Tax & Estate Planning
 

I have heard that probate fees are payable by my estate on my death. How are probate fees calculated and is there any way to avoid them?
Probate fees are calculated on the total value of all assets in the estate, other than life insurance proceeds and registered retirement savings plans payable to a designated beneficiary, property owned in joint tenancy and real property situated outside Ontario. The fees are equal to ½% on the first $50,000 of assets and 1½ % on the excess.

One way to reduce probate fees is through the use of "double wills" where one will deals with assets requiring probate, such as cash on deposit with a financial institution, marketable securities and real estate, and the other deals with assets which do not require probate, such as shares of a private company. An individual with substantial investment assets may be able to reduce probate fees and capital gains tax on death by restructuring the investment portfolio using a private holding company and other tax planning measures.

I have accumulated substantial assets through my operation of a successful private company. I would like to eventually transfer the business to my children and at the same time keep my income tax burden on death to a minimum. What can I do?
The value of your business today can be "frozen" for death tax purposes with any increase in value from today to the date of your death being attributed to one or more of your children. Moreover, it may be possible, depending on the number of your immediate family members, to make multiple use of the $750,000 capital gains exemption and thereby significantly reduce the income tax exposure for you and your family. This planning may involve the use of discretionary family trusts, which can also be used effectively for legitimate income splitting purposes without, at the same time, giving up control of the business enterprise.

Every time I turn around it seems like the government is eliminating another income tax shelter. Is there anything left for Canadian taxpayers to take advantage of?
It is true that there are not as many income tax shelters available today as there used to be. However, there are still a number of useful methods to reduce or eliminate income tax. One method that is commonly used is the universal life insurance policy, which allows investments to accumulate on a tax-free basis. There are a number of different uses for universal life policies in estate planning, succession planning with family-owned business and charitable gift planning.

Is it possible to reduce my tax burden by moving some of my investment assets outside of Canada?
Reducing one's tax burden should not be the only factor in deciding to invest offshore. However, depending on your particular circumstances, including retirement plans, source of assets, source of inheritances and residence of intended beneficiaries, it may be advisable to take advantage of low tax-rate jurisdictions to reduce your overall tax burden as part of an overall investment strategy.

BrazeauSeller.LLP has been involved for years with transactions of this nature and has developed contacts in the financial community in many offshore jurisdictions to assist in finding the right structure for each client. In addition, as the exclusive Ottawa member of Meritas Law Firms Worldwide, we have immediate and direct access to the services of pre-qualified affiliated law firms throughout Canada, the United States and more than 70 countries worldwide.

BrazeauSeller.LLP has considerable experience and expertise working in the tax and estate planning field, with accountants and financial planners to design and implement customized structures that work best for each of our clients.

I have heard that there are ways that I can use trusts to save my family tax when I die. How does that work?
Trusts are recognized as separate taxpayers under the Income Tax Act.  Furthermore, testamentary trusts, or trusts created on the death of an individual, are taxed at the same marginal rates as individuals. Accordingly, to the extent that income can be divided between an individual beneficiary and a trust for that beneficiary, the total tax liability can be lowered significantly.

A spousal trust is a specific type of testamentary trust that allows for the same tax deferral treatment as a direct transfer to the spouse, while at the same time allowing for the income splitting opportunities described above. The provisions of a spousal trust must be carefully drafted to ensure that the terms comply with the strict requirements of the Income Tax Act.

Another popular use of testamentary trusts is to provide income splitting opportunities for adult children and their families. Again, care must be taken in the drafting of these documents to avoid any unforeseen tax pitfalls.

Depending on the family situation, there may be opportunities to take advantage of these tax savings at lower asset levels than you might expect.

I have heard that the beneficiary of my life insurance should be an “insurance trust.” What does that mean?
An insurance trust is another form of testamentary trust that can provide significant income splitting advantages. It has the added benefit of qualifying as a life insurance declaration, which means that the insurance proceeds will not be included in the probate calculations. An insurance trust can be used by a surviving spouse to cover expenses for minor children with income generated by the insurance proceeds, and that income can be taxed in the hands of the minor children. Of course, this greatly increases the after tax value of the insurance proceeds. 

An insurance trust also allows for the drafting of detailed trust language to provide for the ongoing management of insurance proceeds for minor beneficiaries and an orderly distribution of those proceeds at appropriate ages.