Do You Have The WILL To Complete An Estate Plan

1. Do You Have The WILL To Complete An Estate Plan Jim Bird, CFP, CLU, CH.F.C., FLMI, J.D., LL.B. Tax and Estate Planning Group Manulife Financial Burlington, Ontario

2. Will Planning • Many components to a well-crafted estate plan • Preservation and protection of assets during the testator’s lifetime • Orderly and tax-effective transfer of assets to beneficiaries both during the testator’s lifetime and at death • Continued preservation of property once it has been transferred to beneficiaries

3. Sometimes That Which Seems Most Complex Can Be Quite Simple

4. The Purpose and Content of a Will • A Will is a tool by which the author (testator/testatrix) expresses his or her final wishes as to the distribution of his or her property on death. Ideally, the Will is structured in a manner that ensures those wishes are carried out.

5. Intestacy • If a Will does not exist at the time of death, or a Will is determined invalid, an intestacy will result. • An intestacy can cause a great deal of expense to the estate, further grief for the family of the deceased and an outcome that the testator may have never intended in terms of the final distribution of the estate

6. Do You Like The Estate Plan You Have? • Recent surveys done in Ontario by the Canadian Bar Association suggest that nearly half of the adult population do not have Wills. • The alternative is worse! • If there is no Will, it doesn't mean that there isn't an estate plan for the deceased individual • The estate planners you "hired" include various government and court officials who are responsible for administering the "default rules" put in place by our system of government

7. Keep Your Will Current • It speaks at a time when the testator cannot • Reviewed periodically • Reasons for review: marriage (normally revokes a prior Will); separation or divorce; birth of children or children growing up; disability of a child; death of an executor; death of a named beneficiary (especially a spouse); disposition of assets; acquisition of assets; debts or tax position changing substantially or after a change to income tax laws or other relevant legislation that would impact the estate

8. The Map • The Will maps out the course of action to be taken in relation to a person's assets in the event of death • Many of the goals of estate planning can involve more than just the Will • Many obstacles along the way

9. You Are A Cartographer? • Naming a beneficiary is “Will” planning • Naming a beneficiary may impact other assets in your estate • All assets need to be considered in the plan

10. Estate Planning • Determine the assets that a client owns and how they hold title • Determine the client’s ultimate wishes with regard to each asset • Determine how to help the client achieve theirwishes

11. Not All Assets Pass Through The Will • Life insurance and insurance products (segregated funds) • Joint property held with rights of survivorship • RRSP’s with named beneficiaries • Group benefits with named beneficiaries or no beneficiary named • Shareholders Agreements • Gifts and gifts mortis causa • Trusts (inter vivos) including alter ego

12. Obstacles • Sometimes things don’t turn out the way the client thought they would • Sometimes things don’t turn out the way the beneficiaries thought they would • Sometimes things don’t turn out the way the advisors thought they would

13. 1. “Equal” Division • Mrs. Brown has three children; Albert, Brenda & Cathy • Her estate consist of three assets • Each asset is worth $1 million: principle residence, RRSP, mutual fund portfolio • She heard that if you name a beneficiary the money flows directly and you can avoid probate fees and minimize estate costs

14. “Equal” Division • Mrs. Brown drafts a will and leaves the house to Albert, the portfolio to Brenda and the RRSP by naming her as beneficiary to Cathy • The house has a cost base of $400,000, the portfolio a cost base of $800,000

15. “Equal” Division • What is the result: • Albert gets a house worth $1 million • Cathy gets $1 million in cash from the RRSP • Brenda gets what’s left in the portfolio after the tax is paid • How much tax $1,000,000 – $800,000 = $200,000 of capital gain = Approx $50,000 of tax (net $950,000) • Well not quite… Brenda also gets to pay all of the tax on the RRSP $500,000 • Brenda gets a net inheritance of $450,000

