Over the next series of blogs, I’ll be discussing the importance of estate planning for dentists. In the first blog, I talked about wealth planning for the single, young, debt-laden dentist. In the second blog, I talked about wealth and estate planning for a young, engaged dentist. In this blog, I’ll be talking about wealth and estate planning for the married dentist.
So you’re Married…Now What?
Married couples have lots to think about. Particularly if they have children. Let’s start with some financial planning, shall we?
Shared bank and credit card accounts?
Assuming you trust each other, you may have shared accounts. In the event of death or disability, the other person still has access to these funds, which is great. If there’s a lack of trust when it comes to finances, married couples may want to have separate accounts and perhaps even one shared account that they contribute into (e.g. to pay the mortgage, utilities, etc.). Just remember to have at least 4 months’ worth of income saved up in case of an emergency (new car, new roof, etc.). It might even make sense to have a joint tax free savings account (remember: funds are withdrawn tax-free) for an emergency fund.
If the family home is owned by the married couple equally as “Joint Tenants”, then if one of the spouses dies, the other spouse AUTOMATICALLY INHERITS the other spouse’s interest in the property. This is called the law of survivorship. It applies to jointly held property, bank accounts, etc. It also means that these types of properties pass outside of a person’s estate and therefore won’t need to be probated (no estate administration tax will be paid on the value of the home).
Shares in a Professional Corporation
If a spouse is a dentist and has a professional corporation, thought should be given to whether the other spouse should have shares (and if so, what type of shares). If the objective is for both spouses to be able to take advantage of the lifetime capital gains exemption, then both spouses require to hold so-called “common” or “equity” or “growth” shares. If the married couple plans on having multiple practices and hence multiple corporations, then the amount of shares which one spouse owns in one corporation may be nil or up to 25%. This is because it helps prevent two corporations from being “Associated” and therefore having to share the 15.5% small business tax rate given to small business corporations on the first $500k worth of taxable income. If the two corporations (each owning its own practice) are NOT associated, then they both get the small business tax rate on the first $500k of net income and don’t have to share it!
If one spouse is not going to be using their lifetime capital gains exemption and does not end up getting “common” or “equity” or “growth” shares, then they can still receive so-called “dividend sprinkling” or “special” or “preferred” shares. This allows for income splitting during the course of the marriage. Think: you pay less tax when 2 people are each earning $40k versus 1 person earning $80k themselves. And a dentist who is a shareholder can do this with their parents and adult children. Interestingly enough, if a spouse, parent or adult child has no income from any other source, they can receive upwards of $40k and pay $0 federal tax (there’s a little bit of provincial tax)! Not too shabby. You’ll save a lot of tax that way.
And, as always, don’t forget to have each “common” shareholder have a Corporate and a Non-Corporate Will (to save on estate administration taxes, plus to make specific gifts and appointments), plus Powers of Attorney for Property / Finances and one for Personal Care. I can’t stress this enough!
Employment Agreement with $10,000 Death Benefits
If you have a professional corporation, you can have an employment agreement that stipulates that the corporation pays your beneficiary(ies) upwards of $10,000 upon your death. The corporation gets a $10,000 tax-deduction and the recipient receives it tax free!
Splitting Income By Paying Your Spouse a Salary
It has to be reasonable. There. I said it. You heard it. Now do it. If you don’t want to get into trouble with the Canada Revenue Agency, you have to pay your spouse a reasonable salary for administrative tasks. If they’re also a hygienist or office manager, pay them reasonably for that position. Make sure to have an employment agreement. And that agreement can also contain $10,000 tax-free death benefits (see above!). Again, the idea is that you want to split the income as best as you can to the lower income earner. This reduces the overall tax bill.
Family Tax Cut
The Progressive Conservatives introduced a new measure in 2015 that allows spouses to income split legally (something that can be tricky at times). Here’s how it works: a couple with at least one child who is 17 or younger will be able to split their income NOTIONALLY on their tax return in order to pay less tax as a family unit, up to a maximum savings of $2,000. It was supposed to allow for more tax savings (i.e. you get to offset up to $50k on your spouse who is staying at home and looking after children), but it got watered down at the end so it ended up being only $2,000 worth of savings.
