What to do with unexpected assets

Three months ago, John Chen* from Vancouver purchased two burial plots—one for him and one for his wife. He bought them from a private seller, and he already has one up for sale on Kijiji because he’s since decided that he prefers to be cremated. “I’m 75 years old, but I’d never thought about buying a grave site,” he says.

Since each plot in the B.C. cemetery can accommodate one casket and one crematory urn, one plot will accommodate both him and his wife, who still wants to be buried. By selling the second spot, Chen figures he’ll be able to pocket some cash.

He’s not alone. There are many reasons people might choose not to use a pre-purchased burial plot. They might move away and prefer to be buried closer to their new homes. Other times, religious considerations affect where they can be buried. Baha’is, for instance, must be buried no more than an hour’s journey from where they die. Other religions have similar restrictions.

Perhaps the biggest reason to sell plots, however, is that more people are opting for cremation, partially because rising land prices are making burial plots costly. The Cremation Association of North America forecasts about 44% of people who die will be cremated in 2015, compared to 34% in 2007. In some parts of the country, cremation rates are even higher. In Vancouver, 75% opt for cremation.

Read: Affordable burials nearly dead

And like other forms of real estate, it’s all about location. The price of a grave in downtown Toronto where land is scarce can be $15,000, compared to $2,000 in the suburbs. Burial plots located in favoured spots or in closed cemeteries, where no new development can take place, can be worth even more. So scarce are plots in Victoria, B.C.’s Ross Bay Cemetery, for example, that cemetery trustees held a lottery six years ago. The 65 winners didn’t get plots— they simply won the right to purchase one for as much as $25,000.

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The rules

So have we uncovered a new asset class? That depends.

Laws regarding burial plots vary depending on your province and “quite often the contract with the cemetery governs,” says Stuart Peikes, a business and estates lawyer with Clark Farb Fiksel in Toronto. “It may say that if the owner no longer requires a plot, it is surrendered back to the cemetery.”

Another unexpected asset

Camron Foulds, a Vancouver CPCA and associate with ZLC Financial Group, had a client who expressed his intention to leave a half-million dollar 1967 AC Cobra collector car to his only son, rather than his three daughters. The client reasoned he and his son had bonded over the car and the daughters were more financially settled. Of course, the girls wanted a piece of the action.

Foulds used an insurance policy to provide a cash payout to the women on the client’s death, and included a clause in the will that allowed them first dibs on the car if their brother wished to, or needed to, sell.

That was true in Ontario until recently, according to Kat Downey, a licensed funeral director and pre-planner with Legacy Matters, operating in Mississauga, Oakville and Milton, Ont.

Owners who didn’t plan to use their plots had to sell them at the original purchase price, which was sometimes a fraction of what new plots were worth in the same cemetery.

The cemetery could then turn around and sell them at a profit.

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As of July 2012, Ontario cemeteries are now required to buy back gravesites at fair market value. If they don’t, plot owners are entitled to sell them on the open market. The only exception is when an owner has bought a double plot and one is already occupied; because a shared plot with someone else’s relative has no resale value.

The result has been a growing number of listings for burial plots on Kijiji and Craigslist, often promising good locations (i.e., high and dry, overlooking cemetery) at a substantial discount. There’s even a dedicated website (buyandsellcemeteryplots.com) selling plots in the U.S. and Canada.

Before putting money down, Downey warns, potential buyers should make sure a cemetery representative is on hand with the paperwork required to transfer ownership, as well as a current price list, to ensure the value of the plot is as stated.

Read: Don’t delay planning

3 ways to help executors

• Update your knowledge regarding executor’s roles. The executor secures, protects, gathers and liquidates estate assets, pays the decedent’s taxes and debts, and divides what remains of the estate amongst the beneficiaries in accordance with the will.
• Raise executor issues in meetings with clients and ensure they’ve given careful thought to naming the right executor. Offer to meet with your client and her executor together.
• Ask clients if they might be named executor of an estate, and explain you’re there to help. This ensures you’re the first person they contact when the time comes.

– Mark O’Farrell, president of the Canadian Institute of Certified Executor Advisors

Estate planning implications

Given the rising value of burial plots, advisors must discuss plans for them with clients as they would any other asset, says Camron Foulds, a Vancouver CPCA and associate with ZLC Financial Group. “We sit down and discuss who is getting the asset, and how we can make it fair and equitable for all parties involved.”

Foulds dealt with a situation where the grandparents in a family had purchased eight burial plots; they took two themselves and passed the remainder to their two children, who planned to use them.

There were four plots left, each worth about $10,000, to share among 10 grandchildren.

So Foulds called a meeting, asking “Who wants the plots and who wants cash value instead?” In this case, it worked out, because two of the grandchildren and their spouses wanted to be buried there.

Read: 6 tips for estate planning success

The other eight grandchildren opted for a cash payout. Foulds suggested the family place the plots in a trust and use an $80,000 life insurance policy to cover the cash payout of $10,000 per remaining grandchild.

