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Real Estate Considerations: Your Estate

Afterlife: Protecting Your Estate.

Happy New Year to my loyal reader(s?)!

Making New Year’s resolution is a commonality among most people, and it usually starts at the onset of the year. We look forward to a great year, and so, the very act of this kind of foresight usually means setting goals and planning ahead.  There’s no better way to start your year than to plan on how you are going to protect your estate.  Right.. not really.  But if you’re still reading, means you’re at least a touch interested in how this works.

There’s a saying from somewhere.. The evil that men do lives after you.  There must be once in your life where you might’ve thought, “What will happen to my possessions after I die?”.  We all hope to protect our estate from any claims people bring against us after our passing.  In the same light, I would ask, what would you do to best manage your estate after death?

Planning Ahead

  1. Writing a will.  The absence of a will means your major beneficiaries could possibility be the provincial and federal government tax departments.  Potentially, other beneficiaries are determined by a provincial government formula for family members, which may not properly reflect your wishes in any way.  To start, you’ll need two documents during your lifetime.  One is an enduring power of attorney that gives the legal right to one or more designated persons to manage your financial and legal executions if you are incapable of making your own decisions or lack the mental ability to do so (e.g. when you suffer from a recent head injury).  The second document is a living will or representation agreement or health care proxy.  Different provinces will ascribed different names, but serves the same function.  This document essentially designate your wishes for health care needs, possibly assigns a person to act on your behalf, and set out your wishes if you suffer from a life threatening condition.  (Edit Mar 24, 2017: Living wills may no longer be binding.  Talk to your lawyer about the ramifications of a recent change.)
  2. Having a shareholder’s agreement with a buy-sell clause.  This allows you to buy out the other’s interested in certain situations, in the way it’s been set out in the terms of the agreement, while the individual is alive or from her estate.  This applies when you own a business with other partners.  This is critically important because if you don’t have it, there is no formula that exists to resolve issues that might be anticipated, leading to legal issues that would need to be resolved in litigation.  A not-so-good case scenario is to hire a lawyer which involves money, delay, and frustration.
  3. Designate beneficiaries.  Take, for example, insurance policies, RRSPs, RRIFs, and some non-registered investments.  These investment products allow the proceeds to bypass your will and hence your estate.  The advantage?  Creditors can claim only from assets in your estate, and the funds aforementioned are out of reach.  Also, designating beneficiaries allow you to save on provincial probate tax.  Any insurance proceeds are tax-free to the recipient.  However, if the proceeds go to your estate first before reaching the intended recipient, those funds would be included in the probate fees.
  4. Create a trust.  Setting up a living trust while you are alive enables the content of the trust to bypass your will, and in turn, your estate.  A testamentary trust, setup via your will, takes effect on your death.  These trusts can remove assets from your estate and away from creditors.   If you set up a trust before you die, a living trust, it bypasses your will completely and therefore is not covered by probate tax.   However, if you setup a trust by way of your will, you create a level of risk.  If your will is challenged by some third party who wants the judge to vary the will in their favour, your trust may be subject to review.

As always, trust your lawyer.  I am the realtor who understands the intricacies and need for all parties in a real estate transaction to bring comfort and clarify in your investment decisions.  Suggestions and definitions here may change over time, so don’t rely on the content as much as the reasoning behind why you should take these steps to protect your estate.

Hope this post has been helpful to some degree.

Always feel free to contact me if you have real estate related inquiries.

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Real Estate Considerations: Incorporation Part 2

Why Ownership Selection is Important

Any form of investment bears a level of risk.  Risk, I learned back from working for an auditing firm, is any uncertainty that will have impact (positive or negative) to your business.  Sometimes, risk manifests itself in a way that causes personal liability.  When real estate transactions involving such a high volume of cash changing hands, you as an investor and party to that transaction want to tread very carefully.  It just so happens that in the real world, the higher the dollar value of an investment, the greater the chance you can have claims made against you.

