Estate Planning: The Basics

ESTATE PLANNING is about caring for those you love, maintaining control over your assets and ensuring that your wishes are carried out after you're gone.

The ESTATE PLANNING PROCESS involves 5 steps:

1. Determining your goals
2. Identifying potential obstacles
3. Developing solutions
4. Establishing your action plan
5. Reviewing your plan regularly

YOUR WILL

A Will is a statement of your wishes concerning the distribution of your property after your death. Everyone should have a Will. Having a carefully planned Will can heal family disputes; not having a Will or having a poorly planned Will may foster and spark hostile, lengthy and costly disputes.

The Pitfalls of not making a Will:
1. There's no one to carry out your WISHES;
2. You lose the ability to select your EXECUTOR, now known as the ESTATE TRUSTEE;
3. You lose the ability to decide and appoint the GUARDIANS of your children;
4. You lose the ability to decide how your assets will be held for your children or grandchildren and how and when those assets will be distributed;
5. You lose the ability to decide who will make your FUNERAL plans and attend to your burial or cremation, as the case may be; and
6. Your Estate may be more COSTLY to administer.

You shouldn't try to put pen to paper and make your own Will. Trying to save a few hundred dollars to make a Will could ultimately cost your loved ones thousands of dollars. There are many capable solicitors in Toronto who will assist you in planning your Estate, drafting your Will and attending to its execution.

However, one ought not assume peace of mind just because you've made a Will. Circumstances change. Periodic review is crucial. A change in your life could cause unintended effects. For example, a Will will be deemed to have been revoked upon marriage.

Accordingly, if you marry and don't make a new Will, you won't have a valid Will should you thereafter pass away. Similarly, if you obtain a divorce, your former spouse is deemed to have pre-deceased you. As a result, your former spouse loses all the benefits he or she may have had if you had remained married. That result makes sense, but be careful. You may be left with no properly appointed Estate Trustee, among other unintended consequences. Worse, if you separate from your spouse, and you have not up-dated your Will, your former spouse may receive benefits notwithstanding the separation.

ESTATE TRUSTEES

An Estate Trustee, is the person named in your Will who is responsible for, among other things, distributing the assets of your estate. Choices include a family member, a friend, a trusted advisor, a corporate trustee, or a combination thereof. You should name an alternate Estate Trustee. If your first choice cannot act for whatever reason (i.e. death or incapacity), the alternate can take their place, rather than leaving your beneficiaries to choose an alternate, which could cause problems and hurt feelings.

The responsibilities of your Estate Trustee include:
- arranging your burial;
- distributing your assets as set out in your will; and
- filing tax returns.

There are a number of considerations when deciding upon an Estate Trustee. If your Estate Trustee lives outside of Ontario or Canada, they will have to travel and may need to post a bond with the Court (i.e. obtain insurance) to act as Estate Trustee.

TRUSTS

A Trust is a relationship which allows one person - the Trustee - to hold assets for the benefit of another - the beneficiary. A Trust can allow you to enable another person to enjoy or use your assets while you maintain control of how the assets are ultimately dealt with.

There are two basic types of Trusts: an Inter-Vivos Trust, which is one established while you are alive, and a Testamentary Trust - one established in your Will. Testamentary Trusts might be appropriate, if you have young children and you are concerned that if you die, they will be too young or irresponsible to receive their inheritance at the legal age of majority, which is 18. As well, Spousal Trusts are used, for example, in the case of a second marriage or for tax planning.

TAXATION

In Canada there are no gift taxes. Income taxes are payable on income reported on your final tax return. Reported income includes ordinary income from employment. The entire amount of RRSP's, RRIF's and registered pension plans are also taxable as income on death unless a spousal rollover is possible. Capital assets (i.e. real estate and stocks) are deemed to be disposed of at fair market value, which could trigger capital gains. Careful planning is therefore required to minimize income taxes.

To minimize tax at death consider the following tax planning techniques:
- principal residence exemption
- rollovers
- medical expenses
- insurance
- charitable giving

INSURANCE

Failing to use Life Insurance in your Estate plan can be costly. Life insurance policies, especially "joint and second to die policies", are inexpensive ways to fund the tax liability of your Estate and maximize the benefits to your loved ones.

Plan to leave a legacy you're proud of, but don't wait until it's too late.

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