.
The full gain on a PR will qualify for the PR exemption where the trust has more than one beneficiary, but only one of the beneficiaries occupies the residence.
![Page 95: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/95.jpg)
Use of the PR exemption to trusts 1: If a trust is establish to hold a residence
exclusively for the benefit of 2 children. Child A lives in the residence while Child B has her own PR. The whole residence would qualify for PR even though Child B does not live in the residence.
2: Separate trusts can be used for each residence
3. A PR is transferred to a trust to protect from creditors
![Page 96: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/96.jpg)
Beware of Property Transfer Tax on transfer of property There are special PPT exemptions for
the transfer of a PR among related individuals, such as spouses, children, parents, grandfathers, but not brothers or sisters.
![Page 97: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/97.jpg)
Property Transfer Tax – PR Exemption The transferee (purchaser) and the transferor
(vendor) must be lineal related, either direct ascendants or direct descendants
The property must have been occupied by either the transferee or transferor as their PR , for a period of at least 6 months prior to the transfer
The building accommodate no more than 3 families
![Page 98: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/98.jpg)
Inter-Provincial Tax Planning using Trusts Trusts can be located in a low-tax
province (e.g. Alberta) by having individual trustees living in Alberta, bank & investment accounts in Alberta, meetings of trustees in Alberta etc.
Alberta individual top tax bracket @ 10% vs. B.C. rate of 14.7%
![Page 99: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/99.jpg)
Will Assets
These are all assets in your wills after will substitutes
They are to be distributed according to the will
Will assets are the deceased estate assets and may be subject to probate tax
![Page 100: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/100.jpg)
Purposes of a Will
How the testator’s assets are to be divided
Appointment of an executor Recommendation for the preferred
guardian of any minor children Specific powers entrusted to the
executor or any trustee
![Page 101: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/101.jpg)
Purposes of a Will (con’t)
A will is fundamental to estate planning as it minimizes expense and delay in the transfer of assets upon testator’s death
While a will communicates the testator’s intentions, other legislations such as the Family Law Act must be considered as wills can be contested
![Page 102: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/102.jpg)
Multiple Wills
You can have more than one will Multiple wills to deal with different property in
different jurisdictions so as to expedite the administration of such assets
Can reduce probate tax Example; a will in H.K. for H.K. property
![Page 103: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/103.jpg)
Multiple Wills - Example
B.C. resident with rental properties in H.K., Vancouver and shares of a private corp.
It might be possible to execute multiple wills, 2 in B.C. and one in H.K.
In B.C., one would govern assets which probate is necessary, e.g. rental property
The other one would govern the non-probate assets such as shares of a private corporation that probate is not necessary
One will in H.K.
![Page 104: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/104.jpg)
Taxation of Testamentary trusts Testamentary trusts are taxed using the
same progressive rates that apply to individuals, rates range from 21% to 43% in B.C.
Personal credits are not available Multiple testamentary trusts would
provide multiple applications of the low rates to individuals
![Page 105: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/105.jpg)
Taxation of Testamentary trusts (con’t) Multiple trusts can be created if the will
establishes a separate trust for each child ( Mitchell v. MNR 56 DTC 521) and each trust would have its independent investment objectives suitable to the needs of the respective beneficiaries.
Each trust should be created with separate terms and condition. To prevent multiple trusts, CRA may designate the multiple trusts as a single trust if income from the trusts will ultimately accrue to the same or group of beneficiaries
![Page 106: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/106.jpg)
Example of a testamentary trusts In Joe Smith, in his will he states a spousal
trust be set up and that his entire estate be rolled over to a spousal trust. His spouse is entitled to all income in her life-time, but upon her death, the trust assets would go to his children. This may ensure that if she remarries, the children are surely looked after.
![Page 107: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/107.jpg)
Sample of testamentary spousal trust (Cont) The testamentary spousal trust benefits
from progressive tax rates. If the spouse has too high an income that may affect her old age security (OAS), i.e. income in excess of $67,000, the trust can designate amounts to be deemed not paid when they are in fact paid to the beneficiary. The trust will include the amount as trust’s income.
![Page 108: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/108.jpg)
Testamentary trusts (cont)
If Joe Smith is wealthy enough, he may consider to set-up multiple trusts, one for each of his children so that there would be multiple use of progressive tax rates & have experienced trustees to look after the trust
Assets willed to testamentary trusts will not reduce value of the estate and hence will not reduce probate fees
![Page 109: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/109.jpg)
Incapacitating Issues
A will is effective only upon death Individuals does not automatically have the
right to handle spouse’s legal & financial affairs in the event that the spouse is not able to because of illness or unavailable
Without proper legal documents, the healthy spouse has to apply to the court for permission to act on behalf of the incapacitated spouse
![Page 110: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/110.jpg)
Two types of Power of Attorney Person’s property- Enduring Power of
Attorney Person’s health – Power of Attorney for
Personal care or a Living Will
![Page 111: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/111.jpg)
Action Plan
My experience with my parents estates Power of Attorney / Representation
Agreement & will for everyone Trusts are not just for the rich. Trusts
can be used for individuals to access GIS & other benefits and PR trusts
Rich can consider multiple wills & trusts You will benefit from a good accountant.
![Page 112: Estate Planning & Taxation Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond, B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769](https://reader035.vdocuments.mx/reader035/viewer/2022062515/56649ca15503460f949604ea/html5/thumbnails/112.jpg)
Estate Planning & Taxation
Diana Mau, C.A. 205-8833 Odlin Crescent, Richmond,
B.C. V6X 3Z7 Tel: 604-279-9270 Fax: 604-279-8769 www.dianamau.bc.ca