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Estate Planning > Concepts, Strategies and Tools

Estate Planning


• The Estate Bond
• Insured Inheritance
• Back to Back Annuities
• Triple Back to Back Annuities


• Charitable Gifting
• Enhanced Capital Gains Exemptions
• The Estate Freeze
• Funding Tax Liabilities
• Beneficiary Designations
• Probate Fees and Planning
• US Citizens in Canada
• Canadians with US Assets


• Beneficiary Designations
• Wills Planning
• Trusts: Testamentary, Inter-Vivos
• Joint Ownership
• Rollovers
• Ownership and Survivor Contracts
• Powers of Attorney
• Representation Agreements and Living Wills
• Charitable Gifting, Bequests, and Foundations
• Funding Arrangements
• Calculators

What Key Estate Planning Tools Should I Know About?

Planning is a part of nearly everything we do in life. It’s even a part of dying.

1. How will you preserve your assets from estate taxes and probate fees?
2. How will you ensure distribution according to your wishes?
3. Who will make financial and medical decisions in the event of your incapacity?
4. How will you pay any Capital Gains Tax owing?

By taking steps in advance, you have a greater say in how these questions are answered.

Wills and Trusts

Estate planning and Wills are not comfortable topics for most of us. Many people believe that only wealthy people need to plan their estates but this is no longer the case. Regardless of the size of your estate, only with careful planning can you be confident that your wishes regarding the distribution of your assets will be carried out for the greatest benefit of your heirs.


A will is a legal document, which sets out your wishes regarding the administration and distribution of your estate and gives powers to your Executor to carry out those wishes. Your Will does not take effect until you die so until then, you are free to deal with your assets and change the terms of your Will or revoke it completely as long as you are mentally competent. Changes in your family or legislation relating to taxation can have an impact on your Will so it is important to review it on a regular basis to make sure that it is up to date and still reflects your wishes.

While a Will is automatically subject to probate, this is still a more desirable alternative than dying intestate. Planning your Will involves decisions, including the choice of Executors, cash legacies to individuals or charities, specific legacies of personal items, provision for your spouse and minor children. If you own or operate a successful business, it is important to give careful consideration to the orderly succession of the ownership of the business, perhaps to the most logical successors, other family members or key employees. Canadian income tax and capital gains tax arising on death as well as probate fees in some jurisdictions are other important factors to consider in planning your Will. Careful planning can significantly reduce these liabilities on death.

A Will also gives you the opportunity to appoint a guardian for your minor children, whereas if you die intestate, minor children automatically become wards of the state.


A trust is an equitable obligation, binding a person (trustee) to deal with property over which he has control, for the benefit of persons (beneficiaries) of whom the trustee may be one. In other words a “trust” is one person (or more than one person) holding property for the benefit of someone else.

A trust can be one of the most effective and flexible methods to ensure property is managed according to your directions, or to transfer assets to your family, or a charitable organization, both during and after your lifetime…and it doesn't have to be complicated.

There are two different types of trusts:

1. A Testamentary Trust; and
2. An Inter Vivos Trust;

All trusts are a variation of one or the other of these trusts

A Testamentary Trust

A testamentary trust is a trust created within an individual’s Will, and comes into effect at the death of that individual. When a Testamentary Trust is set up under the Will, the executor and the trustee are directed to hold all, or a portion of, the estate assets for a specified period of time and for specified people (beneficiaries).

A Testamentary Trust can consolidate an estate plan for the heirs. Upon death, the assets are retained in trust and administered according to the provisions of the Will. All Testamentary Trusts are irrevocable.

For tax purposes, a Testamentary Trust is treated as a ‘separate taxpayer’ and is taxed at normal marginal tax rates on any income earned by the trust and accumulated as capital. Testamentary Trusts allow individuals to delay the distribution of their assets after death and to save taxes by taxing some of the trust's income in the trust, which is taxed at the four graduated rates applicable to individuals. Any income distributed by the trust to a beneficiary is taxed in the hands of the beneficiary and not the Trust.

Inter Vivos or "Living" Trust

An Inter Vivos or "Living" Trust is established during a person’s lifetime, and falls outside one’s estate. Therefore, it is not subject to public scrutiny or probate. Most Inter Vivos Trusts are irrevocable, which means the transfer of assets is permanent. This is done for tax purposes. The assets are transferred to a trustee, who ensures that the terms of the trust are carried out. The income in an Inter Vivos Trust will be taxed at the highest rate, regardless of the settlor’s own tax level. An Inter Vivos Trust will often be used as the foundation of an Estate Plan.

Joint Ownership

Another way to distribute your estate is through jointly held property — specifically, joint tenancy with rights of survivorship.

When you hold property this way, it will pass to the surviving co-owners automatically, “by operation of law.” As the title passes automatically, it avoids probate.

Joint tenancy can involve any number of people, and is not restricted to spouses. How you hold title to your property however, may have substantial implications for your income and Capital gains tax and you should consider how you hold title to all of your property, including your real estate, investments, and savings accounts.