16. 2. The Senior Couple • Bill 80 and Monica 70 and have been spending most of their time together for the last 10 years • Bill’s children were happy that dad found a “friend” after mom passed away • Bill is a successful business owner who is retired having passed the business control to his two children. Monica lead a simple life before she meet Bill. • Bill and Monica spend the winter together in Florida, each has their own residence in Ontario, but they usually spend most of their time in Canada staying together at one house or the other

17. The Senior Couple • Bill passes away and leaves his assets to his children • Because Bill did some estate planning a significant portion of his net worth is passed outside his estate • Life insurance beneficiary is his son and daughter • Investments are in segregated funds with a named beneficiary • Family cottage was held in joint ownership with survivorship • Monica feel she is entitled to something but there are few assets in the estate • What should Monica do?

18. The Common Law Spouse • The Succession Law Reform Act is available to same sex and common law spouses • To be common law under the SLRA must live together for 3 years • Must provide “adequate” support • Key issues: length of relationship, size of estate v worth of survivor, who are the other beneficiaries • Key concern: assets that pass outside estate may be brought back into estate (life insurance, joint property with survivorship, etc) SLRA s72 (Ontario)

19. 3. U.S. Spouse and Mirror Wills • Steve and Ursula are husband and wife • Steve was born in Canada, Ursula was born in the United States • They married after college and have spent all of their life and raised their family in Canada • Steve is the shareholder of a successful CCPC • Steve and Ursula retain a lawyer to draft their wills

20. U.S. Spouse and Mirror Wills • The wills drafted for Steve and Ursula are the same (a.k.a. mirror wills) • All to my spouse if she/he survives me • This allows for spousal rollover • After we are both gone all to our children equally

21. U.S. Spouse and Mirror Wills • Steve dies first and capital gains taxes are deferred until the death of Ursula • Ursula is a U.S. citizen and a whole new type of tax is created • Assets that were Steve’s (the business) are now subject to capital gains tax and US estate tax upon the death of Ursula • The cost of the deferral is a doubling of the tax

22. 4. Joint Ownership and the Presumption of Gift • Don is a widower with two adult children, a daughter who lives in the same town and a son who lives in California • As Don’s health began to fail his daughter took an active role in his care • To help her look after his needs Don transferred his cash type assets into joint ownership with his daughter • During his life she used the assets only for his benefit

23. Joint Ownership and the Presumption of Gift • Don dies with a nominal estate and $1 million dollars in cash type assets • The cash type assets are transferred directly to the daughter by survivorship • The will divides the rest equally between son and daughter

24. Joint Ownership and the Presumption of Gift • Is this fair? • Is this what Don intended? • Did he simply want to avoid probate • Did he see joint ownership as an alternative to a continuing power of attorney? • What should the son do? • Resulting trust Neufeld v. Neufeld (January 9, 2004, Doc. No. 21154 2004 BCSC 25)

25. The Pitfalls of Joint Ownership as an Estate Planning Vehicle • The cost of forgoing the use of a testamentary trust • Negative tax consequences • Exposure to creditors • May not be excluded from FLA equalization • Cost of transfer • Principle residence exemption

26. 5. The Second Marriage • Mr. and Mrs. Stone married in 1971 second marriage for both • Mr. Stone executed a will in 1991 • Life interest in home and Florida Condo and half of residue to Mrs. Stone other half to children • March 1995 Mr. Stone diagnosed with terminal illness given weeks to live • Net worth Mrs. Stone $115,000 Mr. Stone $2 million (including business worth $1.5 million) • April 1995 business assets were transferred to children as was matrimonial home • July 1995 Mr. Stone died after 24 years of marriage leaving Mrs. Stone a life interest in the matrimonial home and $250,000

27. The Second Marriage • What do you think about Mr. Stone’s estate planning? • What would you do if you were Mrs. Stone? • FLA claim? • Sue him? • Dig him up?

