Frequently Asked Questions

General Questions

Q: I have a legal problem, but I don’t know which lawyer to ask for. What should I do?

A: Call us at 250-385-1383 or toll free at 1-888-385-1383 and explain briefly what kind of problem you are having. Our reception will forward you to the right lawyer who can assist you.

Q: I would like to meet with a lawyer. How much will it cost?

A: We offer an initial telephone consultation at no charge. During that time, we listen as you outline your situation and offer you advice on whether you have an issue that requires legal representation. If you require our services, we will then discuss your options and our fee structure so that you can make an informed choice.

Q: What is your fee structure?

A: We offer a range of fee structures depending on the type of legal problem that you have. Generally, we require a retainer which is a deposit you make to our trust account. As we work on your file, we are able to deduct our legal fees and disbursements from that deposit. The size of the retainer that we request depends on the type of legal services you need and the specific facts of your case.

Our legal fees are comprised of the work performed by our lawyers on an hourly basis as well as disbursements which include taxes, filing fees, long distance charges, photocopying charges, courier fees and other fees charged to us in working for you

Q: What is a contingency fee?

A: A contingency fee allows us to work on your matter and not charge you legal fees until we receive money on your behalf. In these types of matters, because we are assuming some of the risk of recovering money on your behalf, we will negotiate with you what percentage of recovery we will take as our “contingent” fee. However, even when we take a matter on a contingency fee basis, you will remain responsible for payment of disbursements incurred on your behalf.

We offer contingency fee arrangements in situations such as personal injury and civil litigation matters. We do not offer contingency fee options for family law matters. We encourage you to contact us to discuss whether this option is right for you.

Q: How can I pay my legal bill?

A: We accept cash, credit cards and debit. Please contact us if you would like more information about our fees.

Q: What information does a lawyer need from me when we meet?

A: Your lawyer will need your identification, basic personal information, and any documents related to your issue. You should be prepared to describe the history of events in relation to your issue. We recommend that new clients prepare a chronology of events prior to the meeting.

Q: Where are you located?

A: We are located in the heart of Victoria, on Douglas Street at Courtney Street. The first hour of parking is free at the City of Victoria parking lot located under the Main Branch of the Victoria Library.

Estate Planning Questions

Q: What is included in my estate?

A: Generally, assets that are in your name would be included in your estate. Exceptions include assets that you hold jointly with another (those assets will go to the surviving owner) and assets for which you are able to designate a beneficiary such as RRSPs and insurance policies. The dollar value of the assets actually in your name that are not held jointly or designated to a beneficiary form the assets that comprise your estate, and it is the dollar value of those assets that are used to calculate probate fees.

Q: What is “probate”?

A: Probate is the court order that is issued allowing your executor to execute the provisions of your will. Probate is the legal sanction to your executor to carry out the terms of your will and distribute your estate in the manner described in your will. Your executor requires a grant of probate before he or she can obtain control of a number of the assets in your estate including investments held in financial institutions, real estate and the like. Once the grant of probate is obtained, an executor can then proceed to liquidate the estate in preparation of distributing it as set forth by your will. If there are persons that are entitled to make a court application to vary your will, the executor must wait to distributing your estate or alternatively, obtain the consent of all those persons who are entitled to apply or named in the will to an earlier distribution. An executor must also obtain a clearance certificate from Revenue Canada before wholly distributing your estate.

Q: How much are probate fees in British Columbia?

A: Probate fees are calculated on the value of your estate, at date of death, in accordance with the following formula:

  • No fee if the estate is worth less than $25,000.
  • A basic fee of $208 if the estate is worth over $25,000.
  • A basic fee of $208 plus $6 per $1,000 (for a total of $358 for the first $50,000) If the estate is worth between $25,000 and $50,000.
  • $358 plus $14 per $1,000 of estate value over $50,000 if the estate is worth over $50,000.

Note, these figures are current to July 2016 and are subject to change.

