Episode 33 - Comprehensive Strategies for Securing Your Family’s Future with Rose Shawlee
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In this week's episode, Nicole and Greg are joined by Rose Shawlee, a seasoned estate planning expert with 15 years of experience and a shareholder at Boughton Law. The discussion delves into the intricacies of estate planning, focusing on the strategic use of multiple wills, the implications of probate fees, and the challenges of managing estates. Rose shares insights from her professional journey into estate law, elaborating on the benefits and considerations of multiple wills and the legal ramifications of joint asset ownership, especially concerning adult and minor children. The conversation underscores the importance of collaboration among estate planning professionals and examines the impact of recent legislative changes on estate management.
Transcript:
Nicole 00:00:02 Hello and welcome to Your Estate Matters with your hosts, my colleague Greg Brennand and myself, Nicole Garton of Heritage Trust.
Greg 00:00:09 Your Estate Matters is a podcast dedicated to everything estates, including building and preserving your legacy.
Nicole 00:00:16 If it's estate related, we'll be talking about it. We're having the conversations today that will help Canadians protect their families, their assets and their legacies tomorrow.
Greg 00:00:33 With us today on Your Estate Matters is Rose Shawlee, a shareholder with Boughton Law. Rose has 15 years experience assisting families and business with their planning, succession and reorganization, estate and business needs. She strives to make life's inevitabilities death and taxes as daunting a topic for clients, while being alert to complications that these raise from a legal family tax and probate fee and cost perspective. Rose. Thanks for being with us here today. Tell us about yourself and your journey to your current role as a shareholder of Boughton Law.
Rose 00:01:10 It makes it sound like there was an epic odyssey involved, but it like most things in life, it was a case of right place at the right time.
Rose 00:01:16 I've been very fortunate in my career that I've crossed paths with people who have been aligned with both my core values and practice area interests, and it led me to Boughton, where we've got an excellent death and taxes team. And we all believe that the only thing we're really here to do is get the job done well for our clients. That's the gig. So that's all it took to make me happy.
Nicole 00:01:36 So tell me about your current practice and how you got into the estate field.
Rose 00:01:41 More by happenstance than intention. I was convinced I was going to be an IP lawyer. I would have been an absolutely horrendous IP lawyer. And luckily for all the people who night IP service, I did not go into that. And I just happened to cross paths with somebody who was open to letting me dip my toe into those waters and I found my true passion. I appreciate that death and taxes does not always warm the cockles of everybody's heart, but I find it very rewarding. We get to help people with actual solutions.
Rose 00:02:08 People are there because they want to be there. They see a benefit to creating a plan that meets their desired outcome. It's not, oh my gosh, I've already been sued. I'm going to try and put the horse back in the barn. So it's a really great practice area. And if anybody is listening who wants to get into it, I strongly encourage it. It's fabulous.
Greg 00:02:26 What are some reasons why someone would consider using multiple wills?
Rose 00:02:30 Because they like to pay more legal fees? Oh, one of the traps with multiple wills in making people see it as approachable is it does look a bit like a fee trap. More lawyers selling you more stuff you don't need. It's actually a strategy that can be used for multiple purposes. Basically, we use it to either mitigate probate fees, or we use it to manage the fact that we have assets in multiple jurisdictions. It is not something everybody needs really. I tend to advocate it on the jurisdictional planning side, where clients have assets outside of BC, and in that case, we want to be respectful of the fact that other jurisdictions, whether it's provinces or countries, have their own laws and it's not going to serve our client well in the long run to say we're going to create a global will that somehow is going to function well in Iran or Spain or Brazil.
