What Is Estate Planning And Why Do You Need It?
Estate planning is a very important act that can help you preserve your assets. Your estate includes everything you own: money, property, and other possessions. Estate planning leads to peace of mind that your heirs will not suffer from any unnecessary legal delays as well as a smooth transfer of wealth upon your death.
Intro to Estate Planning
Your estate is everything that you own or in which you have a legal interest. This includes real estate, bank accounts, investments, the money paid from life insurance policies, and physical belongings. Estate planning refers to the transfer of these assets and liabilities after you die.
A will is a document that gives instructions on how you want your assets divided after your death. However, if you die without a valid will, state law will govern the distribution of your property. When this happens, the province of Ontario will decide what happens to your assets. The intestacy laws of 50,000 dollars for the surviving spouse and then whatever remains divided equally between children or parents if there are none. Any assets distributed to children under 19 must be given to a guardian or Public Trustee.1
An executor is a person you appoint to administer the distribution of your assets. The executor also usually takes care of funeral arrangements and paying off any debts and taxes from the estate.2 Executors are normally entitled to compensation from the estate for this work.3 If you have not appointed an executor before your death then the court will assign one.4
Your Power Of Attorney
A Power of Attorney is a document that gives a person of your choice the authority to become your “attorney” and to act on your behalf. It is an important document because, should you become incapacitated and unable to take care of your affairs, it allows decisions for personal
care and finances to be made by someone you have appointed. An attorney does not have to be a lawyer, just someone you trust to make decisions that would follow your wishes.5
The three kinds of power of attorney are:
● The Power of Attorney for Personal Care will allow your attorney to make decisions on behalf of you, including medical ones. If a person becomes mentally incapacitated and cannot take care themselves it is important that they have this legal document so someone else can step into their shoes without hesitation or question accordance with state law.
● You can give your attorney a Continuing Power of Attorney for Property, allowing him or her to manage your financial affairs (bank accounts, investments, bill payments) after you become incapable of managing them yourself.
● Non-Continuing Power of Attorney for Property, allowing your attorney only to perform specific tasks. This form of attorney is not valid especially if you become mentally incapacitated6
It’s important to note that your spouse cannot perform these tasks for you unless they are made your Power of Attorney.7
Your Advance Directive
Advance directives are a crucial part of estate planning because they give instructions for what should happen if you cannot communicate your wishes. Many people refer to these documents as “living wills” outside Ontario, but this term is less accurate than advanced directive which helps explain why the document has changed over time in different parts across Canada.
Your Deemed Disposition Tax
This is a tax on your assets that are “deemed” to be sold at the time of your death. You can defer it if you transfer the items to your spouse during your lifetime, either through a direct transfer or through placing them in trust for that spouse. However, if your spouse sells the items, the tax will apply to the sale.
If your spouse dies and their heirs inherit your assets, generally speaking 50% of all capital gains are taxable at the personal income tax rate.
Your final tax return will include the value of any retirement accounts and income received from stocks, bonds, real estate investments, and even life insurance proceeds in the year of death, from January 1 up to the date of death.9
A trust is made when you transfer your assets to someone else, for the benefit of a third person. There are two main forms of trusts which pertain to estates:
● Revocable Living Trust: Trust that operates while you are still alive. You can change or revoke its terms at any time. You can also instruct trustees on how to distribute your assets while you’re still alive and after your death. Even if you and your spouse act as trustees together, the trust will become irrevocable. For this reason the surviving spouse’s control will be limited. If you create a revocable living trust, it will be taxed at Ontario’s highest marginal rate of tax.10
● Testamentary Trust: A trust which operates only after your death. You are taxed on these trusts at your personal income tax level.11
For any of your estate planning related needs
You can contact one of our estate lawyers. You can reach our office at 905-366-0202 or contact us through our website here.
We highly discourage anyone from seeking out legal advice through this article. This article only provides general information and should you require assistance, please contact us to book a free initial consultation.
1 Melvin Pasternak, “Estate Planning for Canadians” (17 September 2019) .
2 Ontario Estate Law, “Executor Duties” (11 July 2020), Milton’s Estate Law.
3 Ontario Estate Law, “Executor Basics” (11 July 2020) , Milton’s Estate Law [MEL].
4 Ontario, Ministry of the Attorney General, How to Apply for Probate in Ontario (webpage) (Queen’s Printer for Ontario, last modified 4 June 2020).5 Downtown Notary, “What is a Power of Attorney and why do you need one?”(16 May 2019), DowntownNotary.ca
6 Ibid. 7 MEL, supra note 3. 8 Ontario, The Office of the Public Guardian and Trustee. Powers of Attorney: Questions and Answers (Report) (Queen’s Printer for Ontario 2007, Reprinted in 2016) at page 3. 9 Pasternak, supra note 310 Ibid. 11Ibid.