Q: What are the tax consequences of my death?

A: Following your death, your executor will be responsible for ensuring that your tax return for the calendar year in which you have died is prepared and filed. At the same time, your executor will also be required to ensure that a final tax return is filed which effectively “closes your account” at Revenue Canada. This return will deal with any taxable dispositions that resulted from your death, i.e. capital gains that must be paid if you held any capital investments at the time of your passing. Following the filing of the final return, a clearance certificate is issued by Revenue Canada which then allows the executor to complete distribution of the estate. Executors can be held personally liable for ensuring that the tax returns are prepared accurately and the tax owing is paid.

Q: How long does it usually take to administer an estate?

A: This is one of the questions most frequently asked by executors and beneficiaries. At McConnan Bion O’Connor & Peterson we assist executors in preparing all the documentation necessary to obtain probate of the estate and thereafter to administer in accordance with the terms of the will. The process may seem to take a long time but that is because the law requires that beneficiaries be notified in a certain manner, that they consent to certain steps being taken, and that those notifications and consents all be recorded and be in hand at the time application for probate is made. The process can be slowed further as a result of a beneficiary not returning documents promptly or where a beneficiary cannot be immediately located. Once an application for probate is made, it generally takes 3 to 4 weeks before the court issues the grant of probate. Once the court issues the grant of probate, it is simply a matter of liquidating assets and putting the estate into a form that can be distributed among the beneficiaries. It all takes time we strive to ensure the estate is administered as quickly as possible.

Marriage Agreement Questions

Q:  What is a marriage agreement?

A: A marriage agreement is a written agreement between married spouses (or couples contemplating marriage) dealing with the financial arrangements that the couple would follow during the relationship or in the event of a marriage breakdown. Generally, in order for a marriage agreement to be valid they must be in writing, witnessed and signed. However, there are circumstances in which a marriage agreement or parts of it may not be valid. You need to consult with a lawyer to ensure that your specific situation is properly addressed in a marriage agreement.

Q:  Do I need a marriage agreement?

A: It is wise that you enter into a marriage agreement if you are married or about to get married and if any of the following apply to you:

  • There is property that you want to protect in the event of a relationship breakdown (i.e.: inheritances, pensions, gifts, assets that you are bringing into the relationship, assets that you will acquire during the relationship, etc.).
  • This is not your first marriage and you want to preserve your assets.
  • You want to preserve your assets for your children when you die.
  • You want to protect yourself as much as possible from any future claim for spousal support in case the relationship fails.
  • You want to avoid an expensive and acrimonious separation if the relationship fails.
  • You want to set out how finances will be handled during your marriage.
  • You want to have a say as to “who keeps what” if the relationship fails.

The reality is that marriages often fail. People do not expect tragedies to happen in the future but we nevertheless prepare for them. In many ways, most marriage agreements are similar to insurance, they are there in the event that you need them and they can potentially save you time and money. They can also assist in minimizing the chances that you will get caught in a bitter court battle if the relationship fails. Marriage agreements need to be prepared carefully by a skilled and knowledgeable lawyer. An incorrectly prepared marriage agreement may not be worth the paper that it is printed on or may fail to carry out your intentions.

Q:  Do I need an agreement with my partner if I am not married?

A: You need a cohabitation agreement (an agreement between unmarried or common law spouses) if any of the following apply to you:

  • There is property or assets that you would like to protect in the event that your relationship breaks down.
  • This is your second partner and you would like to preserve your assets.
  • You have children from another relationship and you want your children to inherit your assets when you die.
  • You wish to protect yourself as much as possible from any future claim for spousal support in case the relationship fails.
  • You want to avoid an expensive and acrimonious separation if the relationship fails.
  • You want to lay out how finances will be handled during the relationship.
  • You want to have a say as to “who keeps what” if the relationship fails.