Rose 00:03:19 They have their own systems and their own rules, and you'll get much better benefit if we bifurcate your plan and do a set of wills dealing exclusively with your British Columbia or Canadian assets, and a separate while dealing with your assets in alignment with the local laws, and sometimes it may not even be a will there. That's the suitable tool when it comes to doing it for probate fee savings. We do love to save our probate fees. In B.C., probate fees are effectively a provincial charge that gets paid to the court in the process of the court issuing a grant of probate, and it's imposed at a rate of 1.4% on the value of the assets at the date of passing that are submitted through the court system. Trying to avoid probate fees can be a bit dodgy, because you can easily engage in tools that are disproportionately costly or complex, and outweigh the 1.4% savings. And that's one of the things that makes multiple wheel planning so incredibly lovely. It is not excessively onerous from a fee perspective. Oftentimes people are doing the same distribution under both wills.
Rose 00:04:19 So creating that second will is not reinventing the wheel. And in order to use it to save probate fees, clients basically benefit from it where they have a class of assets that a third party will allow it to be transferred without the production of a grant of probate. So there are some assets where I could try and stuff them in a will that says, I'm not getting a grant of probate, but it'll be fruitless if I put real estate that's registered to my sole name in a will that says, I'm not going through probate, that's not going to do me any good. The land title office is still going to say, we are not transferring this until you give us a grant of probate. But when we look at something like my couch, there's no wizard of couches who says we will not change the ownership of this until you show us a grant of probate. And that's fundamentally the concept of this secondary. Will most people get the benefit out of it, not just for their personal items, but primarily on shares of private companies? This is not a wholesale solution.
Rose 00:05:16 It is incredibly important that if people are preparing this, they actually look to the terms of any shareholders agreements or other agreements affecting those shares. If you just assume it will work, it can still fail. Some shareholders agreements actually expressly say in them, you shall not transfer these until you give us a grant of probate. So in advance of the planning, know your documents. But assuming that's not a barrier and a client has really anything over $1 million in private company shares or shareholder loans, they're going to start to realize a benefit of $14,000 or more for a relatively modest cost of creating that second will. So it's a cost benefit component, but it's also about having the right type of assets that we can scoot through without having to produce that grant.
Greg 00:05:57 So typically, would you have the same firm be working on the corporate documents as the wills so that they're actually all communicating?
Rose 00:06:08 It depends. I mean, I hate to be the vague lawyer where we give you an iffy answer, but it depends if everything can be consolidated in one firm, that's fantastic.
Rose 00:06:17 But some firms only do corporate law or they only do estate planning law. And it doesn't really matter as long as everybody is collaborating. It's where information gets siloed that you end up with a product that doesn't tend to work well. If and this can apply even if you're doing it in the same firm, your estate planning lawyer needs to be talking to the corporate lawyer. And ideally, you would also be involving people like the insurance advisor if there's life insurance on those shares. You'd probably also be working with the corporate or the client's accountant to make sure that the entire plan aligns with postmortem tax planning to mitigate tax on those shares when the shareholder passes. So I'm generally leery when we hear somebody say, you just need me, I can do it. All possible, but probably not going to get the best result for the client. Collaboration goes a very long way.
Nicole 00:07:05 So speaking of professionals working together, it's my understanding that you need two executors to make the probate savings work. Can you talk to us about that?
Rose 00:07:15 This falls into welcome to BC.
Rose 00:07:17 We took a great plan and put our special spin on it. Multiple will structuring has primarily been in Ontario for a very long time, and only in 2014 did we adopt that out here in B.C. so if you happen to be looking online and you see information that doesn't speak to a different executor requirement, it's not wrong. It's probably just not specific to BCC. Our requirement to have a different executor act under each will is fundamentally premised in the way our probate fee legislation is structured. And it boils down to the very simple requirement that if an executor has conduct of the assets and they have to go through probate, they must disclose all the assets over which they have conduct. So if I create two separate wills, but I appoint the same executor, they're going to have to disclose all of it. So as you say, it is absolutely critical that there's a different executor on each. Well, that is something that often can make this an impractical solution for clients. They just may not have enough humans in their lives who are willing and able to do this.
