Wills, Trusts and Estate Planning

When a family member dies without a will, this is called intestacy. Provincial law, being the Wills, Estates and Succession Act, applies to direct how the estate of the deceased is distributed among family members, who are the intestate successors. The administrator is appointed by the court to gather in the estate assets, pay debts, and distribute the estate.

There are a number of what are called “life interest trusts” which individuals or couples can use for estate, probate and retirement planning, with a view to reducing estate taxes, reducing probate fees, protecting assets from creditors, and protecting from wills variation claims. These include alter ego trusts, joint spousal, spousal, and common-law partner trusts. In addition, “self-benefit trusts” or “blind trusts” hold the assets of politicians and others in sensitive positions. These are all inter vivos trusts, because they are set up while the person creating the trust is alive.

Charitable giving can reduce the tax burden on your estate. While charitable gifts leave a legacy in your community, they can also result in legal disputes between your family and the charity. Ensure your gift is properly given so that your intentions are realized.

A discretionary family trust can provide for income splitting, which is the transfer of taxable income from high income family members to lower income family members, who are beneficiaries of the trust. It can also be used in business succession planning. For high net-worth individuals, a discretionary family trust is a vital component of estate planning, including in combination with an estate freeze, to cushion the effect of death and taxes. The flexibility of a family trust allows for adaptation to changing business, estate, or family circumstances. Discretionary trusts have important family law considerations, including upon division of family assets under the BC Family Law Act.

Blended families, families with second marriages, step families, mixed families, combined families, and other non-traditional families, all have unique challenges when it comes to preparing a will or drafting an estate plan. The division of assets, which is who gets what and how the inheritance should be split, when there are stepchildren or second marriages involved, is very difficult. Stepchildren, and children of a first marriage or a prior relationship, tend to get left out of the estate plan. This creates the opportunity not only for estate planning missteps, but also for conflicts within families, which are never satisfactorily resolved, following the death of a loved one.

First Nations, native or aboriginal families may include persons who do not have Indian status, are members of different First Nations, or who do not live on reserve. Wills and estates for persons having Indian status ordinarily resident on reserve fall under the jurisdiction of the Indian Act, as administered by Indigenous and Northern Affairs Canada, or INAC. For all other First Nations persons, wills and estates are governed by provincial law. In any First Nation, non-members are not allowed to inherit certificates of possession, or CP’s to reserve land. The Family Homes on Reserves and Matrimonial Interests or Rights Act of Canada addresses the division of value among family members in structures and lands, including family homes or houses, on reserve.

The executor of the will of a deceased person, gathers in the property of the deceased, called the estate, pays the debts of the deceased, and distributes the estate as directed by the will. The executor can be personally responsible for unpaid debts of the deceased. The executor keeps a record of all financial dealings of the estate, controls the estate bank account, and presents the estate accounts to the beneficiaries for approval, or passes the accounts before the court. The executor can receive a fee, depending on the will, which fee can be taxable. The executor can be a beneficiary of the will. An executor who does not wish the legal obligations of that office can renounce, in certain circumstances.

Joint tenancy is a form of property ownership by two or more people, each having a right of survivorship. Upon the death of one joint tenant, his or her interest automatically transfers to the surviving joint tenants. When only one joint tenant is left alive, he or she receives the whole property. Tenancy in common is a different form of shared property ownership, in which there is no right of survivorship. When one tenant in common dies, his or her interest in the property will go to his or her heirs. 

Joint tenancies can protect an estate from taxes, creditors, wills variations claims and probate fees.

The law was amended in 2016 by Parliament to allow a person with a serious and incurable illness who meets other stringent conditions, to receive medical assistance in dying. A loved one may wish to end life and die rather than continuing to suffer. The choice to die by way of legally assisted death can now be made. We can help families sort through the legislation, conditions, criteria, procedural safeguards and pros and cons, to determine if this is the best course of action for a loved one in constant pain who wishes a dignified and peaceful death.

