A Game Changer for Estate Planning

by Lisa Collins, QC, TEP | Dec 18, 2014

Legislation Blue Marker

The federal government has introduced changes to the taxation of trusts, and the implications are so significant, it is a real game changer for estate planning.

Last year the government announced that it was looking at changing how a trust set up under a Will (known as testamentary trusts) is taxed. Previously such a trust was subject to graduated tax rates (like an individual). The government proposed that a testamentary trust be taxed at the highest personal tax rate on all of its income (which is how it is for “life time” or “inter vivos” trusts.)

However, the legislation that was released in late August, 2014 not only implemented those changes, it introduced other changes that appear to result in some unexpected adverse consequences. As a result, this will require a review of and changes to many estate plans.

These tax changes will have the biggest impact on estate plans where trusts are being used. This includes testamentary trusts, as well as certain lifetime trusts, such as Spousal Trusts, Alter Ego Trusts and Joint Partner Trusts. The family situations that may be impacted the most are those involving:

  • second marriages, where there are children from previous relationships, and where a trust is being used for the spouse
  • a disabled beneficiary

The rule changes will also impact situations where charitable gifts are being made by Will.

Here are some of the highlights (or lowlights) of the changes. Future blog articles will drill down into some of the detail, by providing some examples.

  • An estate can take advantage of graduated tax rates for its first 36 months, but there are strict requirements that must be met, including the making of an election. These graduated rates will not apply to a trust set up under a Will.
  • Only an estate that qualifies for the graduated tax rates can access new flexible donation credit rules and take advantage of the nil capital gains inclusion for donations of marketable securities.
  • Only graduated rate estates are able to take advantage of certain rules allowing for post-death tax planning.
  • There is a new “Qualified Disability Trust” for a disabled beneficiary that will qualify for graduated rates, but the requirements for a trust to qualify for this are very specific and can be penalizing if not adhered to.
  • When the life interest beneficiary under a trust dies, the trust is deemed to sell its property at that time and tax would be payable on any gains or other income. Previously this tax was payable by the trust, and thus would be paid using the remaining assets of the trust. The new rules will result in the tax being payable by the estate of the person who has died. The ultimate beneficiaries of the trust and of the deceased person’s estate may be different people, resulting in a frustration of the estate plan (and fighting among family members!).

The changes to the tax laws have not yet been passed by Parliament as of the date of writing this, but it is expected that they will without significant amendment. They are proposed to be effective starting in 2016, with no grandfathering for existing situations.

It is important to review your estate plan to see how these changes may affect you. In my next blog article I will provide an example of an actual situation and explain the impact the changes have made. In the meantime, if you would like our help in reviewing your current estate plan, please contact us to set up an appointment.

Reduce The Risk of Elder Abuse and Financial Fraud

iStock_000013042003Smallby Lisa Collins, QC, TEP | Oct 6, 2014

It was recently confirmed by the BC Securities Commission that Vancouver Island mutual fund salesman David Michaels committed over $65 million in fraud over the course of 3 years involving victims with an average age of 72 years. Seniors are a particular segment of the population that is growing increasingly susceptible to all kinds of fraud, deception and intimidation.

Unfortunately, this type of abuse can even be committed by the senior’s care workers, neighbours, friends and even family members. The Canadian Foundation for Investor Affairs, FAIR Canada, an investor advocacy group, recently reported that Canada desperately needs a national strategy to combat financial fraud. In addition, an increase in the aging population of Canada has given rise to the growing fields of Elder and Guardianship Mediation and prompted the first ever comprehensive study of elder and guardianship mediation in Canada. An online copy of the report can be found here at The Canadian Centre for Elder Law.

However, seniors aren’t the only vulnerable segment of the population. According to Fair Canada, one in ten Canadians report having invested in what turned out to be a fraudulent scheme. If you are a business owner and/or part of a high net worth family, chances are that your financial affairs have become increasingly complex over the years. Perhaps you take extended time away from your normal place of residence, have age related concerns or health issues or you have been entrusted with Power of Attorney or Committeeship for an aging or infirm member of your family. These situations and more warrant the benefit of trusted third party oversight to ensure that your financial situation isn’t compromised.

We here at Lisa Collins Law Corporation are committed to ensuring that the wealth you have worked hard to create is protected. Seeing a need for trusted, professional oversight, we recently developed a structured, systemized and supervised program called PrimeAssure. This program provides peace of mind, ease and financial clarity to address the details created by complex financial matters and is just one of the many resources available to protect and inform you.

We encourage you to access the resources provided here and to contact us for more information on how to further protect yourself.

