Keep your assets in your loved one’s hands

  • November 2, 2013

TORONTO - Having a financial plan in place before you die will help keep the tax man’s hands off your assets.

“You want to ensure there is an orderly transition of assets on death and you want to make sure that it is done in a tax-efficient way to maximize the amount of money that will continue on in your family to the next generation,” said Enzo Morini, a partner and tax specialist with Williams & Partners Chartered Accountants.

“The very first step should be drafting the Will where you identify what your wishes are on how the assets that you own at death will be transferred to and in what amounts and when.”

Morini suggests not rushing into a lawyer’s office with just ideas about your assets. Rather, it is best to first establish a list of your assets. For example, Morini said that with your house, likely your biggest asset, it is ideal to have records of the original purchase, any renovations done along with the current fair market price.

Having such documentation will not only ease the legal process of transferring your assets but it will also help you make the next step.

“The next thing you want to give some thought to is if something were to happen to me who would I like to have these assets go to,” he said. “Not only individuals you may think of but perhaps some charities.”

During this process Morini said one should also determine who will be the executor of your estate.

This leads into the next component: when will these assets transfer hands. Many people have passed along their assets before they have died because doing it before your death might actually get a better bang out of the bucks you’ve invested.

“If you do have assets that are subject to probate and you know that you are comfortable and clear on who you want this asset to go to you may want to transfer this asset before death so to avoid having the provincial courts deal with any of your assets,” said Morini.

“So you may want to consider a timely and staggered transfer of your assets before death so you avoid the administration tax altogether.”

Probate refers to the legal process involved with the provincial courts collecting and legally distributing your assets after you have died. The costs associated come from lawyer and court fees which will likely be at a higher rate than had you completed the process before death, said Morini

Morini suggests transferring your large assets, such as your home, to your spouse first and then redistribute them or the money received from selling them. That’s because your spouse gets a better tax break.

“A common fault would be not transferring assets over to a spouse on death first because the benefit there is when you transfer assets to a spouse on death the transfer occurs at a cost base of those assets,” he said. “If that doesn’t go to a spouse then the deemed disposition happens at fair market value. So having a transfer of cost base helps in deferring the tax more on the ultimate sale of that asset.”

It also buys more time in determining exactly how everything will be distributed fairly and proportionately as it is hard to accurately predict the exact dollar amount your assets will garner.

People might also talk to a lawyer about having more than one Will. By placing items subject to probate in one Will and other items — typically your personal items and wishes — in a second Will, the transfer of assets may be done in a more efficient manner, said Morini. And while those personal items may at a glance appear to have more sentimental value than monetary, it is still important to predetermine their distribution to make your death less taxing on your family.

“You want to avoid your kids fighting over those,” he said. “A lot of the time you’ll find some hidden gems there and they do become items of contention or tension in the family because there may be a bit more of a personal connection.”

Additionally, having a life insurance plan will help to reduce stress on your family as some items, such as your home, may come with an unexpected price tag in the form of taxes.

“You want to make sure that you do have enough life insurance in place just in case,” said Morini.

And once you are done, Morini suggests revisiting your Will every five years to make any revisions or updates. He estimated that this whole process should really only take about 10 hours.

Morini estimates that only about half of people have everything in place before death is upon them.

“People don’t like dealing with the concept of death and keep postponing it and a lot of the times will end up scrambling when they are near death to put something in place,” he said.

“Also a lot of them are unaware of the repercussions of not having a proper Will and what happens after, that is that you are leaving your assets to the administration of a provincial agency.”

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