Assets of your estate that are passed on through your will and go through the probate process are subject to probate fees. Some provinces have a ceiling, and some don’t, so check with a lawyer or trust company in your community as to the current status in your province. When an executor asks the court to confirm or validate the executor’s right to deal with an estate, the executor applies for what is referred to as a “grant of probate”. This permits the executor to deal with the assets of the estate. When this formal confirmation is made, the probate fees are normally due. If the executor did not go through this legal confirmation process, many people, including regulatory or government agencies and banks, could refuse to recognize the executor’s authority. The reason for this is the concern that the will is invalid, or has been replaced by a more recent will. Even if no will exists, the courts must formally and legally confirm the authority of an administrator to administer the estate. The probate fee would still have to be paid in this situation.

There are ways to minimize the amount of probate tax paid, by removing assets from the estate. Clearly, if after professional consultation you choose to do this, you would want to leave sufficient assets or funds in your estate to settle it. These strategies have to be considered in the context of your overall estate plan. For example, part of your estate plan could be to place most of your assets beyond the reach of potential creditors, if you have a business. In theory, your estate could otherwise be at risk of attack by creditors. In addition, you may not want certain assets to remain in the estate, as they could be frozen pending the probate of the estate. Obtain professional advice from your lawyer, accountant and trust company on the various issues that concern you, such as: relinquishing control, your marital situation (separated or living common-law), children, tax consequences, legal or creditor considerations, and others).

Some of the key techniques of moving assets out of an estate before death (or automatically transferring them directly to a beneficiary at the time of death, thereby avoiding going through the will and probate), are:

As mentioned earlier, a key financial purpose of an estate plan is to keep taxes and expenses as low as possible and pay as much as possible to your beneficiaries. You don’t want to automatically make decisions just to reduce probate fees, when other strategies could better suit your overall objectives. For example, you may wish to consider other estate planning opportunities issues:

Over the course of your life you will sign many documents, but your will is one of the most important document you will ever sign. With very few exceptions, everybody should have a will. It is the only legal document that can ensure that your assets will be distributed to the beneficiaries of your choice, rather than by a government formula. It is estimated that only one out of three adults has a will, which means that two-thirds of the time when people die, their wishes are not met and the government has to become involved. A will ensures that your estate is settled in a timely and efficient manner, rather than in a delayed fashion that can be a great burden to your family.

Combined with effective estate planning, a will can ensure that the least amount of tax is payable. Although there are no estate taxes or succession duties in Canada at this time, there is a deemed disposition of your assets, which could trigger a taxable capital gain on your death.

Of those Canadians that do have a will, many do not review it regularly or modify it based on changing circumstances. This is because typically, people first think of their will at predictable stages of the life cycle, such as at the time of marriage, the birth of a first child, the first time they fly without their children, or upon news of the sudden death of a friend or relative. Once the will is completed, they then forget about it. Not updating it can be as bad as not having a will at all. It could cause the beneficiaries a lot of grief, stress, time and money when those problems could so easily be avoided by regular will review and updating. If you write your will yourself, it could have potentially serious financial implications if it is not done properly.

There are basically three ways to have your will prepared: writing it yourself, having a lawyer do it for you, or having a trust company arrange a lawyer to do it for you. Here is a brief overview of the first two options.

Self-written
This is the poorest choice, because it could have defects or inadequacies that result in legal, financial and administrative grief for your family, relatives and beneficiaries. If you are the slightest bit ambiguous, your expressed wishes may be legally interpreted differently than what you intended. Worse still, a clause in the will could be deemed void or the whole will could be considered void for various technical reasons. Some people do their own will by drafting it from scratch or using a “standard form” of will format purchased in book or stationery stores. The risk is very high when trying to save money by doing it yourself rather than using a skilled professional. It is false economy, and depending on your situation, you could stand to lose a lot. Many people assume that if they write their own “simple” will, it will suffice. What may appear to be simple to a layperson, however, could require more complex decisions and wording. Each person’s situation is unique. There are better, and ultimately more inexpensive alternatives to provide you with peace of mind.

