Tuesday, April 23, 2013

The Canadian Guide to Will and Estate Planning

Douglas Gray and John Budd have published the third edition of their book The Canadian Guide to Will and Estate Planning. They do a good job of explaining in simple language the bewildering array of ways to protect your estate from taxes when you die.

The range of topics covered includes building your estate, wills, trusts, probate, taxes, U.S. taxes, cottages, family businesses, charity, insurance, advisors, retirement care, and funerals. It’s almost enough to make me renounce all my worldly possessions – almost.

I won’t try to summarize this book and further – even at 400 pages, most topics are covered quickly. The main value of this book to me was to become aware of possible estate planning strategies. Actually acting on this information likely requires further investigation or professional help.

For the rest of this review, I’ll point out some parts of the book I found interesting, surprising, or I disagreed with.

CDIC Coverage

“You are protected up to a maximum of $100,000 for each separate deposit.” This may be technically true if you define “separate deposit” correctly, but this definition will not line up with what most people understand the words to mean. Similar deposits get lumped together. It’s best to read the details at the CDIC web site.

Financial Advice

“Unless you consider yourself an expert in the markets, and in forecasting the economy and interest rates, you should have a professional manage your investment portfolio.” Unfortunately, the professionals can’t do any of these things either. The real game is to invest in a way that allows for the possibility of a wide range of outcomes.

Disinheriting Family

Apparently it is quite difficult to disinherit a child or spouse. If you feel strongly about doing this, you’d better get some good advice, because the authors explain that various laws give spouses and children rights that can supersede your wishes.

Wills and Marriage

“A will is automatically revoked by law if the testator enters into a legal marriage after the will has been made.” There are some exceptions to this, but in general you need to look at your will whenever you get married.

Caution on Trusts

“Trusts are complex, and costly to set and maintain year-to-year.” Trusts can save on taxes and solve certain problems, but they are generally only worthwhile for large sums of money.

Final Income Tax Returns

The executor must file a final tax return for the deceased and must file another tax return for the estate to cover the time after death.

RRSP Tax Surprise

If you leave your RRSP to one child and the balance of your estate to another, the entire RRSP will go to the first child, and the balance of the estate will pay the income taxes on the RRSP withdrawal. This can skew the size of each share in a way you didn’t expect.

Electing Out of the Spousal Rollover

Ordinarily, you can leave property to a spouse without triggering capital gains taxes, and the spouse simply takes the property at your adjusted cost base. However, if you have a large capital loss from previous years, you may wish to elect out of the rollover to use up the capital loss and save the living spouse future capital gains taxes.

Principal Residence Exemption

See my previous post for a discussion of reducing taxes by taking advantage of the flexible principal residence designation.

Insurance Agents

“One might think that insurance agents’ ... recommendations on the need for, and the volume of, life insurance that is required in a situation are ‘product and sales driven’” to create commissions. “In the writers’ experience, this is not the case.” I’m sure there are many honest insurance agents, but fewer than half of the ones I’ve dealt with had integrity.

Executor Duties

The authors provide a comprehensive list of executor duties in the appendices. This list is long and may make me a little less likely to agree to be executor for too many more family members. On the other hand, maybe it gets easier after you’ve been through it a couple of times.

Life Insurance

According to a chart in the appendices, to have $5000 available to spend each month, you would need investible assets of $2.2 million and require life insurance to close the gap between your current assets and $2.2 million.


Overall, I found this to be a useful book that manages to take dry subjects that are often described with impenetrable jargon and makes them comprehensible.


  1. While wills are revoked on re-marriage, beneficiaries are not automatically revoked. It's a good idea if the situation arises to double check each RRSP account etc to make sure the beneficiary is correctly named. It can be a slap in the face as well as a financial setback for a second spouse to find the first spouse gets the RRSP!

    Did they talk about RESPs and wills? The Blunt Bean Counter has a very good post about the need to handle the RESP properly in the will to avoid losing the CESG etc.

    1. @Bet Crooks: You're right that it makes sense to check the beneficiary on RRSPs when getting divorced or remarried.

      I don't recall much discussion of RESPs and wills, so readers should dig up Mark's post that you liked.

  2. As an estate planning attorney in Philadelphia, PA, I found your overview very interesting. Canada has rules quite different in this area. For those readers who want to see how the United States estate tax rules operate they can read my article Estate Planning 2013: Now What? A Must Read For Everyone at http://frommtaxes.wordpress.com/2013/01/21/federal-pennsylvania-estate-tax-planning-2013/. Hope your readers find this article as an interesting contrast to Canadian estate law.

  3. This sounds like an interesting book.

    Just to put the 2.2 million in perspective, $5000 a month is $60000 after tax per year - so what's that? $90,000 per year gross income roughly? Most people think in the terms of the $90,000. If you figure you only need $50,000 per year, then you need less than the 2.2 million.

    I also suspect that maybe they're not drawing down the capital, i.e. using the 2.2 million to generate some of the $5K a month.

    And I'd watch out for the phrase 'investable assets'. Consider that your free cash, not your total assets.

    The 2.2 million just seemed a bit high to me. My gut says a 6 figure income earner normally ends up needing $1-$1.5 million life insurance policy, not over 2M. While I'm on board with having more insurance rather than less (and almost everyone has less they probably should have), the numbers have to be believable or they just get dismissed.

    1. @Glenn: I think $60,000 per year after tax is probably closer to $80,000 pre-tax, but I agree with your point that people tend to think in terms of gross.

      The burn rate assumed in the book was 2.75% after tax. This would be maybe 3.5% pre-tax. For an indexed portfolio with very low fees, this may not draw down capital. For a typical Canadian with high-MER balanced mutual funds, spending 3.5% of your stating portfolio value each year would definitely dig into the capital when we factor in inflation.