Some Service for their service, estate planning for mixed families
Robert Service penned a few lines in honour of the frontiering gold miners of his 19th-century Yukon. All these years later, and a long way south of his beloved territory, the words ring true to us here in the central interior of B.C. It’s about the wrestle to tame the thing that fascinates us the most – our humongous backyard.
Yet again this summer, so many are fighting bravely to survive a hot dry fire season, living among pitch-stoked matchsticks, while gigantic sparks arc randomly out of the sky all around them. There’s not room for his entire poem here, but I’ve posted a few disjointed excerpts as an ode to the men and women courageously fighting the fires all around us, and the loggers, farmers and ranchers who have carved out a life in this beautiful place.
“Men of the High North, the wild sky is blazing; Ringed all around us the proud peaks are glowing; Honour the High North ever and ever, Whether she crown you, or whether she slay; Suffer her fury, cherish and love her – He who would rule her must learn to obey.”
Like me, Service was a city boy banker whose fascination for the untamed took him north, where he leveraged his education and began writing about the frontier.
Unlike me, he married a young heiress, quit his job and travelled the world to write full-time.
Not long before the Second World War, his pen earned him the disdain of the German Nazi regime. When the Nazis took Paris, they raided his home, looking for the writer who had mocked Hitler. That alone makes him cool.
Service’s wife outlived him by 31 years, but he left her a legacy of poems, novels and even some Hollywood success. By the time his wife passed in 1989, there was also a daughter and grandchildren in the mix, which, although not a blended family, would have made for a substantial estate settlement.
In part three of our examination of estate planning for blended families, we explore a few more tax issues which invariably arise.
As noted earlier you are deemed to have disposed of all of your capital property on your death for fair market value. If you’ve held the assets for a long time, this probably results in a capital gain, which is included in your final tax return. In effect, Canada Revenue Agency has snakily become the biggest, hungriest creditor you never knew you had, having lurked stealthily in a stack of papers in your den.
As with RRSP’s, there is a tax deferral for property left to your spouse or a qualifying spousal trust. Such property is deemed to rollover to your spouse or spousal trust at your adjusted cost base, and any capital gain or loss is deferred until the trust or your spouse disposes of the property.
If you own a life insurance policy, the proceeds payable on your death to your named beneficiary or estate are generally not taxable at all to whomever they are paid.
This is because we usually pay insurance premiums with after-tax money. This is an extremely handy method of evening things it when the beneficiaries in your will have, through the course of time, been plucked from different families to land with you and your current spouse.
Assets passing through your estate on death may be subject to probate taxes. Therefore, you may want to divert the assets to pass outside your estate, by holding the property as joint tenants or naming beneficiaries on registered plans or life insurance policies.
Although probate tax minimization is a perfectly legitimate estate planning goal, you may have competing objectives, (such as not having your money stolen from you by your co-owner’s creditor, suitor or spurned partner). If you own property jointly with the right of survivorship with your spouse, or child or the Zamboni driver, this property will not be subject to probate tax on your death, and will pass outside of your estate directly to your surviving spouse or child.
But (and this is a big but), they will be free to do whatever they choose with this property, including gifting it to their own children or hiring a squadron of Argentinian circus clowns. To protect your children’s inheritance, you may want to keep your assets in sole name, and have them pass through your estate on death into a testamentary trust created under your will. In short, before implementing any probate avoidance strategies, weigh the benefits and risks carefully.
Mark Ryan is an investment advisor with RBC Dominion Securities Inc. (Member – Canadian Investor Protection Fund), and these are his views and not those of RBC Dominion Securities. This article is for information purposes only. Please consult with a professional advisor before taking any action based on information in this article.