Estate Planning

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Why is estate planning is so important?

Estate planning is the process of anticipating and arranging for the disposal of an estate during a person’s life. Estate planning typically attempts to eliminate uncertainties over the administration of a probate and maximize the value of the estate by reducing taxes and other expenses.

Estate planning is an essential part of wealth management, particularly if your estate involves significant assets or complex issues. When properly structured, an estate plan can reduce the taxes and expenses of your estate, as well as simplify and speed the transition of assets to the next generation and ensure that your beneficiaries are protected.

What is involved in estate planning?

Know what you have

Before you can establish your estate plan, you must know what your assets and liabilities are, to get an idea of what your estate is worth. Your list of assets might include.

  • Investments such as stocks, bonds, GICs, mutual funds & segregated funds
  • TSFAs, RSPs, RIFs, RESPs, annuities and pensions
  • Real estate
  • Personal property such as cars, jewellery, art and antiques
  • Business interests
  • Insurance policies

It is important to know not only what you own, but how you own it, because the form of ownership and designated beneficiaries will influence your estate plan. You will want to identify assets you own jointly with your spouse or another person, and who are the designated beneficiaries of your RSPs, pensions, and insurance policies.

Decide what your estate plan should achieve

How you structure your estate plan depends on what you want to accomplish. For example, an older couple in retirement without dependent children will have a different set of objectives than a younger couple with children, or a single person. Each situation is unique. Many people make a list of what they want to achieve with their estate plan, and a separate list of issues and problems they want to avoid.

While your goals are unique to your situation, here are some common
objectives you may wish to consider

  • Maximizing the value of your assets
  • Providing for loved ones
  • Helping to secure responsible guardians for your children and dependents
  • Ensuring appropriate Trustees for your children’s and dependent’s trusts
  • Distributing assets according to your wishes
  • Making sure your estate has sufficient liquid assets to pay taxes and other liabilities after your death
  • Communicating the values that are important to you and that you wish to see continued

As well, there are some common problems you will want to avoid

  • Financial burden for your family
  • Loss of assets
  • Delays in settling your estate
  • Taxation of your estate
  • Unnecessary costs
  • Disharmony in the family

Choose how you want your estate distributed

One of the decisions that you must make in planning your estate is deciding what to leave and to whom. However, it is also important to decide in what manner you want your assets distributed.

This section outlines the four basic distribution methods gifting, living trust, distribution through your estate, and distribution outside your Will. Factors such as your financial situation, your tax plan, and your probate plan will have a bearing on which method you choose. In all likelihood, your estate plan will incorporate a combination of these methods to accomplish your objectives.

Gifting Assets Before Death

Gifting assets means passing them on to your beneficiaries while you are still alive. This method can allow you to reduce costs when your estate is being administered. However, there are other factors that should be considered such as potential capital gains tax and losing control over the assets that are gifted. Although gifting assets can reduce the tax liability of your estate, this distribution method needs careful consideration. If you decide to gift assets ensure that this choice will effectively minimize taxes.

Living Trusts

A trust is a legal arrangement in which you place property “in trust” for the benefit of one or more beneficiaries and name a Trustee to manage the trust. There are two types of trusts – living trusts, also called “inter-vivos” trusts, and testamentary trusts. A living trust is established during your lifetime. A testamentary trust is outlined in your Will, and takes effect only after your death.

There are different reasons why people choose to establish a trust. Among them are

  • To provide long-term income or care for minor children, defendants, or family members with special needs
  • To safeguard your property and assets for your beneficiaries
  • To provide lasting donations to charities and other organizations
  • To reduce probate fees

These are just a few reasons – there are others, each with its own implications. Establishing and administering a trust requires professional assistance to help ensure that it meets your needs and requirements.

Distributing Assets Through Your Estate

Distribution of assets that fall under your estate will be outlined in your Will. There are two ways assets designated in your Will can be distributed immediately or through testamentary trusts.

Immediate Distribution

Immediate distribution means that your Executor, following your wishes, distributes all or part of your estate to your beneficiaries after all outstanding debts are paid and any tax issues with Canada Revenue Agency are resolved. While this method of distribution allows you to maintain control over these assets in your lifetime, there may be negative tax implications for your estate.

Upon death, assets in your estate are generally considered, for tax purposes, to have been sold. This means any resulting tax on capital gains may have to be paid. Unless your estate has liquid assets available to pay this tax, you could be leaving your estate and beneficiaries with a tax burden, or the estate may be required to sell an asset to meet the tax obligations. It is important to know that a Will often needs to have been “probated” in order to distribute assets through the estate. Probate is a court process that

  • Confirms your Will is valid
  • Confirms the Will presented is the “Last Will and Testament”
  • Confirms the authority of the Executor to administer the estate and distribute the assets
  • Is not required for Quebec NotProximaNova-Reg-webfont Wills

Probate fees are payable to the court and vary by province. In some provinces, they are based on a percentage of your estate value, while in other provinces they are flat fees, or a combination of both. These fees are usually paid from the proceeds of your estate.

Testamentary Trusts

Testamentary trusts are outlined in your Will and take effect upon your death. A testamentary trust provides for a named beneficiary to receive payments of income at any frequency you choose. The trust can also reserve the capital for specific purposes and direct how it is to be used. The Trustee who will administer the trust should be qualified, competent and willing to perform the many tasks required to ensure that your wishes are carried out.