Q: Why can’t I simply prepare my own marriage or cohabitation agreement or use a “do-it-yourself kit”?

A: The risk of preparing your own marriage or cohabitation agreement or using a “do-it-yourself-Kit” is that:

  • The agreement may not be valid or enforceable.
  • The agreement may not say what you want it to say.
  • The agreement may not do what you want it to do.

Family law is very complex. There is no “one size fits all” agreement. Every situation is unique. You need someone to assess your particular situation, advise you on the law and help you sort out what you need in an agreement and what you can realistically achieve. We tailor and prepare agreements that apply to your situation.

Q:  How much will a Marriage or Cohabitation Agreement cost?

A: It depends. Many family lawyers charge an hourly rate for preparing marriage or cohabitation agreements. The cost of preparing the average marriage or cohabitation agreement usually ranges from $1,500-$2,500. The more prepared you are, the more complete information that you provide to your lawyer in an organized fashion and in a timely manner, the better. We often tell clients that they can make a difference in lowering their legal fees quite significantly.

Q: Will you tell me if I don’t need a marriage or cohabitation agreement?

A: Some people fear that a lawyer may recommend that they go through the expense of having a marriage or cohabitation agreement that they do not need. If you do not need one when you come to see us we will tell you so. Whether you need one or not will depend entirely on your specific circumstances and concerns.

Q: What is a separation agreement?

A: A separation agreement is a private contract between you and your spouse settling any or all issues relating to your relationship breakdown such as:

  • Division of property.
  • Child or spousal maintenance (support).
  • Parenting arrangements, i.e., dealing with questions such as:
    • With whom will your child reside?
    • How much time will your child spend with each parent?
    • Who will make decisions regarding your child’s education, health, religion, etc.?

Q: Why can’t my spouse and I simply prepare our own separation agreement at home or use a “do-it-yourself kit”?

A: The risks of preparing your own separation agreement or using a “do-it-yourself-Kit” are that:

  • It may not be valid or enforceable.
  • It may not say what you want it to say.
  • It may not do what you want it to do.

Family law is very complex. There is no “one size fits all” separation agreement. Every situation is unique. We can assess your particular situation, advise you on the law, and help you sort out what you need in an agreement and what you can realistically achieve.

Personal Planning Questions

Q: What is a power of attorney?

A: A power of attorney is a legal document that allows you to appoint someone as your attorney to make financial and legal decisions for you.

There are two types of power of attorney, general and enduring.

The grant of a general power of attorney means that you are giving another person the ability to deal with your affairs while you are not incapacitated. For example, if you are on vacation, you can grant someone a power of attorney to deal with certain matters while you are away. A general power of attorney has the benefit of being relatively inexpensive and can be revoked at any time. Because it gives the other person significant control over your assets, a high degree of trust is required. The granting of a general power of attorney does not protect your assets from the claims of creditors or other parties, it simply gives your attorney the power to deal with those assets on your behalf.

The grant of an enduring power of attorney is similar to the grant of a general power of attorney however it is a power of attorney that survives mental incapacity. To be an enduring power of attorney the document must specifically provide that it is meant to continue if you become mentally incapacitated. It cannot be revoked following incapacity. As with a general power of attorney, the need for a high degree of trust in your attorney is paramount.

Q: What is a representation agreement?

A: A representation agreement is a legal document that allows you to appoint someone as your representative to make health and personal care decisions for you.

There are two levels of representation agreement, a section 7 agreement and a section 9 agreement.

A section 7 agreement gives limited powers to a representative to deal with certain aspects of a person's estate and their personal needs. A section 7 agreement can be granted by a person having diminished capacity.

A section 9 agreement can go into detail as to how you want your financial affairs and your personal needs cared for during any incapacity or other event occurring which prevents you from making those decisions for yourself. A section 9 agreement can dictate under what circumstances your representative can act and what input he or she must seek from yourself and others in making decisions.

