Monday, April 3, 2017

Will in Ontario and Quebec

http://www.gblegalclinic.com/Will%20kit.pdf

Anyone over 18 years of age can make a Will so long as you do not have a mental impairment that stops you from knowing what you are doing. A typed Will has to be dated and signed in front of two witnesses, who must also sign the will at this time. The witnesses must not be named (to receive things) in the Will. All three should also initial all (other) pages.

http://ontario-probate.ca/executor-role/

A joint bank account, or jointly held real estate, (between spouses) falls outside the estate. Thus if one spouse dies, the survivor becomes sole owner of these assets and they are not turned over to the executor of the will.

http://www.justanswer.com/canada-law/3oj3r-ontario-executor-beneficiary-one.html
http://estatelawcanada.blogspot.ca/2010/01/can-my-executor-also-be-beneficiary.html

There are many executors who are also beneficiaries. In Alberta there is no law that excludes someone from being both beneficiary and executor. This is done all the time, for example where a married couple name each other as their executors and also leave their estates to each other. In cases like that, not only is there no prohibition against the arrangement, but it is clearly the best arrangement that could be made for that particular person's Will.

http://ontario-probate.ca/probate-basics/

Probate is the Court procedure for formal approval of the will by the Court and appointment of the Executor. It usually takes several days to prepare the application. Once filed with the court, it usually takes several weeks until the grant of probate is received. After this point the Executor has one year to disperse the estate. Probate is required if a beneficiary is a minor. Generally probate is not required after the death of one spouse where all assets are willed to the surviving spouse.

http://ontario-probate.ca/life-insurance-is-not-normally-an-estate-asset/

Life insurance is not normally an estate asset. It is a contract between the policy owner that requires the insurance company to pay the owner an amount when the named individual dies.

https://turbotax.intuit.ca/tax-resources/taxes-and-insurance/taxes-and-life-insurance.jsp

When you receive a death benefit under a live insurance policy, it’s almost always considered non-taxable and doesn’t need to be reported on your tax return. The only exception is if you decide to cash in your permanent life insurance policy before your death and you receive the cash surrender value.

http://ontario-probate.ca/beneficiary-designations-be-very-careful/

Many life insurance policies and various savings plans (RRSPs, TFSAs, RRIFs) provide a means for you to designate a beneficiary, so that when the owner dies, the funds flow directly to the named beneficiary. This is commonly done to avoid probate taxes. Alternatively the beneficiary would be "your estate". If accounts do not flow to your estate, you must state this in your will so it is clear they are not subject to the directions in your will otherwise there can be an implied conflict of interest and the courts may have to interpret your will.

http://ontario-probate.ca/probate-basics/probate-fees-taxes/

“Probate fees” (properly known as ‘estate administration tax’) must be paid to the government of Ontario when an estate is probated. Lawyer fees for assisting an executor are separate from probate fees and generally are paid out of the executor compensation.

Probate fees are based on the value of the estate. They are 0.5% on the first $50k and 1.5% on the remainder. Thus the tax on a million dollar estate is 50000*0.005+(1000000-50000)*0.015 = $14,500

http://turbotax.intuit.ca/tax-resources/inheritance-tax.jsp

There is no inheritance tax. Instead the CRA treats the estate as a sale. This means that the estate pays the taxes owed to the government, rather than the beneficiaries paying. By the time the estate is settled, the beneficiary should not have to worry about taxes.

When a person dies, their legal representative has to file a deceased tax return to the government. Any taxes owing from this tax return are taken from the estate before it can be settled. Once the executor has settled the estate, the CRA issues a clearance certificate.

In the deceased tax return, normal income is recorded and non-registered capital assets are considered to have been sold. Thus they appear as capital gains, although there is a principal residence exemption. Further, any non-registered capital property may be transferred to the deceased taxpayer’s spouse.

