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Oct 14, 2020

A Wrap Up of Our Estate Planning Alerts

At this difficult time, with all of us isolated for so long and the constant threat of contracting COVID-19 ever present, the members of the Aird & Berlis Estates and Trusts Group are contacted daily by existing clients, as well as new ones.

Many people are soberly reflecting on their own circumstances. Fearful of being exposed to infection, illness and, from the statistics forced upon us daily, death, there is a great deal of internalizing about what would happen to their family if they were stricken.

We are sure that many of our readers will want to ensure their planning is up-to-date. For our readers who are advisors, it is important to ensure that your clients’ planning is also up-to-date. To that end, we have produced a weekly series of Alerts which will provide basic information in response to questions we are frequently asked.

Last week we looked at what if you or any of your beneficiaries have U.S. “Connections”. 

This week, we provide:


For the past few weeks, we have outlined some unfortunate results that may occur if you fail to address and carry out appropriate estate planning.

In the final Alert of this series, we (a) address two specific possible pitfalls, (b) make a suggestion and (c) re-emphasize some problems that may result if there is a failure to plan properly.

First - Joint Ownership

We frequently hear that a “friend” of a client has advised the client that some assets should be placed/registered in the joint names of the client and, say, an adult child. “On your death,” said the friend, “you will avoid ‘probate tax’ because, automatically, anything that is owned in joint names goes to the surviving owner and it doesn’t form part of your Estate.

That is, indeed, the law.

But, only part of it.

To start with, the friend forgot, or did not know, that the placing of that asset in the joint names, with the intention of creating a real gift to a child, could result in exposure to income tax. If there has been any gain in value of that asset from the time it was originally acquired, the client will be subject to a capital gains tax on one half of that increase in value, unless the asset was the “principal residence” of the client. (There is no tax on the transfer of an interest in a “principal residence”).

Secondly, the friend did not realize that if the only reason for the transfer was to reduce “probate tax” and there was no real intention to create a gift, then upon probate of the will, the value of the whole interest in the property will still be regarded as belonging to the client and will be subject to “probate tax”. This is because, if that was the only reason, legally, the whole of the property is still owned by the client. The share in the property held by the child is being held “in trust” for the client. Probate tax is calculated on the value of all assets owned by the deceased, and that includes assets that are held “in trust” for the deceased.

In addition, if the deceased has other children, the potential for conflict, court costs and legal fees required to resolve that conflict far outweigh any possible probate tax savings!

The conflict?

If, in fact, all the client did was transfer the property into the joint names of the parent and that child, the other children may well ask if it was the intention of the parent that, on death, the whole property would belong to the child who was added to the title or, as discussed above, was it merely intended that probate tax be avoided and the whole property really still belonged to the parent? Those other children are most likely to take the position that the transfer was only a matter of convenience, that the whole of the property really belonged to the parent and that they should share in the property. The child, whose name is now on the title, is likely to claim that the whole property belongs to that child. Cases such as that are legion! There are not just costs involved, but permanent destruction of relationships.

Secondly - Cottages

How wonderful to conjure up delightful days and nights, holidays, peace and quiet, the lapping water and the canoe. So many families love the time spent away from the city, from the concrete, from counting the hours, from having to wear “business attire” and being able to let the dog run loose. And the memories! Children free to race around, splash, get gorgeously tanned (with SPF 60, of course!). And how they grow to love it!

But wait! The kids are now grown and have families themselves. There aren’t enough bedrooms, so – even with the extension you built – the families have to take turns going there and they have only their allotted time.

What is going to happen when the parents aren’t around anymore?

Should the cottage property be left equally to the kids and they’ll work out the details about usage and funding? Or will they? Daughter number 1 thinks the furniture should be changed, but the others don’t want to spend the money. Son Number 1 planned to take his holiday with his family the week of July 14, but Daughter Number 2 has only that week off from work and wants to go up then. Daughter-in-law 3 no longer gets on with Daughter 2...and so it goes on!

Unless you have a very unusual family and you have built large enough extensions, leaving the cottage to them all may be lighting a fuse for the biggest family explosion imaginable. And, clearly, there is no way that it dare be left to only one of them.

Many prudent parents – even recognizing what the cottage means to “the family” – decree in their wills that the cottage must be sold. If the children, indeed, love “the country”, they will have to make their own arrangements to buy or rent. That is better than a family breakdown.

Planning requires that right from the time when the children are first able to understand what their parents want to avoid, preparing the family for what will happen to the cottage is absolutely essential.

Thirdly – A Suggestion

Your funeral.

Families are, naturally, under great stress when a death occurs.

It’s not the best of times to make decisions. Yet, there is at least one decision that has to be made – the funeral arrangements!

The deceased may very well have purchased a burial plot and an adjacent one for the spouse.

However, all too often, at the time of mourning, the family is burdened with making decisions about the funeral. Is that fair? Is it necessary? Will all the family agree on the arrangements?

Nearly every funeral home has a program whereby one can prearrange one’s funeral, down to the last detail. If one is to be buried, rather than cremated, one can select the type of coffin. (It is likely to be less ornate than your family may, at the time of mourning, feel that they are obliged to provide – and less expensive!) If it is to be a cremation, one can choose everything in relation to that. You can stipulate the kind of service you desire and all of the details surrounding it, from where it is to be held, down to the number of limousines required by the family to take them to the cemetery and then home, and even if a police officer is to be engaged to assist the procession to go, unimpeded, through red traffic lights!

All of this can be pre-paid through arrangements made with the funeral home and an insurance company, which, together, already have a program that provides for a pre-paid annuity, the proceeds of which will be used by the funeral home to carry out the agreed process. There may even be some refund, depending on rates!

Lastly - To restate the “essential” of what has been said in this series:

Without proper and up-to-date planning, quite simply:

  • Your real wishes will likely be frustrated
  • Your family may very well be left with less than it should have had
  • Members of your family may argue about what they expected, but did not receive
  • The schisms may be irreparable
  • The problems arising may well be very costly and time consuming

So, plan, plan, plan!!!!!!!

In the meantime, if you have any questions that you would like us to address in future issues, please contact a member of our Estates & Trusts Group.

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