We encourage you to seek legal advice if you are contemplating a representation agreement as there are specific rules that must be observed in executing a representation agreement.

Q: What is meant by mental “capacity” and “incapacity”?

A: The term “capacity” means the ability of a person to act freely and to understand fully the nature and effect of their actions. The term ”incapacity” means an inability to understand the nature and effect of your actions; an inability to exercise independent judgment. There are degrees of diminished capacity.

Q: What level of capacity is required to make a gift, settle a trust, make a will, or grant a power of attorney?

A: Making a gift requires that the donor of the gift must understand the nature and effect of the gift (i.e. the value of the gift relative to the value of the donor’s entire estate) and the identity of the donee (the person who is to receive the gift).

Settling a trust is similar to a making a gift. The settler must understand the nature and effect of the settlement.

Making a will and granting a power of attorney both require that the person be operating freely, without influence, and understands the nature and effect of the document and the assets that could be dealt with under the document. The individual must have a understanding of who is receiving the benefit of the assets disposed of in the will, or who the person is who will be exercising the power of attorney on their behalf.

In the case of power of attorney, the person must have the ability to assess the trustworthiness of the person who will become their attorney. With respect to a power of attorney, the other factors that will be considered in assessing capacity is that the individual understands that under a general power of attorney, the attorney will have complete authority over that persons affairs, that the attorney will generally be able to do anything with that person’s property that the person could do themselves; that the authority granted to the power of attorney will continue should the person become mentally incapable, and in that instance will continue until revoked by the court.

Q: Can a person who has diminished mental capacity sign a representation agreement?

A: A section 7 representation agreement signed can be made by an individual who has diminished capacity. A section 7 agreement allows a representative to make decisions with respect to simple financial matters, legal matters, health care and certain business or asset matters. In this instance, if the person has sufficient capacity to communicate that they want a representative to assist in making certain decisions, if they have the ability to express certain preferences and if they are aware of the nature of the agreement they are making and that they are giving authority to another person to make certain decisions on their behalf, and it is clear the individual trusts the person who is to be appointed a representative, then that person, even though they are of diminished mental capacity, can make a section 7 representation agreement.

Q: Is it advisable to transfer my assets into joint names with my children to avoid taxes and probate fees?

A: Placing property in joint names of yourself and a child involves an outright transfer of an undivided interest in the property to that child and can be used where you have family or a close friend or friends to whom you want to give that particular property. Transferring assets into joint tenancy has the benefits of being relatively inexpensive, ensuring that the property passes directly to the surviving joint tenant on death, and allowing you maintain some control over the property because of your one half interest. However, there are considerable disadvantages to placing property in joint names simply to avoid probate fees. Where one of the joint tenants becomes incapacitated, the joint tenancy will continue until one of the joint tenants dies. Because it is an absolute gift of one half of the property, there is a loss of control, i.e. you cannot undo what has been done. The transfer of capital assets to joint tenancy is considered a disposition for tax purposes, i.e., it may attract capital gains or other income tax consequences. Putting an asset into joint tenancy exposes one half of that asset to claims of creditors of the other person. In the case of a child who has financial or marital difficulties, this can result in your asset being tied up as a result of those claims.

We recommend that you consult a lawyer if you are contemplating transferring an asset into joint names with another individual for the purpose of minimizing tax consequences on your death.

Wills Questions

Q: What is a will?

A: A will is a written legal document whereby you provide written instructions with respect to the distribution of your property on and after death. The will must be in writing and must be signed by you in the presence of two adult witnesses. The witnesses should not be persons who are named as executors or beneficiaries in the will.

Q: What happens if I die without a will?

A: If you die without a will your estate will be administered and distributed in accordance with legislation which provides a formula for the division of your estate between your spouse and surviving children. If you have no spouse or surviving children, your estate will be distributed among your surviving living relatives, by degrees of relationship. If you die leaving infant children, the Public Guardian and Trustee of British Columbia will be involved with the administration of the portion of your estate that goes to them. When you die without a will, you are said to have died 'intestate'.

