Do your heirs expect to inherit?

Do your heirs expect to inherit an old homestead property, a family cottage, a residence, your farm, an art collection, furniture, or business shares? They may have to be liquidated by the estate, perhaps at a loss, to pay any existing tax liability. Life insurance proceeds may help to side-step probate, or estate administration tax, and can cover any estate liabilities that could impinge on bequests that you want to make to your loved ones.

Make sure that your gifts stay in your family. Deemed dispositions of capital assets at death occur even if an asset is willed directly to an heir. A capital gains tax liability remains in the deceased’s final tax return and reduces the value of the estate.

5 Methods to reduce taxes that will be due upon your death.

  1. Use the spousal (and disabled child) rollover provisions of RRSPs or RRIFs.
  2. Leave assets that have accrued capital gains to your spouse to defer tax.
  3. Leave assets without capital gains to other (non-spouse) family members.
  4. While you are alive, gradually sell assets having capital gains, to avoid dealing with the capital gains all at once in your estate.
  5. Purchase life insurance to cover capital gains taxation in the estate.

Taxes may be payable on gains.

Income-producing real estate, a second residence, or cottage, and any other assets left to surviving family members, such as shares of a business, of stocks and investment funds may face capital gains taxation.

You may also want to consider charitable donations to lessen taxes in the estate. Hire an estate planning lawyer and make sure your Will is updated and includes your estate planning directives.

TFSAs can help transfer money to your heirs. 

Money accumulated in a TFSA does not attract taxes at the time of death. If you want to create increased transferable after-tax wealth, consider moving money into TFSAs from non-registered investment accounts. Note: It is important to get an Advisor’s guidance, and perhaps an accountant to implement this in a careful tax plan.

Be careful, though to also consider taxable implications when considering selling non-registered assets. Ask your tax advisor if you will be triggering a  taxable gain? Possibly utilize TFSAs to their maximum potential, and monitor the comparative tax impact of transferring wealth from RRSPs/RRIFs to heirs of the estate.

How can I reduce Probate or Estate Administration fees?


After the death of an individual, every estate must file a final (or ‘terminal’) tax return. All assets are deemed to disposed of at the time of passing, and this can trigger probate fees and other expenses.

A certificate of appointment (“Probate”) or Estate Administration Tax (EAT) is not always necessary to actualize the transfer of certain assets. Much depends on how the asset is held during one’s lifetime, and the value of the asset transferred.  Some institutions will not require probate for assets under a certain amount.  Concerning jointly-owned real property, and bank or investment accounts, these assets will pass to the surviving joint tenant by right of survivorship.  In cases where joint ownership of assets is considered for estate planning purposes, it would be prudent to obtain legal advice.

Life Insurers offer life insurance policies, segregated funds, and term funds, which may designate one or more primary beneficiaries, and further contingent (secondary) beneficiaries, allowing probate/EAT to be circumvented entirely, enabling direct access to those funds without joint ownership or survivorship of a joint tenant. Segregated funds and term funds are classified as deferred annuity policies, and as such, these assets can help lessen the overall fees charged on your estate. Monies pass privately and directly to your beneficiaries, outside of your estate and the probate process.

Concerns for Estate Planning

In Ontario, Probate fees were the forerunner of the new Estate Administration Tax (EAT), which is to shift to the Minister of Revenue. An Executor/Trustee will now have to file a detailed summary of assets that are distributable under the will. The Ministry reserves the right to take up to 4 years to assess, or the right to reassess, making the Executor/Trustees responsible for that reassessment.  Executors and beneficiaries may face liabilities if estate assets distribute before assessment or reassessment.  How does an Executor reclaim assets already distributed?

Assessment powers are not minor With the introduction of the estate administration tax (EAT), the government has given the Minister of Revenue audit and verification powers patterned after the federal Income Tax Act, thus giving the Minister of Revenue the right to assess an estate in respect of its EAT liability.

Estate trustees may be personally liable for the claims of creditors that cannot be paid as a result of an improper estate distribution. It will be an offence for an estate trustee to fail to make the required filing with the Minister of Revenue or where anyone makes, or assists in making, a false or misleading or omitted fact in connection with the estate trustee’s filing. Because offences are punishable by fine, imprisonment or by both, errors and omission insurance may be needed by executors handling larger estates.

