On debt and dying
By Aaron Broverman
• Bankrate.com
"The most popular way to avoid probate fees is to proceed with joint ownership of assets," says Hull. The properties are only included in probate if they're held by the surviving joint tenant in trust for the deceased. Otherwise, you don't have to pay the tax, and the property is not subject to claims by creditors upon death.
Trusts are largely protected from creditors, but there are still taxes on them and you cannot use them to get away from your debts. "Be careful of fraudulent conveyance," says Foster. "You cannot know you're going to die and open a trust to prevent your creditors from getting their money." There cannot be any premeditation in setting up a trust, or you'll be convicted of fraud.
Loan and joint ownership pitfalls
One way to avoid paying your parents' debts is to not co-sign any
of their loans. "If your parents approach you to co-sign a loan,
that's a clue that not everything is as good as you thought, and
it gives you the right to ask the tougher questions," says Foster.
Because refusing to help might be a hard thing to do, there are other, safer options. "If their house is paid off, you can have them borrow against the house, or you can have them write a properly drawn promissory note," says Foster. In order for the note to be valid upon death, the terms must entitle you the use of your parents' assets to recover the money they owe you.
A loan isn't the only joint agreement you need to be aware of. Many children enter into joint tenancies with their parents to keep their homes out of their estates. But doing so does not exempt you from creditors, so as the second tenant, you would still be responsible to creditors' claims.
Have a Plan B
"It's said that Canadians would rather talk about sex than who owes what to whom," says Foster. Still, you can avoid a lot of surprises and misconceptions if you talk to your parents about their financial affairs or, at the very least, make sure their executors know the whole story.
Hull recommends having a Plan B in place, meaning that you need to be able to access cash quickly to cover funeral costs or pay creditors in the event that the estate gets tied up. "The best way is to either open a joint account, or you can prepay the funeral expenses," says Hull.
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