Estate planning for special assets
The disposition at death of many personal assets – a home, stocks, bank deposits – is typically straightforward in terms of how they are treated under the terms of a will and their valuation.
But other special or unique assets, such as foreign real property, art and collectibles, can require special attention from an estate planning perspective to ensure the assets and the overall estate are distributed tax-efficiently and fairly based on the testator’s wishes.
Foreign real property
It’s become increasingly common for Canadian estates to include foreign-based property upon death. This is due to a number of factors, from people working or marrying abroad, to the inheritance of property located in their country of birth, to the desire for recreational property in a warmer climate.
From an estate law perspective, foreign-based assets can give rise to estate administration issues that are best addressed as part of an estate plan created in consultation with professional advisors. For U.S. property in particular, the ownership structure remains one of the most important planning points to consider because of the tax implications to which various arrangements can give rise.
Some of the most common options include ownership through a Canadian trust, corporation, partnership, or joint ownership. Each of these options has various advantages and disadvantages, which will vary depending on each specific situation. BDO provides a good overview of U.S. estate tax for Canadians.
For all international property, it’s important to remember that it may not be subject to a Canadian will, as real property is generally governed by the laws of the jurisdiction in which the property is situated. For this reason, consider the use of a foreign “situs” will that meets the requirements of the applicable jurisdiction. While there are potential consequences to using a “situs” will, such as the inadvertent revocation of other wills, careful planning and drafting of such a will can ensure that the asset is properly handled as part of your estate.
It’s also important to remember that both foreign and domestic laws – especially tax laws – change frequently over time. Consulting a professional advisor and revisiting your estate plan on a regular basis can ensure your estate plan remains sound.
Art and collectibles
Assets such as fine paintings, classic cars, and tapestries should also be given special treatment from an estate planning perspective. Since such collections usually grow over many years, their values can change dramatically over time as well. For collections with a high probable value, it’s wise to have them professionally appraised and inventoried. This should include a photo, description and appraised value of each piece.
With a proper valuation, you’ll be able to plan for accurate gift, estate and income tax planning. For example, if you have an adult child who treasures a particular art piece, but you want to ensure your estate is divided equally amongst all your children, you can leave the artwork to the child knowing its appraised value, and use other assets to provide an equal share to your other children.
Knowing the true value of your collection can also be important from a charitable giving perspective. Many collectors hope to donate these assets to galleries or museums. This recent Globe and Mail article discusses some of the key issues that collectors should consider when making their estate plan.