Future Planning

PooranLaw advises client with the structuring of their estate and financial affairs.  Our comprehensive knowledge of estate planning vehicles assists individuals and their families prepare for secure futures.  Specifically, we can help you prepare the following processes and documents which ensure your wishes are respected and the needs of your family members are met.

Estate Planning

Estate planning is a difficult subject to discuss because it forces us to come to terms with our own mortality and to face concerns about what will happen to our life’s work, our property and most importantly, our loved ones, when we are gone.  However, it is something that needs to be considered and steps needs to be taken now to ensure your wishes are respected. 

Estate planning is a process of considering your long term priorities and objectives for your assets (your estate) and your family and loved ones and making arrangements to ensure those priorities and objectives are respected and carried out.  This may include:

  • Preparing a valid Will;
  • Making choices about how you own property (such as joint accounts and joint ownership)
  • Giving gifts or loans during your life time
  • Establishing Trusts, whether now (inter vivos trusts) or on your death (testamentary trusts) that allow for the gradual distribution of gifts to your loved ones, such as a spousal trust, staged trust, or Henson trust.
  • Preparing power of attorney for property and a power of attorney for personal care to ensure your wishes are respected if you become unable to make decisions for yourself
  • Designating beneficiaries under registered plans (such as RRSPs, RRIFs etc.) and life insurance policies
  • Planned gifts to charitable organizations
  • Tax avoidance strategies

Why do I need an Estate Plan?

Without an estate plan your loved ones are in the dark as to your wishes and the government/law makers decide what happens to your assets and who will make decisions for you and your children and loved ones.   

Your loved ones will also be forced to go to court to administer your estate which is an expensive and unnecessary process.

Any assets you own on your death will be divided according to the rules of “Intestacy”.  This may mean that if your spouse is alive he or she may get only a proportion of your estate with the remainder being divided between your children, even if those children are minors.  It may mean that the public guardian and trustee holds property for your children until they are adults at which time they will receive the whole inheritance without any restrictions (which few 18 years olds have the maturity to deal with). 

If you have a child or grandchild with a disability he or she will inherit directly which may mean an interruption or prolonged discontinuance of eligibility for government income support payments.

Your estate may face avoidable tax and probate fees

The Court will appoint a guardian for your minor children. If you and your spouse haven’t made legal provisions for someone to care for your minor children and manage their inheritance, it will be up to the courts to name a guardian. The person named may not be the person you would have nominated for the job.

What is a Will?

A will is a legal document that sets forth your wishes regarding the distribution of your property and the care of any minor children.  In order to be valid a Will needs to meet certain basic requirements in the manner in which it is written and signed or executed.  A Will does not come into effect until your death and can be changed at any time before then so long as you have the mental capacity to sign a Will.

A basic Will generally includes the following:

  1. Appointment of Executors and Trustees
  2. Direction to pay debts
  3. Direction to pay taxes and fees  
  4. RRSP Designation
  5. Gifts of specific items or property 
  6. Gifts of cash legacies  
  7. Distribution of the remainder or “Residue”, including alternative (“common disaster”) distributions
  8. Description of administrative powers
  9. Testimonium and Attestation Clauses  

However, in addition to these fundamentals, clauses related to the following are also a good idea in many cases:

  1. Designation of beneficiaries of registered plans (such as RRSPs and RRIF and provisions for the tax deferred rollover of plan proceeds to an RRSP, RDSP, or Lifetime Benefit Trust of a loved one;
  2. Designation life insurance beneficiaries and the establishment of insurance trusts to ensure avoidance of tax an payment of proceeds in accordance with your wishes (such as through a staged distribution or using discretionary distributions such as those typically found in a Henson Trust.
  3. Henson Trusts for beneficiaries with disabilities
  4. Staged Trusts for minor or young beneficiaries
  5. Spousal Trusts, which may be desirable in the case of second marriages or for creditor avoidance
  6. Gifts to charities
  7. Guardian appointments for minors and statements of support of guardianship applications for an adult child with a disability

Trusts

A trust is a legal arrangement through which assets are legally held by one person or entity (the “Trustee”) for the benefit of another (the “Beneficiary”).  The person who establishes the trust is known as the “Settlor”.  A settlor can be a parent, sibling, relative or friend.

A Trust can be established and take effect while the settlor is alive (an inter vivos trust) or can come into effect on the settlor’s death (a testamentary trust). 

A Trust can be established through a trust agreement/deed or through a Will.

The types of trusts that individuals usually consider when making their estate plan include:

  • Henson Trusts
  • Staged Trusts
  • Spousal Trusts

Henson Trusts

A Henson Trust is also known as an “absolute discretionary trust” and is generally used as a mechanism for transferring the benefit of an inheritance to a person with a disability without affecting that person’s entitlement to government support benefits.   