Planning Avoidance: The 7 Myths of Procrastinating Business Owners

by Lisa Collins, QC, TEP | Sept 2, 2014

Watch wrist hand business man‘Planning Avoidance’ occurs when business owners postpone planning for the succession of their business and wealth. It is a widespread affliction among business owners across Canada, and although there can be many reasons for it, we’ve compiled a list of the 7 most common things we hear. Perhaps you’ve said, heard or thought these same excuses before … and we’re here to debunk them and introduce you to a great solution through our Family Wealth Counsel Program.

1.  “I don’t know where to start”
A good starting point is to think about what is important to you and your family, which is the foundation to this kind of planning. Simply taking the time to think about these things, and sitting down with an experienced professional is a perfect first step. One of the things we don’t start with is tax planning. Yes, saving taxes is important and it will certainly be addressed, but it is not the starting point. We work with families to first-and-foremost identify their goals and objectives, so that planning can revolve around that. To take some of the pressure off, we are also happy to provide complimentary consultations to get the conversation started.

2.  It’s too complicated
One of the main objectives of succession planning is to simplify things. Yes, most business owners’ affairs are complicated, but this is why we take a “whole picture” approach. The Discovery phase is a perfect way for us to obtain a detailed understanding of your entire personal, family and business situation. We then map out this information in an easy-to-understand way, so that you can feel educated and well-informed to make the right planning decisions. It may seem complex or messy to you, but by integrating our expertise in a number of areas, you can soon gain a solid understanding of all of your affairs and the potential solutions and opportunities.

3.  It might create or uncover more problems than it solves.
It’s true that you might uncover some issues that have been hiding under the surface, such as pending tax burdens or gaps in insurance coverage. However, it is better to have the opportunity to solve those issues before it is too late. Much bigger problems also often arise when planning is not done. Unfortunately things do not sort themselves out, and the legal and tax implications can be unforgiving if not planned out properly. To make things worse, when family dynamics are involved, there are often gaps in family communication which can lead to animosity, conflicts and costly disputes. Our best recommendation is to just start the first conversation, knowing that once we help identify any issues, we are ready to help you develop solutions and plans as well. Once those solutions are in place, you can look forward to moving on with your business’s (and family’s) future.

4.  I’m pretty sure things are already taken care of by my long-standing professionals
Planning for the succession of a business and family wealth is specialized work. It should address the many aspects of your financial affairs and family circumstances. Although many business owners have long standing relationships with their professionals (such as financial advisors, accountants and lawyers), often these services have been focused on the business itself, and involve specific transactions or functions. Moreover, there is often no coordination or communication among the various professionals. Planning properly for the succession of your business and wealth requires “hands-on” integrated planning with specialized expertise. However, we welcome the involvement of your other professionals in the process, and depending upon your needs, they are often key players in the implementation of your plan.

5.  It’s going to cost too much
In almost all cases, it will cost much more to NOT do your planning. Some examples include unnecessary taxes, increased professional fees and family disputes that can erode your wealth. We understand that business owners want to know what they are getting into and how much it is going to cost when it comes to their planning. This is why we take the time to get to know your situation and explain all that is involved, before we are engaged. We also use a fixed fee structure for the Discovery and Planning phases, to provide you with the best value and peace-of-mind.

6.  I’m going to work forever
Although you may be enjoying your role in the business now, there will come a time when you are either ready to slow things down or you are no longer able to manage your responsibilities. So the short answer is, No, you are not going to be able to work forever, and you likely won’t want to work forever. Many of the business owners we work with are at a point in their life they’re ready for the “next phase” of their life, including leisure time, travel, or spending more time with their family. It’s also important to recognize that there is a significant risk involved in not planning your business succession. Should you suddenly die or become incapacitated without a succession plan in place, the future of your business and overall wealth are immediately at risk, not to mention the complex and stressful situation for your family, management team and employees.

7. I’m going to live forever
Although most people don’t say or think this, many act as if this is true. And no, you are not going to live forever. We are very sure of that. You don’t even get to choose when it happens. Unfortunately, dying without having proper plans in place can be one of a business owner’s biggest regrets, based on what their loved ones have to go through. We have seen situations where a business owner’s lack of planning has caused their family to take on immense responsibility to restructure or sell businesses, sort out legal and accounting issues, pay large tax burdens and make major succession decisions, right in the midst of their grieving.

It’s easy to get caught up in your busy day-to-day life, but putting off your business succession and family planning can have devastating consequences. If you or someone you know is experiencing some Planning Avoidance of their own, we invite you to contact us to set up your first consultation as part of our Family Wealth Counsel Program. This comprehensive program is designed to overcome these barriers and more, so that you can preserve and enjoy your wealth for generations to come.

