Show Transcript
Estate planning isn’t always easy. Even with the best intentions, you could find yourself making some not-so-clever moves. Nicole Ewing, Director, Tax and Estate Planning, TD Wealth, joins Kim Parlee to examine some common estate planning scenarios so you can avoid unintended consequences.
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* Everyone seems to have an opinion on what you should do or not do when it comes to your family and estate planning. So to help you avoid potential pitfalls when planning for the future of your estate, we're going to play a good old game of good idea or bad idea with Nicole Ewing, Director, Tax and Estate Planning, TD Wealth. She's here to talk through some of the scenarios. How are you?
* Great, thanks. How are you?
* I'm doing well, thanks. Let's talk about some of the things that you have come across over the years. And you can tell me if they are good or bad ideas. Here's the first one. I'm going to add my kids to title on everything that I own-- so I'm assuming all your real estate and all that stuff-- so there's no need for probate. Good or bad?
* Bad.
[LAUGHTER]
* With emphasis.
* As a strategy, it's bad. It may very well be the right result for you. But without going through and looking at all the questions first and figuring out how it's going to impact you directly, I'd say it's bad.
* So we want to be thinking about, is there an immediate tax liability? Sometimes when we add someone on title, we're deemed to have sold it or a portion of it. And so now we have an immediate tax liability. It may actually not avoid probate because that asset, depending on how it's treated, may be deemed to be held in trust by that other joint owner for your estate. So you haven't avoided the need for probate at all.
* We have creditor issues. If your children get divorced or have other sorts of creditors after them, your assets might be exposed to that. And then in the unfortunate circumstance where they predecease you, your whole estate plan has not worked. You may actually be intestate with respect to some of these issues if you don't also have a will and plan for the probate.
* That's bad, I agree. OK, the next one, I'll name all my children as something called joint attorneys and executors so no one's feelings are hurt. I'm assuming that means you're just going to give everyone responsibility for carrying everything out so nobody feels bad.
* Exactly. We're just going to put everybody-- oh, no, I have to say bad. [LAUGHS] This is bad. The idea that people often say, well, I don't want my children to fight or for anybody's feelings to be hurt, and so I'm going to put everyone on there, and they can make decisions together, this is generally a bad idea for a few different reasons. A, they may not work together very well now.
* Just go to a family dinner. Witness that first.
* But without that careful planning, we could end up in a situation where even if the document itself says child A or child B, the financial institution or other organizations will very likely require you to get both signatures anyways, which creates a whole bunch of administrative issues.
* So now we have, do you have different time zones that we need to be thinking about? Do we need ink on paper? And how are you going to coordinate amongst yourselves to be at the same place at the same time?
* We have people who are making decisions for us have the authority to make them without necessarily needing to agree amongst themselves. Because ultimately, you're giving each of them veto power.
* When you say that you all have to make decisions together, if a decision can't be reached, then the one holdout actually is making the decisions on behalf of your family. So we want to make sure that you have chosen who it is to make the decisions and that they can do so without the constraints or administrative burdens that might come with naming everybody.
* Clear decision rights, that's what I'm taking from this. OK, here's another one. I had my lawyer include beneficiary designations in my will. And that's when you are-- I know when you're at a bank, they'll say, what happens to your RSP if you pass? Then you put somebody's name on there. So a good idea or a bad idea to include that in the will?
* I'd say good. That's a good idea because sometimes the forms themselves don't actually say what you think they say. Or they might not produce the result that you're hoping they do. So for example, on the TFSA form at TD, when we name an alternate or we name our beneficiaries, it will say if one of those people has predeceased, their share goes back to the estate of the individual.
* And so now it's the will that needs to govern, in that case, what's happening to that one third share. And if the will says, which it often does, divide equally amongst my children, you're now diluting the amount that would have otherwise gone potentially to that child's children, your grandchildren. And they're now sharing with siblings. It's a big mess.
* So we want to make sure that the beneficiary designation that your lawyer can help you work through can contemplate all of those different possible scenarios if somebody predeceases and makes sure that what you want to have happen actually happens. Otherwise, if the form-- the form governs. You could be intestate. Or your will could actually leave less to your intended beneficiary than you wanted them to get.
* Got it. OK, this is the last one. I'm going to give away everything before I die so the government doesn't get any of my money.
* Bad. Bad idea. Now, that might-- again, that might be the appropriate strategy after you've thought through all of the implications. But if we're just giving things away, firstly we have to think about giving an asset actually can be a deemed disposition for tax purposes. You are deemed to have sold it at fair market value. And so the tax is going to be due now instead of upon your passing.
* If it's not done properly, then the law can presume that those assets are held in trust by the person that you gave them to. And so they might now just be holding them on behalf of the estate, and we haven't-- they're in a position of trying to prove that you actually intended the gift to come to them.
* We can end up losing certain opportunities. So for example, I've seen people do this with their homes, their principal residences. They give those away. Or they give them on to the next generation. You've lost that principal residence exemption.
* And so if they are still going to be living in that property, we really want to make sure that there's some coordination there so that we're not losing some of the tax-sheltering opportunities that we have. Those deferrals are really important. So we want to make sure that we're thinking about those before advancing any of those gifts.