Q: What are the advantages of having a will?

A: If you have a will, you are ensuring that your estate is being distributed to the persons that you want to receive your estate, not in accordance with a legal formula. You also have the opportunity to name that person or company that you wish to act as executor of your estate, someone that you trust to make sure that your instructions are carried out according to your wishes. If you die without a will, the court appoints a person to act as administrator of your estate. The cost of administering an estate is usually significantly higher when there is no will. There may be added costs for court applications and dealing with disputes between relatives over certain assets. By having a will, you can avoid such costs.

Q: Are there some assets in my estate that would not be distributed through my will?

A: There are a number of assets that would normally pass outside of the estate. For example, if your residence is held jointly with your spouse, that asset will not be included in your estate, but will go directly to your surviving spouse. Similarly, if you have an RRSP and you have designated your spouse as the beneficiary of the RRSP, it will pass to the spouse directly. The same applies to life insurance policies where you have designated a beneficiary.

Q: Can I leave nothing to one or more of my children? What about my spouse?

A: There are occasions when a person making a will may wish to exclude one or more of his or her children from sharing in the estate. This must be approached with caution and legal advice should be obtained. Generally, the law requires that you give consideration to the circumstances of your children and provide for them in your will. If you exclude a child, you must have a good reason to do so and you should bear in mind that your child has the right to make a court application to seek to be included in your estate. That application is essentially a request by your excluded child to have the court rewrite your will. The same issues apply to the exclusion of a spouse from a will. A surviving spouse also has rights to make a claim against the estate if they do not feel that the exclusion was fair. We encourage you to seek legal advice if you are contemplating excluding a spouse or child from your will.

Q: Do I need to appoint a member of my family as executor of my estate?

A: No. You can appoint anyone that you choose as executor of your estate. Your executor must be of the age of majority, ideally someone younger than you (or otherwise likely to survive you), and be an individual that you trust implicitly to manage your affairs when you are gone. Most persons who make a will appoint a member of their family to act as their executor but there are often family reasons for not doing this. We encourage clients to seek out other trusted friends who are prepared to act as executor. Alternately, clients may appoint one of our lawyers to carry out this responsibility. There are advantages to appointing someone is neutral and not involved and who has expertise in acting as an executor. The job of executor is an important one. You should appointment your executor only after making careful consideration.

Q: I have infant children. What do I do about their care if something happens to me and my spouse?

A: When we prepare wills for a husband and wife who have minor children, we recommend that in the wills appoint a guardian or guardians for those children. The guardian may be somebody different than the executor. The guardian is given legal responsibility for caring for the child in the place of the parents. Guardians are generally members of the family (i.e. a brother or sister of one of the deceased spouses or another trusted relative). Where there are no relatives available, a close friend may be appointed. The will contains instructions to the executor to ensure that sufficient income from the estate (or capital, if required) is made available to the guardian to ensure the children are properly supported, maintained, educated, and so forth. Guardians are accountable both to the executor of the estate for the care of the children and to the Public Guardian and Trustee of British Columbia with respect to the management of assets of the children that come into their possession. The selection of a guardian for infant children is an important decision. You should appointment a guardian only after making careful consideration.

Q: Can I control how my personal effects will be distributed?

A: Yes. You can leave a memorandum to your executor advising how you want your personal effects to be distributed. This can be updated regularly by you once it is referenced in the will. It saves your executor a lot of hassle.

Real Estate Questions

Q. I am purchasing and/or selling my home but do not have a lawyer to complete the transaction. What should I do?

A. Either you, your realtor, or your mortgage broker can call us at 250-385-1383 or toll free at 1-888-385-1383 to be connected to our conveyancing department and explain your transaction. We will ask you a few questions to get a better understanding of your transaction before we start acting for you.

