AFP Chapter 8- Estate Planning

Question 1

What is the: 
Survival Clause
Investment Discretion Clause
Discretionary Encroachment Clause
Life Interest in a Specific Asset
Guardian Appointment Clause 

AFP 8/FP2(6)

Answer 1

Survival Clause: Beneficiary must survive the deceased by a minimum of usually 30 days. If the beneficiary dies within these 30 days they would not be entitled to anything
–> do this to avoid double probate

Investment Discretion Clause: Permits the executor to make wider investment decisions

Discretionary Encroachment Clause: allows the executor to use assets for the benefit of minor beneficiaries as they deem fit

Life Interest in a Specific Asset: Deceased wants to leave surviving spouse a life interest in a specific asset but not the asset itself

Guardian Appointment Clause: appoints a family member or friend the guardian if the children are minor

Question 2

What are:
Tax Election Clause
Family Law Consideration
Transfer of Registered Assets

AFP 8/ FP 2(6)

Answer 2

Tax Election Clause: allows the executor to make various income tax elections for the estate were appropriate or advantageous

Family Law Considerations: family law should be considered when drafting a will

Transfer of Registered Assets: special cases to make advantage of tax opportunities such as tax deferred rollover of RRSP to a surviving spouse

Question 3

How do you avoid probate using...
Strategy 1: Inter-Vivos Gifts
Strategy 2: Trusts
Strategy 3: Naming Beneficiaries
Strategy 4: Assets with right of survivorship

AFP 8/ FP 2 (6)

Answer 3

Strategy 1: Inter-vivos trust
- estate value can be reduced by transferring ownership by gifts. Once assets are gifted , testator no longer has ownership

Strategy 2: Trusts

• testator can still maintain some control, but there are capital gains when a gift is given
• -> to avoid this you can use an ‘alter ego trust’ or ‘joint partner trust’
• disadvantages: loss of control/flexibility, taxes payable, expensive admin costs

Strategy 3: Naming Beneficiaries
-certain life insurance policies and RRSP allow the naming of beneficiary
Asserts can pass directly without paying probate

Strategy 4: Owning assets jointly with right of survivorship
-certain property like the house can be registered like this

Question 4

How do you avoid probate using…
Strategy 5: Provincial variations
Strategy 6: Multiple wills
Strategy 7: Converting debt to secured or corporate debt

AFP 8/ FP 2 (6)

Answer 4

Strategy 5: Provincial Variations
- simple but impractical is moving to a province with lower probate fees–> ppl who do this is called “jurisdiction shopping”

Strategy 6: Multiple Wills

• assets in province with lower probate fees in a separate will
• assets not subject to probate can be bequeathed under another will

Strategy 7: Converting Personal Debt into Secured/ Corporate Debt
- if debt is held in the form of secured line of credit or secured by real estate it is the legal equivalent of a second mortgage and can be deducted for the purposes of probate

Question 5

What are the 4 Separate Tax Returns at Death

AFP 8/ FP2 (6)

Answer 5

Rights or Things
Testamentary Trust
Business Enterprise
Personal Tax Return

Returns To Be Prepared

Question 6

What are the 4 Primary Duty on the Trustee

AFP 8

Answer 6

1. Conflict of Interest
2. Standard of Care
3. Delegation by Trustee
4. Maintaining an even hand (impartiality)

Question 7

What are the 2 options when it comes to the taxation of trusts?

AFP 8

Answer 7

1. Deduction
   - pay out the income to the beneficiaries. This amount can be deducted from the trust income, so the trust does not have to pay tax on it
2. Designate Trust Income
   - designate the trust to pay the applicable tax by not paying out the income to the beneficiaries in the given tax year

Question 8

What reserves cannot be deducted on the deceased final tax return

AFP 8

Answer 8

• amounts to be received from property sold in the course of business
• amounts to be received on the sale of capital property
• amounts to be received on the sale of Canadian or foreign resource property

Question 9

What are the 2 general rules that apply to the disposition of capital property when a tax payer has died?

AFP 8

Answer 9

1. Capital property is deemed to have been sold at the fair market value just before the deceased death. Any gain will be taxed on their final income tax
2. This causes unrealized capital gains to become realized gains and taxes must be paid