With the insurance work completed, he brought in the family’s estate lawyer to create the trust and will. Having the details of the plan ironed out before they had to pay the lawyer’s expensive hourly rate resulted in a “great cost savings” for the family.

What to consider before appointing a PoA

Financial acumen: If the person in mind has little experience managing finances, he may not be an ideal choice.

Location and ability to travel: An attorney needs to be able to communicate important and timely decisions. Even with the ease of electronic communications, he may have to travel on short notice if an emergency arises.

Age and stage in life: An older person may not be healthy when your client needs him. This person could also be managing a busy career and family and may not have the time to attend to affairs as they’re required.

Organizational skills: The attorney will be responsible for the record keeping of your client’s PoA, as well as managing his own PoA. If he’s managing his affairs well, there’s a good chance he’ll be equally responsible with your client’s.

Emotional bias: If the attorney is a relative, he may have an emotional bias that prevents him from carrying out your client’s wishes, or have challenges when managing the expectations of other family members. Also, he may be in a conflict of interest if the cost of your client’s care will one day affect his potential inheritance.

Clients can sometimes avoid hassles, affirms Peikes, by gifting items like funeral plots and other unusual assets to their heirs while they’re still alive.

“The problem arises when these items are recited in a will,” he says. “If the will is to be probated, these items need to be valued and this valuation may attract estate tax.”

Even when gifting, he cautions, it’s wise to get an accountant’s opinion about whether a tax event has been triggered.

Death and taxes

When you buy a cemetery plot, says Stella Gasparro, CPA, CA, and partner, tax and accounting with MNP LLP, you’re not actually purchasing the underlying land, but rather the right to be buried in that spot. That right would fall under “personal use property” in the Income Tax Act.

Read: What not to do in estate planning

This is defined as “property owned by the taxpayer that is used primarily for the personal use or enjoyment of the taxpayer or for the personal use or enjoyment of the taxpayer and related individuals or trust beneficiaries.”

Whether people actually “enjoy” the use of a cemetery plot is debatable, she says, but a cemetery plot is normally for the personal use of a client or his relative.

For tax purposes, capital losses can’t be claimed on personal property.

But clients may have to pay capital gains tax if the price of the plot has risen by more than $1,000, according to Gasparro. If a burial plot is being used to bury a dead person, however, it wouldn’t accrue tax.

For unused plots held at death, she says, “it may depend on what will be done with those plots.” Since there is a deemed disposition of assets on a person’s death, if a plot is being willed to a family member other than the spouse, there may be a capital gain in the final return of the deceased.

And, tax authorities will pay attention if there’s big money involved. In fact, this is exactly what happened to a California woman who, in 2009, received a final bid of $4.6 million on eBay for the crypt above where Marilyn Monroe is entombed. But the bid was later rescinded.

Read: Preparing finances for death

*Name changed

Read more: Budget gives executors wiggle room >

Masterpieces and collectibles

Several years ago, Barrie, Ont.-based estate planning consultant Alan Atkins had a client who owned a waterfront home filled with various art objects, from Canadian originals to collectibles from all over the world. But while the multi-millionaire had an eye for art, he didn’t think about what would happen to his valuables later on.

When the client became old and frail, he moved out of his house.

Then he arranged an auction for the contents of the home, with the proceeds going to charity.

“I was his planner for many years and I didn’t know about the event,” says Atkins. The lucky few who did “went in like it was Value Village to get the deals.” A vintage piano worth $4,500 to $6,000 brought in just $1,500, and soapstone carvings that were worth hundreds to thousands of dollars each sold as if they were knickknacks.

The upshot: the client netted only a fraction of the cash he’d been expecting to donate. So when it comes to art and collectibles, Atkins says, start the process early. Some strategies include:

• persuading clients to donate valuable assets to a charitable remainder trust, which allows them to enjoy the use of the item(s) while still alive, and also get a tax receipt for the full, current value right away;
• donating one painting in the will, and providing a tax credit to cover the tax bill on several others;
• using an insurance policy to pay the tax on the client’s death, providing he or she is young enough to qualify for permanent insurance such as Term to 100 or Whole Life coverage, which is good until death and doesn’t experience premium fluctuations.

The costs associated with lack of planning can be high. Like other assets, valuable art or collectibles can be transferred to a spouse tax-free, but beyond that there’s a deemed disposition of the assets at fair market value on the owner’s death.

Inheritors should have art appraised, advises Atkins, adding, “if you have an original Group of Seven painting, obviously you don’t want CRA to pick a number out of the air. And yet the executor has to enter a value.” An art appraiser would do comparisons to similar works at auction and establish a price that is defensible if CRA were to challenge it.

Ultimately, the tax bill to CRA is likely to be about a quarter of the value of the works.

“Given that 50% of the capital gain is taxable, if the estate is in the top tax bracket, then half of that half will be given to the government,” Atkins says.

Camilla Cornell is a Toronto-based financial writer.