* And the last one is I was going to say, should you talk to somebody before you make these decisions? I'm assuming that's a good idea.
* Yes, absolutely. We want to be talking to our legal advisors, to our financial advisors, and ultimately to our family, as well, so that they are on the same page with what we're trying to achieve.
* Nicole, thank you.
* My pleasure.
[MUSIC PLAYING]
* Great, thanks. How are you?
* I'm doing well, thanks. Let's talk about some of the things that you have come across over the years. And you can tell me if they are good or bad ideas. Here's the first one. I'm going to add my kids to title on everything that I own-- so I'm assuming all your real estate and all that stuff-- so there's no need for probate. Good or bad?
* Bad.
[LAUGHTER]
* With emphasis.
* As a strategy, it's bad. It may very well be the right result for you. But without going through and looking at all the questions first and figuring out how it's going to impact you directly, I'd say it's bad.
* So we want to be thinking about, is there an immediate tax liability? Sometimes when we add someone on title, we're deemed to have sold it or a portion of it. And so now we have an immediate tax liability. It may actually not avoid probate because that asset, depending on how it's treated, may be deemed to be held in trust by that other joint owner for your estate. So you haven't avoided the need for probate at all.
* We have creditor issues. If your children get divorced or have other sorts of creditors after them, your assets might be exposed to that. And then in the unfortunate circumstance where they predecease you, your whole estate plan has not worked. You may actually be intestate with respect to some of these issues if you don't also have a will and plan for the probate.
* That's bad, I agree. OK, the next one, I'll name all my children as something called joint attorneys and executors so no one's feelings are hurt. I'm assuming that means you're just going to give everyone responsibility for carrying everything out so nobody feels bad.
* Exactly. We're just going to put everybody-- oh, no, I have to say bad. [LAUGHS] This is bad. The idea that people often say, well, I don't want my children to fight or for anybody's feelings to be hurt, and so I'm going to put everyone on there, and they can make decisions together, this is generally a bad idea for a few different reasons. A, they may not work together very well now.
* Just go to a family dinner. Witness that first.
* But without that careful planning, we could end up in a situation where even if the document itself says child A or child B, the financial institution or other organizations will very likely require you to get both signatures anyways, which creates a whole bunch of administrative issues.
* So now we have, do you have different time zones that we need to be thinking about? Do we need ink on paper? And how are you going to coordinate amongst yourselves to be at the same place at the same time?
* We have people who are making decisions for us have the authority to make them without necessarily needing to agree amongst themselves. Because ultimately, you're giving each of them veto power.
* When you say that you all have to make decisions together, if a decision can't be reached, then the one holdout actually is making the decisions on behalf of your family. So we want to make sure that you have chosen who it is to make the decisions and that they can do so without the constraints or administrative burdens that might come with naming everybody.
* Clear decision rights, that's what I'm taking from this. OK, here's another one. I had my lawyer include beneficiary designations in my will. And that's when you are-- I know when you're at a bank, they'll say, what happens to your RSP if you pass? Then you put somebody's name on there. So a good idea or a bad idea to include that in the will?
* I'd say good. That's a good idea because sometimes the forms themselves don't actually say what you think they say. Or they might not produce the result that you're hoping they do. So for example, on the TFSA form at TD, when we name an alternate or we name our beneficiaries, it will say if one of those people has predeceased, their share goes back to the estate of the individual.
* And so now it's the will that needs to govern, in that case, what's happening to that one third share. And if the will says, which it often does, divide equally amongst my children, you're now diluting the amount that would have otherwise gone potentially to that child's children, your grandchildren. And they're now sharing with siblings. It's a big mess.
* So we want to make sure that the beneficiary designation that your lawyer can help you work through can contemplate all of those different possible scenarios if somebody predeceases and makes sure that what you want to have happen actually happens. Otherwise, if the form-- the form governs. You could be intestate. Or your will could actually leave less to your intended beneficiary than you wanted them to get.
* Got it. OK, this is the last one. I'm going to give away everything before I die so the government doesn't get any of my money.
* Bad. Bad idea. Now, that might-- again, that might be the appropriate strategy after you've thought through all of the implications. But if we're just giving things away, firstly we have to think about giving an asset actually can be a deemed disposition for tax purposes. You are deemed to have sold it at fair market value. And so the tax is going to be due now instead of upon your passing.
* If it's not done properly, then the law can presume that those assets are held in trust by the person that you gave them to. And so they might now just be holding them on behalf of the estate, and we haven't-- they're in a position of trying to prove that you actually intended the gift to come to them.
* We can end up losing certain opportunities. So for example, I've seen people do this with their homes, their principal residences. They give those away. Or they give them on to the next generation. You've lost that principal residence exemption.
* And so if they are still going to be living in that property, we really want to make sure that there's some coordination there so that we're not losing some of the tax-sheltering opportunities that we have. Those deferrals are really important. So we want to make sure that we're thinking about those before advancing any of those gifts.
* And the last one is I was going to say, should you talk to somebody before you make these decisions? I'm assuming that's a good idea.
* Yes, absolutely. We want to be talking to our legal advisors, to our financial advisors, and ultimately to our family, as well, so that they are on the same page with what we're trying to achieve.
* Nicole, thank you.
* My pleasure.
[MUSIC PLAYING]