To start, written agreements can help you circumvent most of the foreseeable claims, and of course, having a capable real estate agent can help you with this when writing a Contract of Purchase and Sale.  More importantly, your choice of ownership structure is also important.  There is a handful of strategies I will introduce here to help reduce your personal exposure to claims that could easily eat into your profit margin, Return on Investment, and Rate of Return.

Corporations, undoubtedly, can help protect you from these claims in an increasingly litigious environment.  A corporation, as a separate legal entity controlled by but independent of it’s individual shareholders, acts on its own legal behalf and bears responsibility for its actions.


Seek a lawyer for this part:

Taking advantage of the protection that personal liability corporations offer is easy.  For example, always sign business documents as an authorized signatory of the corporation of which you’re a part.  A clear statement that are you acting as a representative of the corporation rather than in your own personal capacity will help ensure the corporation, and not you, bears the brunt of any claims.

Similarly, if you make loans to your corporation, become a secured creditor.  The corporation’s director may bear some liability.  Be cognizant that if you’re a director of your corporation, you are liable for:

  • Corporate tax
  • Sales taxes
  • Provincial employment standards legislation
  • Builder’s liens

To protect yourself as a director of a corporation, consider not owning personal assets such as cars or real estate.  You can transfer these assets to your spouse to limit what claimants can seek from you.

To minimize your risk, one strategy is to lessen your involvement in your business as a director.  Another strategy is to reduce the number of possessions you hold in your personal name, such as property.

All these strategies you will require advance customized legal and tax advice.  As always, seek the right professionals first and build a strong relationship with them at the onset so you will have your interests protected.  My job as your realtor is protect your real estate related interests so you can reach your financial objectives with comfort, confidence, and clarity.

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Real Estate Considerations: Incorporation (limited company)

A corporation is a business that operates as a legal entity but is separate from its owner or owners.  Corporations must file annual reports, submit tax returns, and pay taxes.

A corporate structure, as opposed to partnership and sole proprietorship, has many tax benefits.  With a sole proprietorship, you must declare and pay taxes on all your income in the taxation year you’ve earned income.  Corporations pay a corporate tax in the year money is earned which benefits from a reduced tax rate up to potentially $500,000 if the corporation has three employees or less and other criteria are met.  You don’t pay any personal tax until you take money out of your company, and knowing this, you can optimize your real estate planning options.  Your accountant can delve more into how you can capture benefits based on your unique situation.

WARNING: Although you do benefit from reduced taxes for your taxable income from a real estate corporation, passive recurring income from real estate assets may be subject to a different tax rate.  Again, consult with your accountant to plan the most tax-advantageous arrangement if you incorporate.

A corporate entity will be required to abide by strict reporting rules set forth by provincial law where the company incorporates, but the advantage to you, as a shareholder, is that the company accepts full responsibility for all claims made against it.  Unless you sign a personal guarantee accepting all claims against the corporation, claims are limited to the corporation’s assets.

Taxes are a significant consideration as you choose an ownership structure for your real estate investments.  Ownership of properties through a legal corporate entity may open up various tax advantages.  Since the company operating your properties files its own taxes, you can claim only the income flowing to you as a shareholder in the business.  Business related expenses of the corporation are not available for shareholders to claim.

As a shareholder, you want to always ensure that a shareholder’s agreement and buy-sell clause are signed before entering into any deal that requires putting money to a corporation.  These documents pertain to dealing with management and dissolution of the company if anything goes south.  It also contains possible issues and scenarios related to your participation in the corporation.  A lawyer can help you examine whether the agreements are a fit to your overall objectives.

As always, seek independent legal, accounting, and other professional advice related to your real estate transaction.  Experts will help you navigate this journey and help you avoid unforeseen problems.  Of course, have a realtor on your side to ensure you find the right home all the while connecting you to the right people every step of the way.