Category: AvisoWealth

Estate planning to estate do-ing

Because you don’t have 9 lives to figure it out

Experienced estate lawyers will tell you that estate planning provides people with comfort, confidence and certainty. For some however, the mere mention of it causes anxiety.

Perhaps this comes out of a superstitious belief that by contemplating your mortality, you might somehow bring it about. Or maybe it’s the anticipation of having to deal with tough decisions that may have no clear right or wrong answer, where logic and emotion must be delicately balanced.

Whatever the reasons, it is an area where people tend to procrastinate, and that’s risky both for you and for the people you care about. By instead tackling the process with a constructive mindset, you are able to de-stress it, and can turn it into a positive, reaffirming journey.

A people perspective

Estate planning is more than simply ‘who gets what’. It gives you a chance to think about who you are, what matters to you, and most importantly who matters to you. That means taking care of yourself, both now and in the future, and taking care of the people closest to you: now, in future and when you are no longer around.

Viewed through the principal lens of benefiting people and only secondarily as a distribution of things, estate planning emerges from the cold shadow of legality into the warmth of personal relationships.

As you may expect, this adds complexity to the decision-making, often calling for input from professionals beyond a lawyer alone. Commonly these will be financial professionals, but also may include guidance of a spiritual nature. The key is to have such advice coordinated so that the people are kept in focus, and the ultimate plan is legally sound.

The estate planning process

At least part of the concern for those anxious about estate planning is the prospect of dealing with paperwork. Undeniably, material must be reviewed and documents eventually executed. Along the way, however, there is much to ponder, to appreciate and to learn from. To turn a phrase from Marshall McLuhan – who famously said that the medium is message – here, the method is the message.

The most effective estate planning involves you as a full participant. Just as your lawyer is an expert in the law, you are the expert … in you. Working cohesively, you will be able to uncover what is relevant, gauge significance, prioritize among issues, and explore options.

But the starting point is back with that candid look at where you are now, before you can decide where you are going. In a sense it is that simple, while at the same time not easy. It takes effort.

What’s up (with the) docs?

In due course, that effort leads to the creation of documents that make it clear who is to benefit from your planning, and who has responsibility to carry it out.

Most people are aware that a Will allows you to direct who is to receive your estate property: your beneficiaries – and who is to manage or ‘execute’ the instructions in the Will: your executor. The formal term for an executor varies across provinces, but the duty remains the same. This person is required to manage the property as a trustee who is legally bound to protect the best interests of your beneficiaries.

And while you’re still around to enjoy that property yourself, you can name someone as your attorney – meaning a decision-maker – to manage it for you if and when you can’t. Similarly, you can name someone to make personal decisions if you are incapacitated, like where you live, when you receive health care, or how you give medical consent. Again, the formal terms vary by province. The key point is that your decision to prepare these documents does not affect your ability to decide for yourself, but rather shares authority with someone you trust.

Shortcuts, and short circuits

Once you are confident that the intended plan fits your needs, your attention may turn to cost savings. But take care that you don’t short-circuit that plan in pursuit of a financial shortcut.

The classic cost savings target is the probate fee or tax, with each province once again having its own terminology, processes and costs. It ranges from a small filing fee of a few hundred dollars, up to about 1.5% of the value of estate assets.

Familiar techniques to reduce probate include keeping beneficiary designations on life insurance and registered plans current, holding property in joint ownership with right of survivorship, and making gifts to people now rather than later. While each of these may result in reduced probate tax, they are not without their own costs and potential drawbacks, so again professional advice is critical.

Getting it all going

The best of intentions can be the worst of planning if you don’t get started. That’s what’s meant by the title of this article, going from estate planning to estate do-ing. Make the commitment to consider and record what you have, who you care about, and how the two intermix.

While you are not required to use a lawyer, it’s the best way to be confident that you are operating with current legal information, guided by a professional who has the necessary expertise and experience. If you don’t know a lawyer, check with the referral service of the provincial law society regulating lawyers, or get a recommendation from someone whose professional opinion you respect.

Once underway, be sure that your lawyer is aware of all your professional advisors so their input can be included where and when appropriate. As well, to the extent that you are comfortable with it, it can be helpful to communicate with your family and others you care about that you are actively working on your estate planning. The decisions are yours to make, but their perspectives can help you determine if your plan will (or should) carry out as initially intended, or if adjustments may make sense.