Potential Legal Issues for Estate Trustees and Executors
Imagine if you are a personally chosen friend of a deceased person with $1.5 million in assets, who previously selected you as Executor/Trustee of his or her estate. Though duty-bound, you may feel that the risk is now very high if an error occurs. Consequently, you may want to off-load the potential liability to a professional accountant and lawyer to present all the documentation for EAT.

Consider that the costs of such a transfer of liability could rise to the maximum of 6% per professional (two professionals would mean 2 x 6%) of the value of the Estate. This could bring the total cost of dealing with EAT to a maximum of 13.5% of the estate value. In the above case, fees could cost upwards of $202,500.

Segregated and Term funds may offer investors an edge over other investment products in the province of Ontario when it comes to planning someone’s Estate. Segregated and Term funds also offer estate privacy of the distribution of money under the insurance act.

Note: Not applicable in Québec as notarial wills do not need to be probated by the court and, for holograph wills and wills made in the presence of witnesses, probate fees are minimal.


How do I protect the finances of the Successor of my Business?


Here are ways to protect your successor financially.

  • Allow the potential successor to get involved in managing important team projects. Try to increase the successor’s financial insights and general responsibilities over time. Allow independence while ensuring that the right professionals assist the successor, such as a good accountant and insurance agent.
  • Consider visiting other family businesses that have transferred their business through continuity planning.
  • Establish mentors and advisors for the successor. Consider setting up a board of directors if one is not in place. Implement leadership training programs.
We do not suddenly become what we do not cooperate in becoming.— William J. Bennett

Protect your assets during Succession in the following ways:

  • Cover your key persons. Use life and disability insurance to cover the cost of replacing an owner, successor, contingent successor, or a key executive in the event of death or disability.
  • Ensure debt redemption. Life insurance proceeds can pay off bank loans and other liabilities—paid at the owner’s death. Also, consider critical illness insurance, which would pay up to $2,000,000 if the proprietor were to become critically ill.
  • Provide income replacement insurance.  Disability insurance benefits can provide income to an owner, successor, or key executive if disabled over specific periods. The payment paid as a benefit to a disabled insured, places less payroll burden on the company.
  • Fund a buy-sell agreement. Life and disability insurance proceeds can fund a buy-out upon death or disability, where two or more owners are in business (effective for current or succeeding generations).
  • Fund a stock redemption. When other members of the family own stock, you can buy life insurance for the owner and make the successor the beneficiary. This will provide cash upon the owner’s death to allow the successor to buy the stock of, say, sisters or brothers, based on a pre-determined formula related to equalizing the estate.
  • Fund capital gains tax liabilities. If significant capital gains will impair the company, reduce personal assets, or disallow a legacy of a cottage or other asset, use a permanent life insurance product designed to pay off all capital gains liabilities.
  • Create capital to equalize your estate. In the future event where one child will inherit the company, life insurance can be purchased by the owner or spouse to pay the non-involved children a tax-free cash benefit in predetermined amounts, clear of probate. To avoid resentment, you can inform these children that they will be treated fairly in the overall estate.
Let him, who would move the whole world, first move. — Socrates

Maintain relationships during succession

  • Keep your banker informed. What would your banker do if something happened to your firm’s current owner? Who else knows of the company’s loans or actual financial status? Introduce your successor (and the succession plan) to your banker and review all the company liabilities. Reveal your life insurance planning to the banker that can offset liabilities in the balance sheet.
  • Sustain client relationships. Introduce your successor early on to your key clients. Perhaps host client appreciation events.
  • Harmonize the successor with the constituency. The key players will help the company survive, including critical suppliers, influential families within and without; shareholders you hope will seek minimal dividends instead of future growth; employees, especially those holding company stock; and the key executives.
  •  Diversify sources of retirement income. Keep your retirement investments separate from your business. Consider purchasing segregated funds, separating your assets from the company while reducing exposure to creditors. Avoid investing your profits into the business without developing your independent retirement resources. Thus, you will not need to rely on the company to create an ongoing retirement income, though you may receive dividends and income from the business.
  • Move towards financial independence of your business. Though you leave a legacy to your successor(s), you can ensure that the inheritance will have sufficient funds to survive during and after the succession. Drawing from your retirement savings can reduce dependency on business income (or dividends).