If you have any questions or comments, please contact me at lcollins@lisacollinslaw.com or (250) 294-4218. Your comments are also welcome below!


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Key Changes in WESA: Part 4

by Lisa Collins | April 15, 2014

cheque with penOver the past couple of weeks, we have been highlighting some of the key changes resulting from the Wills, Estate and Succession Act (WESA), in regards to BC’s wills and estates legislation. Click here to see previous posts in the series. In this final part of this blog series, we outline some final important changes.

Gifts and Loans
Previously, it was presumed that a gift made during a will maker’s lifetime to a child was an advance of that child’s inheritance. This is no longer the case. With WESA, any gifts in the will now survive and are distributed according to the terms in the will.

The following presumptions have also been abolished:

  • That legacies in a will are revoked if the will-maker made a lifetime gift in the same amount
  • That a debt owed by the will-maker is satisfied by an equal legacy to a creditor.

If you would like to account for either of the above in your estate, it will now be necessary to specifically indicate this in the estate plan.

Benefit Plan Beneficiary Designations
WESA includes a new framework for benefit plan beneficiary designations. WESA benefit plans are those which provide benefits to employees, their dependents, and their beneficiaries, including pension/retirement plans, welfare or profit sharing plans, and others. These can also include arrangements for the payment of an annuity, RRSP, RRIF or TFSA.

This section of WESA does not apply to contracts of insurance or declarations for Life/Accident/Sickness Insurance – these are governed by the Insurance Act of BC. Where there is a conflict or inconsistency with other BC or Federal enactments, those prevail over WESA.

A beneficiary designation itself under WESA is fairly informal; it only needs to identify the plan contract, the benefit and the intended beneficiary(s). For written documents, forms or agreements (other than a will), there is no requirement for a witness when signing the designation. WESA now allows for an irrevocable beneficiary designation, but this cannot be made in a will and must be filed with the specified office of the benefit plan administrator. Additionally, a designation can now be made in many formats: in a will, on a benefit plan administrator’s form, in a legal document/agreement, or as a declaration (written or electronic). You can see that the scope is quite broad!

With designations now allowed in additional formats, executors will have far more responsibility to seek out beneficiary designations that may have been made outside the will (and/or be in conflict with the will). Moving forward, it will be crucial for your lawyer and financial advisor to work closely together, to ensure that your will plan is coordinated with any beneficiary designations.

Any questions about the new WESA? Leave me a comment below. If you’re ready to explore whether a review and update of your estate plan is in order, please contact me at any time.

Key Changes in WESA: Part 3

by Lisa Collins | April 7, 2014

Wills Estate Succession Act (WESA)Last week I wrote about some of the significant changes that have been made to wills legislation in BC, with the enactment of the Wills, Estates and Succession Act (WESA) on March 31, 2014.  Here are some other important aspects of WESA you should be aware of:

Survivorship Rules
One of the significant changes in survivorship is that instead of arbitrarily presuming the younger person survives the older in the case of simultaneous deaths, each person will now be considered to have survived the other for the purpose of determining rights to property.  This means that the wills will need to set out who would be the alternative beneficiaries in that case.

Also, when dealing with a joint property or account, it is treated as if it were held by tenants in common if there are simultaneous deaths of the joint owners.  Thus, each of their estates will include their interest in the property or account, to be distributed to their own beneficiaries.  The legislation does contemplate the ability to provide otherwise in the Will or other instrument.  Another notable change is that if a person fails to survive a deceased person by five days, they are deemed to have died before the deceased person.  This time can be extended by the will-maker, but not shortened.   Thus if the person dies within 5 days of the will-maker, the bequest will instead go to the alternate beneficiaries.

Probate and Multiple Wills
WESA also brings into effect a new set of probate rules, resulting in significant changes to procedures and forms. One available option is to use two wills at once, which can help you to maintain privacy of assets, ease administration, and avoid probate fees on assets that do not require probate to transfer. Under this strategy, one Will deals with property that requires probate to transfer (such as real estate), and the other Will deals with the property that does not require probate (such as private company shares). My best advice would be to name different representatives for each of the two wills.

Wills Variation
The only change WESA made with respect to wills variation legislation is a recommendation in the BC Law Institute Report: If a will-maker does not make adequate provision for the proper maintenance and support of their spouse or children, the court can still order a provision to be made out of the estate that it believes is adequate and equitable. The multiple Will strategy must be considered in light of this, since the right to make a wills variation claim runs from the time the will is probated; if probate is not obtained, the limitation period may never expire.

Stay tuned for the next post in this series, where we will highlight the changes relating to gifts and loans and the new framework for beneficiary plan designations. As always, if you have any thoughts on these new provisions, please leave me a comment below.