Finally, once you have put the planning into place through the decisions and documents, you need to monitor it. That runs along three lines:

    • A prudent course is to schedule a follow-up with your lawyer no more than five years down the road to check whether changes in the law or other events outside your control might affect your plan.
    • As well, having made an inventory of your property, you will now have a better sense of the implications if there are changes to it.
    • Lastly, and most importantly, if there are changes in the people or your relationships with them, it may be time to revisit things to be sure you are taking best care of you and the people who matter most to you.

Probate

Profits and perils of planning around a formal estate

For some people, even the thought of creating a Will casts a pall over their mood. Yes, a Will deals with a person’s death, but the broader process of estate planning is about caring for the most important people in your life. Having an up-to-date Will is central to that process.

There’s no word that seems to strike greater fear when people approach their estate planning than the spectre of “probate”. It’s not an everyday word, so its nature and implications are a mystery to many. Without a clear understanding, you open yourself up to added anxiety and potentially misguided actions that may be more harmful than helpful.

Your first priority is a sound estate plan for yourself and your beneficiaries. Once that’s satisfied then yes, why pay more probate than is necessary?

The many faces of probate

Probate has historically referred to estate matters in a variety of ways, from the name of the courts to the description of the application and process – and of course, the tax.

We’ll use the term “probate” in this article, understanding that many provinces now use different terminology. Readers are encouraged to consult an estate planning lawyer to learn the appropriate language in their province, and to discuss how the principles in this article apply to their situation.

When is a probate application needed?

A person’s Will is the legal authority for an executor to take control of that person’s property at death, in order to ‘execute’ the instructions in the Will. Like probate, “executor” is not the official term in all provinces.

Despite the Will being the source of the executor’s legal power, a probate application is often necessary to prove that authority to others who are in possession of the deceased’s property. For example, a financial institution has to be careful before releasing funds from an account as the Will may not have been executed properly. Or, there may be a subsequent Will that supersedes the one the executor offers or it may even be a forgery.

Even without such a demand, a formal application may still be necessary for other reasons:

    • Where there are minor age beneficiaries, the provincial Public Guardian’s office usually requires that official procedures be followed as part of its obligation to protect those beneficiaries’ interests
    • Most real estate cannot be transferred out of an estate without a probated Will
    • An executor requires a formal appointment to give instructions in any lawsuit involving the deceased or estate

Probate for an executor’s peace of mind

A probate application is often desired by the executor to guard against personal liability. While not completely protected from the cost and inconvenience of litigation, an executor who acts in a bona fide manner is generally protected against liability to the estate when acting under a formal probate appointment.

Undertaking the probate process

It is the executor’s responsibility to see to it that the probate application is properly completed. Often the executor will hire a law office or trust company to assist with the application. This may be for the sole task of filing the probate application, or it may be part of a continuing retainer for the duration of the estate administration. Either way, the executor remains legally responsible to oversee all hired professionals.

The executor must first gather sufficient information about the deceased and the beneficiaries to begin the application. Once submitted, the court processing time depends on the volume of applications in the queue, which may mean weeks or months. The law office or trust company can provide guidance, based on their experience.

Property subject to probate

A summary of the deceased’s assets will have to be prepared. In a simple estate this may be part of the initial court application, but often the executor will need time to identify and gather assets. In that case, an initial outline and estimate may be provided, with a legal promise to complete the information over time. In some provinces the court handles the initial legal appointment, and another government department oversees property details.

Most provinces assert jurisdiction over real estate within the province and personal property wherever it may be located, including bank/deposit accounts, individual investment securities and mutual funds, vehicles and vessels, clothing, furniture and personal belongings, as well as intangibles and business interests. Property beneficially owned by the deceased but held in another person’s name must also be accounted for.

The cost of probate

While every province has a probate process of some sort, not all provinces levy a probate fee or tax.

In Alberta, Manitoba and Quebec, there are only court filing fees, amounting to a few hundred dollars at most.

In the other provinces, the property value (usually less mortgages on real estate) is multiplied by either a flat or graduated percentage rate. The maximum rates are: British Columbia 1.4%, Saskatchewan 0.7%, Ontario 1.5%, New Brunswick 0.5%, Nova Scotia 1.695%, Prince Edward Island 0.4% and Newfoundland and Labrador 0.6%.

Acceptable probate avoidance strategies

Despite the wide range of property open to probate, there are a number of ways to legally escape its application.

Common planning practices

    • Lifetime gifts – The tax applies to property owned at death, so legitimate gifts made to others during a person’s lifetime will not be brought into the calculation.
    • Beneficiary designations – Where there is a named beneficiary on an insurance policy or registered investment plan (eg., RRSP, RRIF, TFSA), the proceeds will pay to the beneficiary outside the estate.
    • Joint ownership – When someone holds property in joint ownership with others, that person’s interest does not fall into his or her estate, but instead passes by right of survivorship to the other registered joint owners.

