Estate Tax Planning

Presented by:

Rick Gendemann, CA

September 15, 2010

ESTATE TAX PLANNING

• Goals and Objectives to Estate Planning

• Overview of Taxation Issues on Death

• Tax Planning Strategies for:• Tax minimization on death

• Structuring your estate for your beneficiaries

ESTATE TAX PLANNING

• Goals and Objectives to Estate Planning• Peace of Mind

• Organization of Financial Affairs

• Structured Plan for Wealth Preservation

• Effective Transition of Your Estate to Your Beneficiaries

• Tax Minimization

• Probate Fee Minimization

ESTATE TAX PLANNING

• Estate Planning for Your Family

Structuring your financial affairs to:• Minimize taxes on death

• Maximize wealth preservation for your beneficiaries

• Planned asset/wealth transfer to beneficiaries

ESTATE TAX PLANNING

• Review of Tax Issues on Death• Current regime of estate/death taxes

• Deemed disposition of assets at fair market value

• Options to defer effect of deemed dispositions• Transfer of assets to spouse

• Transfer of assets to a spousal trust

• Transfers to family trust or family holding company

ESTATE TAX PLANNING

• Deemed Dispositions of Assets on Death• Generally all assets deemed sold at market value of

assets at that time

• Will trigger capital gains on property which has appreciated in value

• Income taxes payable on net capital gains realized

• Option to defer capital gains where assets are transferred to spouse or trust established for sole benefit of spouse

ESTATE TAX PLANNING

• Planning Strategies for Tax Minimization Consider careful structuring of Will to utilize

spouse and spousal trust tax deferred rollovers to:• Defer capital gains until death of surviving spouse

• Defer deemed collapse of deferred income plans (RRSP’s and RRIF’s)

• Caution, specific rules must be met for spousal trust to qualify for tax deferral

ESTATE TAX PLANNING

• Planning Strategies for Tax Minimization

Planned Giving ( donations in year of death)• May claim donations to reduce 100% of net income in

year of death

• Excess donations not claimed on final tax return may be carried back to prior year to recover taxes

ESTATE TAX PLANNING

• Planning Strategies for Tax Minimization

Donations created through provisions of a Will• Care must be taken to ensure Will is specific to ensure

donation credit is available on final tax return

ESTATE TAX PLANNING

• Planning Strategies for Tax MinimizationEffective tax planning for trusts created by the

deceased’s Will (Testamentary Trust)• Create spousal trust for benefit of spouse

• Provide income for spouse during lifetime

• Preserve capital for children

• Create multiple trusts to split income & save taxes

• Utilization of marginal tax rates to save taxes

ESTATE TAX PLANNING

• Structuring your financial affairs to:• Avoid payment of probate on death (1.4% of

Estate)

• Avoid public disclosure of deceased’s assets

• Planned asset/wealth transfer to beneficiaries without potential for Will’s variation challenges

• Substitute for power of attorney (representation agreement)

ESTATE TAX PLANNING

• Planning to Minimize Probate Fees

• Two available types of Inter Vivos Trusts:

»Alter Ego Trust

» Joint Partner Trust

ESTATE TAX PLANNING

• Alter Ego and Joint Partner Trusts

• Conditions for use:• Taxpayer (settlor of trust) must be 65

• Taxpayer (and/or spouse) entitled to receive trust income during lifetime

• No other person entitled to income or capital until death of taxpayer (and spouse)

ESTATE TAX PLANNING

• Advantages of Structuring and Using Alter Ego and Joint Partner Trusts• Avoid provincial probate fees• Family asset protection

• Assets held in trust offers protection from creditor claims versus assets held personally

• Avoidance of potential Will’s variation action

• Confidentiality • no public disclosure as in the case of probate application

ESTATE TAX PLANNING

• Advantages of Structuring and Using Alter Ego and Joint Partner Trusts• Administrative ease

• Ownership of assets can be centralized

• Transfer of assets less complex

• Trustee can distribute assets with out court approval or probate application

• Management of trust property will continue seamlessly until distributed

ESTATE TAX PLANNING

• Advantages of Structuring and Using Alter Ego and Joint Partner Trusts• Alternative to Power of Attorney

• Allows greater flexibility for incapacity planning

• Terms of the trust can be tailored to meet the specific needs of the client

• Third parties recognize trustee relationship (particularly if there are assets held in multiple jurisdictions)

• Avoids possible multiple Powers of Attorney for assets held in multiple jurisdictions

ESTATE TAX PLANNING

• Disadvantages of Structuring and Using Alter Ego and Joint Partner Trusts

• Cost to implement and administer plus added complexity

• Required to file annual tax returns, etc.

• Loss of access to capital gains exemption claim• Testamentary spouse trust could have provided for this

• Loss of low tax bracket planning otherwise available with testamentary trusts created through a Will

ESTATE TAX PLANNING

• Disadvantages of Structuring and Using Alter Ego and Joint Partner Trusts• Loss of tax deferred intergenerational transfers

• No tax deferred rollover otherwise available for qualified farm property or shares of qualified farm corporation

• Post mortem planning where shares of companies involved may be adversely affected• May create future double tax on appreciated value of assets

in company if assets sold by company

ESTATE TAX PLANNING

• Disadvantages of Structuring and Using Alter Ego and Joint Partner Trusts• Principal residence designation issues

• May cause multiple loss of residence exemption for all beneficiaries

• Charitable donation planning• No ability to carry back excess donation credits

ESTATE TAX PLANNING

• Freezing the Value of Your EstateLocking in today’s value of investments

• Fix the capital gain to be realized on death

• Provide sufficient capital for retirement

• Allow for growth of investments to accrue to beneficiaries of your Estate

ESTATE TAX PLANNING

• Freezing the Value of Your Estate• Transfer your investments to a family holding company

or a family trust

• Allows for continued control over assets during your lifetime

• Ability to draw down capital in a structured manner• Can plan for tax effect each year of draw down

• Provides capital growth for beneficiaries

ESTATE TAX PLANNING

• Freezing the Value of Your EstateSummary of Advantages• Freezes amount of taxes payable on death

• Provides for growth in asset value to accrue for the benefit of beneficiaries ( Wealth Preservation )

• Provides structured retirement income planning

• Maintain control over assets during lifetime

• Potential to defer taxes on asset growth to next generation

ESTATE TAX PLANNING

• Closing Thoughts and Comments

• Estate planning is on ongoing process

• To achieve your family goals and objectives requires you to create a plan of attack

• Planning process needs to be monitored and evaluated to ensure your goals and objectives continue to be met

ESTATE TAX PLANNING

Open forum for Discussion and Comments