At the beginning of this year, after Jesse Itzler’s Build Your Life Resume course, I decided that this year is the year that I will learn to ski, swim and skate.  

When my friend invited us to join her family to ski over the family long weekend, I mustered all my courage to face my biggest fear – rolling down the ski hill!

If you were born and raised in Canada, you probably couldn’t relate.  Skiing is almost like a must learn sport here.  

I wasn’t born or raised here.  

My family and I joined a ski tour when I was 14.  We bussed to this ski hill with no prior experience of skiing in Korea.  It took us a while to get our skis and boots and took us even longer to put them on properly.  By the time we were ready, our entire tour group was nowhere to be seen. 

We didn’t know what to do, so we thought, “the group must have gone up to the top of the hill.”  We didn’t know any better. We took the ski lift to the top of the ski hill. 

The rest is basically a memory of horror: me rolling down the hill. 

I’ve never gone back since.  One traumatic experience was enough for me.  (Wait until I tell you my skating experience, it was worse!) 

It’s no surprise that my muscles were sore after the first couple of days of lessons and skiing.  I was tense and worried. I fell many times, even face planted once. My eyes were focused on my skis and I was unable to overcome the fear of speed.  My throat even started hurting. My body was getting sick from this fear. 

This all happened while my kids were skiing down the hill with ease and no fear, after a couple of lessons.  They fell, they got up, they kept going.  

Occasionally I saw tears coming out from their eyes, but they kept going (thanks to Erwin, who’s a good skier and he took them out skiing).  

Robin said, “It’s okay to fall.  Falling is part of learning.”

Learning skiing was extremely difficult for me, but I gotta show my kids that we all learn from failure.  Falling isn’t an excuse to stop. Falling is the reason why we have to get up to try again.  

At the end of the day, all I want is to lead by example and be a better parent.  I can’t just give up after Robin said falling is part of learning. 😉 

So when the schools announced that they’re closed again the following week, I joined my friends’ families again for a shorter ski trip. 

I got a different teacher this time, practiced the new drills, and felt much better.  I finally came down without falling! And I wasn’t in as much pain after!  

The hill was a lot less intimidating this time around. 

I’m still not a good skier, but hey, I started somewhere.  I will practice and I will continue learning. 

If you’re just at the beginning of your real estate investing journey or real estate career or whatever business adventure you’re on, it is ALWAYS DAUNTING at the very beginning.  

Learning a new skill is awkward, full of fear and may even cause you muscle pain too!  

It’s okay, it gets better, as long as you stay in, keep going, keep learning.  It will get easier. 😊

Now onto this week’s topic…

Setting up a will has always been on my mind for years and years.  It is never a priority, but we always knew that we had to get it done somehow. 

What if I were to pass away tomorrow, who would get my assets?  

What if my spouse were to re-marry and have other children, how do I make sure that my assets are given to my kids only? 

What if something happened to both of us, who would take care of our underaged kids? 

How old are the kids supposed to be to get the assets?  Is 20 too young? Is 30 an appropriate age? 

Finally, we setup the appointment, sat down with a lawyer who specializes in wills and estates, and got to the bottom of it.  

Here’re the 8 key takeaways that I have.  

  1. Understanding Estate Administration Tax (Probate)

You know the saying, “there are two things in life that you can’t avoid, death and taxes.”

At death, your estate would be liable for income taxes (all your assets are deemed to be disposed at fair market value at death).  

On top of that, the Ontario Government also wants to charge you something called Estate Administration Tax, which is commonly known as probate.  

This is typically calculated as 0.5% of the first $50K of asset and 1.5% of asset value over $50K.  

If you have 10 houses free and clear at the time of death and each of them is worth roughly $500K, the probate is calculated as the following:

$50K x 0.5% + ($500K x 10 houses – $50K) x 1.5% = $74,500

The executor of your estate must pay this amount to obtain the certificate of appointment of estate trustee by the government. 

Without this document, no bank and no government agencies would be willing to speak to the estate. 

  1. Some assets are subject to probate, but some aren’t 

Yep, there are assets that aren’t subject to probate.  

For example, your life insurance policy would not be subject to probate when you have a named beneficiary. 

Your RRSP and your TFSA would not be subject to probate when you have a named beneficiary.  

These assets will bypass the probate system and go straight to the beneficiary.  

With careful planning, the shares of your corporation can also bypass the probate system.

  1. Two wills vs One will

If you structure your will properly, you can avoid paying probate fees on shares of private corporations.  

This means that you can avoid paying probate if your investment properties are held in a private corporations. 

This also means that you can avoid paying probate on the business you own in your private corporation. 

The way to structure the will is that you will need to have two wills, one will for assets that are subject to probate, and the other one is for shares of private corporation (i.e. assets that are not subject to probate).  

  1. Executor of Estate

Once you get the will details setup, now you need to decide who’s going to be the executor of the estate.  

This is the person who’s going to be in charge of distributing your estate according to your will, pay all the taxes, and decide on buying or selling your rental properties.  

This person has to be someone you can trust and rely on that you can trust to act in the best interest of the beneficiaries.  

  1. Legal guardian of your underaged kids

Unless you’re a single parent, if you have underaged kids, your significant other becomes the legal guardians of the kids.

If you have underaged kids like Erwin and I, you may have to decide the legal guardians of your kids if both you and your spouse were to pass away before they turn 18.

It’s sad to think about how our kids will be without us. But setting up the will provides the peace of mind needed to take care of my kids. 

  1. Spousal trust

If I were to die first, how do I make sure all my assets are going to my kids only, even if Erwin were to remarry?

You can structure your will in a way that your assets go into a spousal trust.  This allows your spouse to continue to receive income for his lifetime, but he would have no access to the capital.  

To apply this in the real estate world, the spouse can continue to receive the net rental income, but he cannot get ownership of the assets.  

The assets can be distributed specifically to your children only.  

  1. Power of Attorney Personal Care

Planning for what will happen when we die isn’t an exciting concept. 

But we also have to plan for the person who can be in charge of my body if I am incapable of functioning.  

It’s not fun.  You gotta trust this person with the ability and the judgement to make the best medical decision for you when you can’t make the decision yourself.  

  1. Power of Attorney Properties

With this signed power of attorney, the designated person can speak to the bank on your behalf, sell your assets, collect rent, etc., on your behalf.. 

This is an interesting one.  As soon as you sign this Power of Attorney related to your assets, this person can take the signed Power of Attorney to the bank, essentially acts on your behalf.   

You don’t need to be in a state that you can’t function for the Power of Attorney to kick in unfortunately.  So you gotta be really careful handling this signed document.  

The conversation at the lawyer’s office lasted for about 45 minutes.  It was all business but it forces both Erwin and I to re-evaluate our lives and priorities.  

It also made me realize that we’re here on this earth for a limited time, live your life to the fullest. 

Until next time, happy Canadian Real Estate Investing.

Cherry Chan, CPA, CA

Your Real Estate Accountant

1 reply
  1. sanjay babbar
    sanjay babbar says:

    Hi Cherry,

    Do you or can you recommend a good reasonably priced lawyer for the will?

    Thanks

    Reply

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