The value of any RRSP is included as income and taxed at the regular rate. However, it is possible to defer income tax if a spouse or dependent child has been designated as the beneficiary of the RRSP.

http://www.advisor.ca/tax/tax-news/what-happens-when-an-rrsp-annuitant-dies-183506

At death, it is possible to roll over the RRSP to a beneficiary spouse on a tax-deferred basis. The beneficiary can request that the proceeds roll over to the beneficiary’s RRSP. The income inclusion is transferred from the deceased to the beneficiary and is reported on the beneficiary’s tax return for the year. This is called a “refund of premiums.” The spouse then contributes the amount received to a RRSP in that same year, and can claim a tax deduction under section 60(l) of the ITA to offset the taxable income inclusion. RRSP contribution room is not required for this deduction.

https://www.fidelity.com/estate-planning-inheritance/estate-planning/asset-strategies/brokerage

Designating a beneficiary establishes a transfer on death (TOD) registration for the account. Investment accounts do not pass through probate as long as the TOD designation is in place. If the will stipulates anything about such accounts, the named beneficiaries on the accounts take precedence over anything stated in the will and the assets will be distributed to the named beneficiaries. If the named beneficiary has passed away first and the designation was never updated, the transfer on death will not occur and the account will be subject to probate.

http://www.lycosasset.com/stevenyvik/financial-planning/estate-planning/rrsp-beneficiary-designation

The general rule is that, on your death, the fair market value of your RRSP/RRIF is fully taxable as ordinary income in your final return.

The exception to this rule is where a qualified beneficiary of your RRSP/RRIF is designated as beneficiary where, on your death, he or she receives an amount from your RRSP/RRIF (called a refund of premium). In this case, the refund of premium paid to the qualified beneficiary is taxed in their hands. Furthermore, the qualified beneficiary may be able to transfer this income to their RRSP/RRIF where they obtain an offsetting deduction. The net effect of this is that your RRSP/RRIF is transferred to your qualified beneficiary without any tax consequence.

To summarize, when you name a qualified beneficiary as a beneficiary of your RRSP/RRIF, the date-of-death value of your RRSP/RRIF may be taxed in your hands in your final return, taxed in your child’s hands, or transferred to the beneficiary’s tax deferred plan.

A financially dependent child is a Qualified Beneficiary. A child is financially dependent if they live with you and their net income (line 236) is less than the basic personal amount (~$9k). It is not a question of age.

When a child under the age of 18 is the beneficiary of your RRSP/RRIF, your RRSP/RRIF proceeds can rollover tax-deferred where the proceeds are used to purchase a fixed-term annuity. The annuity payments will be taxable as ordinary income to the child in the years they are received.

In the event that your estate is the beneficiary of your RRSP/RRIF, the Executor of your Will and a qualified beneficiary may jointly elect to treat that beneficiary as if he or she was designated as beneficiary for all or a portion of your RRSP/RRIF proceeds. Some or all of the RRSP/RRIF proceeds might be rolled over to their RRSP or towards purchase of a qualifying or fixed-term annuity.

Alternatively, you can name a Trustee of a Trust as your RRSP/RRIF beneficiary. This avoids probate and fees associated with a Testamentary Trust. The disadvantage of naming a Trustee is that you need to incur legal costs to have the Trust document created. The Trust could be in your Will, but it is preferable to be a separate document so that your beneficiary designation is not invalidated if you should later update your Will.

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/glssry-eng.html#Survivor

With respect to a TFSA, a survivor is an individual who is, immediately before the TFSA holder’s death, a spouse or common-law partner of the holder.

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/dth/thrbnf-eng.html

If designated as a beneficiary, the survivor has the option to contribute and designate all or a portion of a survivor payment as an exempt contribution to their own TFSA, without affecting their own unused TFSA contribution room, subject to certain conditions and limits.

Beneficiaries (other than the survivor) who receive a payment from the deceased holder's TFSA, cannot contribute and designate any amount as an exempt contribution.

http://www.mondaq.com/canada/x/12594/Estate+Planning+And+Wills+In+Quebec+For+The+New+Millennium

In Quebec, where persons die and it is impossible to determine which survived the other, they are deemed to have died at the same time if at least one of them is called to the succession of the other.

On applying the presumption of Article 616 to that fact pattern, both Father and Mother will be deemed to have died at the same time. Consequently, for the purpose of each of their respective wills, the stipulations regarding the spouse are ignored, since that spouse is deemed not to be then alive, having died, according to the presumption, at the same time as the testator. Accordingly, each child will inherit from both estates simultaneously, each in accordance with the stipulations set out in the two wills.

https://www.sunnet.sunlife.com/files/advisor/english/PDF/advisor_notes_legal_Common_disaster_confusion.pdf

When people die at the same time or under circumstances where you can’t tell who died first, it’s called a “common disaster” or “simultaneous death”.

As a general rule, it must be proven that heirs and beneficiaries outlived the person they inherit from.