While Canada does not have an inheritance tax, the basic rule in the Income Tax Act is that capital gains tax is payable on the gains accrued on all your assets, when you die. Estate planning can minimize the burden on your estate for taxes, as well as for probate fees. Strategies include the spousal rollover, the principal residence exemption, charitable giving, giving property to children, the lifetime capital gains deduction, qualified small business corporation shares, and qualified farm or fishing property. Death of the family breadwinner, if not properly planned for, can result in a significant bill for taxes and probate fees, possibly leaving family members impoverished.

The loss of mental functioning creates an incredible number of challenges for estate planning, because at some point you may lose the legal capacity to execute the documents that are typically part of an estate plan. These documents include wills, living wills, representation agreements, advance directives and powers of attorney. Any number of future events, including an accident, a major illness, or an injury or other disability can leave you unable to think clearly, unable to manage your assets or finances, unable to care for yourself, or to make health and medical decisions, or otherwise in a state of incapacity. A committee can be appointed by the court, after you are incapacitated and at considerable expense to your estate, to look after you and your affairs. The Public Guardian and Trustee can, after you have lost mental functioning, appoint a temporary substitute decision maker for you, for health matters. However, these decisions about who is to look after you when you lack mental capacity, are best and most easily and effectively made by you, in advance, in consultation with your family and friends.

A person can as a result of an injury or an illness, lose mental functioning, and be unable to pay bills, manage finances or keep track of money in the bank. A springing power of attorney can be set up in advance, only to be effective upon that person becoming incapacitated. An enduring power of attorney can also be set up, which is effective both before and after that person becomes incapacitated. With either type of power of attorney in place, a trusted family member or friend can pay bills for that person and keep track of finances, bank accounts and a house or other property, on the loss of mental capacity. A representation agreement performs the same function as a springing power of attorney, except that a representation agreement deals with health and medical issues rather than money and property. The power of attorney and representation agreement are effective until the time of that person passing on, when the will becomes effective. All three documents can be part of inheritance or estate planning.

Probate is a court order confirming the legal authority of the executor appointed by a will to distribute the assets of the estate of the deceased as directed by the will. Professional advice can prevent misunderstandings escalating into disputes between family members, about the application for probate, the principal residence of the deceased, payment of BC probate fees, income taxes payable, CRA clearance certificates, CPP benefits, liability for payment of debts, interim distribution of estate funds, or who gets what from the estate. The estate is settled when all debts are paid and all assets are distributed as directed by the will.

The Public Guardian and Trustee (“PGT”) protects the interests of British Columbians who lack legal capacity to protect their own interests or manage their own affairs. This includes minors, or persons under 19, adults who require assistance in decision making about health care or finances, and estate administration for deceased or missing persons. The PGT may have a role in any estate having a beneficiary under 19 years old or having a disabled beneficiary. For an adult requiring assistance in decision making, the PGT can be appointed as committee of estate under the Patients Property Act of BC, with responsibility for the legal and financial management of the adult’s affairs. Another option is for a temporary substitute decision maker to be authorized by the PGT to assist with health and personal care decisions for vulnerable adults or those under mental disability.

A Registered Disability Savings Plan (RDSP) and a Registered Education Savings Plan (RESP) allow you to create pots of money that grow tax free until they are withdrawn. An RDSP may be a planning option for a disabled family member who receives the Disability Tax Credit. RDSPs are eligible to receive the Canada Disability Savings Bond and the Canada Disability Savings Grant, both from the federal government. RESPs may be eligible to receive the Canada Education Savings Grant and the Canada Learning Bond, also both from the federal government. RESPs are used to fund post-secondary or other higher education of either children or grandchildren.