Q. What is a lawyer’s role in a real estate transaction?

A. Lawyers play several roles to ensure that you receive title to your property free and clear of any encumbrances for a purchase transaction, and ensure purchase monies have been transferred and all encumbrances discharged for a sale transaction. We will:

  1. Review title of the property you are purchasing and advise you if there are any charges or encumbrances that may affect property ownership.
  2. Review the interim agreement, if any, and advise you on whether the agreement will affect property ownership.
  3. Confirm status of the property’s annual taxes and utilities and ensure outstanding taxes and utilities are paid.
  4. Confirm the balance due regarding potential financial obligations you may assume on the closing date.
  5. Confirm you understand your potential GST, PST, and Property Transfer Tax obligations, calculate amounts payable, and prepare all necessary documents.
  6. Draft a Statement of Adjustments showing the balance payable by you on the closing date.
  7. Draft all necessary documents required to complete your purchase and mortgage and review these documents with you.
  8. Arrange document registration at the appropriate Land Title Office.
  9. Confirm property title has been transferred to you free of all charges and encumbrances except those that you have agreed to.
  10. Pay the purchase monies to the seller on your behalf and report to you and your lender regarding completion of the transaction.
  11. Draft mortgage documents, if you and your mortgage lender approve, at an additional cost.

Q. Can you also help me with my mortgage?

A. Absolutely, we provide services to assist you with your mortgage registration and/or refinance. We will:

  1. Communicate with your lender on your behalf and report to you.
  2. Draft an order to pay and review with you.
  3. Draft all necessary documents required to complete your transaction and review these documents with you.
  4. Receive the mortgage monies in trust on your behalf and pay you those monies in accordance with your instructions.

Q. How much will it cost?

A. We offer competitive fee packages on real estate purchases, sales, and mortgage refinances. All costs depend on the value of the property, the type of lender involved, or other complicating factors. It will be ideal for you to call our office so we can provide a detailed, no-obligation quote for your transaction.

Q. What do I need to provide to you to begin?

A. We require:

  1. Two pieces of approved identification (usually a driver’s license and a credit card).
  2. Contact information such as an address, email, and phone number.
  3. The Contract of Purchase and Sale including the Property Disclosure Statement (if any).
  4. Instructions from your lender if a mortgage is involved.

ICBC and Personal Injury Questions

Q. I’ve been hurt in a car accident. What do I do?

A. If you believe that you did not cause the accident and you have sustained injuries, it may be prudent to consider retaining a lawyer and starting a personal injury action. Despite their reputation, ICBC can be quite helpful and, for less severe accidents, legal action may not be required. However, when you have been significantly injured, taking legal action may be the only way to ensure that your interests are protected and that you receive fair compensation. 

If you are entirely at fault, ICBC has a duty to defend the other insured party’s claim against you (provided that you were insured at the time of the accident and not in breach of your policy). However, be careful in providing statements to ICBC if you believe that the other party might be partially or entirely at fault as these statements may ultimately be used as evidence in the future.

Q. How can a lawyer help me?

A. A lawyer can assist you in receiving fair compensation at the conclusion of your claim and in receiving proper medical treatment in the interim. Dealing with ICBC and navigating the various documents can be stressful. Retaining the services of a lawyer allows you to make recovering from your injuries your top priority.

Q. How does my lawyer get paid?

A. Lawyers usually charge an hourly rate or by a contingency fee. Contingency fees are common in personal injury actions. If your lawyer agrees to accept a contingency fee, he or she will be paid a portion of the amount you eventually recover. In this type of arrangement, you are not required to pay your lawyer until your claim is resolved (which can take months or even years).

According to the Law Society Rules, lawyers cannot charge a contingency fee in excess of 33 1/3% for claims for personal injury arising out of the use or operation of a motor vehicle

Hourly rate arrangements are less common in personal injury actions, but may be used where there are no significant injuries or where liability is at issue.