The word “Henson” refers to the court decision in a case where a testator by the name of Leonard Henson established an absolute discretionary trust for his daughter, Audrey, so that his estate could be left for Audrey’s benefit without affecting her entitlement to Ontario Disability Support Program (ODSP) payments.  When Leonard Henson died the Ministry of Community, Family and Children’s Services (the “Ministry”) found that Audrey had inherited funds that made her ineligible for ODSP.  The Trustees of the trust (specifically the Guelph Association for Community Living) challenged the Ministry in court and the court held in favour of the Henson trust.  This decision wound its way through the appeal courts and was finally upheld by the Supreme Court of Canada in 1989.  Since then “Henson Trusts”, when properly worded, have been routinely used by individuals and families in order to provide long term financial security for individuals with disabilities. 

What makes the Henson Trust effective is its absolute discretionary nature.  Absolute discretion means that the trustees of the trust had the unfettered or uncontrolled right to make decisions about how the trust assets would be paid.  They could give all or a portion of the capital or interest of the trust to the beneficiary, or they could choose to not to give any of it to the beneficiary. For the purposes of ODSP the courts found that the only amounts that mattered were the amounts actually paid by the trustees to the beneficiary or for the beneficiary’s benefit.

Staged Trust

A staged trust is a trust that requires the trustee of the trust to pay the capital of the trust to the beneficiary in stages.  Such trusts are generally used where the beneficiary in question is a minor or is considered by the settlor to be too young or immature to make appropriate choices about how to spend, invest or otherwise use his or her inheritance.  A typical staged trust will give the trustee the authority and discretion to use the income or capital of the trust for the benefit of the beneficiary as needed to pay for their necessities, including tuition for school, a care giver etc., and then sets a schedule for when the capital will be paid out in full.  For instance, many parents do not feel that their child will be mature enough to handle a large sum of money at age 18 and therefore they provide that the child will receive support in amounts determined by the trustee until age 25, and then at age 25 they will receive a lump sum payment of a portion of the capital, followed by another portion of the capital at age 30 and the remainder of the capital at age 35. 

Spousal Trust                                                    

The other type of trust that a settlor may consider establishing is a spousal trust which will hold all, or a portion of the settlor’s estate for the benefit of his or her spouse for as long as the spouse lives, and upon the spouses death will provide the distribution of the assets in the trust to the settlor’s children.

This type of trust is usually used in the context of second marriages where the parties each have children from previous relationships.  The Settlor typically wants to leave something for his/her new spouse but at the same time wants to ensure that when the spouse passes anything that is left in the trust goes to his/her own children rather than his/her step children.

This type of trust is also used where the settlor’s spouse may need to declare bankruptcy in the future for one reason or another.  Whether this is appropriate or even possible is something that must be determined on a case by case basis.

Insurance Trusts

Life insurance proceeds often form a large part of the assets that are available for distribution to heirs upon death.  If a beneficiary of a life insurance policy is designated by name, the proceeds of that policy will not form part of the deceased person’s estate and therefore will not be subject to probate fees.  Questions arise however when the persons named in the policy are minors or have disabilities.  In those cases, in order to avoid the proceeds falling into the estate and being subject to probate fees, and to ensure that the proceeds are paid in a way that is appropriate for the minors or the individual with a disability (bearing in mind the impact on ODSP), an Insurance Trust can be used.   An insurance trust can mimic a Henson Trust, Staged Trust or Spousal Trust in its effect.

What is Probate?     

Probate is the first step in the legal process of administering the estate of a deceased person, resolving all claims and distributing the deceased person’s property under a will. It requires that a person apply for a “Certificate of Appointment as Estate Trustee, which certificate can then be used to by the Estate Trustee as proof that he/she has the legal right and authority to deal with the deceased’s assets.

What are Probate Fees

Also known as Estates Administration Tax, probate fees, are a tax that is paid on the value of a deceased person’s estate. Only certain assets are included in an “estate” for the purposes of probate fees, including real property, cash in bank accounts, chattles such as boats, automobiles, jewellery etc.  Generally property held as “joint tenants” is not included, nor is the proceeds from a life insurance policy or registered plan, so long as such policies or plans have named beneficiaries designated.

Executors

An executor (executrix, if female) is the individual or institution you name in your Will who is responsible for administrating your estate. Your executor will act on your behalf to carry out your wishes as stated in your Will. It is possible to name more than one executor. Co-executors are often appointed when a testator (person making the Will) wants to combine professional estate administration expertise with an individual (e.g., spouse or adult child). Before choosing an executor, it is important to understand their duties and responsibilities, so you can accurately determine if they have the necessary time and skills to look after your affairs.

Legal Decision Making

PooranLaw routinely provides legal advice to client and training to lawyers and other professionals on the issue of consent and capacity.  We have the expertise and the experience to guide our clients through the challenging legal obstacles that exist when it comes to asserting one’s right to decide for themselves, and where necessary, applying for the right to represent a loved one who cannot, for one reason or another, make decisions for themselves, whether it be for their personal care or their property.  Our services include:

  • Preparation of Continuing Powers of Attorney & Powers of Attorney for Personal Care
  • Guardianship Application
  • Representation of persons alleged to be incapable in proceedings before the Consent and Capacity Board