A registered investment account such as an RRSP, RRIF, RPP, TFSA or spousal RRSP can reduce the tax burden on your savings, and may prove to be a very significant retirement and estate planning asset. If a retiring allowance, also called severance pay, is paid to a long term employee, part of the allowance may qualify for transfer into an RRSP, deferring taxation. The protection of these assets from creditors, or from seizure in a bankruptcy, is to be carefully guarded. The appropriate designation of a beneficiary for any of these plans can reduce probate fees, simplify estate planning, reduce income taxes payable, and protect these assets from creditors. The taxation of these plans on death must be thought through carefully in advance, so that the available exemptions and deferrals from taxation are obtained. Money withdrawn from some of these accounts inappropriately can be heavily taxed, and your retirement savings wiped out.

A person can as a result of an injury or an illness, lose his or her mental functioning, and be unable to make decisions about medical treatment or health care. A representation agreement can be set up in advance, only to be effective upon that person losing mental functioning. Then a trusted family member or friend can make decisions about medical treatment or health care.

Before you extend financial help to a family member such as one of your children, the BC Family Law Act definitions of family property and excluded property must be considered, as well as the equal responsibility for family debt, as between that child and his or her spouse, or common-law spouse. Important Income Tax Act considerations also apply depending on whether the financial help is in the form of a gift, a loan, or a sale below fair market value, and whether interest is charged or collected on the loan, and at the CRA prescribed rate. A mortgage of land, or a security agreement over personal property, could not only secure the loan from the parent to the child, but also protect the estate plan of the parent, in the event that the child and his or her spouse separate, or run into financial difficulty.

A trust can ensure that a family member including a child, who is disabled, has special needs, or is physically or mentally impaired, is provided for as you intend, even if you die or become unable to think clearly. The trust also works with the provincial disability assistance programs for persons with disability (PWD), under the BC Employment and Assistance for Persons with Disabilities Act. The trust provides for monitoring of its assets and structure, so that the PWD designation for the beneficiary remains in place. The result is that the necessary health care and financial assistance can be in place for your loved one who is the trust beneficiary, even if you are no longer able to care for that person directly. The disability trust can be a living trust, also known as an inter vivos trust, that is set up while you are alive, or testamentary, taking effect on your death through your will. If testamentary, the trust for the disabled beneficiary may be a qualified disability trust for taxation purposes, and subject to a lower rate of taxation. It is important to protect the trust assets against claims by either separated spouses or creditors, of the disabled family member. A Henson or discretionary trust can be used for this purpose.

Do it yourself will kits are one of the greatest sources of revenue ever invented for the legal profession. The profession has the task of sorting out, with assistance from the courts, all the mistakes people make when drafting their own wills.

The reason is that wills law has evolved in thousands of cases since the Magna Carta in the 13th century. Any phrase used in a will can have a judicially interpreted technical meaning, which is far removed from its meaning in plain language. These words or phrases also act like computer code, potentially interacting with every other phrase in the will. Law students spend the better part of two years in law school learning some of the hidden meanings and traps in wills law. This is not something that can be learned from a wills kit or from the internet.

Drafting your own will is like trying to tune up your own car without the computerized analyzers that the repair shops now have.

If you die without a properly drafted will, your family members may fight about who gets what. Your assets may be spent on legal bills. Family relationships can be ruined permanently. A properly drafted will respects the legitimate wishes of family members and others who have a moral or legal claim to your estate. A properly drafted will is part of an estate plan that keeps your family, friends and other loved ones together after you pass on. It is important for securing their emotional and financial future.

Devises, or gifts of real property, bequests or legacies, which are gifts of other property, gifts to charity, guardianship of minor children, directions for your funeral service, dispositions of RRSPs, RRIFs, TFSAs, insurance policies, and pensions, capital gains from the deemed disposition of investments or business assets on death, property in joint tenancy, naming your executor, testamentary trusts, and common law relationships are also dealt with by us as part of your estate plan.

We also do estate plans for First Nations families, blended families, families with stepchildren, and families with second marriages.