Listen to Estate Planning in Uncertain Economic Times
This week on Hull on Estates David Smith and Sarah Hyndman Fitzpatrick talk about estate planning in uncertain economic times. They discuss how the current economic situation has impacted estate planning and litigation and new tools (such as the "Tax Free Savings Account") to consider in creating you estate plan.
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Estate Planning in Uncertain Economic Times - Episode #148
Posted on February 5th, 2009 by Hull & Hull LLP
David Smith: Hi and welcome to Hull on Estates. You’re listening to episode #148 on Tuesday, February 3rd, 2009.
Welcome to Hull on Estates, a series of podcasts for the Canadian legal community dealing with issues and insights surrounding estate planning in Canada. Hosted by the lawyers of Hull & Hull, the podcast will touch on some key considerations when planning estates and wills. Now, here are today’s hosts.
David Smith: Hi, I’m David Smith and welcome to another episode of Hull on Estates.
Sarah Fitzpatrick: And I’m Sarah Fitzpatrick. If you want to be heard on Hull on Estates, you can participate by leaving us a comment, you can e-mail us at hull.lawyers@gmail.com or you can visit our blog at estatelaw.hullandhull.com.
David Smith: Good afternoon Sarah.
Sarah Fitzpatrick: How are you today?
David Smith: I’m good Sarah. And you know, it’s great to have this opportunity to podcast. And we were talking about what we could podcast about and regrettably top of mind for everybody is the economy.
Sarah Fitzpatrick: Absolutely.
David Smith: And so we thought maybe it would be a good time to revisit estate planning in general, especially in this kind of climate.
Sarah Fitzpatrick: Absolutely. Certainly these fragile economic times lead everyone to think about their estate plans, perhaps what they’ve done right, what they could reconsider and it’s a good time just to make sure that your house is in order and your estate planning is up-to-date and current.
David Smith: Right and I guess, you know, top of mind is keeping fees to a minimum and trying to save tax expense. And so, you know, that always makes us think about general probate avoidance techniques such as beneficiary designations and joint account holdings. But of course, we’ve got this new tax-free savings account as well.
Sarah Fitzpatrick: Right, these new tax-free savings accounts, also dubbed the TFSAs are really a new tool in our estate planning tool kit.
David Smith: Yeah, could you tell me a little bit about them, Sarah, because I’d read a bit about them in the media but I don’t really have a handle on them.
Sarah Fitzpatrick: Right, well it was introduced by the federal government in early January and basically it’s a mechanism whereby individuals can contribute a certain amount into savings accounts and they can…the income that is generated on that is not subject to tax. And unlike an RRSP, you can actually withdraw those amounts as well and the income when you withdraw it is not subject to tax as well.
David Smith: So a little more flexible then.
Sarah Fitzpatrick: It’s absolutely more flexible. It certainly doesn’t replace the estate planning tool of an RRSP but I would say it’s a helpful adjunct to the RRSP.
David Smith: Okay, I think the number I see bandied about is $5,000, is that right?
Sarah Fitzpatrick: Its $5,000 right now which many are considering one of the detriments to the scheme because it’s sort of a low contribution limit. I’ve heard that that’s supposed to be raised by $500 a year as well. So its $5,000 for the year.
David Smith: Right, and I mean, I guess my initial impression when I heard about these were, you know, gosh the income you’re going to earn on that much money invested is not a heck of a lot of money so you know, I’m not sure that I’m sold on this being a huge tax savings. But I guess it adds up.
Sarah Fitzpatrick: It does and again, when I said before that it can be used in conjunction with an RRSP, one advantage to it, unlike the RRSP, is actually there is no time limit where you need to wind it up or convert it into another investment vehicle. There’s actually no time limit at all…
David Smith: You’re referring to the age of 69 or 70?
Sarah Fitzpatrick: That’s correct, and rolling it over into your RIF as opposed to your RRSP. That time limit doesn’t apply in this case. So that can be very helpful. And obviously if you’re looking at long-term savings, $5,000 a year, with the increase of $500 every year, that can amount to some very considerable savings on your income.
David Smith: And that would be particularly useful for seniors, I guess, who are approaching the age when they would otherwise have to convert the RRSP.
Sarah Fitzpatrick: Absolutely. Yeah. So once again, just yet another estate planning tool to consider. We still don’t seem to have an answer on whether or not the proceeds would fall inside or outside of your estate and be subject to probate tax. I note that you were discussing you know obviously one of the objectives when we are estate planning, is to make sure you have as much out of the pot, so to speak, as you can, to avoid those probate fees. So I think it’s yet to be seen whether or not the proceeds from the TFSAs are actually exempt from probate taxes but you can in fact designate a beneficiary on the plan.
David Smith: Right, I know that one of our associates, Diane Vieira…
Sarah Fitzpatrick: She recently blogged on this.
David Smith: Recently blogged on this, right. So I guess for our listeners, if you go onto the website and type in “TFSA” in the search box, you’ll be able to find Diane’s blog. It was about 3 weeks ago and it touches on this very issue.
Sarah Fitzpatrick: That’s right.
David Smith: So I guess that kind of covers TFSAs. I mean, something to think about and as always, estate plans are impacted by any new investment tool that the government comes up with. Is there anything else we should think about, Sarah, in view of the economy in terms of advising our listeners what to give some consideration to?
