Proactive tool for the future
The current global pandemic has brought estate planning considerations to the forefront. Many individuals are worried about their health, family and finances during this time of uncertainty. The urgency to have appropriate estate-planning documents completed is more prevalent now than ever. It is important to be proactive.
A well-informed estate plan involves a review of all of your assets, consideration of tax minimization strategies, a review of legal obligations to dependants and others and an assessment of whether there should be an outright or delayed distribution of assets. An estate plan is also dependent on personal and family circumstances as well as the nature and extent of assets.
It sets out your wishes, aims to preserve your wealth and ensures a smooth transition of your wealth to your beneficiaries.
Despite the importance of estate planning, many Canadians do not have a Will or Powers of Attorney.
Wills A properly drafted Will is paramount to an estate plan. A Will is a legal document in which you appoint someone, known as the executor or estate trustee to manage and administer your estate when you die. It sets out who will benefit from your estate, the timing of any distributions to those beneficiaries, and addresses contingencies, such as one of your beneficiaries predeceasing you.
By failing to have an adequate Will in place you are at risk of suffering undesired consequences, such as having an unknown person assuming authority to distribute and manage your estate, having unintended distributions of property from your estate, or failing to honour your obligations to your dependents.
Powers of Attorney
Where a Will applies to the administration of your assets following your death, Powers of Attorney apply while you are alive.
You may appoint one or more substitute decision makers to manage your property (Power of Attorney for Property) and a decision maker for your personal care (Power of Attorney for Personal Care).
If you were to become legally incapacitated and as such, unable to manage your own assets or make your own personal care or healthcare decisions, the court would need to appoint a person who is called a Guardian of Property or Guardian of Personal Care. This could be a family member or a provincial guardian known as the Public Guardian and Trustee.
There may also be instances where you are legally capable of managing your own affairs, however, you may simply not be available to do so, for example, if you are quarantined. We have heard of the COVID-19 virus causing sudden and rapid deterioration of health and capacity, as such there may not be sufficient time to put these arrangements in place then, so it should be done now.
An estate plan may also include trusts. Trusts can be established during your lifetime (living trust) or in your Will (testamentary trusts). The goal of a living trust may be to minimize taxes or preserve assets.
Trusts are commonly established in Wills for the benefit of minor children. The trustee is given discretion on the distribution of the capital and income to the minor to ensure that assets are available for education and living expenses and that the capital is paid to the child over a period of years or at a specified age.
Other instances in which trusts may be implemented are for business succession planning or for the preservation of government benefits (for example, Ontario Disability Support Program) received by an individual with special needs.
The smooth transfer of business interests on death is essential to ensuring little disruption to the surviving business partners or shareholders. An estate freeze may be implemented for estate planning purposes. This would involve capping the value of the business for the existing shareholders so that any future growth in value is passed to the next generation either by a distribution of shares to family members or a family trust where the family members are beneficiaries.
Additional estate planning considerations
A Will is only one channel through which assets can pass when you die. Other channels include, beneficiary designations (for example, RRSPs or TFSAs), insurance designations, the right of survivorship on joint assets, inter vivos gifts (gifting assets during your lifetime), or corporation re-organizations.