There are many reasons for the creation of a testamentary trust. Some examples include

  • To ensure that the money and/or other assets are well-managed
  • To comply with the laws regarding leaving money to children under a certain age
  • To provide for specific purposes such as a child’s education
  • To ensure that funds being left to benefit a person who is not capable of managing money will last over many years
  • To provide for children from a previous marriage while providing for your present spouse during his or her lifetime

Trusts are complex and there are a number of considerations to take into account. We recommend to engage professionals for help in planning, establishing and administering trusts.

Distributing Assets Outside Your Will

Many people include probate fees as part of their estate planning exercise. If probate fees concern you, you may be able to lower them by reducing the number of assets that fall under your estate. Examples of assets that may not be subject to probate include

  • RSPs, RIFs, TFSAs
  • Life insurance proceeds
  • Pension plan proceeds
  • Assets that are owned jointly

Registered plans, life insurance and pensions may not be subject to probate fees provided there is a specific beneficiary (allowed in most provinces) named in your Will, or designated directly with the plan or policy administrator. Joint ownership of assets generally means that the asset will pass directly to the survivor, again, without passing through the estate.

Although distributing assets outside your Will could help to minimize probate fees payable, there are complexities. For example, joint assets can be subject to tax laws, provincial family laws, and estate taxes and liabilities. We will be pleased to suggest ways to optimize your estate plan with respect to non-probatable assets.

Determine how to accomplish your objectives

Prepare Your Will

Your Will is the most important component of your estate plan. In fact, few documents are as significant. Dying without a Will, also referred to as dying “intestate,” can have unintended consequences. If this were to happen, your estate would be distributed according to the intestacy laws in your province. All provinces have specific rules as to how an estate is to be divided among the living heirs of the deceased. The end result may be quite different than what you would have wanted, particularly where there are minor children involved.

The absence of a Will can also delay the distribution of your estate, resulting in inconvenience or even financial difficulty for your beneficiaries. Also, your estate may incur unnecessary administration costs.

If you do not already have a Will, you should prepare one after you have considered all the aspects outlined so far. People typically have their own lawyer draft their Will based on the estate plan professionals have helped develop. Once the Will is written, review it closely to confirm that all your goals have been met.

In addition to providing instructions for distributing your estate, your Will is the document where you can name your choice of a guardian for your minor children. While the designation is not legally binding, naming a guardian in your Will lets the court know who you want to care for your children, and may influence the court’s permanent appointment. Once completed, your Will should be held in safekeeping.

It is important that your Will be kept up-to-date. Generally, your Will should be reviewed every three to five years, or whenever there are significant changes in your personal or financial circumstances, or those of your beneficiaries. In addition, changes in the laws of your province may affect your estate plan.

Prepare a Power of Attorney

Part of a complete estate plan includes planning for possible illness, accident, or other disability that leaves you unable to manage your affairs. A Power of Attorney for property is a legal document that empowers another person to manage your financial affairs during your lifetime. In addition, in some provinces, it is now possible to name a Power of Attorney for personal care, which allows you to name someone to make decisions on your behalf concerning nutrition, shelter, clothing and consent for medical treatment should you become incapable of doing so.

Before you prepare a Power of Attorney, a lawyer should be consulted so that you fully understand the powers that your designated attorney will have, and the circumstances under which the Power of Attorney can be activated or terminated. In all cases, Powers of Attorney terminate upon your death, at which time your Will takes effect.

Choosing A Qualified Executor

 An Executor is one or more individuals or a trust company, appointed in your Will to administer and distribute your assets after your death. Many people believe they are bestowing an honour on family members or friends by naming them Executor. In fact, very few truly understand the duties of an Executor and the difficulties that this obligation can bring to an inexperienced person. Often, the burden is imposed at a time when the level of stress for the family is already high. So after all the effort you put into planning your estate, be sure to appoint someone who is qualified to carry out your wishes. Some of the duties of an Executor are:

  • Locate, safeguard, itemize and value all assets (including foreign property)
  • Provide for immediate management of all assets, including business interests and investment portfolios
  • Redirect mail and cancel leases, subscriptions and memberships
  • Arrange for probate of the Will
  • Advertise for creditors
  • Re-register the ownership of assets
  • Raise cash to pay debts, taxes, and legacies
  • Keep proper estate records
  • Distribute assets to beneficiaries
  • Prepare and file numerous tax returns
  • Set up and administer all trusts as Trustee

Being an Executor is a complex job that includes some risks. For example, Executors can be personally liable for errors made in administering the estate. In addition, Executor duties can last for months or years, particularly in cases of trusts or more complicated estates and family situations.

A qualified Executor should have

  • Knowledge of estate administration and taxation
  • Knowledge of estate and trust law
  • Financial expertise
  • Time and availability
  • Trustworthiness
  • Good judgment
  • Impartiality
  • Experience working with families
  • The ability to build consensus

The Executor, whether family member, friend, or professional, is entitled to claim fees based on a percentage of your estate’s value, as set by the courts, or by agreement. Often, when corporate Executor expertise in estate administration can result in savings in taxes and other costs that more than offset any Executor fees.

Estate administration is not a simple task. We encourage you to consider appointing Executor, Co-Executor, Alternate Executor, distribution of your estate should be left to specialists so you can feel confident that your wishes will be carried out.


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