The importance of a Status Certificate when buying a condo


Condominium living has become an option for homeowners who want to reduce the many responsibilities of a single-family residence.  Most condominium corporations assume these tasks and are a popular choice for young and middle-aged purchasers who are too busy or prefer to limit their day-to-day home duties such as garbage and snow removal, home maintenance and repairs. Condominiums are also attractive to retirees who want to own without any strenuous activities that consume time or who want freedom and security to travel without worrying about pre-retirement duties.

A purchaser needs to obtain an up-to-date status certificate for the unit and have it reviewed by a real estate lawyer.  Real estate agents generally make a condo purchase and sale agreement conditional upon a satisfactory review of the Status Certificate. Under the Condominium Act, a condominium corporation has ten days within which to produce a status certificate for anyone who requests one (upon payment of the prescribed fee, which is currently $100).  The Act also establishes what information a status certificate must contain.

What is a status certificate?
A status certificate provides a snapshot of everything that may concern prospective purchasers, including its overall financial situation and budget relative to the amount of money in its reserve fund (a savings account maintained for significant repairs and replacements of the common elements such as a new elevator or chiller); the rules by which unit owners are expected to abide; and whether the condominium corporation knows any circumstances that may increase to the standard monthly expenses.

It is important to determine if a condominium corporation is involved or expected to be involved in litigation, and an up-to-date status certificate may reveal that the unit is subject to a “special assessment,” which is a sum of money the condominium corporation believes must be collected from the unit owners to cover an unforeseen expense.  This knowledge of a special assessment may affect what a purchaser is willing to pay for a unit.

Your mortgage provider may also want to let you know that your lawyer has reviewed the status certificate as a requirement of the sale.

What is a Power of Attorney (POA)?


If you were to have a stroke, heart attack, or severe operation—a disability to which you could not take care of your affairs, who would take over? What if this was the last day you could make a mindful decision on your behalf?

You transfer directorial powers over your affairs to a Power of Attorney 

In such a situation, a Power of Attorney (POA) allows people you trust to manage the prescribed affairs of your life.

Without a POA, your family though ready to pay your bills, and help manage your bank account and your investments, for example, may need special court approval to act for you. They could face a bureaucratic nightmare to acquire authority to pay your bills (from your provincial public trustee).

• Clarity can be defined. A POA leaves no room for misunderstanding the range of authority over your assets. You may need to set restrictive clauses in a POA that addresses your unique concerns.

• You will give up the powers of your signature The POA relinquishes the control of your signature and all the authority associated with it. Unless it states otherwise, the attorney may use a POA immediately upon signing.

• It must be witnessed. Improper witnessing annuls legal completion and sets the POA up for contention. Thus make sure the document is witnessed correctly.

• Be careful of restrictions you may not want to be included. Some broad-form POAs include optional clauses often left included, whereas they may not be applicable. These may have regulations on the attorney you may not want to impose.

• You may want to restrict beneficiary changes. If you want the attorney to have power over changes of beneficiaries to life insurance or investment assets, make that clear. If not, clearly restrict the right to change beneficiaries.

A warning which may or may not apply to you

Unfortunately, once authorised with your directive powers, an attorney could feel it is their privilege to become an “empowered benefactor” of your (you, the donor’s) estate once they lose capacity. So, having a lawyer articulate your specific wishes in your Power of Attorney documentation is a good idea.

To empower and entrust another with your authority, may be the last time you can make a responsible decision on your behalf, so make it carefully.

Where significant wealth is involved, consider a POA explicitly designed to give powers to assist in governing your financial affairs.

Why is succession planning integral for business owners?

Getting into business is a lot easier than getting out. Many successful family businesses have accrued capital gains in the millions. The tax payable is so high that the business cannot afford the liability once the owner dies at least without liquidating.

One way to cover the tax liability is to save for it. The problem arises if the owner dies too soon, or the money gets used for an emergency or a new opportunity, or if the savings goal is impossible for the company to achieve.

A business owner’s retirement may depend on an estate plan.

Many business owners base their personal financial stability on the future success of the company. When a business represents the major value of an estate, planning becomes necessary. Yet, many are not convinced that they need to plan their estate or the succession of their business.

Find out what your tax liability will be. Despite the financial importance of their business, most owners do not know what the tax liability would be if both spouses were to die. An estate plan can ensure that these taxes will be paid from one or a combination of the following sources:

· Life insurance.
· The business, from cash flow or liquid assets.
· RRSPs (also taxed when both spouses die).
· Non-registered investments.