Lawyer
Wills, in almost all cases, should be prepared by a lawyer who is familiar with wills because he or she is qualified to provide legal advice, and knowledgeable about how to complete the necessary legal work.

Depending on the complexity of the estate, however, a lawyer may not have the expertise to advise you on other non-legal issues such as tax and other estate-planning considerations. If that is your situation, you should enlist the expertise of other specialists. A lawyer specializing in wills could recommend various tax and estate planning experts.

The legal fee for preparing a basic will is very modest, generally between $150-200 per person – a small price to pay for peace of mind. If your estate is more complex, this fee could be higher because of the additional time and expertise required. A “back-to-back” will is a duplicate, reverse will for husband and wife, and is generally prepared at a discount.

To reinforce the necessity and caution to obtain a legal consultation before completing or re-doing a Will, just look at some of the many reasons when legal advice is specifically required because of the complex legal issues and options involved. By not dealing with these issues you could create a legal and financial nightmare on your death, when these problems could so easily be avoided. You could end up having people you do not want to benefit from your estate being beneficiaries, and others who you want to benefit being disinherited. There are many risks of a “do-it-yourself” Will. You should consult a lawyer when:

you are separated from your spouse but not divorced

you are divorced and want to re-marry

you are divorced and paying for the support of your former spouse and children

you are living common-law, will be entering a common-law relationship, or leaving an existing one

you are in a blended family relationship, with children of each spouse from previous relationships

you have children from a previous relationship and an existing one

you own your own business or part-own a business with other partners

your estate is large and you need assistance with estate planning long before your death to reduce or eliminate taxes on your death.

you have a history of emotional or mental problems such that someone could attack the validity of your Will on the basis that you did not know what you were doing when you signed the Will, or were not capable of understanding the financial matters covered in the Will

you want to have objective, unbiased and professional advice rather than making choices in a vacuum or possibly being in an environment where you could be influenced by others who have a vested interest in the contents of the Will, or if you feel under duress or pressure from relatives or family members when preparing your Will

you want to live in the U.S. or elsewhere for extended periods of time, for example retire and travel south in the winter months. The issue of your technical domicile, or permanent residence at the time of your death has legal and tax implications in terms of your Will.

you own or plan to own foreign real estate in the U.S. or elsewhere

you have a Will which was signed outside Canada or plan to do so

you want to forgive certain people for debts they owe you, or make special arrangements for the repaying of debts or mortgages to your estate should you die before the debt or mortgage is paid back to you

you want certain events to occur which are complicated and have to be carefully worded, such as having a spouse or friend have a certain income or use of a home until they re-marry or die and at that time the balance of money or house goes to someone else

you want to set up a trust arrangement to cover various possibilities.

you want to make special arrangements to care for someone who is incapable of looking after themselves, or have shown themselves unable to apply sound financial or other relevant judgement. For example a child, an immature adolescent, a gambler, an alcoholic, a prodigal child, a spendthrift, or someone who has emotional, physical or mental disabilities or limitations or who is ill.

you wish to disinherit a spouse, relative, or child for a variety of reasons, in other words, not leave them anything. You may prefer to give the majority of your estate to charitable causes that interest you.

you wish to appoint a guardian to look after your children in case you and your spouse die together

you have several children and you want to provide the opportunity for one specific child to buy, have an option to buy, or receive in the Will the house, business, farm or a specific possession or asset of your estate, and want to set up the appropriate procedures and wording to enable your wishes to occur.

As you can see, when viewing your own situation at this point or where you project your circumstances might be in the near future, there could be many different reasons to consult with a legal expert on the topic of Wills.

Tax issues can be very confusing to many Canadians. When you also live in the United States part-time and own property or other investments there, it can become quite complex. That is because you can be affected by the tax laws of both countries. In the United States, for example, you could be liable under certain circumstances for income tax, capital gains tax, estate tax, and gift tax. If you are a Snowbird (seasonal resident of the U.S.) or have recreational property in the U.S. you need to obtain advice on the U.S. and Canadian tax implications and filing requirements in both countries.