Rose 00:08:16 Looking to trust companies can be an excellent solution for this, but clients also have to look at the economics of it. Probate fees go back to that core concept of saving 1.4%. If you're going to appoint a trust company anyway, poof savings and you've got someone reliable and regulated handling it. But if you're only appointing a trust company for the purposes of using the multiple wheel plan, you have to run the numbers and see if the fees of your executor are going to outstrip the savings of the probate fees, and we see the same thing happen when people go too far afield to find human executors to meet the two executor requirement. We often tend to forget that under the BCE compensation regime for executors, every single individual who acts is allowed to charge for doing that, and it can be up to 5% of the value of the estate plus an annual fee. So if you're appointing one of your kids who's a beneficiary and they're the only beneficiary and only child, they're probably not going to charge. So two wills, two executors, you're ahead of the game.
Rose 00:09:16 One with my spouse, one with my kid. But now I've had to go find that third cousin that we all kind of know. We saw him at a reunion a few years ago, and there may have been a Facebook post. He's probably not doing this for free. So now you may be looking at appointing him, but you're going to charge those executor fees and be subject to a greater cost than you're saving.
Nicole 00:09:37 We often charge at Heritage Trust a flat fee to act as corporate executor.
Greg 00:09:42 Yeah, that's correct. And I imagine others also as well. It would be set in advance.
Nicole 00:09:47 So it'll depend on the complexity and what's required. But we often quote a fee of around 30,000 as a typical corporate executor fee. Would you say that's right.
Greg 00:09:58 I would say that's right. And of course, assets would have to be sufficient as far as speaks to make that make sense.
Nicole 00:10:05 So you're getting into the several millions minimum to make that make sense.
Greg 00:10:10 Now even though we've talked about these two wills, is probate still sometimes required?
Rose 00:10:16 Yes.
Rose 00:10:17 How's that for a simple answer? Yes, yes. If you're dealing with just a single individual, or you're dealing with the last of spouses who have a relatively tidy estate from a legal standpoint, there are almost always going to be assets in that sole person's name that we can't squeeze into the will that bypasses probate, the real estate that's in their sole name, investment accounts that aren't owned by the company or that don't permit a beneficiary designation like a Riff or a TFSA. Those will be subject to the process on death. Where it gets a little tricky is when people get too cute and really just bend over backwards to try and skip that process by doing things like making those assets joint with people. Joint heirs are not inherently a bad thing. They can still work absolutely swimmingly, but when they're used casually, they can often lead to litigation, tax problems, and just generally more cost than benefit. So when people are looking at a multiple wheel plan and saying, well, what about these assets? Can I avoid probate there too? It's something to approach with a great deal of caution.
Rose 00:11:21 If things are complex and there's assets of a value that ultimately lead to a cost benefit. We often look to trust planning such as alter ego, trust or joint partner and joint spousal trusts. And these are lovely creatures of the Income Tax Act, where, in effect, I divest myself of the majority of my assets. Impoverishing myself probably doesn't sound like a great idea, but what it does is it. Let me stuff them all into the trust. When I pass the trust then deals with the distribution of those assets and therefore no will applies to it. They're not a perfect solution though. One of the key requirements under the Income Tax Act is that I have to be 65 years old to put my assets in there, so if I'm 45, this is just no good to me. I also have to look at it and say again, I'm trying to save this 1.4% in probate fees, but if it's going to cost me 10 to 15,000 to set this up, depending on what assets I need to put in there, and I'm going to have to file a tax return for it every year.
Rose 00:12:15 And I'm setting this up when I'm 65 and my life expectancy is 95. Is that 30 years of carrying cost going to get me ahead of it, or have we just made the lawyers and accountants very happy? We're not opposed to being made happy, but we want it to work for the client.
Nicole 00:12:29 Let's also talk about what can't go into an Altria partner. Trust.
Rose 00:12:34 Anything that has to be registered with ICBC is a non-starter. It's simply two sets of regimes that don't intertwine. Most other things can go in there. It's a question of whether it's practical. Real estate is the most cumbersome to try and sort of pop into one of these. And when I say that I am primarily speaking from the BC context, if you're in Alberta, for example, different rules, much better. Again, I'm sorry, BC just likes to be special. The reason it becomes so quirky is that when we change registered ownership of real estate, we have to render to the province property transfer tax. That property transfer tax for properties under $5 million is between 1 and 3%.
