We group this type of work together for simplicity but it actually covers two areas of law: “Estates”, which involves assisting executors, administrators and beneficiaries after a death, and “Estate Planning”, which includes preparing wills, creating trusts, planning for or dealing with incapacity, providing for children and creating succession plans for businesses. We’ve provided more detail below but we’re still only scratching the surface.
When someone dies, those left behind have many tasks ahead of them. If the deceased had a will, they have to consider whether to Probate it or whether the circumstances are such that it is feasible to avoid Probate. If the deceased had no will, someone may have to apply to court for Letters of Administration in order to deal with his or her assets. There may be trusts, insurance policies, RRSPs, RRIFs, TFSAs, RSDPs or other arrangements to work through and there may be disputes. In addition, there is a risk of double taxation, and various strategies to avoid it. A brief consultation with a lawyer at the start could save a lot of time and money over the long run.
Everyone should have a will. Aside from setting out who gets your estate when you die, you also use a will to appoint an executor to be in charge of your funeral arrangements and the distribution of your assets and a guardian to look after your minor children. You should be aware of other planning tools as well, such as trusts (some common types are described below), second wills (to deal with assets which do not require Probate), powers of attorney and representation agreements and estate freezes (also included under “Business Law”), among other things. What follows is some general information on other options.
Types of Trusts
Testamentary Trust: These are trusts created as a result of somebody’s death and so are usually created by a will (although you can also create such trusts to deal with life insurance proceeds and proceeds from various benefit plans) and they are taxed at graduated rates, roughly the same as individuals are taxed. Among other things, they can be used to keep assets away from minors, protect assets from your childrens’ estranged spouses, provide for disabled children and permit your beneficiaries to take advantage of another set of lower marginal tax rates, although the “graduated rate estate” rules have limited the availability of lower marginal rates to three years from the date of death.
Family Trust: These pay income tax at the top marginal rate so they are most commonly used to hold shares in private companies and flow dividends out to people who are taxed at lower marginal rates without giving those people any control over the shares. They may also be used to protect assets, minimize probate fees, remove assets from exposure to wills variation claims, transfer business assets to children tax-free at a time of your choosing and multiply use of the capital gains exemption in a sale. They can, however, trigger serious adverse income tax consequences and fail to protect anything if not set up and administered properly.
Alter Ego Trust: These can be created by anyone 65 years old or older and have two advantages over a will: they cannot be challenged under the wills variation provisions of the Wills, Estates and Succession Act and they don’t have to be probated. As they don’t have to be probated, there are no Probate Fees and no delays in dealing with assets. In general they will have no impact on income tax payable but there are some traps to consider and they do not wholly replace a will since you do not generally put all your assets into them.
Joint Partner Trust: These are the same as alter ego trusts but are created by both spouses, usually to distribute their assets when the last of them dies.
Power of Attorney: These have been used for years, and continue to be used, to designate someone to handle our affairs during temporary absences but have also evolved into the main tool for ensuring our financial affairs remain in order if we become mentally incapable of handling them. You can authorize an attorney or attorneys to do almost everything you can do, but powers of attorney are not as useful for dealing with healthcare decisions and have other limitations. In addition, the rules have just changed, effective September 1, 2011, imposing considerably more risk and uncertainty on the attorney so be sure you understand what you’re getting into.
Agreement: These were developed to replace Powers of Attorney and can still be used to designate a Representative to make financial decisions but are generally used to deal with healthcare decisions. Firstly, they permit you to designate in advance who will be in charge if you are incapable of making your own decisons and, secondly, they spell out your wishes. To what extent do you want to remain on life support if hope of recovery is gone? How far may doctors and nurses go in attempting to save you?