28. Estate Planning or Fraudulent Conveyance • Mrs. Stone brought action under the FLA and the Fraudulent Conveyances Act • The court held her to be creditor before death and stated that his actions were designed to minimize the extent of her credit • The court held that his actions were done with the intention of removing assets from the estate so that his net family property would not be available for FLA equalization • The court held that Mrs. Stone was entitled to the full disclosure of his plan and FLA settlement

29. 6. Disappointed Beneficiary • Bill wanted his son to be beneficiary of a particular investment • Financial Planner sold Bill a mutual fund/non-registered (i.e. not an insurance product) & named his son Garry as beneficiary on the application • Bill dies with a valid will • Mutual fund fell into residue of client’s estate, distributed half to Garry and half to daughter Cheryl • Did the Financial Planner do anything wrong? • What should Garry do? • Mayer v. Nordstrom [2003] S.J. No. 599 (Foley J.)

30. 7. Divorce Separation and Beneficiary Designations • The deceased Mr. Klassen was widowed, remarried and subsequently divorced • Upon divorce drafted a new will to purposely exclude his ex wife • Lawyer neglected to ask about full extent of clients assets • His will left everything to his three children • His children successfully sued the solicitor when some of the assets did not flow to them

31. Divorce Separation and Beneficiary Designations • Mr. Klassen owned two life policies and two RRSPs that named his ex wife as beneficiary (total value $89,646.93) • Lawyer held liable for $183,084.44 by the time all was settled Klassen Estate v. Diamond & Adelman, [2002] M.J. No. 127 (CA) (Manitoba)

32. 8. Separation and No Beneficiary Designations • Debbie and John have been separated for the last 23 years • Debbie has a daughter that she is close to, but neither she or her daughter have seen John for at least 15 years • Debbie has group life insurance coverage and some money in a group RRSP • Debbie has not named a beneficiary on any of her group benefits

33. Separation and No Beneficiary Designations • Debbie dies prematurely • At the time of her death she does not have a valid Will • What do you think happens to the money?

34. 9. Company as Owner and Beneficiary • Bill and Sue start and operate a successful business • After Sue’s death Bill continues to operate business with son Jeff • Eric their other child is not in the business • An insurance advisor suggests Bill purchase “capital gains insurance” • Insurance is placed with the company named as owner and beneficiary

35. Company as Owner and Beneficiary • Bill drafts a Will and names Jeff as executor • Bill leaves this shares in the business to Jeff and the rest of his estate to Eric • The insurance policy pays significant proceeds to the company • The shares are transferred to Jeff as per the will

36. Company as Owner and Beneficiary • Jeff declares a capital dividend and pays it to himself • The estate pays the capital gains tax • Eric is left with whatever remains after the tax is paid on the shares transferred to Jeff

37. 10. The Waitress, the Wedding and the Will • 1991 George and Lily executed Wills dividing estate residue among 5 children • 1992 George and Lily established a trust to hold their house and named sons as trustees 5 children as residual beneficiaries • 1993 George and Lily moved to nursing home, house in trust sold • June 1994 Lily died

38. The Waitress, the Wedding and the Will • November 1994 certificate of incompetency issue for George • December 1994 George age 88 married Muna age 31 a waitress at the nursing home • George executes a new will twice (94 & 95) naming Muna as the sole beneficiary leaving nothing to his children • 1996 George dies

39. The Waitress, the Wedding and the Will • Issues: • Was there undue influence? • Is the will valid, which will? • Is the marriage valid? • Who gets the money?

40. The Waitress, the Wedding and the Will • Results: • George judged not to have testamentary capacity for the Muna Wills (94 & 95) • Muna judged to have exerted undue influence • Marriage judged to be valid • George died intestate • Spousal share first $200,000 plus 1/3 of residue Banton v. Banton 164 D.L.R. (4th) 176. (Ontario)

41. The Moral of The Story • Follow the map • Don’t forget your backpack • Take along some friends for support (TEPS or Boots) • Have fun • Watch out for Swiper

43. Do You Have The WILL To Complete An Estate Plan Jim Bird, CFP, CLU, CH.F.C., FLMI, J.D., LL.B. Tax and Estate Planning GroupManulife Financial Burlington, Ontario