Rose 00:13:14 So again, it's easy to scoot over that 1.4% threshold of probate fee savings. What you can do in some circumstances is it may be possible to have a transfer where PTT does not apply. If the person who is the trustee is related to the person transferring the property in in an existential crisis. When we drafted our legislation, we are not considered related to ourselves. So if I transfer my property into a trust where I am the trustee, I'm not related to myself and I still have to pay this property transfer tax. If I transfer my property into a trust, or my spouse or my child is the trustee, I fit within that exemption. But that means I'm giving them complete control of it. They are the trustee, meaning they manage it, they administer it. They dictate when it can be sold, how it can be used. I may not be comfortable doing that. Under prior iterations of our property transfer tax legislation, we would have no issue with saying, okay, we'll transfer it in.
Rose 00:14:17 The trustee can be your spouse or your child, and then we'll just change the trustee. We can't do that anymore as structured. That attracts penalizing taxes under what we call a general anti-avoidance rule. And so that has made it much more complicated. It is possible if the circumstances permit, and there's a wide variety of highly technical factors, and I will not go through them because people will go straight to a coma where I can transfer the entitlement to the property to the trust. And that entitlement to the rights and risks is what we call beneficial ownership, but still leave the name that's on the title, what we call legal or registered ownership. In my own name, whenever we have a disconnect between whose name is on something and who's actually entitled to it. That disconnect creates a bare trust. Until relatively recently, this was just not a big deal from a management and compliance standpoint. Now it is a special new circle of pain and suffering. You have to make sure that whenever a bear trust is created, it is properly and thoroughly recorded in BC's Landowner Transparency Registry.
Rose 00:15:22 The penalties for not properly doing that start as a percentage of the value of the property. So way more than the probate fee savings. Lots and lots of room for error. It is unclear, but highly probable that it will also be necessary to file an annual tax return, reflecting the fact that this bare trust exists. It is a bit uncertain simply because the legislation on this has bounced around like a yo-yo. It is a wildly unpopular set of measures on the basis that it serves no principled purpose. I don't wish to pick on our government. I know they've had a very rough run, and that the poor folk at CRA and the Ministry of Finance are doing their utmost. But this has not served trust planning in BC particularly well, and has made rather a mess of this. So when determining whether we can push assets into an alter ego or joint partner trust, there are ways to move real estate in. But it is incredibly easy for it to run afoul of any kind of benefit. And even if it works economically, the sheer stress and hassle of it is a real deterrent for people.
Nicole 00:16:23 Well, let's talk about that. The Ministry of Finance and that they've implemented a number of quite onerous requirements. And then literally at the very last minute, at 3 p.m. of the Friday that it's supposed to kick in. They've changed their minds. I mean, I think we do. You're being very gracious in giving them credit, but can't we say that there's been some movement and ambiguity in legislation around this?
Rose 00:16:49 I think it is a fairly accurate statement that to say, since 2016, the rules, policies and rollout of information that has flowed from finance have been incomplete at every turn. It's really been very clear that there's been inadequate consultation with those affected by it, and just not enough time given to thinking through all of the foreseeable consequences. And I think, unfortunately, that is when we see politics driving taxation rather than taxation policy being the driver for taxation policy. And it becomes very problematic for our population when every single thing that is coming across their tax return package is a reactionary measure being driven by politics.
Rose 00:17:40 And for practitioners who have to try and convey that information to clients, whether it's tax planners, financial planners, lawyers, it is a really hard thing to make palatable because we are at a loss to say that there's a principled benefit to them as a taxpayer for this or that. It's serving a greater good. So we have literally had clients in our office or on the virtual meetings crying in frustration, saying, why is this happening? I don't understand, and that's not a great place to be either as the taxpayer or the practitioner. I think everybody in the industry has vigorously written to their MPs for some of the oddities at the provincial level, to their MLAs and to their various professional bodies. And kudos to the professional bodies for having rallied together and made joint submissions. And I think that did play a material role in reversing or at least amending some of these more problematic issues. But fundamentally, I would say the lives of taxpayers, particularly for trusts and corporations, are materially more complex than they were before 2016, and we're never going to fully walk back from that during our lifetimes.
