Planning for Incapacity

Two Current Estate Planning Topics

Floyd Gradley, B.Comm., LL.B.

Estate and Trust Lawyer,

Mackenzie Tax and Estate Planning Team

Topics To Cover Today:

• Tools for Mental Incapacity Planning

• enduring power of attorney

• representation agreement

• advance directive for health care

• nomination of committee

• Registered Education Savings Plan at Death

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Tools for

Mental Incapacity Planning

Enduring Power of Attorney (EPA)

• Gives attorney power over financial and legal decisions,

but not health care and personal care decisions

• Does not give attorney power to make (or change) the

adult’s will or, except in special circumstances, to impact

the adult’s estate plan

• Is not revoked by the occurrence of mental incapacity

• Is revoked by death

• Is significantly less expensive to prepare than having the

court appoint a committee

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• Effective September 1, 2011, changes were made to

the B.C. Power of Attorney Act, including

• “donor” is now “adult”

• the adult’s signature must be witnessed like a will unless

witnessed by a lawyer or notary public (but still must be

executed and witnessed in accordance with the Land Title

Act if it is to be used for real estate matters)

• the attorney must sign and have signature witnessed

• the attorney can make gifts, loans or charitable gifts from

the adult’s assets if the adult was in the habit of so doing,

to a prescribed maximum (lesser of 10% of prior year’s

taxable income or $5,000)

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• Who to appoint as attorney? A person who

• knows your goals and is familiar with your affairs

• is diligent and has ample time to administer your affairs

• is willing to and patient enough to involve you in decisions

and foster your independence

• has integrity, objectivity, and good judgement

• is financially inclined and can maintain administrative records

• does not have interests conflicting with yours

• is not a U.S. person

• A trust company is also an option

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• When will the attorney’s power become effective?

• upon signing the EPA

• upon the occurrence of mental incapacity (a “springing”

EPA) – this option presents challenges

• shows a lack of trust in chosen attorney

• capacity is generally lost gradually over time

• is often difficult to obtain evidence of incapacity

• must establish an unambiguous triggering event, as

well as how and by whom that event is to be confirmed

• upon satisfaction of escrow conditions for release

• the escrow holder will likely insist on an indemnity

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• When should the attorney sign to accept authority?

• the attorney may wish to postpone duty to act

• adult needs to ensure that attorney is willing to act

• Unless specifically authorized by the EPA, an attorney

has no right

• to compensation – any authorization must specify the

amount or rate of compensation

• to derive a benefit

• to make gifts or loans in excess of the legislated amounts,

including for financial support of the adult’s family

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• Consider co-attorneys or alternate attorney(s)

• possible conflict between co-attorneys – are they to act

unanimously, separately “in any and all circumstances”,

or separately only in specified circumstances?

• how will a third party know that a primary attorney has

died or is unable or unwilling to act?

• Avoid prescribed short form EPA

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• Other considerations

• use of secondary EPA(s), but must integrate with (and

must not revoke) primary EPA

• for assets in other jurisdiction

• for operation of a business

• the Canada Income Tax Act provides that a person who

has the power to vote shares is deemed to own the shares

for purposes of determining “related persons”, “associated

corporations”, and designation as a CCPC

• a pre-September 1, 2011 appointment of a law corporation

as attorney is likely not grandfathered and likely not valid

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Representation Agreement (RA)

• Gives representative power over health care and

personal care decisions, including

• “end of life” and other serious matters

• emergency situations if representative is available to make

a decision within a reasonable time

• Section 7 allows a person of diminished mental

capacity to make a RA governing certain personal care

and health care decisions as well as decisions

respecting “the routine management of financial affairs”

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• Signature of adult must be witnessed like a will unless

witnessed by a lawyer or notary public

• Is revoked by death

• Is significantly less expensive to prepare than having

the court appoint a committee

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• Who to appoint as representative? A person who

• knows your beliefs and values

• is aware of your personal and health care needs

• is diligent and has ample time to assist you

• if you desire, is willing to and patient enough to involve you

in decisions and foster your independence

• has integrity, objectivity, and good judgement

• A trust company is not an option

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• When will the representative’s power become effective?

