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tax matters

Tim Cestnick is president of WaterStreet Family Offices, and author of several tax and personal finance books.

My parents were recently revising their wills. I told them that I'd like an inheritance similar to that left by Onni Nurmi, a Finnish businessman. Mr. Nurmi wasn't particularly wealthy but left 760 shares (then worth about $16,000) of Nokia Corp. to his local village in 1962 to provide a little income to the residents of a nursing home there. By 1999 the shares had a total value of about $48-million.

What are you leaving behind in your will? Last week I spoke about choosing an executor. Today, I want to talk about some other considerations when preparing or revising your last will and testament.

Prepare your will

If you don't have a will, visit a lawyer to have one prepared. If you die without a will then the intestacy laws of your province will apply to distribute your estate in a manner that may very well differ from your wishes. If you do have a will today, keep in mind that you should be reviewing your will at least every three years, and more often if significant events take place in your life.

Cash legacies

After leaving cash to cover taxes and debts, it's common to find individuals leaving specific amounts of money to children, grandchildren, friends, relatives or charities.

You can leave an amount outright, or set up a trust fund in your will that can provide ongoing support to those individuals. If you do establish a trust, choose your trustee carefully (see last week's article at; the trustee can be someone different than the executor if you choose. As for charities, be sure to name the charity and the specific dollar amount or a formula for calculating the dollar amount (as opposed to leaving that decision to your executor), otherwise you may not be entitled to a donation tax credit on your final tax return (the donation might, instead, be considered a gift by your estate, and not of you personally in your year of death).

Gifts of property

What about your household effects and real estate? Some people like to include specific bequests in their will to detail who gets what. When it comes to personal effects, it's best to avoid including a long list of items in your will because each time you want to change the items on the list, or who gets what, you'll need to re-execute your will, which requires following formal procedures. It's a real pain. If you trust your executor and family to follow your wishes it's often better to leave those personal items to your spouse or other named individuals along with a non-binding "letter of wishes" stating your desire for the distribution of specific items.

As for real estate, you can make a specific bequest of certain properties to certain individuals, including your cottage or other recreational properties. You may want to provide for any special terms upon which the property should be held (the property could, for example, be held in trust for the benefit of future generations). In the case of the cottage, you might consider leaving money in trust to help cover all or some of the maintenance costs in the future, if you have the means.

Residue of estate

After you've provided for the payment of taxes and debts, made cash legacies, and distributed your real estate and personal effects, the remainder of your estate is called the "residue." It's common for the residue to pass to your surviving spouse, if you have one. But regardless of who receives the residue, it might make sense to leave those assets in a trust for your beneficiaries (or one trust for each of them).

A trust can protect the assets from creditors or a marriage breakdown of your beneficiaries. A trust established in your will can also allow your beneficiaries to split income with the trust, resulting in tax savings today (although this benefit is currently under review and the government is proposing to change our tax law to eliminate this benefit). If your beneficiaries are minors, then placing their inheritance in trust will be necessary until they reach age of majority in your province. You can provide instruction to the trustees to distribute the assets at certain ages (one half at age 25 and the balance at age 30, for example), or you can leave distributions to the discretion of your trustees.

Whether a trust makes sense will depend on factors such as the size of your estate, age and competence of your beneficiaries, and desired tax planning.

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