Situation-specific strategies

    • Secondary Wills – A multi-Will strategy uses a secondary Will to isolate property that is not expected to require court authority for the executor to take control, often shares in a closely-held private corporation.
    • Alter ego trusts & joint partner trusts – A person over 65 may transfer select property to this type of trust whereby he/she/spouse is life beneficiary, and then contingent beneficiaries receive what remains at death.
    • Corporations – Non-registered portfolio investments and associated investment loans might be held in a corporation so only the net value of the investments is subject to the probate calculation.
    • Real estate outside of province – Not really a strategy, but a reminder that extra-provincial real estate will not be subject to probate in the deceased’s province, though it may be exposed in that other jurisdiction.

And the perils?

Recall that even the highest probate tax is less than 2% of the value of estate property. Consider that in proportion to what is expected to be gained by any probate avoidance steps, as they may alter ownership rights, open creditor exposure and incur income tax. Legal and tax advice should be obtained before taking any action.

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APPENDIX – Provincial reference material

Below are provincial government websites or resources referenced from those sites. Underlined text in the PDF version of this article are hyperlinks. Full text of the links are on the next page. This is intended as a starting point for resources in each province. Consult an estate planning lawyer in the province for further information.

British Columbia

    • Guidance – Probate Fee Act s.2 – Court forms
    • Summary – The probate fee does not apply to the first $25,000. It is 0.6% from $25,000 to $50,000, and 1.4% on the amount over $50,000.

Alberta

    • Guidance – Court Fees: Surrogate Matters – Court forms
    • Summary – Surrogate Court fee is based on net value of Alberta property: $35 up to $10,000; $135 over that to $25,000; $275 over that to $125,000; $400 over that to $250,000; and $525 if over $250,000.

Saskatchewan

Manitoba

Ontario

    • Guidance – Estate administration tax – Court forms
    • Summary – Estate Administration Tax is 1.5%, with the first $50,000 of estate assets exempt. Prior to January 1, 2020, the charge on the first $50,000 was 0.5%. Real estate is valued net of mortgage/encumbrances.

Québec

New Brunswick

    • Guidance – Probate of the Will – Court fees – Court forms
    • Summary – The probate fee is $25 for an estate valued up to $5,000; $50 if up to $10,000; $75 if up to $15,000; $100 if up to $20,000; and 0.5% of the value over $20,000.

Nova Scotia

    • Guidance – Probate court practice – Court forms
    • Summary – The probate fee is $85.60 for an estate valued up to $10,000; $215.20 if up to $25,000; $358.15 if up to $50,000; $1,002.65 if up to $100,000, plus 1.695% of the value over $100,000.

Prince Edward Island

    • Guidance – Information for executors – Court forms
    • Summary – The probate fee is $50 for an estate valued up to $10,000; $100 if up to $25,000; $200 if up to $50,000; $400 if up to $100,000. For larger estates, the fee is $400 plus 0.4% of the value over $100,000.

Newfoundland and Labrador

Powers of attorney

Your capacity, care and continuity

When it comes to estate planning, most people are familiar with Wills, which are used to distribute property after death. But it’s equally important to address lifetime decision-making, should your mental capacity be diminished by an accident, illness or age-related decline. This complements your Will by taking care of yourself first, before you take care of others.

The naming of substitute decision-makers has been a recommended part of estate planning for decades, though rules vary somewhat among provinces. In this article, we’ll outline common principles and planning considerations, using the traditional term “power of attorney” (POA) which is still used in many provinces.

Readers are encouraged to consult an estate planning lawyer in their province to learn the appropriate terminology, and to discuss how the principles in this article apply in their situation.

Legal effect

Powers of attorney allow you to share decision-making power over your property and/or personal affairs with someone else. It is important to note that by doing so, you DO NOT lose your own ability to make those decisions. As the giver of the power, you are known as the grantor, donor or principal.

The person to whom you grant the power is called your attorney. Though that term can be a synonym for lawyer (mostly in American law), in this usage it simply means decision-maker. Other terms include representative, proxy, designate or agent. Whatever the official term, understand that you are giving that person significant legal powers, so your decision to grant a POA and your choice of attorney must be carefully thought through.

A brief history

The law of power of attorney has been around for centuries, with its origins in the judge-made common law. Those early POAs dealt exclusively with property (and related financial matters), and historically would cease to be effective if the person granting the power became mentally incapable of making such decisions him/herself.