Nicole 00:18:46 So let's talk about some other danger zones that we see with people that are doing things to try to avoid probate. So can you tell our listeners about the potential pitfalls of putting your adult child joint on a home or a joint on an investment account?
Rose 00:19:02 I would love to. This is one of my bugaboos. Before I turn to adult kids, though, I would like to take a moment to talk about minor kids because this came across my desk last week and I have never encountered this before. It was absolutely baffling to me how this occurred. In order for someone to legally sign contracts in BC, you have to be 19. With certain exceptions. You know you're in the military, things like that. Somehow, this parent had added their 13 year old kid as an owner to their property. When someone is added to real estate, the person who's being added has to be a signatory to some of the forms, not the one actually transferring the real estate itself, but things like property transfer, tax returns and the landowner transparency reports.
Rose 00:19:48 I have no idea how this came to be. It is completely against logic and law, but somehow we had this tiny little child on there. So for the abundance of clarity, under no circumstances should you be putting a minor child on your real estate.
Nicole 00:20:03 But a professional, either a lawyer or a notary would have had to facilitate that.
Rose 00:20:08 I cannot speak to how this came to be. It is beyond anything I can possibly fathom. Don't do it, okay? It's very rare that as lawyers, we get to be absolute. Just. No.
Nicole 00:20:20 But I mean any competent lawyer in order to realize that a minor miner can't contract. Yeah. That is that is an interesting.
Rose 00:20:29 I would love to give you some great, lengthy, brilliant reason. I got nothing.
Nicole 00:20:35 Let's talk about this. A lot of people think, oh, you just pop your adult child on title to your house and Bob's your uncle. You don't have to pay probate. Let's talk about what all the pitfalls are.
Rose 00:20:46 There is a cornucopia of pain and suffering to casually using joint assets and real estate is the biggest problem, so I really appreciate you highlighting that.
Rose 00:20:54 The first and biggest thing is the complete loss of control. Let's say I pop my good child on there because I've got multiple kids, but this is the one I trust the most. Little Jimmy is in like Flint and we pop Little Jimmy on there. Well, then I go to mortgage debt, or I want to renovate the kitchen, or I want to sell it. I just assume that little Jimmy is going to sign whatever I tell him to. But anybody who practices in this area has seen that file. Chrome across their desk where little Jimmy has said, no, you have to pay me something first and basically holds the parent to ransom. That loss of control is devastating to family dynamics, and there's often legal recourse if things were very thoroughly papered. But you're still in the position where you're suing your child. The families do not bounce back from this. So be aware that you are fundamentally surrendering your autonomy on this. The younger you and your adult child are, the longer the risk period, and the more this can go badly because the more likely it is the dynamics will change.
Rose 00:21:54 We also have federal tax consequences, particularly if the property is my principal residence.
Nicole 00:22:00 Well, let's talk about other problems that could happen with a little Jimmy. First though.
Rose 00:22:05 Oh, there are lots of problems with little Jimmy.
Nicole 00:22:07 So what happens if little Jimmy gets sued?
Rose 00:22:10 It is completely up for grabs. There's a very disconnected set of case law on this in that on one hand, since 2007, the law is that when I add a child to the property. The presumption, meaning the starting point, is that they are not entitled to a right of survivorship. They don't automatically get it when I die, and they are not entitled to the rights and risks of it while I'm alive. That beneficial ownership stays with me. On the other hand, we have case law in B.C. that says if I have added Little Jimmy to that property and Little Jimmy get sued, the creditor is entirely entitled to rely on what's registered at the land title office. And so the case where this unfortunately came to a head was a mother had added their son, and the son says they didn't know about it.