• upon signing the document

• upon the occurrence of mental incapacity (a “springing” RA)

– this option presents challenges

• shows a lack of trust in chosen representative

• capacity is generally lost gradually over time

• is often difficult to obtain evidence of incapacity

• must establish an unambiguous triggering event, as well

as how and by whom that event is to be confirmed

• upon satisfaction of escrow conditions for release

• the escrow holder will likely insist on an indemnity

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• Consider a monitor

• mandatory for a Section 7 RA

• must make “reasonable efforts to determine whether a

representative is complying with his or her duties”

• Should a representative or a monitor be compensated

and, if so, how?

• no right to compensation unless specifically authorized by

the RA, including the amount or rate, and authorized by a

judge

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• Consider co-representatives (perhaps responsible for

different matters) or alternate representative(s)

• possible conflict between co-representatives – are they to

act unanimously, separately “in any and all

circumstances”, or separately only in specified

circumstances?

• how will a third party know that a primary representative

has died or is unable or unwilling to act?

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Advance Directive (AD)

• Expresses legally-binding health care wishes without

appointing a decision maker

• Expressed wishes are binding on a representative, but AD

can in writing eliminate the need for representative consent

• Presumably used for unique situations where no one is

trusted for appointment as representative

• The adult’s signature must be witnessed like a will unless

witnessed by a lawyer or notary public

• Be aware of institutions that require their own AD signed

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Nomination of Committee

• An order of incapacity pursuant to the British Columbia

Patients Property Act can revoke an EPA and a RA

• A nomination of committee can be prepared to

• nominate the desired attorney(s) for appointment as

Committee(s) of the Estate

• nominate the desired representative(s) for appointment as

Committee(s) of the Person

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Registered Education Savings Plans

at Death

Who owns Contributions, CESGs & Earnings?

• Contributions belong to the subscriber

• Canada Education Savings Grants (CESGs) belong to

the federal government

• Ownership of earnings is unknown until certain

conditions are met and the subscriber requests an

Accumulated Income Payment (AIP)

• The RESP beneficiary has no automatic right to

contributions, CESGs, or earnings, and only receives

Educational Assistance Payments or a refund of

contributions when authorized by the subscriber

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What happens when the Subscriber dies?

• The executor may have to terminate the RESP contract

• the estate receives the contributions

• unused CESGs are returned to the federal government

• the estate receives the AIP if all conditions are met -–

otherwise, a designated educational institution receives

the AIP

This result is generally undesirable, and can be

avoided if there is a successor subscriber . . .

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Successor Subscriber

• A successor subscriber acquires the subscriber’s rights

by appointment in the subscriber’s will

• An estate beneficiary “trades” part of his/her estate

benefit for the RESP, and becomes successor

subscriber by making a contribution to the RESP

Or, in most situations, there is a better way to

avoid termination of the contract . . .

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Testamentary Trust

• Establish a testamentary trust in the subscriber’s will to

hold the RESP contract, with terms directing the

trustee how to exercise subscribership rights

• the trustee would be directed to terminate the contract

when there is no longer a need for the RESP, and the

refund of contributions (and AIP, if available) would be

held or distributed according to the terms of the trust

• The subscriber’s will can direct the executor to

maximize contributions to the RESP from estate assets

before transferring the contract to the successor

subscriber or trust

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Disclaimer

The tax and estate planning tools and strategies discussed today are general in nature and will not be appropriate for everyone. Neither Mackenzie Financial Corporation and its subsidiaries and affiliates (collectively, “Mackenzie”) nor the presenter have been engaged for the purpose of providing legal, taxation, accounting, investment, insurance, or other professional advice. Your clients need to discuss specific tax and estate planning tools and strategies with their own professional advisors, and they need professional assistance with the implementation of any strategy.

Mackenzie makes no representation or warranty as to the effectiveness of the tax and estate planning tools and strategies discussed today. In addition, Mackenzie has neither consulted with nor sought approval from the Canada Revenue Agency or any provincial tax authorities with respect to any strategy.

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Planning for Incapacity

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