Kevin Greenard: Understanding what flows through your estate

Kevin Greenard

At every stage of our client’s lives, we feel they should have an up to date will.

Unforeseen events can happen and planning is essential to ensure your assets and estate are distributed according to your wishes.

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The term “estate” can be used different ways. For purposes of this article, we will refer to any assets that are divided according to your will as forming part of your estate.

Below we will illustrate the “estate” term using various options that a client has with respect to their investment accounts, both registered and non-registered.

Registered accounts

Examples of registered accounts are Registered Retirement Savings Plans, Registered Retirement Income Fund, Locked-In Retirement Account, Locked-In Income Fund and Tax Free Savings Account. When a client opens a registered account, one of the questions we ask them relate to who they would like to name as beneficiaries. A client can name an individual(s) or simply name the estate as beneficiary.

In the majority of cases, couples will name their spouse the beneficiary of RRSP/RRIF accounts to obtain the tax deferred roll-over to the surviving spouse on the first death. With a TFSA, benefits exist for naming your spouse as the full amount of the deceased’s TFSA can roll into the surviving spouses TFSA without using up the survivor’s contribution limit. When a person or persons are named beneficiary on a registered account it essentially bypasses a person’s estate.

Individuals also have the option of naming their “estate” the beneficiary on their registered accounts. When “estate” is named, it is extra important for clients to have a will. Essentially, your will divides all registered accounts where “estate” is named.

In reviewing a client’s will, we have at times noted conflicts with what the will says and who the named beneficiary is on a client’s account. Some clients will want to specifically put account numbers and types of accounts within a will. This is not necessary if you have named beneficiaries on the accounts. It also can add confusion in your will if you leave certain accounts to certain individuals within your will — the specific outcome may not be as desired as the account values will change over time. In the majority of cases, we encourage clients not to mention the types of accounts and account numbers within a will. We encourage clients to focus on having a detailed plan with respect to their overall estate.

Non-registered accounts

Common types of non-registered accounts include individual, joint tenancy, tenancy in common and corporate accounts. Couples typically like to have investment accounts held in joint tenancy. Most joint tenancy accounts will have both couples names and then “Joint With Right of Survivorship” or “JTWROS” after the names.

Typically, with a JTWROS for couples, on the first passing, nothing flows through the deceased’s estate. In other family situations (i.e. not a spouse) where accounts have been structure for estate planning purposes only this may not apply. The surviving spouse would essentially bring us in a copy of the death certificate and notarized copy of the will.

Once these documents are brought in, we would have a couple of documents for the surviving spouse to sign (i.e. Letter of Indemnity and new account documents). Typically, a new individual account is opened in the name of the surviving spouse and then the securities would be rolled over as they are, including the book values, into the new account.

When a person passes away with an individual account or holds a percentage of assets in a tenancy in common ownership within their account, this would flow into the person’s estate.

Probate and executor fees

There are no probate fees for estates under $25,000, 0.6 per cent on the portion of the estate from $25,000 to $50,000, and 1.4 per cent for portion of the estate over $50,000 in B.C. The maximum compensation is five per cent for executors in B.C.

With couples, we typically try to arrange joint tenancy on all assets to ensure probate can be avoided on the first passing. In many cases, couples name each other executors to eliminate or reduce the executor costs.

In some cases, such as complex family situations (i.e. second marriages, children from a previous relationship), it is not always possible to avoid probate and executor fees to achieve your primary goals. Your primary goals will trump other goals such as avoiding probate and executor costs. In some situations, it is best to structure things so that probate and executor fees may apply.

Certainly on the second passing, it becomes more difficult to avoid probate and other costs such as legal and accounting. In some cases we are able to set up family meetings to deal with complex situations or to do further estate planning after the first passing.

Charts and visuals

I often use charts when discussing estate planning. I find it can be useful to help clients understand and visualize the purpose of a will. I’ll start the process by drawing a bucket in the middle of a blank page. On the bottom of the bucket I will write the word Estate. On the top side of the bucket, I will write the word will. I then pause to make sure that the clients understands that the will only divides what goes into the bucket. Many things can be structured to avoid the bucket altogether (i.e accounts that have named beneficiaries and JTWROS accounts).

On the left hand side of the page, I will begin listing all the assets that the individual has. Examples of typical asset listed include an RRSP, TFSA, boat, vehicle, bank account, non-registered account, house and life insurance policy. In each one of these examples, we draw a line to see which part of your estate flows directly to the bucket and which part of your estate flows directly to a beneficiary or joint owner.

We also draw a faucet on the right hand side of the bucket. The faucet represents probate fees, potential executor fees, accounting fees, legal fees and other costs outlined in the meeting.

Primary estate goals

Minimizing probate fees and executor fees are typically in the secondary goal category. As much as clients would like to avoid unnecessary fees, it should never trump achieving your primary goals. During an estate planning meeting, the majority of the time is spent mapping out details of your primary and secondary goals. Primary goals could be specific directions with respect to income taxes, protecting assets, succession planning for a business, asset distribution and transition, providing for family and friends and charitable giving.

These estate planning discussions are done to hopefully ensure all is structured correctly. Once we know what you are trying to achieve then we can compare your goals, both primary and secondary, to your existing will to ensure the two are aligned. If they are not aligned, then we could, in conjunction with your other professional advisers (lawyer and accountant), provide options or suggestions. Another goal of these discussions is to ensure your estate is distributed in a timely manner and to manage expenses and taxes in an efficient way.

Kevin Greenard CPA CA FMA CFP CIM is a portfolio manager and director, wealth management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week in the Times Colonist. Call 250-389-2138. greenardgroup.com

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