Rose 00:22:56 But in the course of creating that joint ownership, the son would have had to sign paperwork. But that aside, it was very, very clear from the court that that creditor had absolute rights to collect against that property. And it was really just the gracious approach of the creditor where they said, okay, we're not going to basically kick this poor woman out of her home, but it would be highly risky for the average British Columbian to assume that every creditor is going to be that nice.
Nicole 00:23:26 Is that correct? That they didn't because it was a lead corps? I mean, this is a published case that registered an $800,000 judgment against mom's house. She got noticed by registered mail. She probably had a bit of a moment when she received that.
Rose 00:23:39 It's a miracle. Of course, they didn't have a heart attack.
Nicole 00:23:42 So is it correct that lead corps didn't execute on that judgment?
Rose 00:23:46 That's my understanding, is that they reached an arrangement to allow her to continue to stay in the home.
Nicole 00:23:50 Okay. But when she passes away.
Rose 00:23:53 It's absolutely realized. Or when it sold, for example.
Nicole 00:23:55 Right.
Rose 00:23:56 So if she were to sell the property and move into care, anybody who's got a judgment registered has to be paid out in the course of the sale proceeds. So that now means that not only did poor mom have to go through this entire litigation putting her primary asset at risk, but now she's not going to have the entirety of those funds to fund future care, which is not an inexpensive proposition.
Nicole 00:24:17 So mom's lost control. Mom has a registered creditor. What other problems does mom have from this?
Rose 00:24:23 We also have the problem that our kids are human. Well, most of the time we have the very real risk that our kids have lives. They might get sued through something like a creditor in the traditional sense. They could go through spousal breakdown, they could go bankrupt. But we just also have the risk that life happens. They may decide that they need cash flow. They may borrow against that property. When we talk about this risk factor with the loss of control, it is important to keep in mind that you may register someone as a joint owner, but they, at any time without your prior permission, can change that registration to what we call tenants in common.
Rose 00:25:04 So when we own property as joint tenants, all of the joint owners technically own the whole thing together. You don't own half and I don't own have we all own the the entirety of it? When you change something to tenants in common. It is now split. So if it's me and little Jimmy and he changes it to tenants in common. He owns half and I own half. And that means that he could go mortgage his half. He could sell his half. All of this can happen, and I have no rights over that.
Nicole 00:25:33 Is that correct? That he could mortgage his half without mom being the guarantor? Because I think if the lender went to realize on that debt, isn't it true that all the owners of property must be signatories to the mortgage?
Rose 00:25:46 No.
Nicole 00:25:48 Interesting.
Rose 00:25:48 What we see as a real practical problem is that you're never going to be able to realize on a property unless you're the sole owner and you go to enforce that mortgage, and your main institutional lenders are inevitably going to require that guarantee, or at least a consent.
Rose 00:26:02 But there are entire swaths of private lenders who do not operate on those same models. And we see 2 or 3 times a year. And keep in mind, we're just one law firm. And as we all know, we can't swing a dead cat without hitting a law firm. So if we're seeing it a few times a year, that's a lot. Across the province, we are seeing all of these weird private mortgages pop up. We've also seen circumstances where little Jimmy takes his half because he's now switched it to tenants in common, and he's added someone else to title of his half, whether it's his spouse that we're not particularly keen on, it could be he's added his kids, which means that when we want to sell the whole property now, we've got all these additional signatures that come into play. So the complexity of it spirals very, very easily, and that loss of autonomy simply cannot be overstated.
Nicole 00:26:50 Okay. So let's talk about the tax issues. Oh, taxes.
Rose 00:26:54 We do love our taxes.
Rose 00:26:56 The biggest one is the principal residence exemption. As it currently stands, capital gains are being taxed at a 50% inclusion rate as opposed to a 100% inclusion rate. Even though that is less than other income, it is still really nice not to have to pay it at all. And the way it works is that when a piece of property that's residential is my principal residence and it fits within a prescribed size, I don't have to pay any capital gains tax on it when I sell it. Once I add Little Jimmy to that property, though, Siri is at liberty to take the position that I have lost half that exemption. That is a huge tax to pay to avoid 1.4% probate fees. There are ways to mitigate the vast majority of these problems, and that involves very carefully and thoroughly papering this before the joint asset is made. Joint. So before I put his name or my daughter's name on there, I am papering to kingdom come who is retaining ownership while we're alive? Am I giving you a right of survivorship? If it is going to be real estate, I will actually also have you sign an agreement saying you are not allowed to sever the joint tenancy.