Sarah Fitzpatrick: Well I think you know we have really scenarios where you’ve got your individual who’s got a very basic estate plan and you would think that in this type of economy, individuals might be less inclined to come and make sure your estate plan is in order and get your Wills up to date, basically due to the cost. I’m finding that there’s actually been a surge in sort of the very basic individual who’s got the basic estate plan, coming in to make sure that they have sort of all their ducks in line and it’s been very busy with people, I think wanting just not to leave anything to chance. They’ve perhaps been exposed to risks over the last few months and looking just to shore everything up and make sure everything is in order. And then you have the situation where you might have somebody with a more complex estate plan and in those situations as well, again it’s a good time just to make sure that all your documents are in order. You may have assets that may be depleted, they may no longer even exist. You may have sold property that you’ve referred to in a Will. There may be income splitting trust arrangements that may be beneficial to consider. You may have drafted a trust based on perhaps capital gains issues and that issue may have changed now with the economy, given lower property values and so forth. So there’s all kinds of issues.
David Smith: Lots of things to consider, for sure, and certainly you know our listeners may not know this but you’re more of a planning-bent; I’m more of a litigation-bent and in my practice, one thing that comes to mind for sure is the prudent investment of estate assets because of course with the downturn, you know, everybody - no matter how conservatively invested - is going to be losing something. And so consideration has to be given to reviewing your portfolios and that presumably is going to be a consideration top of mind for estate trustees who have that fiduciary duty to trustees. But also to people planning their estates and giving consideration to how to save taxes appropriately and all of these factors, you know, losses, what have you, can be factored into the estate plan.
Sarah Fitzpatrick: That’s right.
David Smith: Alright, so you know, useful to consider all of this. Something else that we…the general approach that we often consider when we’re talking about estate planning is this whole idea of probate avoidance techniques, I guess, I use it as a sort of general term because I run into it quite often in my practice. What are you seeing as trends in that in terms of the planning side?
Sarah Fitzpatrick: I’d say obviously you’ve got your obvious ones, you’ve got your life insurance, making sure that you’ve got your life insurance in place because that obviously falls outside the scope of your estate and is not subject to probate tax. We’ve got your RRSPs as well. Those are really the critical ones. And I think people with a very basic estate plan are most likely to employ.
David Smith: Right and I guess the joint account issue is always top of mind for me in litigation because I so often see what goes wrong if it’s not properly papered. And so of course if the intention is to gift that asset by right of survivorship and if it’s a scenario where but for some evidence that that’s the intention, the presumption of resulting trust would apply, its probably a good idea to document some kind of arrangement or agreement between the recipients as to how that asset is going to be treated.
Sarah Fitzpatrick: That’s right. And as many of you are probably aware, we have had, you know, in the last year I guess it’s almost two years ago now, we’ve had the Supreme Court of Canada decisions in this regard. So absolutely making sure…I think the bottom line is making sure that your intentions are very clear whether or not it’s a resulting trust or not. But just making sure that everything is documented.
David Smith: Right. Do you think, I see we’re getting near the end of our podcast here but in terms of wrapping it up, Sarah, is there anything we haven’t touched on that listeners can give some thought to, just having consideration to the market conditions and the general economic downturn, in terms of prudent estate planning, that comes to mind that we haven’t touched on?
Sarah Fitzpatrick: Yeah, I think the bottom line David is just that this is, you know, a very uncertain economic time and people just want to make sure that everything is in order. That your documents that you have are the proper documents, they’re complete and that you’ve really covered off all your bases, and that your estate planning prudently.
David Smith: Right and on that whole idea of being prudent, I guess some thought has to be given to fundamentally the most important aspect of a good estate plan is that it reduces the likelihood of litigation which obviously, its in the minority, but those estates that are subject to litigation have to suffer you know the considerable added expense of legal fees that everyone ought to avoid. And so when clients meet with you to talk about an estate plan, the whole idea is to create a situation where the likelihood of litigation is reduced because of prudent estate planning.
Sarah Fitzpatrick: That’s correct and I don’t know whether we’ve seen this trickle down effect yet but perhaps it remains to be seen whether, in light of the economy over the past year, we’ve got more litigation.
David Smith: Yeah, its going to be an interesting question, isn’t it? Because the lawyers who act in litigation files are going to be less inclined presumably to ask for significant retainers, knowing that their clients may not be in a position to fund them. On the other hand, I think you may well see a drive towards people looking to estates as possible sources of relief from a situation where they are suffering from not having significant assets. Not to say that that will sort of feed into a huge cottage industry of frivolous litigation but people who might not otherwise give consideration to litigation may now be forced to consider whether they want to join in on a claim or what have you.
Sarah Fitzpatrick: That’s right.
David Smith: Simply because the market forces are such that they may feel that this is a necessity. So it could well drive the demands. I think it may also drive a lot of the cases to settle earlier too, because people just won’t have the belly or the wherewithal to stick it out to go to a trial.
Sarah Fitzpatrick: Right.
David Smith: So from the litigation side, it will be interesting as well to see how this happens. I mean obviously our best wish for everybody is that the economy you know experiences an upturn because nobody wants to be seen to be benefiting from a downturn. I think the bigger concern for everybody out there is just that we’re through this period sooner rather than later.
Sarah Fitzpatrick: Absolutely.
David Smith: So it was really helpful, I think Sarah, sort of revisiting the estate planning side of this and touching briefly on the litigation.
Sarah Fitzpatrick: Great, it was great podcasting with you David.
David Smith: Well, I’m just, you know, have this big decision now whether to contribute to a TFSA or an RRSP.
Sarah Fitzpatrick: I think the answer is both.
David Smith: Yeah, I just need the money.
Sarah Fitzpatrick: Great.
David Smith: Okay thank you.
Sarah Fitzpatrick: Thanks David.
This has been Hull on Estates with the lawyers of Hull & Hull. The podcast you have been listening to has been provided as an information service. It is a summary of current legal issues in estates and estate planning. It is not legal advice and you are reminded to always talk with a legal professional regarding your specific circumstances.
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