Pension Income Splitting
Did you know that married couples can allocate a portion of certain types of their pension income to their spouse? This would help lower one person’s income tax bill – particularly if one of the spouses is in a higher income tax bracket vis-a-vis the other spouse.
Tax Free Savings Accounts
I’ve written about this here.
Inheritances and Gifts
Did you know that if you are married and receive an inheritance then your inheritance CAN form part of your Net Family Property (and therefore be divided equally with your spouse upon a breakdown of the marriage)? That might not be what you want. Is there anyway to prevent this? Yes. First, if you received the inheritance BEFORE you got married, then it won’t form part of your Net Family Property. Second, if you received the inheritance during the course of your marriage and the LAST WILL AND TESTAMENT of the person (from which you received the inheritance) specified that any inheritance you receive was to remain excluded from Net Family Property, then it won’t be included. Third, if you have a domestic contract (like a marriage contract, prenup or cohabitation agreement that survives marriage), that specifically excludes inheritances of the property or income that forms that inheritance, then it would be excluded from Net Family Property.
Over the next series of blogs, I’ll be discussing the importance of estate planning for dentists. In the first blog, I talked about wealth planning for the single, young, debt-laden dentist. In this blog, I’ll be talking about wealth and estate planning for a young, engaged dentist. They’re starting to pay back their school debts. They’ve bought their first car. And they’ve found the “love of their life” as my wife Paris would say. And there’s a wedding coming up 😉 It’s an exciting time with lots of changes.
But before you dive into this new world, you need to sit back and think long-term. How do I protect myself in case of disaster? What if the marriage doesn’t work? What if I get disabled or die? What if we can’t agree on our finances and where to save / spend / pay down debts? There’s typically a lot of tension when young adults start to discuss these things; but it’s an important conversation to have. So let’s try to structure some of the things that you should be thinking / talking about, shall we?
Couples who are engaged do not have any type of legal or tax benefits per se. They don’t qualify for the various income-splitting strategies available to married couples (e.g. splitting pension with your spouse, income splitting with spouse where you have minor children and one spouse is at home, etc.). Engaged couples who are not common law spouses under the Family Law Act don’t owe each other financial support. And if the couple breaks up, they don’t come under the Equilization of Net Family Property scheme outlined in the Family Law Act, which is discussed in greater detail here and in our eBook “Ontario Dental Law” (which you can download for free by simply clicking on the top right corner of this website).
Insurance Planning for Death and Disability
As with all stages of your life, when you’re engaged, you should have sufficient life and disability insurance. If you’re young and you get it, it should be relatively cheap (assuming you are in good health). If you’re in debt (student loans presumably), you should have enough life insurance to cover the cost of that debt, otherwise your estate won’t be worth much (and your beneficiaries will receive little or nothing). Also, if you’re about to get married, have car loans, have a mortgage, etc., it’s definitely worthwhile to have enough life and disability insurance to wipe out or manage those debts in the event of disaster. You don’t want to leave a loved one having to deal with your disability or death AND be financially struggling at the same time.
RRSP, RRIF, TFSA Designations
If you have registered retirement savings plans, registered retirement income funds, and /or a tax free savings account and you’ve designated a person to be the beneficiary of those assets, then keep in mind that marriage doesn’t automatically revoke those designations. You’ll likely want to update them from time to time. And you should always be thinking of layers and scenarios. In case your fiance / new spouse dies before you, who should receive the RRSP, RRIF, TFSA? Remember: taxes will be paid out of your estate on the value of your RRSP, but not on your TFSA. You may want to have life insurance in place to cover these taxes – particularly if you’re giving your RRSP to someone who is also not getting your life insurance. This helps ensure that your beneficiaries receive their inheritance in a fair / equitable manner (assuming that’s your plan).