Rose 00:28:09 In all of these, though, we have to keep in mind that we're still dealing with that fundamental issue of a bear. Trust, though, if I am not actually giving little Jimmy half of that property when I put his name on there, and I really intend to keep it all myself, and I just thought this would skip probate. His name is on there, but it's still all mine. Which means I'm back to a bear trust. Which means I may be having to file these additional T3 tax returns where the tax can spile completely out of control is when people fail to turn their mind to the other citizenships or tax residency of the kid that they're adding. If I add a child to the property who's American, regardless of whether they're also Canadian, I have now invited the IRS into this conversation. They are not someone you want to have a conversation with. Ever. Canada revenue and everything under the Income Tax Act is complicated enough. Adding the Internal Revenue Code to it is a new level of pain and suffering that should be avoided at pretty much all costs.
Rose 00:29:06 But when we add someone who's a non-resident of Canada for tax purposes. Let's say I've added Little Jimmy and Jimmy lives, you know, all the way in Portugal. Not a tax resident of Canada. I'm actually not only creating problems for all of those other reasons about autonomy, but I have to consider the additional property transfer tax in B.C.. The general rule is that when I add someone to my property, there may be an exemption. If it is my principal residence and they're related to me. So that property transfer tax of between 1 to 3% for properties under 5 million may be mitigated.
Nicole 00:29:44 Assuming you've owned it for six months.
Rose 00:29:45 Exactly. Thank you. But if I have someone who's not a Canadian citizen or not a permanent resident, there's this extra layer of property transfer tax that starts at 20% of the value of the property. So again, 20% tax versus 1.4% probate fees. So it becomes a very, very big problem very easily. We don't love to pay a necessary tax. So these things should be fully addressed well before anybody is added.
Nicole 00:30:15 And a smaller issue. But something that annoys seniors is they arguably lose their seniors homeowner's credit against property taxes.
Rose 00:30:24 It's a problem.
Nicole 00:30:25 Lots of issues. But it seems like someone's get people are getting advice out there. You just pop your kid on title. But let's just talk also about sticking the adult kid on title to investment accounts. Let's talk about what that might do in respect of tax.
Rose 00:30:40 There are different ways to approach this. None of them are particularly good. One of the key things to keep in mind is that for all of these joint conversations where a parent is adding their child, we're starting from the legal position that the law says that child is not entitled to a right of survivorship. And the core effect of that is that when I pass away, unless that child can prove it was my intention that they get it at my death, It bounces back into my estate, and it's so subject to whatever was in my estate under the will, or if I didn't have a will under the laws.
Rose 00:31:15 One of the things that's particularly problematic about banking and investing is that when we open joint accounts, there is actually a form that you will go through with your investment team or your banker that says, do you want there to be a right of survivorship? And you do or you do not check that box? The courts have held that box doesn't get you very far. It actually doesn't determine what's supposed to happen. Assuming you did check that box, little Jimmy now dies. Poor Jimmy, he's not coming off well in any of these circumstances. If we end up with a situation where the child dies first, we have this quirky event where we're okay because it went back to mom. His name just drops off. But when mom dies first, we're in that situation where the bank will. Just because it's registered that way, take mom's name off and leave it all in Jimmy's name. That doesn't actually mean that Jimmy is entitled to it. And so now Jimmy and the estate are in a fight about where this goes.