Q. How long do I have to decide whether to make a personal injury claim?

A. According to the Limitation Act, you have two years from the date of the accident to start a tort action for personal injuries. Ideally, if you choose to retain a lawyer, you will want to do so well in advance of the expiration of the limitation period so that potential settlement can be canvassed and necessary documents can be requested.

Regardless of whether you decide to retain a lawyer, we strongly advise that you wait at least two months, and ideally until all your injury symptoms have resolved, before agreeing to settle your claim with ICBC.   As illustration, whiplash-type injuries that do not initially appear to be significant can persist and continue to cause discomfort and impairment for much longer than expected.

Trusts Questions

Q. What is a trust?

A. A trust is a legal arrangement whereby someone (called a “trustee”) holds assets (called “trust property”) which they are to manage and distribute for the benefit of another (called a “beneficiary”).

For example, if a parent gives money to a trustee who is to hold and manage the money for minor children until adulthood, then the money is said to be held “in trust” by the trustee for the benefit of the children.

Q. What is a testamentary trust? What can a testamentary trust do for me?

A. A testamentary trust is a trust that is created in a will and comes into effect when the maker of the will dies. People establish testamentary trusts for many reasons and to achieve different estate planning goals. In particular, testamentary trusts can be used to preserve wealth and manage property for beneficiaries.

Q. Can the terms of a testamentary trust be kept confidential?

A. As with the rest of the contents of a will, the terms of a testamentary trust can be kept confidential. However, if the maker of the will dies and if someone then takes the will to court to get an order allowing the executor to execute the provisions of the will (known as getting “probate”) then the will becomes a public document. The contents of the will and the terms of any testamentary trusts therein will therefore also become public.

Q. What are some examples of how testamentary trusts can be used?

A. Minor Children – Parents of minor children often establish testamentary trusts for minor children who cannot hold and manage assets. A testamentary trust for a minor child can be arranged so that the child will not receive the full value of their inheritance until adulthood. Such a testamentary trust can be arranged so that the child will receive their inheritance in stages, for example, the trust can be arranged so that the child will receive 50% of their inheritance when they reach adulthood and then the other 50% when they reach the age of twenty-five years old. By using this method, the beneficiary can receive money in stages. Trustees of such trusts are typically authorized to distribute money at any time for different reasons such as to provide for any education or health care needs that the child may have. Trustees can be authorized either to pay only income made on the trust or to encroach on the capital making up the trust. In this way, the beneficiary is financially taken care of without receiving a potentially troublesome single lump sum.

Beneficiaries with Disabilities – Persons making wills may establish testamentary trusts for beneficiaries with disabilities. Trustees of such trusts are typically given absolute discretion as to how much they distribute to the beneficiary so as to maximize any government disability benefits that are received by the beneficiary.

Spouses – Persons making wills may establish spousal trusts if their estate is expected to be large, there are children from a previous marriage, or the would-be beneficiary spouse is sick, incapacitated, or otherwise unable to adequately manage finances. This kind of trust can provide income from a deceased spouse’s estate to a surviving spouse until the surviving spouse dies at which point the estate can pass to other beneficiaries which may include children, grandchildren, or other beneficiaries.

Q. Are there possible tax advantages of using testamentary trusts?

A. Yes. Testamentary trusts can provide tax saving benefits in addition to helping with estate planning. Testamentary trusts are taxed separately from individuals and can therefore provide beneficiaries with a way to split income. Because the creation, management, and administration of trusts can be complex, it is recommended that anyone who is interested in using a trust consult with a lawyer.

Q. What is an inter-vivos trust?

A. An inter-vivos trust is a trust that operates during the lifetime of the one who establishes the trust; this is the opposite of a testamentary trust which operates after the one who established the trust has died. Whereas testamentary trusts become effective when the person who makes the will dies, inter-vivos trusts become effective when trust is established while the one who is establishing the trust is still alive.

