Proper estate planning is essential to save your loved ones from additional confusion and expenses upon your death. In December 2014, Canada passed a law that significantly changes how the country taxes estates and trusts. Understanding estate law is essential for preparing an effective will and trust that best express your wishes while avoiding unnecessary expenses for your heirs.
On January 1, 2016, the new law eliminated the progressive tax rate for trusts. Now, all trusts are taxed at the top marginal rate, which ranges from 47.70 percent to 58.75 percent. Under the old law, trusts did not have to pay tax installments. The new law ony exempts graduated rate estates from installment payments. Also, when the trust’s assets transfer to the beneficiary, Canada considers these capital gains in some circumstances. The new tax rates affect all inter vivos or lifetime trusts without grandfathering. With these changes, you may reconsider if a trust is the best place to leave your assets.
CHOOSING AN EXECUTOR
Choosing an effective executor for your estate is another consideration when you prepare your will. The Canadian Bar Association defines an executor as the person who “gathers up the estate assets, pays the deceased’s debts, and divides what remains of the deceased’s estate among the beneficiaries.” Your executor must deal with government agencies, financial institutions and your heirs. The process of settling your estate may take 18 months or longer, depending on your assets and business interests. The person you choose as your executor should reside locally and must be very organized. The executor may have to pay out of pocket for some expenses, but the estate can reimburse him.
Your executor does have some personal liability while settling your estate. If he causes the estate any financial losses through negligent or fraudulent actions, the court may order him to pay back those losses.
If you die intestate, or without a will, Canada’s Constitution declares that the division of assets is a provisional matter, and each province has its own estate law the distribution of your assets if you die with both a living spouse and children. If you have a spouse but no children, your assets go to your spouse. If you have children but do not have a spouse, your assets are distributed between your children equally.
You may consider consulting with an accountant familiar with tax laws to avoid unnecessary taxation for your estate before you prepare your will. An experienced estate law attorney can help you prepare a will and trust that appoints an effective executor and best reflects your wishes, easing the burden on your heirs and loved ones.