Rose 00:32:14 So not only have we created all of this room for costly litigation, but let's say Jimmy has spent that money, and it doesn't mean he was reckless and, you know, rented the top penthouse in Vegas for a week. He paid down his mortgage. He paid for his kid's college. Still gone. So we have very practical problems when we try and deal with this cash flow. We also have all of those same issues about loss of control and risk to it. When that child goes through a property division event because there's a spousal breakdown, if they have a creditor, all of those things are up for grabs. So it becomes really problematic very quickly when we integrate all of this with the tax side of things. As far as the bank, the credit union, the investment brokerage goes, they're issuing those tea slips for the income and dividends are based on whatever name is on that account. It's really then incumbent on the people whose names are receiving these tea slips to make sure they're putting it in the right person's tax return, not just automatically saying half goes to mom, half goes to Jimmy.
Rose 00:33:16 If I've taken the position that I am not actually giving Jimmy any of this. I need to make sure that I'm actually reporting all of that on my tax return and nothing on his. But what if CRA looks at that? Where's my supporting paperwork to say I didn't really give half of that to Jimmy, and it should all be taxed to me. That's why it is so important that whether it's real estate or accounts, there's clear paperwork set up at the time saying what should happen. And the accountants should be involved in that conversation and they should receive copies of everything.
Nicole 00:33:47 So I think the take home message to listeners is never put your adult child joint on assets without getting proper legal and tax advice in advance.
Rose 00:33:58 And if in doubt, just don't do it.
Greg 00:34:00 We didn't even mention Jimmy's siblings, and what issue that would cause to diminish the estate of mom?
Rose 00:34:06 Absolutely.
Greg 00:34:07 Jimmy makes out okay.
Rose 00:34:10 And Jimmy and Susie are not having a good relationship after this.
Greg 00:34:13 Not having a good relationship. And the lawyers will be happy.
Rose 00:34:16 We are kind of ruthless that way, aren't we?
Greg 00:34:19 So it's well, well explained. Are there any final tips rose in relating to this type of planning?
Rose 00:34:27 Multiple will. Planning really is a fantastically graceful and elegant tool for a lot of people in BC. Joint assets can still be used, but I think the core here is that in each instance, you want to take the time to understand if it's the right fit for you. The idea of one stop shopping, you have one meeting, they draft something and you just sign it. I think those days are long gone. If people want things that are going to really evolve with them and meet all of their circumstances and create maximum efficiency. So to put it really plainly, brace for a little pain and suffering. Invest in the process primarily by way of investing your time. Make sure that you're willing to go through all of the questions and know that when you're being peppered with all of these, it's not just because your lawyer is nosy. It's because where your family lives, what the nature of your assets are not just their value, but what kind of assets they are really materially informs the plan.
Rose 00:35:20 That's right for you.
Nicole 00:35:23 All right. Well, you've been amazing. Where can people find you to learn more?
Rose 00:35:27 Well, I'm lucky to call Vancouver home, so I'm about in Law Corporation. And we have a complete death and taxes team. So we help with everything from trusts and estate planning to administering estates and reorganizing companies for generational succession. So reach out any time. And my general approach is, even if you're never going to hire us, do not hesitate to reach out. We do not want you to have to go online and get information that's from the wrong jurisdiction.
Nicole 00:35:50 So I'd say to listeners, death and taxes may sound daunting, but Rose is really quite lovely and actually funny. So don't be dissuaded by the austere term to it'll probably be more pleasant than you expect.
Rose 00:36:04 I hope so.
Greg 00:36:05 Thank you.
Nicole 00:36:06 This podcast is for informational purposes only and should not be considered individual, legal, financial, or tax advice. Make sure to consult the advisor of your choice to advise you on your own circumstances.
Nicole 00:36:21 Thank you for joining us for this episode of Your Estate Matters. If you like this podcast, make sure to follow it on your podcast platform of choice.
Greg 00:36:29 Whether you are planning your own estate or you're acting as executor for somebody else's heritage, trust can help partner with Heritage Trust to protect your family, your assets, and your legacy.
Nicole 00:36:40 If you would like more information about Heritage Trust, please visit our website at Heritage Trust Company.
Greg 00:36:53 This podcast is produced by Pod Father Creative.