Guest blogger: David Mills – Mills & Mills LLP
We are pleased to welcome David Mills to our blog. David is a partner with Mills and Mills LLP, delivering a comprehensive suite of estates and business legal services to his clients. David is proud to represent the fourth generation of the Mills family to practice law at the firm. Mills and Mills LLP is a Toronto law firm established more than 125 years ago which provides legal services of the highest quality to businesses and individuals, as well as to charitable and not-for-profit organizations.
1. Choose your Estate Trustee(s) carefully. Your spouse, brother, best friend or favorite uncle is not the right choice if you are basing the decision on that person’s expectations or because he or she might be offended if not chosen. The only correct approach is a sober analysis of who is best capable of managing the complexity responsibilities or estate administration.
2. Consider using multiple Wills to reduce probate tax. If you have substantial assets that can be administered without “probate” (the process of obtaining a court certificate validating your Will), such as vehicles, shares in private corporations and other valuable personal property, multiple Wills can be used to divide your estate between those assets that require probate and those that do not. By doing this, you avoid paying probate tax on those assets that are included in the Will that does not require probate.
3. Consider whether you need a Will in any other jurisdiction. If you own a condominium in Florida or property in any other foreign jurisdiction, the use of multiple Wills may also be advisable – to minimize tax liabilities, reduce administrative complexity and cost or to ensure compliance with the laws of the foreign jurisdiction.
4. There are more important things to worry about than the dreaded Probate Tax. While probate tax can add up, and nobody likes paying tax if they can avoid it, at 1.5% the amount is not sufficient to justify elaborate planning schemes or avoidance measures that may be more risky or costly than they are worth. Speak with an estate lawyer before taking any steps intended solely to avoid or reduce probate tax.
5. Beware of joint accounts. One probate tax avoidance measure that can backfire is naming children or other beneficiaries as joint holders of accounts. Sometimes this is done to avoid probate or to allow the child to manage the account for the parent and is not intended to actually remove the asset from the estate. Other times, the intention is that the joint account is to be a “true” joint account, with the child expected to acquire the account for herself alone when the parent dies. Carelessly establishing joint accounts can set the stage for costly disagreement among your children after you are gone. If joint accounts are set up for any reason at all, be sure to document the purpose of the arrangement and your true intentions with respect to the accounts involved.
6. Be Careful with Gifting. The law is sometimes surprising. How the law treats gifting is one example. Except for gifts made to minor children or spouses, the law presumes that any transfer of property (whether money or other property) without consideration (i.e. without anything be given in return) was made as part of a bargain, or agreement, and was not intended as a true gift. What this means is that the recipient of the gift will be left with the burden of proving it was a gift and not a loan needing to be repaid. Estate lawyers have file cabinets full of claims being fought over this issue. If you would rather your estate go to your family and other beneficiaries and not to estate litigation lawyers, be sure to thoroughly document both loans and gifts so there is no confusion as to your true intentions.
7. Be sure to appoint Guardians for your minor children. In your Will, you can express your wish as to who will be the legal guardian of your minor children if both you and your spouse are deceased. As with the choice of Trustee, this decision must not be made based on concerns of hurt feelings of those you do not choose for this responsibility. The only thing that matters is what is in the best interest of the children – that also happens to be the test applied by the Court when asked to approve your choice and formally appoint the guardian.
8. Be Realistic – make sure your plans are consistent with reality. It is wonderful that you want to leave a cottage property to your kids, but this will not be meaningful if neither your estate nor your children can afford the capital gains tax that will be payable on your death. For most problems, there is a solution that your estate planning professionals can help you implement. In this case, one option would be to utilize insurance planning to ensure that funds are available to meet the expected tax liabilities and preserve the cottage for the next generation.
9. Involve your family to avoid future disputes. Many people find it difficult to talk to their children or other beneficiaries about estate planning issues. However, engaging in an honest discussion at the appropriate time about your plans can help avoid misunderstandings that lead to costly disputes.
10. Estate planning is not a rotisserie cooker – you can’t just ‘set it and forget it’. Life is full of changes. Review your Will and estate plan periodically to be sure they continue to reflect reality and achieve your goals. If they don’t, the time has come to seek advice and update your plan.
David is a regular contributor to the Mills & Mills LLP Legal Blog
Mills & Mills home page (www.millsandmills.ca) and “Legal Blog” (www.millsandmills.ca/blog)
