The Living Will: a Case of Practical, Legal and Medical Overkill

Beginning with the very name, there is little to like about the Living Will (LW).

First thing wrong, it is a misnomer and has nothing to do with a Will, the document by which you specify what happens to your worldly possessions after you die. A Living Will is described as a document which states more or less what medical treatments you wish to have or not have if you become unable to make or communicate your own decisions and possibly who can speak for you in that event. It seems from this page on the Living Will and Values History Project that the term originated only in 1969, coined by a certain Luis Kutner whose motive appears to have been the promotion of the right to voluntary euthanasia.

This opportunistic piggybacking on the common and established word has caught on but confusion reigns supreme, as evidenced by the proliferation of other terms for the same thing - advance health care directive, advance directive, advance medical directive, representation agreement, mandate, authorization, personal directive, power of attorney for personal care etc.

Why so many terms? The answer reveals problem #1 - different governments have approved different versions and a LW valid in one place may not be recognized in another. Governments includes Canadian provinces, US States and countries of the world - yup, they all have their own since of course their logic and the needs of their citizens are unique. Funny how our needs change when we move from one place to another.... If everybody stayed put in their own little town the different versions wouldn't matter but go off on a work assignment or a holiday and you would need to have a whole series of LWs to paper your trail, all prepared with the help of a lawyer in each jurisdiction in order to ensure their validity there.

Problem #2 is the practical difficulty of letting everyone know who might need to know. Are you going to be able to provide copies to all the medical people who might conceivably need to have your instructions, wherever you might be?

Problem #3 is the one of changing or cancelling a LW, especially as you done what the experts advise (like Douglas Gray and John Budd in their book The Canadian Guide to Will & Estate Planning) and given out copies to your doctor, lawyer, proxy (person granted power to decide for you) and family members. You must go through a formal process, witnessed by two people, to revoke of change a LW. Forget who you gave copies to and you may have conflicting versions, or you might have people act on a version you revoked. Of course, if you stick the LW in a place unknown or not quickly accessible when the need arises, your carefully prepared LW may never get used.

Problem #4 is that your LW may not be followed anyway. The forces of medical officialdom may decide that your wishes are unreasonable or impractical and over-ride them. You may just be creating anxiety, guilt or bitterness by your family if your wishes cannot or are not followed. Can you anticipate every medical circumstance in which you might find yourself and address it comprehensively? There's a reason hypothetical questions are mostly useless.

I do not dispute the motives for making a LW - as expressed in the pdf Living Will within the University of Toronto Joint Centre for Bioethics (you must fill in a free registration to access the copy) - to gain control over your medical treatment and to relieve loved ones of the burden of decisions. (Incidentally, this version of the LW apparently can be valid in seven Canadian provinces so the multiple jurisdictions problem is somewhat mitigated.)

However, is a formal legal document the best way to do this? Wouldn't it be far easier merely to tell your family to follow your wishes and tell them your way of thinking about such matters, give them the latitude to use their judgement and reassure them that you trust their judgement. After all, who will the doctors ask, as ask they will?

If you don't trust your family, you've got real problems. Maybe then you must reluctantly opt for a LW.

The only other limited scenario in which I could see the LW being useful goes back to its origin. If you have a terminal illness so you know what lies ahead, maybe it will be useful and practical to tell others when to pull the plug.

Otherwise, the Living Will is definitely a case of the treatment being worse than the affliction. At least stop using the misleading name.

6 Reasons to Consider Using Testamentary Trusts

A trust is a legal entity created when a person transfers the ownership of property to one or more trustees, who manage the property for the benefit of a particular person or group of persons (called the 'beneficiaries'). A testamentary trust is usually set up in a will and takes effect upon the death of the settlor. A will can create any number of trusts for different beneficiaries. The will names the beneficiaries and the trustees, identifies the assets going into the trust, and states how and when the income and capital is to be distributed.

A key quality of trusts is that the Income Tax Act treats them as a separate individual taxpayer. A second key characteristic is that testamentary trusts benefit from the graduated personal income tax brackets, whereby lower income pays tax at a lower rate. A third important feature is that assets in a trust, while they are there, legally belong to the trustee and not the beneficiary.