Do U.S. tax laws apply to you?

Even though you are a Canadian citizen and are only living in the United States part-time, you could still be subject to U.S. taxation. Even if you are not required to pay U.S. tax, you could be subject to various U.S. filing requirements. Changes to the Canada/U.S. tax treaty have been beneficial to most Canadians. Since changes can occur at any time, and because there are filing deadlines and penalties for non-compliance, make sure you receive current professional tax advice.

Here is a general overview:

Resident vs. non-resident alien tax status

If you are a Canadian resident who spends part of the year in the United States, the IRS considers you a resident alien or a non-resident alien for tax purposes. It is important to know into which category you fall, since there are considerable tax implications. For example, resident aliens are generally taxed in the United States on income from all sources throughout the world, including, of course, Canadian income. Non-resident aliens are generally taxed only on income from U.S. sources, and not all non-resident aliens have to file, as will be discussed shortly.

Resident alien under the substantial presence test

The IRS considers you a resident alien of the United States if you meet the substantial presence test. Here is a brief overview of the implications of the time you have spent in the United States:

The substantial presence test uses the number of days you have spent in the United States over the last three years, including the current year, to determine your tax residency status. Here is the formula to do your own calculation. If you regularly spend over four months (122 days) a year in the United States, and you have done so for the past three years, you would be a U.S. tax resident under the substantial presence test and therefore don’t need to do the following calculation.

Each day in U.S. in the current year counts as a full day (no. of days x 1) =_______
PLUS
Number of days in U.S. in the preceding year counts as one-third of a day (no. of days x 1/3) =_______
PLUS
Number of days in U.S. in the second preceding year counts as one-sixth of a day (no. of days x 1/6) =_______
Total number of days =_______

The thought of spending up to six months in a warm, sunny US Sunbelt state or Mexico during Canada’s cold or rainy winter season is becoming increasingly appealing and popular for millions of Canadian retirees. This trend is increasing every year, as Canada’s population ages.

“Quality of life” decisions, of course, are key to enhancing one’s mental, emotional, physical and social well-being. Because Canadians are living and staying healthier longer, retirement could mean another 30 years of life. With proper planning, the Snowbird lifestyle can be the most active, stimulating, satisfying and enjoyable experience of one’s retirement years, with life-long friendships and shared memories of good times. Many Snowbirds leave in early November and return at the end of April, while others don’t leave until the beginning of the New Year. They can have the best of both worlds in terms of climate, and enjoy the benefits of both countries.

However, there are many matters to deal with when you are spending up to six months as a Canadian Snowbird. You must consider issues such as family, friends, finances, fluctuations in currency exchange rates, investments, taxes, immigration, customs, housing, travel, safety and security, and medical and other types of insurance. You also need to give thought to such important matters as money management, financial planning, wills, estate planning, and the need for reliable professionals and other advisors. Since each person’s situation is different, and because regulations and laws can change at any time, it is best to get customized feedback from professional advisors.

Where to stay
As you might expect, the US is the most popular Snowbird location. A common language and culture, familiarity, proximity, and accessibility make it the destination of choice for the vast majority of Canadian Snowbirds. The comments below therefore relate to the US experience.

However, there are also an increasing number of Canadians who prefer to spend the winter months in various parts of Mexico, a country rich with culture and diversity. Mexico has several locations that are popular retirement communities for Canadian and American part-time or full-time residents, and it is estimated that over one million Canadian tourists visit Mexico every year.

Many choices are available when deciding where to stay in the US. The most popular Sunbelt states are Florida, Arizona, California and Texas. You might want to be based in one area and take short sight-seeing trips, or use a recreational vehicle and travel through various states. Depending on your interests and needs, there are many factors to consider such as varied terrain, spectacular scenery and hot weather. Maybe you prefer the ocean, mountains or desert, and like the proximity of city life or rural ambience. Friends could also be a factor, drawing you to one place or another.