Q. What can an inter-vivos trust do for me?

A. A will is the key document in estate planning but an inter-vivos trust can also be useful. Inter-vivos trusts are useful because they can be confidential, flexible, and used to ensure that trust property falls outside of an estate. Generally, property that falls outside of an estate is exempt from court fees and cannot be claimed by anyone who is not the intended beneficiary. In this way an inter-vivos trust can be used to protect property that one intends to give to another.

Transferring property into an inter-vivos trust allows the person making the trust to avoid court probate fees on the trust property and court applications by family members and creditors making claims against the trust property.

Q. How does an inter-vivos trust work?

A. Inter-vivos trusts are typically established by documentation which sets out the terms and conditions necessary for directing how the trust is to operate, i.e., what property shall be held, who will hold the property (i.e. who will be the trustee), how long will the property be held, and who will be the beneficiary of the trust. 

When property is transferred to a trust it is generally deemed, for tax purposes, to have been disposed of at fair market value. Capital gains taxes may therefore be levied against any increase in the property’s value when the property is transferred to the trust.

Inter-vivos trusts are flexible in how they can be used to address different issues including ones of taxation. Before a person establishes an inter-vivos trust, they should first determine what they are trying to achieve in doing so. Because the creation, management, and administration of trusts can be complex, it is recommended that anyone who is interested in using an inter-vivos trust consult with a lawyer.

Q. What are alter ego and joint partner trusts?

A. Two types of inter-vivos trusts exist in Canada for people aged 65 and older which allow transferring property to a trust without paying taxes on capital gains. These two types of trusts are alter ego trusts and joint partner trusts.

Alter ego trusts Alter ego trusts are established in the lifetime of the one making the trust. A person can transfer assets, including assets that have increased in value, to an alter ego trust without paying capital gain taxes at the time of the transfer.

An alter ego trust can be made if the following three conditions are met:

  1. The person making the trust is at least 65 years old;
  2. Only the person making the trust is entitled to receive income from the trust during their lifetime; and
  3. Only the person making the trust is entitled to access the capital of the trust during their lifetime.

As these conditions suggest, alter ego trusts are established by single individuals. Property can be moved into alter ego trusts with the taxes being deferred. When the person who made the trust dies, the property is deemed to have been disposed of for tax purposes.

Joint partner trusts – Joint partner trusts are like alter ego trusts but they are established in the lifetime of couples. With joint partner trusts both partners in the couple are entitled to the trust’s yearly income and only partners in the couple are entitled to access the trust’s capital during their lifetimes. As with an alter ego trust, taxes on trust property are deferred until death but in the case of a joint partner trust taxes are deferred until the death of the final survivor.

Q. What potential advantages of using alter ego and joint partner trusts are there?

A. Potential advantages of using alter ego and joint partner trusts include the following:

  • The person or persons who make the trust can designate who they want to receive the trust property upon their death but, unlike in a will, the trust property will not go through the court system and the trust document will not become a public document.
  • Funds can be more readily available to beneficiaries upon the death of the person or persons who made the trust because using trusts can avoid estate administration delays.
  • Trusts can achieve some of the same effects as a power of attorney in relation to property.
  • Trusts are generally less susceptible to challenges brought by persons who are not involved in the trust, its management, or its administration.
  • Creditors may be avoided by using a trust.

Q. What potential disadvantages of using alter ego and joint partner trusts are there?

A. Potential disadvantages of using alter ego and joint partner trusts include the following:

  • Yearly tax returns may need to be filed for the trust.
  • There may be a problem with double taxation if an estate is subject to US estate tax. The Canadian tax authority may see the trust and the individual as separate taxpayers but the US tax authority may disregard the trust and deem that it constitutes part of the estate. If this occurs, the trust may be taxed twice, once in Canada and once in the US.

The questions and answers on this page are for information purposes only and are not legal advice to the public or anyone in particular. Consult with us on your particular question or concern.