In Ontario, each is presumed to have outlived the other. From the perspective of the husband’s executor this means the wife’s estate can’t receive anything because she had already died. From the perspective of the wife’s executor this means the husband’s estate can’t receive anything because he had already died. Thus assets pass directly to the children without passing through two estates and paying probate tax twice.

Most couples own their homes as joint tenants with right of survivorship. If one person dies, their interest in the asset passes instantly to the surviving owner. Since this happens outside the estate, it doesn’t matter what the will says.

In Ontario, if it can’t be said which person died first, joint ownership with right of survivorship (joint tenancy) will instead be considered to be tenants in common (i.e. 50% stake each).

In Ontario, if the life insured and beneficiary die at the same time, the life insured is presumed to have survived the beneficiary. If the life insured hasn’t specified a contingent beneficiary, the death benefit is paid to the estate of the life insured.

http://www.advisor.ca/tax/estate-planning/how-to-destroy-an-inheritance-54389

When an RRSP annuitant dies, unless the RRSP beneficiary is a “qualified beneficiary” (ie. spouse, common-law partner or financially dependent child or grandchild), the RRSP annuitant is deemed to have sold his/her RRSP just before death, resulting in a taxable income inclusion for the deceased for the year of death.

In Alex’s case, since his RRSP had a value of $410,000 at the time of his death, there was an income inclusion of $410,000 on Alex’s final tax return. Because his RRSP beneficiary (Pete) was not a qualified beneficiary, there was no opportunity for a tax-deferred rollover. As the majority of Alex’s income inclusion was subject to tax at 46%, a tax liability of approximately $188,000 in respect of the RRSP resulted. Alex’s estate was responsible for funding this liability to the fullest extent possible – even though it meant the elimination of Carl’s inheritance. Because the value of Alex’s estate at the time of death was $105,000, and because all debts (including income tax) must be paid before any excess is paid to beneficiaries of a deceased’s estate, the full value of Alex’s estate ($105,000) was used to fund the tax liability of his RRSP and other income in the year of death, reducing Carl’s inheritance to zero.

http://www.rbcroyalbank.com/rrif/what-is-a-rrif.html

Your RRSP is used to save for your retirement while a RRIF is used to withdraw income during your retirement. With a RRIF, contributions are not allowed and you must make minimum mandatory withdrawals each year. An RRSP is required to be converted to a retirement income option such as a RRIF by December 31 of the year in which you turn 71. However, you do have the option to convert your RRSP to a RRIF at anytime before then.

http://www.getsmarteraboutmoney.ca/en/managing-your-money/investing/rrifs-and-annuities/Pages/What-happens-to-your-RRIF-when-you-die.aspx#.WI35FFMrLcs

If your spouse is the successor annuitant then your spouse takes over your RRIF and automatically starts receiving your RRIF payments. They won't have to make any changes to your RRIF investments or incur any fees.

https://www.mackenzieinvestments.com/en/assets/documents/marketingmaterials/mm-estate-planning-options-tfsas-en.pdf?m=1545dc83ae0

TFSA legislation allows you to name a “successor holder” who would inherit your TFSA at the time of your death. Your successor holder must be a spouse or common-law partner (CLP). If someone other than a spouse or CLP is to inherit your TFSA, that person would typically be referred to as “beneficiary.” Where a successor holder is designated, your successor holder acquires all rights related to your TFSA at the time of your death. Similar to the “successor annuitant” designation on a Registered Retirement Income Fund (RRIF), your successor holder simply replaces you as holder of your TFSA, and the plan continues with all rights passing to your successor. Successor holders do not require TFSA contribution room to receive this benefit.

http://www.moneysense.ca/save/financial-planning/estate-planning-what-happens-resp-die/

The RESP is technically yours. The child is simply the beneficiary—or more specifically, the potential beneficiary—of the RESP. The “beneficiary” in this context doesn’t mean the account goes to them on your death. It just means that you can potentially use the money in the account to help pay for their education someday. The person who opens and owns an RESP is called an RESP “subscriber.” Your RESP may have a joint subscriber, like your spouse, or you may be the sole subscriber. If you have a joint subscriber, the account will pass directly to them on your death and will not be subject to tax or probate.

In the absence of any planning, when you die, if you are the sole subscriber for an RESP, it will form part of your estate and may be subject to tax and probate fees and distributed based on the terms of your will.