Ownership and Survivor Contracts

Another way to pass on your property interests is through beneficiary designations. If for example, you have an employer-sponsored retirement plan, an RRSP, life insurance, or an annuity contract, you probably designated a beneficiary for the proceeds of the contract. The rights to the proceeds will pass automatically to the person you selected. As with joint ownership, the transfer occurs automatically, without the need for probate.

It is important to review your employer-sponsored retirement plan, RRSP, life insurance, and other contracts to make sure your beneficiary designations reflect your current wishes.

Power of Attorney for Financial Matters

A Power of Attorney is a legal document that assigns another person or a company (the "attorney") the right to make certain financial and legal decisions for you. Powers of Attorney were designed for individuals who are unable to manage their financial affairs either through mental incapicity, physically disability or for some other reason. Powers of Attorney do not cover the health care or personal care decisions.

Representation Agreement and Living Wills

The Representation Agreement Act is a new law in B.C. which took effect on February 28, 2000.

The Representation Agreement Act allows you to implement a ‘Representative Agreement’ that appoints an individual (such as a spouse, friend or a family member) to be your legal representative for personal and health care decisions, if you are unable to make those decisions yourself. A ‘Representation Agreement’ is a way to ensure that if you need help managing your personal affairs, you will get that help from the people you choose and trust. It also ensures that your decisions and wishes will be honoured. In essence, it creates a contract between you and your appointed representative. A ‘Representation Agreement’ speaks for you while you are living. A’Will’ speaks for you after your death.

A related document, the Living Will, also known as a directive to physicians or a health care directive, spells out the kinds of life-sustaining treatment you will permit in the event of your incapacity. The directive creates an agreement between you and the attending physician. The decision for or against life support is one that only you can make. That makes the living will a valuable estate-planning tool.

Charitable Gift Giving

Besides the satisfaction you’ll get from seeing your charitable donations put to good use, you can also ensure that your donation provides maximum benefit for both your selected charity, and your own tax situation. There are also different strategies to consider, depending on whether your donation is made during your lifetime or as part of your estate.

• Limits

Canada Revenue Agency (CRA) allows you to claim a tax credit on donations of up to 75% of your net income, plus 25% of most taxable gains arising from gifts of securities or property. For certain gifts ‘in kind’ (such as capital or depreciable property, ecologically sensitive lands, or certified cultural property) the limit is increased to 100% of net income.

• Gifts in Cash or Kind

A cash gift is probably the most common form of charitable giving. It can be something as simple as dropping a few coins in a box, or writing a cheque to a foundation. On the positive side, it is easy to measure the value of your donation and the tax effect it will have. It also gives the charity maximum flexibility, in that they can choose to invest your donation, or spend it immediately. Unfortunately, it is usually the least tax-efficient way to make a donation as you receive a tax credit for only 50% of the value of your donation after the first $200 of donations.

A gift ‘in kind’ is a non-cash gift, such as publicly traded securities. For tax purposes, your gift is recorded at fair market value. If your gift has appreciated in value, you are considered to have divested it, and this could trigger capital gains taxes.

• Life Insurance

Donating money to charity through life insurance is a useful estate-planning tool. This involves transferring the ownership of your life insurance policy (such as a whole or universal life policy) to the charity, as well as making the charity the beneficiary. It is the cash surrender value (if any) of the insurance policy that is eligible for credit as a charitable donation. Once the policy has been donated, any additional premiums paid to the insurance company for the policy by the donor are considered a charitable donation, earning you further tax credits.

When donating life insurance to a charity, you should first consider the needs of your heirs. Make sure you have enough insurance to allow them to preserve your estate before considering a policy donation to charity.

• Charitable Remainder Trusts

If you own an income-generating property (such as real estate), you can set up a charitable remainder trust. This is a trust that gives the property to the charity, but ensures that you continue to receive the property’s income for the rest of your life. The gift is recorded at fair market value (which means you might trigger a capital gain, as if you were donating a security and recaptured depreciation, if any) giving you an immediate tax credit while ensuring you receive an income during your lifetime.

Professional fees are involved in setting up such a trust, and the trust is required to complete a tax return each year. The benefit however, is that the charity receives the property immediately as it bypasses the will and cannot be contested.

• Considerations

There are a variety of considerations that will determine the distribution methods that are appropriate for you. By examining your situation and understanding how your assets will pass after your death, you may be able to identify the methods that will help you achieve your goals most effectively.

Capital Gains Taxes

Any gain in an asset, other than your family home, is subject to Capital Gains Tax.

There are four ways to pay Capital Gains Taxes.

• Pay cash, for 100 cents to the dollar.
• Borrow, which can cost up to 200 cents to the dollar.
• Liquidate part of the estate, which can cost up to 150 cents to the dollar.
• Purchase Life Insurance, which would cost pennies to the dollar.

Estate Planning Tip

Keep all your important financial and legal information in a central file for your executor. Be sure to include:

• Letters of Last Instructions
• Medical Records
• Bank/Brokerage Statements
• Income and Gift Tax Returns
• Insurance Policies
• Titles and Deeds
• Will and Trust Documents

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