WILLS AND ESTATES AND TAX PLANNING POINTS

Transfer of Assets to Joint Ownership

Since jointly held assets do not generally form part of the estate of the deceased owner, an obvious planning technique is to place assets in joint ownership. However, this only makes sense where the surviving joint owner is the intended beneficiary.  If the surviving joint owner is not the intended beneficiary, probate fees will be levied against the full value of assets beneficially owned by the deceased at his or her death. Individuals must understand that the transfer to joint ownership must be a transfer to the beneficial ownership to be effective for probate purposes to escape the probate fees or the probate fees will be levied against the value of the assets that the deceased beneficially owned at death. Transfers to joint ownership often cause litigation after the death of the transferor because the intention of the transferor was not clearly evidenced and therefore is doubt as to whether the transferor intended to give a right of survivorship to the other joint owner.  

If the Residence has been occupied by the owner for all of the years of ownership, there should be no income tax on a transfer to joint ownership because the principal residence exemption should be available. However, if the transferee of the joint interest does not also occupy the principal residence, for example, where the new joint owner is an adult child, the child's 1/2 interest in the residence would be exposed to capital gains tax on any subsequent disposition of the property because the principal residence exemption is only available if the owner actually occupies the property as a principal residence. Also, where the residence is subject to a mortgage or other encumbrance, there will generally be land transfer tax to pay. In Ontario, land transfer tax is levied against the value of the consideration paid on the transfer. Consideration includes any assumption of mortgage or other debt associated with the property. If the property is unencumbered and the transferee pays nothing to acquire the joint interest, there should be no land transfer tax on the transfer.

Cash Assets

Canada Saving Bonds, term deposits and similar types of cash assets are ideal for this type of planning technique because a transfer will not trigger a capital gain. If the transfer is between spouses, there are no tax consequences and the attribution rules will apply to require the income to be taxed in the transferor spouse's return. The issues to watch out for with these assets are whether the transferor wants to:

1.  Share ownership with the transferee.

2.  To permit the transferee to inherit the asset on death, and

3. To expose the asset to the transferee's creditors.

Life Insurance, RRSP and RRIF

Where there are life insurance, RRSP or RRIF assets, it is usually wise to designate a named beneficiary to receive the proceeds on death. This will take the proceeds out of the estate and avoid the payment of probate fees in respect of them.

Multiple Wills

A technique which is being used increasingly to avoid probate is the use of multiple wills. If probate is needed to transfer only one asset, but all of the deceased's assets are disposed of in one will, it is necessary to pay probate fees on the value of all of the assets. The Estates Act provides that where a person is applying for a grant of probate, a statement shall be submitted to the Registrar of the total value verified by oath of all the property that belonged to the deceased at the time of death. However, there is a provision which permits a grant of probate for part of the property of the deceased. It is frequently relied upon where the deceased owned property in several jurisdictions and executed more than one will in order to deal with property in the various locations.

Inter Vivos Trusts

The objective of all probate planning strategies is to reduce the pool assets on which probate fees must be paid. In addition to removing assets from estate of the deceased and creating multiple wills another strategy for accomplishing this is to have the individual transfer his or her assets to a trust. The terms of the trust would be designed to permit the payment of income and capital to the individual who has established the trust ('the settlor") who has established the trust and would stipulate what is to happen to the assets in the trust at the settlor's death. The trust terms would parallel the testamentary scheme set out in the individual's will. All of the assets in the trust would escape probate fees because they would not be in the estate of the settlor at death. The settlor would be appointed the trustee in order to maintain full control over the assets.