However, you can include a clause in your will to name a successor subscriber. The RESP then carries on after your death under the control of the new subscriber and is exempt from tax and probate. However the successor can now use and redirect that RESP as they see fit, so you either must trust them or use more complicated legal instruments.

http://www.advisor.ca/tax/tax-news/when-an-resp-subscriber-dies-does-the-resp-terminate-178426

The original subscriber can appoint a testamentary trust as the successor subscriber. The trust holds the RESP and the trustee must follow the directions established by the trust terms.

The trustee of the testamentary trust can be the executor of the will in which the trust is created. The executor would not (personally) become the successor subscriber.

http://www.moneysense.ca/spend/real-estate/joint-tenancy-how-it-affects-capital-gains-and-probate-fees/

Q: I had joint tenancy with my mother on two properties: a condo in Toronto and a cottage in Kawartha Lakes. She died and I am keeping both properties. My accountant says that he can count the condo as my mom’s primary residence, but that I have to pay capital gains tax on the cottage.

A: When property is owned by more than one party, it is frequently held in joint tenancy with the right of survivorship. Spouses typically hold property as joint tenants, whereby upon the death of the first, the asset passes directly to the survivor and does not make up part of the estate of the deceased.

More frequently, elderly parents are holding property in joint tenancy with their children, which has pros and cons. Assets held in joint tenancy that pass to a survivor typically avoid probate fees (1.5% in Ontario). However, when you transfer an asset even if money hasn’t changed hands, you are deemed to have sold it at market value. Though the properties may have been legally held jointly by the two of you, the properties were still beneficially your mother’s until her death. Case law suggests that the presumption of advancement did not apply and you were technically holding half the properties in trust for your mother.

Every Canadian is entitled to have one principal residence that grows in value tax-free. Your mother had two properties, meaning that one of them was growing in value on a tax-deferred basis. On your mother’s death, she would be deemed to have sold the two properties and one sale would be taxable, regardless of her holding the properties jointly with you.

http://www.moneysense.ca/save/taxes/where-do-i-pay-probate-fees/

In Quebec, there are no probate fees for a notarial will and only $65 for a non-notarial will.

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/rprtng-ncm/lns101-170/127/rsdnc/menu-eng.html

When you sell your home, you may realize a capital gain. If the property was your principal residence for every year you owned it, you do not have to report the sale on your income tax and benefit return.

http://thetaxissue.com/tag/principal-residence/

Upon the death of an individual, she is deemed to have disposed of all her capital property immediately before her death for proceeds equal to fair market value at that time (Let’s call that X). If you inherit a house, and later sell that house (for Y), then you have a capital gain of Y-X. The only problem here is that X was an estimate according to an official algorithm, and could be in error.

All personal belongings are referred to in the law as “personal use property”, and they are subject to special rules. They are also deemed disposed of at the time of death at fair market value. The only difference is that each item has a deemed minimum cost base and minimum value for tax purposes of $1,000. So, any item that is worth less than $1,000 will not be taxed. Gains will be taxed, and losses, if any, may be applied only against gains from other personal use property.

Thus if you own a chair, a car and a boat that were purchased at $700, $2000, $1000 and are currently valued at $500, $1000. $1500 respectively, then only the car and the watch are considered and the capital gain is (1000-2000 + 1500-1000 = -500), but this loss can’t be applied to other goods in the estate.

Items such as jewellery and artwork are another subset of personal use property called “listed personal property”, and are also subject to the above rules. Losses on this type of property, however, can only be applied against gains from other listed personal property.

http://beaconlaw.ca/joint-tenancy-as-an-estate-planning-tool-pros-and-cons/

If you own property with another person as tenants in common, on your death your interest in the property becomes part of your estate to be passed on according to your will. If you own property with another person as joint tenants, on your death your interest in the property normally passes to remaining joint tenant(s) by right of survivorship, and does not form part of your estate.

In British Columbia, the law presumes that an asset (other than land) held in two or more names is owned as a joint tenancy, unless there is an indication that the owners own it in shares. So, for example, household goods, vehicles, bank accounts and investments owned by two or more persons will be presumed to be owned by them as joint tenants, unless their respective shares of the assets are specified or there is a statement that the asset is held by the owners as tenants in common.

However, in the case of land the common law presumption of joint tenancy has been altered by statute, so that land owned by two or more persons is presumed to be owned by them as tenants in common unless the title expressly states that they are joint tenants.

https://www.legalline.ca/legal-answers/joint-tenancy/

If you own property with another person as "joint tenants," then on your death, the surviving joint owner acquires your interest in the property automatically by a process called "right of survivorship." This means that your interest in the property will pass outside your estate to the joint owner of the property, not through your estate to the beneficiaries named in your Will.