There are free state tourism booklets, and information is available for the asking. Check with your local library for videos of the state and specific city you are considering. Also, speak with other people who are Snowbirds in that location. Before making a decision to buy a condo, house, mobile home or RV, you may wish to rent one for the first season to see if you like it. Alternatively, if you have an RV, you can check many places out to see what areas appeal to you.

Living in the South during the winter can also be very affordable. In fact, you may find that you come out ahead financially. This is because of the savings from the lower cost of living in the US or Mexico. You can rent a mobile home/RV pad in the US for a small amount, ranging from US$200+ per month based on a 12-month lease. You can buy a used mobile home (fixed in place) in a park for US$5,000+ that could meet your needs. There are some good bargains, especially at the end of the season in April. When you amortize that cost over 10 or more years, it becomes very affordable. You also have use of all the facilities and amenities at a mobile home/RV park, which is generally included in your pad lease fee.

Naturally, expenses can be higher in some parks, but you would normally select the type of park or condominium community that meets your budget and other needs. In addition, you save money on heating costs at home in Canada during the winter months. You could be breaking even or paying just a bit more than you would if you stayed at home all winter, even taking into account the cost of your out-of-country emergency medical insurance (for which you are entitled to a tax credit, under the “medical expenses” category of your tax return). This type of attractive economic reality is also a contributing factor to the decision of many to winter in the South.

Despite all the positive benefits, the Snowbird lifestyle is not for everyone–it is just another retirement option. It is wise to evolve into the lifestyle in a step-by-step fashion to see if you like it, so try it for a month or so by renting.

Have you reviewed who you want to have as the executor of your estate on your death–in other words, who makes sure that your wishes in your will are fully met? This choice could be one of the most important decisions you make.

Many people prefer to name a trust company as the executor of their will, for a variety of reasons and benefits. You need to compare these benefits to the capabilities of a personal friend, relative or family member acting as an executor in your given situation. You may choose to select an individual executor as a co-executor with the trust company, or have an alternative plan in which a designated trust company acts for you if the named executor is unwilling or unable to act. There are various options, implications and pros and cons you can discuss with your lawyer and/or trust company. Here is an overview of the key benefits of using a trust company.

Experience and expertise in will and estate planning

A large portion of any trust company’s operation involves acting as an executor. A trust company’s staff can advise you on a regular basis in terms of coordinating the contents of your will with the other financial affairs, needs and personal changes in your life, as they are closely interrelated. In addition, planning involves determining what taxes would be payable by the estate or beneficiaries and considering procedures for minimizing or providing for these taxes.

Accessibility
A trust officer is assigned a specific estate and is personally responsible for providing customized and responsive service.

Full attention to the needs of your estate
Given the established infrastructure and continuity offered by a trust company, the operation of your estate administration is smooth. If a layperson is an executor, their attention to the executor duties could be influenced by other personal interests, age, ill health, procrastination or excessive stress due to the demands of fulfilling expectations in an area where they have no experience or expertise.

Financial responsibility and security
Most trust companies in Canada are well-established and are backed by substantial capital and reserve accounts. Trust companies strictly segregate estate assets from the general funds. They are also covered by insurance in case there is a mistake or oversight due to negligence or inadvertence.

Funding capacity
A trust company can work with the members of your family to provide for their immediate financial requirements and needs immediately after your death.

Specialized knowledge
Due to the increasingly complex nature of tax and other legislation issues relating to an estate, as well as to the wide variety of options available, a trust company employs a staff of experts to review and advise on related issues. Specialists include expertise in tax, legal, insurance, investment and other areas.

Acting as a trustee
This means that the trust company protects your ongoing interests after you die. One example would be managing your investments or capital, and making payments to designated beneficiaries as required over time. If there are minor children, children from a previous marriage, or situations where the estate assets have to be controlled for an extended period of time, a trustee is required. A trustee could be giving out necessary funds from your estate over a period of 20 years or more.

Avoiding the possibility of family conflict
In any family situation there could be personality or ego conflicts, friction due to issues dealing with control, power, money, and distribution of family possessions or assets, resentment due to past financial favors to certain children or forgiveness of loans to others, unequal distribution of the estate to family members, or a multitude of other potential conflict areas. A trust company acts as a neutral, objective and professional entity in pre-empting or resolving potential disagreements affecting the administration or distribution of the estate.

