Kinless Canadians make up almost one-third of Canadian households[1]. In Part One of this two-part series, we explained why estate planning is important for kinless Canadians notwithstanding that they may not have any dependants to whom to provide financial support. We also shared some general considerations for managing the costs of planning and tips to keep in mind when appointing an executor or attorney.
In this Part Two, we discuss three popular estate planning topics that can arise when preparing an estate plan for a kinless Canadian client: (1) leaving assets to minors, (2) making gifts to charity, and (3) providing for pets.
Leaving assets to minors
Many kinless Canadians may wish to leave a gift to members of the next generation, such as to nieces and nephews or to the children of close friends.
If the niece, nephew or friend’s child is a minor, then depending on the value of the gift, a trust may be required in the will (called a testamentary trust) to hold the sum or asset for the benefit of the child until the child attains the age of majority. Otherwise, the Province takes custody over gifts to minors above a certain amount until the minor attains the age of majority.
When setting up a testamentary trust for minors, the following are important considerations:
- Whether the amount justifies the creation of a trust. Keep in mind that administrative expenses, trustee compensation, regular passings of accounts before the courts, and legal fees are common costs associated with administering a trust.
- Who will be the trustee(s) appointed to manage the trust for the minor beneficiary? Does the trustee fulfill the “three T’s”? Is the trustee likely to live as long as the trust is expected to last? Does the will provide for alternative trustees or successor trustees? Does the will provide adequate compensation for the trustee?
- How and when should the minor receive the entire capital in the trust? Would the beneficiary be too young to manage their full inheritance at the age of majority (18 or 19 years of age, depending on the province). Should the final distribution occur outright at a specific age of adulthood, or in portions spread out at successive ages of adulthood? Should the trustee be given the discretion to encroach on capital as the beneficiary’s needs and other circumstances change over time?
- When considering holding real property (such as a house or condo) in trust for a minor, consider also where the appointed guardian of the minor would be living; whether the trustee should be given the flexibility to sell or exchange the property if circumstances render it no longer feasible to live in the original home; and whether an additional fund should be set aside for the property expenses, taxes and upkeep of the property.
Making gifts to charity
Kinless Canadians who are philanthropically involved or who have other connections to charity may wish to leave a gift to a charity in their will. In addition, donations to registered charities may be eligible for a donation tax credit which can help reduce (or eliminate) the tax liability on death.
Testamentary charitable giving takes careful planning to ensure the client’s intentions, which may be both charitable and tax-related, come to fruition.
When leaving a testamentary gift to charity, Canadians should ask themselves the following:
- Have I confirmed that the charity of my choice is, in fact, a registered charity that can issue a donation tax receipt?
- Is the gift to be used for the charity’s general purposes (e.g., “to be used for such of the charity’s purposes as the Board of Directors shall from time to time determine”) or for certain restricted purposes (e.g., setting up an endowment fund for scholarships or to fund research into a particular disease)? Are those purposes charitable and consistent with the charity’s purposes? If the purposes are restricted, does the will allow the charity to change those purposes if they later become impossible or impractical to fulfill?
- Does my will allow my executors to make the gift to another charity in circumstances where the original charity has amalgamated, changed its name, changed its location or ceased to operate?
- Am I donating liquid or near-liquid assets (such as cash or marketable securities) or illiquid assets (such as land or private company shares)? Am I donating $X or a percentage of my estate? Will the charity of my choice accept the assets I plan to donate? If it takes some time to liquidate assets or to provide an accounting to the charity, will the timing of the eventual donation affect my estate’s ability to carry back donation tax credits to the tax years when the credits are needed (i.e., at the date of my death)?
Meeting with an estate planning lawyer ahead of time is strongly recommended to ensure the client’s charitable intentions are fulfilled and in a tax-efficient manner.
Providing for pets
Many kinless Canadians may wish to ensure their pets are taken care of in the event of their death or incapacity.
The law treats pets as property. If a will makes no specific provision for a pet, the pet is distributed as part of the residue of the estate. If the will provides that the residue is divided among several beneficiaries, then the executor generally has final say as to which beneficiary will receive the pet, provided the beneficiary is also willing to accept the pet, of course.
Kinless Canadians wishing to leave their pet to specific beneficiaries with specific instructions should consider the following:
- Have I identified a friend or relative who could take care of my pet after my death, and have I discussed the proposed arrangement with my friend or relative? Conversations with the intended beneficiary/pet-caregiver ahead of time can help avoid surprises and ensure the pet is not left stranded without a home.
- Have I appointed alternative beneficiaries/pet-caregivers in my will in the event that my first choice is unable or unwilling to assume this responsibility?
- Should I consider making an additional gift of certain funds to the beneficiary/pet-caregiver to lessen the financial burden of assuming this responsibility?
- Have I considered the pros and cons of a “pet trust” if the funds to be set aside are substantial? However, there are rules and restrictions on non-charitable purpose trusts, and the expense and complexity of a pet trust may likely outweigh its practicality.
Considering these topics when starting your estate plan, and thinking ahead about them before the first meeting with an estate planner, can help to properly tailor the plan to your circumstances in a timely and more cost-efficient manner.
This concludes our two-part series on estate planning for kinless Canadians.
Should you have a question about this article or would like to get started on an estate plan or update an existing one, please contact Stephen Hsia (in Vancouver) or Honor Lay (in Toronto) or another member of Miller Thomson LLP’s Private Client Services group in your province.
[1] Peter Zimonjic, CBC News, “Number of singles, common-law relationships and roommates rises as Canada’s households evolve” (July 13, 2022), online: https://www.cbc.ca/news/politics/canada-changing-households-military-1.6519440