Because the property does not fall into the deceased joint tenant's estate, no probate should be required to change the registration of title and the property will not be subject to probate fees or the claims of creditors.

With respect to real property, which means land, the Conveyancing and Law of Property Act creates a presumption in favour of tenancies in common unless the document's language explicitly creates a joint tenancy.

http://www.duhaime.org/LegalResources/RealEstateTenancy/LawArticle-68/Joint-and-Common-Tenancies.aspx

This very technical article indicates that in Ontario, the courts almost always consider property to be “tenancy in common”, not “joint tenants”.

Just like easements, joint tenancies also require four elements which lawyers call the "four unities" suggesting that they must co-exist at a same moment of time:

Unity of interest: the interest of each joint tenant must be identical in nature, duration and extent. Unity of title: the interests must arise from the same document. Unity of possession: each joint tenant must have an equal right to occupy or possess the entire property, none holding any part separately to the exclusion of the others. The fee simple is owned by all joint tenants. Unity of time: the interests of the joint tenants must arise or "vest" at the same time.

https://www.thestar.com/business/personal_finance/2012/01/07/know_your_rights_when_you_share_a_property.html

If you buy a home with your spouse or another person this year, you will have to decide how to take title together. It can be either as a joint tenancy or tenancy in common. It is important that you first understand the main difference between these two options before making your decision.

https://www.ontario.ca/page/search-land-property-records

If you are a member of the public and would like to search for land ownership documents you can visit the Land Registry Office where the property is located.

http://www.rbcds.com/transferring-your-estate.html

Quebec residents cannot use a Joint Tenancy with Right Of Survivorship (JTWROS) agreement.

http://www.moneysense.ca/save/taxes/where-do-i-pay-probate-fees/

My notarized will was drawn up and registered in Quebec. I now live in Ontario. If I die, does my will have to go to probate or does Quebec law, which exempts probate notarized wills from being registered, apply?

It is generally not important where a will is drawn up. The fact that your will was done in Quebec or even registered there is not relevant. What matters is the province where you live and the province where your assets are located.

Your will would first be probated in Ontario due to your residency. All Ontario assets would be covered by this application. Secondly, your will would go through Quebec probate procedures—a process called “re-sealing.”

http://estatelawcanada.blogspot.ca/2010/06/what-happens-with-bankrupt-estate.html

There is a difference between an insolvent estate and a bankrupt estate. An insolvent estate, which is much more likely, simply does not have enough assets to pay all of the debts. A bankrupt estate has actually declared bankruptcy.

Usually in an insolvent estate, the executor will negotiate with the creditors to come to an agreement as to how much each will get. Often everyone agrees to a certain amount "on the dollar" so that they'll each recover at least part of the debt.

In general, unless there has been a transfer of property from your late husband to you, while he was both alive and insolvent, you won't be responsible for any of his tax debt.

http://www.theglobeandmail.com/globe-investor/advisers-view/dont-let-the-tax-man-be-your-beneficiary-when-you-die/article25352009/

In the event the estate does not have enough to pay the tax bill, the CRA can go after the beneficiary receiving the asset outside probate.

Thus if your spouse receives all your assets via beneficiary designation on investment accounts, and your estate is insolvent due to taxes owed on these accounts then the beneficiaries of these account must pay the remaining taxes.

http://www.cra-arc.gc.ca/tx/trsts/typs-eng.html

A trust is either a testamentary trust or an inter vivos trust. Each trust has different tax rules.

A testamentary trust is a trust or estate that is generally created on the day a person dies. The terms of the trust are established by the will or by court order in relation to the deceased individual's estate.

An inter vivos trust is a trust that is not a testamentary trust.

https://www.attorneygeneral.jus.gov.on.ca/english/family/ocl/propguard.php

In its legal sense, "guardian" refers to
1. a "guardian of the person" (described as "custody" in Ontario legislation) or to
2. a "guardian of property" (responsible for managing the child's assets).

A child who is under the age of 18 years is called a minor.