Did you know that if you have a Will and then get married, the Will AUTOMATICALLY GETS REVOKED!!! So if you have a Will with specific gifts to people who are NOT your fiance, think about that! There is only one exception: that the Will (or an amendment made to the Will) contemplates that you are getting married and that you intend for the Will to survive the marriage and still be legal and valid. Also, you might want to add something in there to the effect that: if the marriage doesn’t happen, then the gifts to your fiance are null and void. In other words, the gifts to your fiance would be dependent on the marriage taking effect. You’ll likely want to update your Will after you get married so that you can make gifts to your spouse, include your children, make RRSP, RRIF, and TFSA designation, etc. And don’t forget to complete your Powers of Attorney for Property / Finances and one for Personal Care as well.
Prenup: Planning for Divorce
It’s the word a lot of people hate to hear… the word that makes us a little squeamish… but it’s important to say. That’s right: “Prenup”. A Prenuptial Agreement is a TYPE of marriage contract (cohabitation agreements for cohabiting couples and marriage contracts for married couples are other types of marriage contracts) for couples about to get married. The word “Prenuptial” means “Before Marriage”. You get the idea.
These Agreements deal with the parties’ respective rights and obligations during and after their marriage (or on death) and can deal with things like: ownership or division of property, support obligations,the right to direct the education and moral training of children, and any other matter in the settlement of their affairs (s. 53 of the Ontario Family Law Act).
Importantly, a Prenuptial Agreement CANNOT say who will have custody of, or access to, children if the relationship ends. Furthermore, a Prenuptial Agreement cannot prevent a spouse from being in possession of the matrimonial home – irrespective of who owns it! Finally worth mentioning is that a Prenuptial Agreement or Marriage Contract does not need to deal with all rights and obligations concerning the relationship: it can only be concerned with one asset (e.g. a house) or one obligation (e.g. support to one party on termination).
The legal requirements for a Prenuptial Agreement in Ontario include the following:
1.The parties must make full disclosure of their financial assets, liabilities, income and expenses;
2.The contract must be in writing and signed by each party before a witness; and
3.The contract must be entered into voluntarily (i.e. no duress, undue influence, unconscionability,etc.).
It is HIGHLY RECOMMENDED (though not legally required) for the parties to obtain independent legal advice prior to entering into a prenuptial agreement.
What the Courts Have Said About Prenups
The Supreme Court of Canada had this to say in the case of Hartshorne v. Hartshorne, 2004 SCC 22 about Prenups (a case that has been followed and cited with approval by Ontario Courts):
Do you have a valid and up-to-date Will? If not, now is the best time to get your affairs in order. Without a Will, you risk leaving behind a mess: your estate may not be administered in a timely fashion or by someone you would have selected, your property may not be distributed to beneficiaries you selected (and perhaps not in the most tax advantageous manner), and you may not like who ends up being responsible for your minor children. So let’s talk about Wills, shall we?
1. What is a Will?
It’s not a contract. It’s not something that can bind your spouse. It’s an expression of your final wishes concerning your property and financial affairs when you die. It lets you name someone to be responsible for administering your estate. It allows you to make specific gifts of cash, real estate, and personal property to particular individuals. And it lets you name someone to be responsible for your minor children.
2. What if I don’t have a Will?
If you’re a dentist and you have a practice and you pass away without a Will, you are said to have died “intestate”. This is a problem. Most likely, a locum will need to enter the scene. This does not generally bode well for the team (i.e. staff and associates) or the patients. They need certainty and continuity. They want to see a new dentist enter. And they may abandon ship if it takes too long for the practice to be sold. What could cause the delay you ask? Well, if there is no Will, someone will need to apply to court to be the Administrator of the Estate (without a Will). This could take some time as there may be infighting, delays, and problems with all of the paperwork (trust me, it’s a lot of paperwork). Finally, the Administrator may need to get all of the beneficiaries onside to sell the practice. The longer this takes, the more likely that the goodwill of the practice will start to drop (along with the overall purchase price).
