Reviewing Your Estate Plan

Whether your estate is large or modest, it is always a good idea to review your estate plan regularly to ensure that it continues to meet your objectives and keep up with any changes in your financial or family situation. If you do not have an estate plan, perhaps now is the time to consider implementing one as it is never too soon to start the planning process. The objective of an estate plan is the orderly distribution of one’s assets to intended beneficiaries with a minimum of taxes, expenses, and emotional turmoil.

The foundation of any estate plan is the Last Will and Testament. This is the document that instructs your executor how your estate is to be distributed and to whom. Unfortunately, you won’t be there to confirm or expand on those instructions, so an appropriate amount of thought and planning is required to get it right the first time. This article will provide you with an overview of what is required for an effective estate plan.

Since an estate plan is concerned with the distribution of assets it is a good starting point to list all of one’s assets and liabilities. A comprehensive balance sheet will allow you get an idea of how large your estate is and the type of assets that compose it. If it is required to provide income to your spouse and family upon your death, the capital required to produce income should be shown as a liability along with any outstanding debts, taxes, last expenses etc. If there is a shortage of liquidity in the estate as a result of this analysis then life insurance could be used to provide for the shortfall. In fact, life insurance could be used in addition or as an alternative to capital in making any number of bequests including charitable donations. Effective tax planning utilizing the tax free nature of life insurance often results in significant savings to the estate upon death.

Now that you have an overview of all of your assets, you can determine how you wish to bequeath them to your heirs. The most basic form of an estate plan is leaving everything to a spouse via a simple will. This has the advantage of deferring any capital gains taxes that may have been payable upon death. You may have personal items, such as jewellery or art that you may wish to leave to specific individuals. This should be attended to you in your will. Often, however, more sophisticated planning is required. This may be due to special arrangements that may be required for minor or special needs children. There might be assets that you might wish to ensure remain in the family in the event of a beneficiary’s marital breakdown. There might be blended family situations due to second or more marriages that have to be provided for. As a result, your estate plan might involve the use of trusts.

How one owns their assets will often dictate how they will be distributed at death. Assets that are held jointly with right of survivorship pass upon death outside of the will without any probate fees or other considerations. One should be cautioned, however, that the use of joint ownership solely in order to save on probate fees may not fully satisfy one’s estate planning objectives. It is important that beneficiary designations be in place for all of your registered plans, i.e. Registered Retirement Savings plans, Registered Pension Plans, TFSA’s etc., and especially all of your life insurance contracts. Contingent ownership designations should also be looked at for insurance policies held on other family members.

Sometimes your assets may include shares in a business, or a perhaps a partnership interest. If so, it is most likely that this interest will be subject to a shareholder or partnership agreement. If this is the case, it is important that the agreement be reviewed to ensure that it is structured properly not only to minimize tax but to ensure the succession will occur as intended. If there are buy out provisions at death in the agreement, there should be adequate funding to accomplish this. If the value of your shares have grown considerably and are continuing to grow, you may wish to consider an estate freeze to fix the tax liability at death and pass future growth onto the next generation. Accordingly, the business should have sufficient liquidity to assist the next generation. It is advised that an appropriate amount of life insurance be owned by the business on the shareholders to adequately fund the agreement and to protect the interests of the next generation of owners.

If you have accumulated wealth an effective estate plan should be high on your list of priorities. Getting started is often the most difficult part of the process and having an overview of your financial situation is the best place to start. If you would like to discuss this matter more fully or receive advice on how best to proceed, please call me and I will be happy to assist you.