Money may be payable to a child
- in an estate
- under a life insurance policy
- under an RRSP

Instead of setting up an adult with legal authority to receive the monies for the minor, the monies can be paid into court:
- Funds earn interest calculated daily and compounded monthly. A portion of the funds may be invested in a diversified portfolio of domestic and foreign equities and fixed income securities designed to generate capital gains and a stable income yield.
- There is no need for a court application for a guardianship order and the associated legal costs.
- There is no need to post a bond, keep accounts or decide what are proper investments.
- The child may obtain his/her funds and interest on reaching the age of 18 years (or at a later age if the will, order or other document says so).
- If any funds are required for the direct benefit of the child before the age of 18 years, the Office of the Children's Lawyer (OCL) has an informal procedure for parents or caregivers to request payments out of court for the direct benefit of the child when the parent/caregiver cannot afford the expense. The parent/caregiver may write directly to the OCL. In nearly all such requests, the Children's Lawyer attends before a Judge for a decision about whether the Judge will order that the money requested will be paid out of court to the parent/caregiver. Alternatively, the parent/ caregiver may apply formally to the court on notice to the OCL (see Rule 72 of the Rules of Civil Procedure).
- A fee of 3% is charged on investment income credited to the minor's account and on all payments out of court. In addition a care and management fee is charged.

Guardianship of Property
- Anyone may be a guardian of a child’s property
- Where the amount of money is large, the court may require a trust company or other independent professional to act as guardian.
- The Superior Court of Justice and the Ontario Court of Justice have jurisdiction to make guardianship orders for minors' property.
- The court shall require the guardian to post a bond.

A guardian of property must:
- keep careful records
- invest the child's money as required by the management plan approved by the court (guardians must comply with the Trustee Act requirements for the investment of trust funds.)
- transfer all the property to the child at age 18

The guardianship order should include the management plan for the child's money or property so that the guardian has clear directions for managing the money.

Where a large amount of money is involved, the guardianship order may require the guardian to regularly pass the accounts before the court at fixed intervals. The interval may range, usually from one to five years.

Where the guardianship order does not expressly allow the guardian to spend the child's money, the guardian only has the authority to hold and invest the money until the child reaches the age of 18 years.

The guardian should not use the child's money to pay a lawyer for a court guardianship application unless the guardianship order authorizes it.

The child's money cannot be used for the financial support of the child. Parents have a legal obligation to support their children. Guardians are not entitled to use the child's funds to provide for support for the child unless the guardianship order authorizes it.

https://www.attorneygeneral.jus.gov.on.ca/english/justice-ont/estate_planning.php

A trust is created to hold property or assets for the benefit of a particular person called the beneficiary. It is managed by a person called a trustee, who has an obligation to deal with the property for the beneficiary of the trust. There are many different kinds of trusts.

https://retirehappy.ca/use-caution-with-in-trust-accounts-for/#

An in-trust account is an informal trust so that an adult can invest funds on behalf of a minor. The account is set-up in-trust because the child is under the age of majority and cannot enter into a legal binding contract. The adult is then responsible for investing for the child and signing the contract on behalf of the child.

They are better described as incomplete, ineffective, and ill-advised. The problem is there is simply no such thing as an informal trust. Something is either a trust or it's not. With a formal trust, there are very clear instructions on how the money is to be managed, when the beneficiary can access the funds, and how the assets are to be distributed.

Once you put money into an in-trust account, the money belongs to the beneficiary (child). This gift is permanent – there are no exceptions. The whole idea of a trust account is that the money belongs to someone who has rights to the money but is not given the authority to manage it. Some donors think they can take back the money whenever they need it. Legally, they cannot do so.

When it comes to interest and dividend income, the tax on the income is attributed back to the donor. In other words, the donor has to report any interest or dividend income on their tax return. The only income that is not attributed back to the donor is capital gains.

The beneficiary (child) takes control of the funds at the age of majority (18 in Ontario). The child can take legal action if you decline to give them access to the funds. With a formal trust, the donor defines the age of transfer and control.

If the donor or the trustee dies before the child reaches the age of majority and there is no stipulation to engage a replacement trustee, the account could remain in the name of the estate until the beneficiary reaches the age of majority. We rarely see powers for replacement trustees put in place, which is very risky.

If the child dies before he or she reaches the age of majority, the funds in the trust belong to the child's estate. Because minors are not legally entitled to draft a Will, most minors will die without a Will and the child's estate will be distributed according to provincial laws of intestacy. The donor cannot decide who gets the funds in an in-trust account if the beneficiary dies.

Since there are no guidelines on how the funds inside an in-trust account should be managed, there is a significant responsibility on the shoulders of the trustee to manage the assets prudently. The problem is different people will have different definitions of prudent. If the child feels the funds were not managed properly, the child could take legal action against the trustee.