3. What information do I need to complete my Will?
If you are a dentist, you can create your Will online NOW using your smartphone (e.g. blackberry, iphone, android phone, etc.). Just go to www.DentistLegalForms.com and use the Will-O-Matic wizard to create your Wills. It takes between 30-60 minutes to create a Will. What kinds of questions will the software ask you? Things like: personal information (e.g. your name, age, city, etc.), who you want to name as your Estate Trustee (the person responsible for administering your estate), what specific gifts you want to make (e.g. cash, real estate, charitable, personal property, etc.), what is to happen with your leftover assets after specific gifts have been made, what age you want your children to receive their inheritance, and a lot more. You can go through the entire questionnaire and see a partial preview of your Will right now, so what are you waiting for?
4. What do I do when I’m done my Will?
After going through the questionnaire, you’ll be able to purchase your Will online. From here, you need to read the detailed signing instructions at the back of the Will. It will tell you how to sign and have your witnesses sign, where to keep your Will, and what kinds of other documents you need to complete your estate (e.g. Powers of Attorney and Personal Information, Assets and Liabilities checklist). Make sure that your Estate Trustee knows where your Will is and has access to it. You should also update your Will every few years and when you experience a significant change in your life (e.g. birth, death, divorce, inheritance, new job, new property, etc.). You should also update your Will before you travel or go in for surgery.
If you want to talk Wills (how to get them done in a cost-effective, convenient, and easy-to-understand manner), then go to DentistLegalForms.com now. After you’re done, you can have DMC LLP review everything for you.
Every dentist should have one, but they don’t. Why? Because people don’t want to be pro-active; they typically want to take care of things when there’s a problem. Also, dentists think that when they write their Will, they’ve essentially signed their own death certificate (nothing could be further from the truth; death and taxes are certain, but for the most part no one really knows with certainty when they’re going to pass away). Finally, dentists think that they can simply write something down on a piece of paper near their final hours that will be their Will; the problem here is that it might not be valid or comprehensive enough or even followed if it’s not drafted properly to understand.
So, with these things said, the next few blogs are all going to educate you, my fellow dentist, on all things involving legal Wills. So let’s get started with some important concepts, shall we? Yes, let’s start off with: The Estate.
What the heck is an Estate?
When we pass away, our assets form something called an “Estate”. And these assets (typically cash, real estate, personal belongings like jewelry, art, furniture, securities, vehicles, etc.) are used to pay off our debts, testamentary expenses and the leftovers distributed to our beneficiaries. Now, it’s important to keep in mind that NOT ALL of our assets go into our Estate. Certain assets – like jointly held property, proceeds from life insurance, property subject to division under family law, property subject to an equitable claim, gifts of property that are conditional on death, or a refund of premiums contributed to an RRSP, RRIF or pension plan, etc. – do not fall within our estate. In other words, these types of assets can be transferred outside of our estate. Why is this good / bad? Think of it like this: there are tax, debt, and ownership issues that come up when you’re dealing with assets that are transferred outside or inside your estate.
If assets form part of your estate, then they can be sold to pay off your creditors. If assets do not form part of your estate, then they may go straight to your beneficiaries or some other person pursuant to some other mechanism (e.g. family laws, jointly ownership, etc.). Assets that do not form part of your estate cannot be used to pay off your liabilities, taxes, or testamentary expenses.
So here’s the thing about revoking a Will: a properly executed Will is revocable EVEN IF it says it isn’t. That’s right: all Wills are inherently revokable. A Will is not a contract. It’s an expression of someone’s wishes. And there’s nothing that can be said or done to bind someone to their Will. Now, with that said, if a Will is revoked but there was a separate agreement with a term or condition that says that the Will cannot be revoked, then the Will CAN STILL be revoked but the estate may be on the hook for any damages or penalties for breaching that term or condition.
Now, there are certain situations in which a Will can be revoked – either on purpose or inadvertently. In some provinces, for example, unless the Will says otherwise, preparing a Will and then getting married will automatically revoke the Will. Destroying a Will also revokes a Will. A Will that is destroyed by someone in the presence of a Testator and by his or her direction and with the intention to revoke it will also revoke a Will. A Testator / Testatrix who writes something that purports to revoke a Will, with an intention to revoke a Will, and executed in accordance with provincial legislation (e.g. signed in front of 2 appropriate witnesses, etc.) will also revoke a Will.