Succession PlanningFrequently review your capital gains tax liability. In some cases, the payment of relatively small life insurance premiums can entirely solve the estate’s future capital gains tax problems, and/or generate capital to replace the tax that will be payable on your RRSPs when both spouses die.

When you buy life insurance it immediately covers the entire estimated liability risk, which is due. The benefit is paid upon the owner’s death (or the death of a surviving spouse).

Put succession planning on your agenda. Consider taking the time to do some succession training when you are active in the business, passing on what you know, while unifying current action with your estate plan. Sometimes successful business owners, while waiting for the perfect person to take over, run out of time.

Determine who will take over the company.  If you are a family member, an employee, or a competitor, you will need to begin negotiating with your successor(s). Income from a good succession plan may nicely increase your retirement income. Therefore, it is good to know where it will come from.

Keep your legal documents current. Revise or complete both your will and power of attorney. Review your personal and/or corporate-owned life insurance, and disability coverage.

Establish or update your buy-sell agreement. Make sure your buy-sell and key-person agreements and applicable life insurance, is current and sufficient to cover your succession plans.

Other uses of new business capital offered by life insurance. A sole owner may buy enough life insurance to add capital to offer additional financial stability where a wife, son, or daughter goes through the transition to actually run the business. Insurance can also eliminate company debt to give a succeeding son or daughter a fresh start. Finally, it can fairly equalize the division of your estate among all of your heirs.

How can I empower the process of Business Succession?

Here is how you can empower the process of Business Succession


  • Establish appropriate forums Family retreats and regular meetings can allow the family to discuss the issues that will promote the continuation of a profitable company.
  • Develop teams and design tasks Select the most promising successor candidates to test their mettle. Include all the constituent players: the owner(s) and spouse(s); the owner’s children (including nieces or nephews) who are involved in the business or are shareholders; key executives; and once the successor is chosen, the following professionals:
  • Corporate tax accountant To value the business and assess capital gains tax liability; and to recognize if an estate freeze makes sense. Have the company financials been explained to the successor?
  • Corporate lawyer To install buy-sell and share redemption agreements, to advise all parties of various legal risks, and assess all historic agreements to see if they need to be changed in light of the succession.
  • Succession consultant These specialists can consult and quarterback the sessions through the entire planning process, keeping it on track.
  • Insurance specialist There are various insurance solutions to mitigate succession planning risk.
There can be no real communication without a reciprocity of ideas.— Ernest Holmes

Select the right successor

  • Look for leadership skills The selection of the right successor is vital to the continuation of a successful company. The most suitable candidate will probably have leadership potential made obvious by willing and capable followers; care for employees; decisive self-confidence; ability to plan strategy and deliver on promises; amiable interaction with peers and colleagues; integrity; ability to inspire others with a vision; skilled at listening to others and can resolve conflicts; and holds others accountable, encouraging them to meet the company’s objectives.
Man does not simply exist, but always decides what his existence will be, what he will become in the next moment. — Viktor Frankl

Ask yourself “Whose destiny is it?”

  • Understand limiting paradigms Some parents believe that the business was developed for a certain child. But perhaps this child has his/her own alternative career-dream. If a son or daughter is bribed or cajoled into becoming a successor, hard feelings may arise later when the realization of lost opportunity to be an artist, a doctor, or a zoologist sets in.

From the beginning, try to find a contingent successor, as no one knows what the future may hold—change is part of life.





Potential pitfalls of Succession Planning

Ten Business Succession Pitfalls 

Various circumstances can make succession planning either difficult or impossible:

The suitable successor quits. A son or daughter may decide to leave the firm after having worked in the family business for years without a commitment to a concrete succession plan.

Business succession isn’t viable. Perhaps there is no child-successor or executive available or willing to take on the responsibilities of your firm. There may be changing circumstances such as a new competitor, loss of massive contracts, or the product or service is becoming obsolete.

You might want to sell. The success of the business is not necessarily based on flourishing over successive generations. It might even be achieved by selling the company at the right time to create investment wealth. Or unexpectedly, a competing business or a group of executives may offer to buy it.

The owner’s inability to relinquish control. One may hold on to a company because it has provided income for years, offering a means to control one’s destiny. Much of the owner’s self-identity may have evolved out of the business.