“They are only good for causing confusion and legal disputes. There is never a good reason to have an account that is in-trust for another person.”

https://nesbittburns.bmo.com/pictures/account-tim.churchillsmith@nbpcd.com/informal%20trusts.pdf

The investment contract with the informal in-trust account designation is the only document detailing the trust relationship.

The account may not be recognized in law without suitable supporting documentation. Be sure the trustee and beneficiary are clearly identified. The donor should have a written document that clearly states that you are permanently giving the assets to the trust for the benefit of the child.

Capital gains can be attributed to the child. For this strategy to work, the terms of the trust must not give any control to the donor. I.e. the donor must not be the trustee.

http://www.theglobeandmail.com/globe-investor/personal-finance/taxes/testamentary-trusts-can-offer-your-beneficiary-tax-and-other-benefits/article26939647/

There are two types of trusts: Inter vivos trusts, which are created during the lifetime of the settlor, and testamentary trusts, which are created after a person’s death. Changes to the tax rules around testamentary trustsbecome effective on Jan. 1, 2016.

There are now three types of testamentary trusts: a Graduated Rate Estate (GRE), Qualified Disability Trust (QDT), and all other testamentary trusts (OTTs). It used to be that all testamentary trusts were generally taxed in the same way – at the same graduated tax rates as any individual – just like you and me. No longer. OTTs are taxed at the highest federal tax rate (GREs and QDTs are not).

https://joannaringrose.com/testamentary_trusts

Qualified Disability Trusts have as their beneficiaries individuals who are eligible for the federal Disability Tax Credit.

http://www.barmanialawyers.com/news-article.php?id=9

If one parent passes away, custody of children automatically passes to the surviving parent. If both parents pass away, custody will be determined by a judge. Parents may include a custody (commonly referred to as “guardianship”) clause in their wills. This clause has legal effect for 90 days, then a judge decides the final guardians.

Children under 18 year are not permitted to inherit money. Until then, if the parents do not have a will, the funds will be held by the government of Ontario.

Parents can ensure that the estate trustee will provide for the child’s needs and can also defer the final payment for many years after the age of majority to provide further protection.

In the year of death, the RSP is taxed as income. This tax can be avoided by designating the RSP to a dependent child. In this case the RSP is converted to an annuity, which pays out to the child in equal installments until they turn 21. The child is taxed annually on the annuity income.

Parents should establish testamentary trusts for their children and consider whether RSPs should be included in the trust.

The death benefit of life insurance can be paid to designated beneficiaries or to the estate.

http://www.powelljones.ca/testamentary-trusts/

There are complexities on trusts that last more than 21 years or trusts that have non-resident beneficiaries or non-resident trustees.

http://www.wealthdiscovery.ca/documents/TestamentaryTrusts%20Assante%20Nov%202006.pdf

Most often, a testamentary trust is created with funds or assets from the estate, but it can also be funded with life insurance proceeds.

Testamentary trusts, must file annual income tax returns and pay tax on income and capital gains that are not paid or payable to a beneficiary during the year.

Ongoing expenses of a trust include preparation of the annual tax returns for the trust and for documenting the various decisions of the trustees. Fees may also be charged by the trustees.

Every 21 years, the trust will be deemed to dispose of all its capital property, and tax must be paid on any accrued gains. If property is distributed to beneficiaries, the capital gains would then be deferred until the beneficiary disposes of the property.

Unless otherwise specified in the Will, the executors (or alternate executors) would be the trustees of each child’s trust.

For tax purposes, a trust is generally considered to be resident where the trustee who manages or controls the assets of the trust resides. Considerable tax complexities arise if the trustee is not physically present in Canada.

For maximum flexibility, the trustees of each child’s trust could be given complete discretion to pay as much of the income of the trust to (or for the benefit of) any beneficiary of the child’s trust as the trustees consider advisable. To ensure that the payment of income is completely discretionary, we recommend that the word “shall” or other directive words not be used in the clause in connection with payments out of the trust.

Note that for tax purposes, capital gains are generally treated as income. Under trust law, however, capital gains are considered to be capital, so that the trustees could only distribute these to capital beneficiaries of the trust. Thus, the will should define what is to constitute income of the trust for trust purposes.

The best way to maximize the tax and other advantages of a testamentary trust for the benefit of the child or other beneficiaries would be to set up the trust to provide for only discretionary payments of capital.