Peace of mind
There is great relief in knowing that your estate will be administered competently, professionally, promptly and in accordance with your stated wishes. An experienced trust company can provide this peace of mind and feeling of security.

Finally, remember to interview a minimum of three trust companies before you decide which one is right for you.

1. Not Updating your Will. Many people do up a will and forget about updating it. So much can change in terms of your circumstances, assets, beneficiaries and wishes that you need to review your will on an annual basis at a set time, eg. your birthday, the first of the new year or some other memorable time. Also review your will when any major change occurs in your life, eg. divorce; death of a spouse, executor or beneficiaries, etc

2. Not Selecting the Right Executor. Being an executor of a will can be very time consuming, stressful and complex. Many people are inappropriate choices for that responsibility. Some people don’t even ask the executor if they are prepared to assume that role, they just name them in the will, or the executor predeceases them or moves to another province or country. Consider the benefits of using a trust company as an executor or co-executor and having an alternate executor. You want to avoid hassles that will leave negative memories.

3. Not Having Sufficient Financial Resources to Cover Taxes, Expenses and Debts. Poor estate planning could result in the estate being drained at death, leaving little, if any, assets left for distribution to beneficiaries. There are ways of minimizing this risk by advance planning. For example, holding assets in joint names, gifting before death, having designated beneficiaries of life insurance policies or RRSP/RRIF’s, and having sufficient life insurance. Premiums for insurance, to cover anticipated capital gains tax for example, could be paid for by yourself, or by those who will be the major beneficiaries of an asset triggering capital gains tax, eg. family cottage or shares in a business.

4. Not Taking a Strategic Approach to Estate Planning if you Own a Small Business. If you are operating a small business and die, there are many negative implications that could result, unless proper planning is done. For example, if your business goes under, your estate could be depleted due to claims by business creditors, or because you signed personal guarantees to lenders, suppliers or landlord. You should consider a buy/sell agreement secured by insurance, so that the company has sufficient resources to pay your estate out. There are many other strategic options to separate your personal assets from business exposure. In addition, you should consider estate freezes.

5. Not Taking the Necessary Steps to Protect Your Estate from US Taxes. If you own any US real estate, US publicly-traded stocks and bonds, or certain other kinds of US assets, you need special tax planning strategies. Properly done you can save most if not any taxes applicable. Otherwise, you could end up paying US estate tax at the time of your death that could be as much as 50% of the market value of your US assets, with little or no tax relief against the Canadian taxes payable upon your death.

6. Not Adopting an investment strategy for your RRSP’s and other investment portfolios that is consistent with your estate planning goals. Without proper investment planning and implementation, there might not be enough assets in your Estate to accomplish all of the bequests that are set out in our will.

7. Not Understanding and Utilizing the Benefits of Trusts. There are many types of that go into effect during your life or on your death, that serve a variety of different purposes, all relating to saving on taxes or providing for others, eg. Trusts for minor children are set up to look after the needs of your children until they are adults.

8. Not taking full advantage of second property tax strategies. If you own a cottage or other second property, you want to set up tax planning strategies to minimize or eliminate the tax consequences of leaving the cottage to other family members.

9. Not Preparing and Updating a Personal Inventory and Information List. This step is very important. Many executors do not have any information available, which results in frustration and delay. You need to prepare a current, complete and accurate outline with details, of your financial and personal information and update it as circumstances change. For example: assets, liabilities, income sources, personal and family information, names of key contact people and advisors, funeral wishes, business information and special instructions or guidelines for the executor. You don’t want to leave unanswered questions.

10. Not Obtaining Professional Tax and Legal Advice. With customized strategic tax and estate planning techniques, you can definitely maximize the net assets available for those you want to remember. You can also avoid potential legal problems, eg. someone challenging your estate to obtain a financial benefit or increased benefit. Skilled advice is cheap money for peace of mind and prudent planning. Otherwise, the government coffers will be significant and happy beneficiaries.