| Transferring Assets Outside Your Estate |
|
|
|
Learn some ways to transfer assets outside your estate in this short article.
In order to avoid some of the problems with transferring property by a will which were discussed in other articles, a property owner may wish to transfer his or her property to the intended beneficiaries outside of his or her estate. Some of the devices which may be useful to accomplish this are: gifts, inter vivos trusts (living trusts), corporate structures, joint tenancy, life insurance and pension plans. The following discussion should illuminate some of the possibilities. This area of the law is complex and you will need to contact a lawyer if you would like to explore your options. Some Basic Estate Planning Tools 1. Joint Tenancy Where a property owner wishes to leave property outright to another individual (e.g. a spouse), one of the simplest ways to transfer the property at death is to hold the ownership of the property in joint tenancy during the couple's lifetimes. This way, when either partner dies, the ownership of the property immediately "flips over" entirely to the other joint owner. The property does not form part of the deceased's estate and there is no expense or delay associated with probate in the administration of the property. Joint tenancy is most often associated with the ownership of real property. However, joint tenancy is not restricted to real property. Personal property such as company shares or cars may also be held in joint tenancy. Nevertheless, it should be pointed out that a property owner may wish to consider and make alternative provisions for the possibility that his/her joint owner may predecease him/her or that they may die at the same time. 2. Life Insurance Life insurance can be a useful tool in estate planning. It can serve a number of purposes and in most provinces with the proper beneficiary designation, the proceeds will not form a part of the deceased's estate. Note that these beneficiary designations should be reviewed frequently as people often forget to change the beneficiaries under these types of plans if they get divorced or separated with disastrous consequences (e.g. huge death benefits going to an estranged spouse who the policy holder hasn't spoken to for the last decade). 3. Retirement Plans a) Introduction Pension Plans that incorporate an element of tax deferral are a good way to accumulate funds that will eventually produce an income after retirement. For some people, they may end up being the primary method of accumulating wealth in the absence of other inheritable property. In most provinces, with the proper beneficiary designation, the proceeds will not form a part of the deceased's estate This part does not intend to deal in any detail with the various types of pension plans. However, it should be noted that the adequacy of the benefits of such a plan might be reviewed when considering an overall estate plan. The beneficiary designations regarding death benefits from pension plans should also be reviewed periodically to make sure that the contributor's personal circumstances (e.g. marriage, divorce) have not changed so as to require a change in the designation. People often forget to change the beneficiaries under these types of plans with disastrous consequences (as noted above). b) Pension Benefits Laws In most provinces, pension benefits laws limit the ability of a plan participant to designate a beneficiary for death benefits under a pension plan to which the law applies. If the plan is covered by the law, then the participant's death benefit designation will have no effect if the participant has a surviving spouse as defined by the law. The surviving spouse will be entitled to the entire death benefit regardless of who the designated beneficiary is. The term "surviving spouse" is not limited to spouses by marriage. In most provinces, it also includes (if there is no spouse by marriage) common law spouses. It is not impossible to have more than one spouse under the definitions! In addition, you should be aware that the laws usually require that retiring plan members with spouses must take their pensions in the form of a joint life annuity with their spouse (a joint life annuity means that the pension payments must continue to the surviving spouse if the plan member dies first). 4. Gifts Gifts completed prior to death will avoid the probate process and will not be included in your estate. However, the making of a gift will trigger any applicable capital gains tax for the donor (giver) of the gift. 5. Living Trusts Trusts are dealt with in a separate FAQ page. |