Provincial legislation now supersedes most common law rules, including the option for an attorney to continue to act after a grantor’s incapacity, in which case it is known as a continuing, enduring or durable power of attorney.

These modern POAs still deal with property decisions, and may also extend to authority over the individual personally. Written authority is required, with some provinces allowing a single document for both purposes, and others requiring a separate document for each role, even if the same attorney is named for both purposes. For distinction in this article, we’ll call these the POA-Property and POA-Personal.

Capacity to execute the document

For POA-Property, the grantor must generally be at least age of majority, which is 18 or 19 according to province. As well, the grantor must know the extent and approximate value of his/her property, any legal or moral obligations to dependants, the nature of the power that is being granted, and the potential for its misuse or abuse.

For POA-Personal, some provinces allow the grantor to be as young as 16. Generally, the grantor must understand the kind of decisions covered, which may include medical consent, general health care, nutrition, shelter, clothing, hygiene and safety. In addition, some provinces require an acknowledgement that the grantor believes that the named attorney has a genuine concern for the individual’s personal care.

Coming into force

Each province has rules on the format, content and witnessing requirements for the execution of POAs.

It is possible to require that a POA-Property only takes effect once the grantor is incapacitated, but that would require a mental assessment of some sort, which could delay its use when time may be critical. Alternatively, a common practice is to have it effective on execution, with the stated intention on its face that it is expected to be used on a later incapacity. The document should remain in safekeeping, possibly in the lawyer’s office vault, which provides a degree of protection against its premature use.

A POA-Personal attorney will normally only act when the grantor is incapable, or otherwise unable to respond.

Scope of authority

A POA-Property attorney can generally do anything that the grantor can do, with the exception of making a Will or doing things that would alter testamentary/estate distributions. For example, the attorney can’t change the beneficiary of an RRSP, though some provinces allow continuation of a past designation to a new RRSP or RRIF.

A grantor may place restrictions on an attorney’s powers if desired, such as narrowing from all property to some specific property or stating a time limit. Instructions may also be given to an attorney, though this is most often in general terms. Absent that, an attorney’s first responsibility is to take care of the interests of the grantor, then any dependants, and possibly provide gifts, loans or donations, so long as it reflects the grantor’s habitual practice.

For a POA-Personal attorney, there may be a separate ‘living will’ or advance care directive stating the grantor’s wishes about medical treatment. This may not be legally binding (depending on province), but the attorney must consider any wishes expressed by the grantor while capable, whether in a POA, oral or in writing elsewhere.

Legal duties on incapacity

Acting as an attorney is a big responsibility, especially once a grantor becomes incapacitated. At all times, but especially at this point, an attorney must act diligently and in good faith. The attorney must explain decisions to the grantor and involve the grantor in making those decisions to the extent possible. As well, the attorney should consult with family, friends and caregivers as appropriate, and assist the grantor in maintaining contact with them.

For a POA-Personal attorney, there is a particular requirement to help the grantor live as independently as the person may wish. And when treatment or intervention is needed, it should be the least restrictive course of action.

Who to name as attorney, and how

An attorney must be mentally capable, and generally at least age of majority, though some provinces allow a younger age for a POA-Personal attorney. An attending health care worker or someone providing paid personal care services cannot usually be a POA-Personal attorney, unless it is a family member.

The same person could be attorney under both POAs, as is common with spouses, or separate attorneys could be named for each POA role. There could be a primary attorney, with an alternate if that first-named person cannot serve or continue in the role. Two or more people may be concurrent attorneys for either POA, though it can get logistically and emotionally challenging the more who are involved. If it is intended that multiple attorneys be able to act independently of one another, the POA document must state this as “joint-and-several”. Otherwise every decision, instruction and permission, for example signing a cheque, must involve all attorneys “jointly”.

In evaluating candidates, a grantor should think about the length and depth of their relationship, as the attorney will be making intimate decisions as if in the grantor’s shoes. Knowledge and capability with financial matters are important, as well as practically whether they can devote the time and are physically near enough to do the job. And don’t forget organizational and communication skills, diplomacy, confidentiality and general trustworthiness – all of which might be soft skills in other situations, but are at the core of what is needed in this sensitive role.

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APPENDIX – Provincial reference material

Below are provincial government websites or resources referenced from those sites. Underlined text in the PDF version of this article are hyperlinks. Full text of the links are on the next page. This is intended as a starting point for resources in each province. Consult an estate planning lawyer in the province for further information.

British Columbia

Alberta

Saskatchewan

Manitoba

Ontario

Québec

New Brunswick

Nova Scotia

Prince Edward Island

Newfoundland and Labrador