Rick Gendemann, Manning Elliot - Estate Tax Planning

1. Estate Tax
Planning
Presented by:
Rick Gendemann, CA
September 15, 2010

2. ESTATE TAX PLANNING
• Goals and Objectives to Estate Planning
• Overview of Taxation Issues on Death
• Tax Planning Strategies for:
• Tax minimization on death
• Structuring your estate for your beneficiaries

3. ESTATE TAX PLANNING
• Goals and Objectives to Estate Planning
• Peace of Mind
• Organization of Financial Affairs
• Structured Plan for Wealth Preservation
• Effective Transition of Your Estate to Your
Beneficiaries
• Tax Minimization
• Probate Fee Minimization

4. ESTATE TAX PLANNING
• Estate Planning for Your Family
Structuring your financial affairs to:
• Minimize taxes on death
• Maximize wealth preservation for your beneficiaries
• Planned asset/wealth transfer to beneficiaries

5. ESTATE TAX PLANNING
• Review of Tax Issues on Death
• Current regime of estate/death taxes
• Deemed disposition of assets at fair market value
• Options to defer effect of deemed dispositions
• Transfer of assets to spouse
• Transfer of assets to a spousal trust
• Transfers to family trust or family holding company

6. ESTATE TAX PLANNING
• Deemed Dispositions of Assets on Death
• Generally all assets deemed sold at market value of
assets at that time
• Will trigger capital gains on property which has
appreciated in value
• Income taxes payable on net capital gains realized
• Option to defer capital gains where assets are
transferred to spouse or trust established for sole benefit
of spouse

7. ESTATE TAX PLANNING
• Planning Strategies for Tax Minimization
Consider careful structuring of Will to utilize
spouse and spousal trust tax deferred rollovers to:
• Defer capital gains until death of surviving spouse
• Defer deemed collapse of deferred income plans
(RRSP’s and RRIF’s)
• Caution, specific rules must be met for spousal trust
to qualify for tax deferral

8. ESTATE TAX PLANNING
• Planning Strategies for Tax Minimization
Planned Giving ( donations in year of death)
• May claim donations to reduce 100% of net income in
year of death
• Excess donations not claimed on final tax return may be
carried back to prior year to recover taxes

9. ESTATE TAX PLANNING
• Planning Strategies for Tax Minimization
Donations created through provisions of a Will
• Care must be taken to ensure Will is specific to ensure
donation credit is available on final tax return

10. ESTATE TAX PLANNING
• Planning Strategies for Tax Minimization
Effective tax planning for trusts created by the
deceased’s Will (Testamentary Trust)
• Create spousal trust for benefit of spouse
• Provide income for spouse during lifetime
• Preserve capital for children
• Create multiple trusts to split income & save taxes
• Utilization of marginal tax rates to save taxes

11. ESTATE TAX PLANNING
• Structuring your financial affairs to:
• Avoid payment of probate on death (1.4% of
Estate)
• Avoid public disclosure of deceased’s assets
• Planned asset/wealth transfer to beneficiaries
without potential for Will’s variation challenges
• Substitute for power of attorney (representation
agreement)

12. ESTATE TAX PLANNING
• Planning to Minimize Probate Fees
• Two available types of Inter Vivos Trusts:
» Alter Ego Trust
» Joint Partner Trust

13. ESTATE TAX PLANNING
• Alter Ego and Joint Partner Trusts
• Conditions for use:
• Taxpayer (settlor of trust) must be 65
• Taxpayer (and/or spouse) entitled to receive trust
income during lifetime
• No other person entitled to income or capital until
death of taxpayer (and spouse)

14. ESTATE TAX PLANNING
• Advantages of Structuring and Using Alter
Ego and Joint Partner Trusts
• Avoid provincial probate fees
• Family asset protection
• Assets held in trust offers protection from creditor claims
versus assets held personally
• Avoidance of potential Will’s variation action
• Confidentiality
• no public disclosure as in the case of probate application

15. ESTATE TAX PLANNING
• Advantages of Structuring and Using Alter
Ego and Joint Partner Trusts
• Administrative ease
• Ownership of assets can be centralized
• Transfer of assets less complex
• Trustee can distribute assets with out court approval or
probate application
• Management of trust property will continue seamlessly
until distributed

16. ESTATE TAX PLANNING
• Advantages of Structuring and Using Alter Ego and
Joint Partner Trusts
• Alternative to Power of Attorney
• Allows greater flexibility for incapacity planning
• Terms of the trust can be tailored to meet the specific needs
of the client
• Third parties recognize trustee relationship (particularly if
there are assets held in multiple jurisdictions)
• Avoids possible multiple Powers of Attorney for assets held
in multiple jurisdictions

17. ESTATE TAX PLANNING
• Disadvantages of Structuring and Using Alter Ego
and Joint Partner Trusts
• Cost to implement and administer plus added
complexity
• Required to file annual tax returns, etc.
• Loss of access to capital gains exemption claim
• Testamentary spouse trust could have provided for this
• Loss of low tax bracket planning otherwise available
with testamentary trusts created through a Will

18. ESTATE TAX PLANNING
• Disadvantages of Structuring and Using Alter
Ego and Joint Partner Trusts
• Loss of tax deferred intergenerational transfers
• No tax deferred rollover otherwise available for qualified
farm property or shares of qualified farm corporation
• Post mortem planning where shares of companies
involved may be adversely affected
• May create future double tax on appreciated value of assets
in company if assets sold by company

19. ESTATE TAX PLANNING
• Disadvantages of Structuring and Using Alter
Ego and Joint Partner Trusts
• Principal residence designation issues
• May cause multiple loss of residence exemption for all
beneficiaries
• Charitable donation planning
• No ability to carry back excess donation credits

20. ESTATE TAX PLANNING
• Freezing the Value of Your Estate
Locking in today’s value of investments
• Fix the capital gain to be realized on death
• Provide sufficient capital for retirement
• Allow for growth of investments to accrue to
beneficiaries of your Estate

21. ESTATE TAX PLANNING
• Freezing the Value of Your Estate
• Transfer your investments to a family holding company
or a family trust
• Allows for continued control over assets during your
lifetime
• Ability to draw down capital in a structured manner
• Can plan for tax effect each year of draw down
• Provides capital growth for beneficiaries

22. ESTATE TAX PLANNING
• Freezing the Value of Your Estate
Summary of Advantages
• Freezes amount of taxes payable on death
• Provides for growth in asset value to accrue for the
benefit of beneficiaries ( Wealth Preservation )
• Provides structured retirement income planning
• Maintain control over assets during lifetime
• Potential to defer taxes on asset growth to next
generation

23. ESTATE TAX PLANNING
• Closing Thoughts and Comments
• Estate planning is on ongoing process
• To achieve your family goals and objectives requires
you to create a plan of attack
• Planning process needs to be monitored and evaluated
to ensure your goals and objectives continue to be met

24. ESTATE TAX PLANNING
Open forum for Discussion and Comments