A key question regarding a testator’s assets and liabilities is obviously whether he or she has sufficient assets, once all liabilities have been paid, to meet his or her obligations and distribute the estate as he or she intends. If there are not sufficient assets to do so, particularly, where young children are involved, it may become apparent that additional insurance should be obtained to ensure that the testator’s spouse and dependents are appropriately provided for.
Another important consideration is whether any of the testator’s assets require special treatment. For example, if there is intellectual property (such as published works) or the testator owns some type of unique collection then it may be necessary to appoint a special trustee for such property. As well, it may be appropriate to deal with such property separately in order to reduce or eliminate taxes payable in relation to administering the estate.
The nature of the testator’s assets should also be considered in order to analyze the tax consequences that will arise as a result of the testator’s death. People are often very concerned about minimizing probate fees payable by the estate but they fail to give adequate consideration to the taxes that will be payable upon death. If a testator owns primarily assets that produce income (i.e., term deposits, bonds, etc.), then taxes payable at death will not be of significant concern because taxes are paid annually on the income earned on such assets. If, however, the testator owns significant capital property (i.e., stocks, real property, etc.) and such capital property has significantly increased in value from the time it was acquired then it is possible that substantial taxes will be payable on account of capital gains at the time of the testator’s death. It is worth noting that a testator’s principal residence is exempt from capital gains and should therefore not factor into the foregoing analysis.
The nature of a testator’s liabilities also bears consideration. Are the liabilities secured or unsecured? Were they incurred for the testator’s own benefit or did the testator guarantee obligations of another? Of critical importance is determining whether a liability is insured or uninsured. The answers to these questions will provide tremendous assistance in determining an appropriate estate plan.
Thanks for reading “The Estates Nutshell” – questions and comments are very welcome at estates@cklegal.ca.