The Will might provide that on the child’s death, that child’s trust could continue for the benefit of someone else.

http://www.cleo.on.ca/en/publications/propertydiv/what-happens-property-if-one-spouse-dies

If your spouse made enough contributions, you may be entitled to a survivor's pension under the Canada Pension Plan (CPP). This is a monthly payment.

If your spouse contributed to CPP, the plan also offers a one-time payment to help pay funeral and other costs related to your spouse’s death. This is called a “death benefit”. The payment goes to the person or people who pay those costs. This might be the person who administers the estate, the surviving spouse, or next of kin.

Under Ontario law, you may also be entitled to other payments upon the death of your spouse, depending on the cause of death. If your spouse was killed on the job, you can apply for workers' compensation benefits. If they died as a result of someone else's criminal act, you can apply for criminal injuries compensation. Each type of compensation has different rules about who can qualify.

https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-death-benefit.html

The Canada Pension Plan (CPP) death benefit is a one-time, lump-sum payment to the estate on behalf of a deceased CPP contributor.

To apply, you must complete the Application for a Canada Pension Plan Death Benefit (ISP1200), include certified true copies of the required documentation, and mail it to the closest Service Canada Centre to you. Addresses are provided on the form.

https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-survivor-pension.html

The Canada Pension Plan (CPP) survivor's pension is paid to the person who, at the time of death, is the legal spouse or common-law partner of the deceased contributor.

To apply, you must complete the Canada Pension Plan survivor's pension and children's benefits application form (ISP1300) and mail it to us.

https://www.attorneygeneral.jus.gov.on.ca/english/family/pgt/incapacity/poa.php

Learn more about Power of Attorney and Living wills

http://www.davidelliott.ca/papers/Writing%20Wills%20in%20Plain%20Language.doc

What do I mean by "improving" wills? I mean writing wills so that they can be more easily understood. I mean getting rid of unnecessary and archaic language. I mean getting rid of tangled mind bending streams of words. The centuries old stranglehold lawyers have had on the language of the law is slowly breaking down.

"Must" means the same as "shall" and is being used in legislation. The use of "must" and writing in the present tense will do much to improve the readability of wills.

Replace This:             With This:
at that point in time     then
by virtue of              by
in the event that         if
subsequent to	            after
for the period of         for

"And/or" has been looked at several times. No definitive conclusion was reached about what the expression means. Therefore don't use it.

Use real names not impersonal ones. To make sure precision is not lost, the definition section could say: In my Will "Jane" means my wife, Jane Doe.

Put the definition section at the end of the will.

He also gives specific examples of standard clauses.

http://ca.rbcwealthmanagement.com/documents/151456/151476/Estate+Planning+-+Non-Resident+Executors.pdf/1ff8d9a3-f9f3-436b-8899-d370e0b672f0

By appointing a non-resident of Canada as the sole executor/liquidator of your estate, the Canada Revenue Agency (CRA) may consider your estate to be a non-resident of Canada.

http://estatelawcanada.blogspot.ca/2012/10/if-i-leave-money-to-my-executor-is-it.html

You can leave a gift of money to anyone you want to in your will, whether or not he is the executor. You would simply say "I leave $100,000 to Jack". If it's a gift, the recipient of the money doesn't have to pay income tax on it.

If you say “I leave $100,000 to Jack as a gift to thank him for all his hard work on the estate” then CRA will consider it earned and would require Jack to pay income tax.

You may decide to leave your executor a gift without mentioning the work on the estate to avoid Jack having to pay tax on the money. The downside for not mentioning an executor's fee is that Jack would be entitled to claim an executor fee in addition to the "gift".

{ "loggedin": false, "owner": false, "avatar": "", "render": "nothing", "trackingID": "UA-36983794-1", "description": "", "page": { "blogIds": [ 637 ] }, "domain": "holtstrom.com", "base": "\/michael", "url": "https:\/\/holtstrom.com\/michael\/", "frameworkFiles": "https:\/\/holtstrom.com\/michael\/_framework\/_files.4\/", "commonFiles": "https:\/\/holtstrom.com\/michael\/_common\/_files.3\/", "mediaFiles": "https:\/\/holtstrom.com\/michael\/media\/_files.3\/", "tmdbUrl": "http:\/\/www.themoviedb.org\/", "tmdbPoster": "http:\/\/image.tmdb.org\/t\/p\/w342" }