What Is Estate Planning And Why Do You Need It?
In the age of COVID, more than ever before, nothing is certain. You may be wanting to get your affairs in order, to prepare for the worst, or simply to grant yourself peace of mind. Read on to learn more about estate planning.
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. Without a valid will, you are considered to have died intestate. When this happens, the province of Ontario will decide what happens to your assets. The laws of intestacy dictate that the first 50,000 dollars be given to a surviving spouse, and the remainder divided between the spouse and children, or in the absence of a spouse and children, between your parents. Should your parents not be alive, the next in line are your siblings. An administrator will be assigned to the estate. 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:
● Power of Attorney for Personal Care, allowing your attorney to make decisions for your personal care, including medical decisions, should you become mentally incapacitated
● Continuing Power of Attorney for Property, allowing your attorney 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 if you become mentally incapacitated6
It’s important to note that your spouse cannot perform many of these tasks for you unless they are made your Power of Attorney.7
Your Advance Directive
An advance directive refers to a section of a Power of Attorney for Personal Care where you can give your instructions on your treatment and personal care wishes, which can be read if you become incapable of communicating them. Advanced directives are sometimes referred to as “living wills” outside of Ontario.8
Your Deemed Disposition Tax
This is a tax that is applied to your assets, which are “deemed” to be sold at your death. It can be deferred if the items are transferred 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, 50% of all capital gains are taxable at the personal income tax rate.
The final tax return: 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 as well as after your death. You and your spouse can act as trustees together, however after one of you dies, the trust will become “irrevocable” which means that 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. These trusts are taxed 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.
Nothing in this article should be considered or relied on as legal advice or opinion. 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.