There are many advantages to putting one’s property in a revocable living trust. Families of trust clients have often told me that they were amazed at how easy the client’s estate was managed and settled when everything was in a trust. Probate avoidance can be faster, less expensive, and less public than opening a probate estate. The distribution provisions can be more complex if a trust is used and it is easier to create an effective plan to benefit disabled beneficiaries who depend on public benefits or who cannot manage their own affairs. This is very important when there are beneficiaries who are minors. Every single parent of a minor child should consider setting up a revocable living trust. The disadvantages are that setting up a trust-based estate plan and transferring all the assets into the trust may cost nearly as much as probating the estate on death and the expense is incurred when the estate plan is created, not when the client dies. Many clients decide that the advantages outweigh the effort and expense.
When U.S. estate-planning clients own real estate in Canada, trying to include the property in a trust presents special problems. According to a paper on the website of Miller Thompson, a multi-province Canadian law firm, revocable living trusts can be used in Canada in much the same way they are used in the U.S. However, there is a deemed disposition at the time property is transferred into the trust, with a resulting capital gains tax, and every 21 years thereafter, unless the trust qualifies for a statutory exception. There are certainly pitfalls that would require consultation with a Canadian lawyer. Also, income and gains retained in Canadian trusts are taxed at the highest rates.
Pour-over wills are commonly used in the U.S. to sweep property that was not placed in the trust during life out of the probate estate and into the trust. Where Canadian real estate passes under a pour-over will, there are several traps to avoid:
1) A pour-over will into a trust that did not exist at the time the will was signed is not valid.
2) A pour over into a trust that the testator may amend after the will is executed is invalid to the extent that amendments are made that affect the pour-over provision.
3) A pour over into a trust that a third party can amend is not invalid, provided that the amendments are not under the control of the testator.
A power to add or delete beneficiaries or a power of appointment causes a trust to be considered amendable. Because of these technicalities planning for inheritance of Canadian real estate using a U.S. pour-over will is problematic. When a U.S. estate plan is based on a revocable living trust, Canadian real estate may be included in the trust, but care should be taken and both Canadian and U.S. attorneys should review the documents.
John B. Payne, Attorney
Garrison LawHouse, PC
Dearborn, Michigan 313.563.4900
Pittsburgh, Pennsylvania 800.220.7200
law-business.com ©2014 John B. Payne, Attorney