Estate planning is the process of organizing your affairs during your lifetime so that your assets can be transferred to the people or causes that you care about after you’re gone. The objective of estate planning is to:
- To ensure your assets are distributed according to your wishes
- Provide order
- Minimize the potential for family disharmony or litigation
- Minimize taxation
- Address estate liquidity needs for tax and final expenses
- Maximize the after-tax results for the intended beneficiaries
A well thought out estate plan will likely involve input from your lawyer, accountant and financial advisor and will address the priorities you have for both your family as well as your business.
Estate planning can also address your desire to leave a charitable legacy that transcends your life. For those who are charitably inclined, life insurance is an important tool that can greatly enhance the level of giving that is achievable while also reducing the resulting tax that arises at the time of death.
51
of Canadians do not have a will.
The consequences of being unprepared can be devastating for surviving family members and business associates, compounding their grief and feelings of loss.
Fortunately, it doesn’t have to be this way. A bit of thought ahead of time can alleviate any unnecessary complication and expense for family members and business associates who are left to carry on.
* 2018 Angus Reid Institute Survey Results
Common tools used in estate planning, include:
Wills
A will is a legal document that sets forth your wishes regarding the distribution of your property and the care of any minor children. If you die without a will, those wishes may not be carried out and your heirs may be forced to spend additional time, money, and emotional energy to settle your affairs after you're gone.
Powers of Attorney
A power of attorney is a legal document that enables you to appoint a trusted person to act on your behalf with respect to your property. This document allows your attorney to make important financial decisions as if they were you.
Representation Agreements
Similar to a power of attorney document, a representation agreement is a legal document that enables you to appoint a family member or trusted friend as your representative in order to make personal care and health care decisions on your behalf should you become incapacitated.
Trusts
A trust is a special relationship that exists to control certain property for the benefit of the trust beneficiary. There are three parties to a trust which include the Settlor (person creating the trust), the Trustee (the person responsible for managing the property) and the Beneficiary (the person who is entitled to receive the trust property or income).
Estate Freezes
An estate freeze involves a reorganization of property in order to limit the future value of the property for tax purposes. This is a common planning solution in family-owned businesses where a parent wishes to limit their tax liability to the enterprise value that they've created while passing on additional growth in the business to the next generation of shareholders.
Shareholder Agreements
A shareholder agreement is a contractual agreement between the shareholders and their company and it helps to establish the rights and responsibilities of each party. A shareholder agreement will also provide a framework for how each ownership interest is to be dealt with in the event of incapacity or death.
Life Insurance
Life insurance is a tax-free asset that is designed to provide cash to the estate at the precise moment its required to address a wide variety of estate planning needs. This may include covering capital gains tax arising at death, funding a shareholder buyout, providing income support for dependants or creating a charitable legacy.
Beneficiary Designations
Beneficiary designations are available for certain property such as life insurance and registered investment plans and allow your property to bypass your estate and pass directly to designated individuals. When implemented correctly, property with beneficiary designations will not be included in your estate and will avoid estate related expenses such as probate fees.
