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WHO does WHAT in your Living Will?
Each of these professionals has a number of important roles to play, and here's how they break out:
This is not your bank manager. Your financial advisor acts as the co-ordinator for the other professionals on your team. He or she will help you define and express your legacy goals, provide tax-saving and other strategies aimed at maintaining/maximizing the value of your estate, provide on-going advice about strategic direction, and help facilitate the implementation of your agreed-upon strategies. In short, your financial advisor will make sure your estate plan is complete. And, after your death, he or she may be called upon to meet with your personal representative to help with estate administration.
Usually a lawyer, this professional assists in reviewing your estate goals, drafts all legal documents including your Will and Powers of Attorney (if these are required) and updates these as your circumstances change. Your legal advisor also provides direction on the strategies you've selected, sets up and may help administer trusts, and because he or she is familiar with your will and desires, he or she may represent your estate should the Will be contested or in any other estate disputes. You can also ask your legal advisor to assist your Personal Representative (also known as an Executor or Liquidator) in carrying out your wishes exactly as you've expressed them.
A professional tax planner will examine your estate goals and advise on the most advantageous tax strategies to help establish strategies for reducing taxes payable during your life and at death. Your tax planner will also provide on-going advice on the tax implications of evolving strategies. Your accountant or bookkeeper is NOT a tax planner.
As an Executor, you must ensure the estate is administered in accordance with the terms of the Will and provincial laws.
That means you'll likely have to deal with lawyers, property appraisers, real estate agents, pension providers, insurance companies, the Canada Customs and Revenue Agency (CCRA) and many others. And while you're not expected to be an expert in all of these areas - and should make it a priority to seek outside assistance as necessary -- the more you know, the more effectively you'll be able to carry out your duties.
You are facing the preparation of the final tax return for the deceased taxpayer.
Property left to the surviving spouse will automatically roll over at cost (or qualifying spousal trust) unless you decide otherwise. By reporting the capital gain on the property you can elect to have the transfer occur at fair market value. It may actually be beneficial to trigger a capital gain in this way if the deceased:
Capital losses. If a capital loss occurs in the first year of an estate, it can be carried back against any capital gains on the final return. Capital losses carried forward from the years preceding death can be used against any type of income on the final return or, if beneficial, carried back to the year immediately preceding death.
Charitable bequests. These can be claimed as a tax credit on the final return or carried back one year. Leaving an RRSP, a RRIF, or a life insurance policy to a Charity is considered to be a charitable gift. There are no limits on the amount of charitable bequests that can be claimed as a tax credit on the deceased's final return.
Rights and things. You can file a rights and things return to report income earned but not received at death. This can result in the deceased person's income being taxed at a lower marginal rate.
RRSP beneficiary. If the spouse is either the beneficiary of the RRSP, or, if the estate is the beneficiary of the RRSP and the surviving spouse is a beneficiary of the estate, as the executor, you have the ability to elect how much of the RRSP is taxed to the deceased and how much can be rolled over, on a tax deferred basis, to the surviving spouse. This may result in an overall lower tax bill - especially if the deceased died early in the year. Tax advice is important when making this decision.
Disposition of a home and vacation property. If these properties are deemed to be disposed of on death, you have a choice about which to use as the principal residence exemption. As a general rule, you will want to assign the exemption to the property with the largest capital gain.
Because an Executor's duties encompass so many tasks and take so much time - it generally takes about a year to settle even a simple estate and much longer for an estate that includes a trust - it's a good idea to include a tax accountant and professional financial advisor on your team of experts who can help you successfully carry out your duties.
This page is part of the GayFinance series.