Once a Will is executed (signed and witnessed, etc.), it cannot simply be altered by the Testator / Testatrix taking a blue pen and making changes. To legally alter a Will, there are a few ways to make this happen. First, the Testator / Testatrix can execute a new Will. Second, the Testator / Testatrix can execute a Codicil. A Codicil is an amending instrument to the existing Will which is prepared and executed like a Will but only refers to those parts that are being amended. Finally, a Testator / Testatrix can take a blue pen and make changes right on the Will, but must sign near the changes in the presence of witnesses (who must also subscribe as witnesses). These kinds of attestations are usually made in the corner of the page where the changes are made or some of the part of the Will near the changes. Keep in mind that there is a presumption that any changes made to a Will were made after it is executed; in order to rebut this presumption, the changes must be attested to in the presence of witnesses.
And if you don’t have an up-to-date and comprehensive legal Will, you can get one now by using our proprietary Will-O-Matic Wizard on DentistLegalForms.com:
Just CLICK “Get Started” button now…
So, if you’re a dentist looking to write your own Will, you can do so using the Will-O-Matic Wizard. This Wizard takes you through an online questionnaire. There’s loads of questions, tips, options, and guidance along the way. At the end of the process, you’re able to download your own .pdf Will.
A Will is simply a declaration of your wishes concerning your property and assets when you die. You can do things like appoint a representative of your estate, appoint someone to be responsible for your minor children, and explain how you want your assets to be divided when you pass (i.e. not according to government rules, but according to your own wishes).
Once you’ve made the Will using the Will-O-Matic, you must sign it properly in the presence of appropriate witnesses. Then, we suggest you keep the Will in a safe place and give your Estate Trustee access to know it and let him or her know where it is.
In 2015, if you haven’t done so already, you should get your legal affairs in order. The first and easiest thing to do in this regard is to get your Will(s) and Powers of Attorney done using our online automated software on www.DentistLegalForms.com. The benefits to having an up to date written Will include:
With a power of attorney for Property / Personal Care, you can:
You should have these essential documents in place and they should be updated every few years – particularly when:
Do yourself a favour in 2015 and contact us about getting these essential documents in place! You’ll feel peace of mind after you’re done! It’s a pain-free process. You simply go online, fill out the online questionnaires, and then bring your documents to us to review / finalize. All of our online products come with free lawyer review by DMC LLP. Plus, you can read an eBook about Wills in Ontario. And you can edit for free for 1 year.
So what are you waiting for? Time to get it done!
David Mayzel is your legal risk manager. He is a trained courtroom lawyer and has spent many years resolving disputes both in and out of court. He knows how to prepare documents and execute transactions in a way that avoids or mitigates legal risks. He can be reached at 416.528.5280. or firstname.lastname@example.org.
Michael Carabash is your business law adviser. He is an entrepreneur at heart who helps you see the big legal picture. He drafts clear and effective agreements that protect your rights while promoting your interests. He can be reached at 647.680.9530. or email@example.com.
Ljubica Durlovska is your transition lawyer. She helps you with staff and associates, maintaining your corporation, and other business matters. She can be reached at 416.443.9280, extension 206 or firstname.lastname@example.org.
Jonathan Borrelli is your employment lawyer. He helps you with staff and associates matters, including hirings, terminations, switching staff to written contracts and resolving disputes. He can be reached at 416.443.9280, extension 204 or email@example.com.
Benjamin Kong is an experienced business law clerk. He assists David and Michael with corporate matters and purchase / sale transactions. He can be reached at 416.443.9280, extension 207 or firstname.lastname@example.org.
Julie Whitehouse is an experienced business law clerk. She assists David and Michael with corporate matters and purchase / sale transactions. She can be reached at 416.443.9280, extension 203 or email@example.com.
David, Michael, Ljubica, Jonathan, Ben and Julie are a truly dynamic team. Their diverse knowledge, skills, and experiences will help you get the best deal possible while promoting your interests and protecting your rights. You can read dentist testimonials here.