What are the six reasons that people should consider using a testamentary trust?

1. Tax Savings from Income Splitting for Children and/or Grandchildren - consider a grandparent who wants to leave money for minor children - instead of leaving everything to the parents who then must include the income it generates in their own income, which may be at a high rate already, the inheritance is put into a testamentary trust. Minor children are likely to have little or no other income, so the trust distributes income to the children who pay no tax. The inheritance can perhaps provide tax-free income for many years. If the parent is named as trustee, and the instructions in the will give the discretion, he/she can still control all the spending on behalf of the children. Each child can have a trust, further sub-dividing the income. For an adult child with a high income already, the trust may be in a lower tax bracket so it could retain the income to be taxed instead of distributing it to the child. A properly set up trust can have the ability to change from year to year whether it distributes any, some or all income, so that overall taxes are minimized.
   
2. Tax Savings from Income Splitting for a Spouse - in a similar manner as for children, sending an inheritance into a trust that has discretion whether to pay out income or retain it in the trust and have it taxed there may reduce overall taxes and allow the spouse to keep income tested OAS payments. That does not prevent the withdrawal of capital from the trust for money to spend.
   
3. Protection of Funds for Disabled or Spendthrift Beneficiaries - for people not capable of managing an inheritance, especially when it has to last and support someone who cannot go to work and earn a living, a trust can be very beneficial; in addition, since a trust is a separate legal entity, creditors cannot come after funds held in a trust for a bankrupt person
4. Protection of Funds from a Spouse of a Beneficiary - this could be a child in a shaky marriage, or a widow(er) in a second marriage; since the trust owns the assets, the other spouse can be prevented from laying claim
5. Avoidance of Probate a Second time and Capital Gains Deferral through Rollover to a Spousal Testamentary Trust - tax rules allow a spouse, and only a spouse, to receive inherited assets exempt from the usual rules whereby capital property is deemed to have been disposed of at death at fair market value and capital gains tax has to be paid. This can allow capital gains to be spread over time, reducing taxes and to be deferred, allowing greater growth. When the assets are eventually distributed by the trust, they do not pay probate a second time as they do not pass through the will of the spouse.
6. Control of the Funds - the trust can be set up so that children receive the capital to spend as they wish only when they are older, and hopefully wiser, or only for specific purposes; meantime a trustee, perhaps a parent, can decide what the trust will disburse. The trust can also mandate that income is used to support a spouse till death, after which any remaining assets are given to someone else, perhaps grandchildren or a charity.
   

About the only negatives of testamentary trusts are:

• administration cost / trustee fees if done by a company or third party professional; in my view, a professional trustee is not necessary for many if not most circumstances; it can be quite straightforward, I've done it
• extra tax returns and record-keeping: the trust must file a return every year even if it is only to report that it is distributing all its income to the beneficiaries. Though a trust can pick any date for its year end, if you are going to manage it yourself and use a discount broker to hold the assets in an account, the broker will only send out forms based on the calendar year, so you have to do a lot of manual work adding up the revenues
• limited choice of discount brokers for investments in a testamentary trust: when I decided to manage the investments myself and approached various brokers, some said they did not handle trusts and others did not even know what a testamentary trust is. There was a presumption that you should deal with the full service broker side of their business.

The testamentary trust is embodied in clauses in the will. Despite my ardent DIY philosophy, I would never try setting one up using a will kit. I think it wise to use a lawyer to get it right since the wrong words may invalidate the trust.

More detailed reading:
Richard White, Advantages of establishing a testamentary trust at the Ontario Medical Association - child income splitting example
Thompson Dorfman Sweatman, The Tax Planned Will - Creating Savings for Your Spouse and the Next Generation - OAS example
Richard S. Niedermayer, Testamentary Trusts, at ProfessionalReferrals.ca
Kenneth C. Pope, Trusts - give examples of set up and professional management fees
Glenn C. Davis, Spousal trusts Protect Assets, Income and Heirs at SunLife Financial
Green Financial Group, Tax Planning with Testamentary Trusts - good income splitting for spouse tax saving example