Power struggles with partners. Some situations incite resentment among co-owning siblings or partners, preventing a succession process.

No retirement goals. Many founder-owners have no interests outside the business. If their work is their life, they may have no intention of retiring.

Can’t face mortality. Many owners (including sensitive children) find it hard to discuss the issues associated with ageing, loss of health or death. Entrepreneurs, who have carved out their destiny, may believe they are somewhat immortal, even if facing real health risks.

No trust of successor’s skill. It is often problematic for parents to see their children as capable successors. They may criticize even their reasonable efforts. 

The owner dies. Even before considering succession planning, the owner may die, leaving the responsibility to a spouse or child to conclude or abandon.

There is no life insurance solution in place. Talk to your advisor about how to use life insurance planning for maximizing your estate as you create a strategy for your business succession. There are ways to fund taxes and buy out partners and equalize an estate fairly among heirs. The real risk is doing nothing.


Considerations when designing an Estate

Estate planning is a process that allows one to determine how their assets will be distributed upon death.  As we prepare to pass our lifetime assets to our heirs, there are key components of an estate plan that should be given careful consideration.

The fundamental component of any estate plan is the Last Will and Testament commonly referred to as the will.  It is also important that an individual maintains and updates their will and two powers of attorney documents: 1) for property such as real estate, bank accounts, and investment assets, and 2) a power of attorney for personal health care.

Review your estate planning documents

Life changes can affect the integration of each of the above strategic solutions. Therefore, it is important to review the above aspects of an estate plan every three to five years. For example, there may be a change in family structure, so beneficiaries may need to be reviewed.  Or, if you remarry, your existing Will may automatically become nullified.

Your net assets can change Keep an eye on your net worth. Other life changes that require updating your estate plan include changes in your net worth, or if the value of your residence or investment changed. If you have significant changes in net worth, have your accountant make sure that the best tax arrangements are in place.

Business strategies to protect your net assets If you are the shareholder of business assets, make sure that a buy-sell agreement is in place in the event of your death or disability, assuring that every owner is covered with life and disability (income replacement) insurance.

An estate plan may benefit from using formal trusts to reduce taxes. Life insurance products such as segregated funds and term funds can also be used to circumvent or minimize probate or government estate administration taxes (EAT) or attending legal fees. In most cases when a beneficiary is named in a life insurance policy, proceeds will pass and the capital in most cases will transfer on a tax-free basis to beneficiaries, thus avoiding probate or EAT scrutiny.

For an estate plan seeking to transfer large capital assets to named heirs, it would be wise to discuss these capital-transfer techniques with an accountant and/or tax lawyer.

How can I minimize the need for estate probate?

There are a few tactics whereby you can reduce the need for an estate to be probated by the government:

• Defer possible probate by holding assets jointly. Probate fees may be charged when that asset is transferred later through the will of the second spouse.
• Establish a person as a beneficiary on your life insurance policies independent of the estate. This way, all monies pass to the heirs tax-free. If the estate needs probating, this portion of the assets will not be included in the estate, as the death benefit will flow directly to the heirs circumventing scrutiny. Life insurance strategies are excellent financial tools to circumvent probate on larger wealth transfers to heirs. Family wealth can be positioned to pass through life insurance policies, delivering tax-free benefits without probate. Any tax due on policy investments will be taxed to the estate of the deceased policy owner. This method has frequently been used to transfer inter-generational estate wealth in the millions. Your advisor can keep you up to date on potential taxes in the estate.
• Name your beneficiaries on your registered investments such as RRSPs and RRIFs. Insurance products may allow you to side-step probate in this way. To protect themselves, banks and trust companies will probably require probate or a letter of indemnity from the estate’s lawyer if the assets are significant. If your spouse is your beneficiary, consider a secondary beneficiary should your spouse die at the same time you do.
• Consider setting up a spousal testamentary trust in your will to avoid double probate. When the second spouse dies, the assets can be distributed via the trust directives as opposed to a will.
• With your spouse, set up mutually-owned property as ‘joint tenants with rights of survivorship’ to transfer these assets automatically outside of the will.

Once a will has been probated paid the estate administrative tax (EAT), the executor can start transferring assets as directed by the will. Some assets can be transferred easily within a short period of time. Others have to wait until the estate expenses have been paid, including any final income taxes due to Canada Revenue Agency (CRA), after which they will issue a tax clearance certificate.