The Importance of Estate Planning

Many of us avoid or defer estate planning because it feels like such an onerous task.  Although this is likely not a task you’re looking forward to, addressing your will, taxes and other legal issues surrounding death is an important part of estate planning.  A well thought-out estate plan should bring peace of mind and reduce the overall stress that can come when losing a family member.  

During this difficult time, you don’t want to add to the stress with things like: 

  • Trying to determine what the family assets and liabilities are
  • Determining how you will maintain your lifestyle now that the family’s main or major contributing source of income is gone
  • Dealing with unforeseen tax consequences

Part of the estate planning process should also be about identifying tax planning opportunities and also managing this new wealth transfer.

Some of the benefits of the estate planning process are:

Organization

Having a clear picture of what you own, what you owe, and the various types of assets you hold will allow you and your financial advisor to better determine how to grow your wealth and identify possible planning ideas.  The ability to view your entire financial picture will allow you to see things such as: how to convert non-deductible debt on your principal residence to debt that is deductible for tax purposes; utilization of your TFSA or your RESP; or how much assets you have in comparison to your debts.

Planning for the Future

 Part of estate planning is identifying where you are and managing risks.  If your family is relatively young and there is only one income earner in the family, it is important to plan what could happen if that income source disappeared whether by way of disability or death. This can put severe strain on the family. As the family gets older and has accumulated more in wealth, this concern can diminish but this shows how estate planning in the early years can be extremely important.

Life insurance and disability insurance can be great tools in managing this risk.  Generally, the younger you are, the lower the insurance premiums.  Determining the right amount and the right type of insurance for you is very important.

Time and Costs Savings.

If you have a properly drafted and updated will, you could significantly reduce the number of delays and costs that would be incurred if you pass without a will. Dying without a will means that you have died intestate. This means there is no executor or directions on how your estate should be divided. Depending on where you live, the procedures and laws will be different.  If there is no will, it can create a lot more work and additional legal fees.  Even with a will in place, estate disputes can arise for a number of different reasons which can be very stressful and expensive.  As such, it is important that your will is properly drafted.

Once you have a will prepared, it is important to revisit the will every couple of years to ensure that it still reflects your wishes.  Depending on the circumstances, it may be important to have a discussion with your family if you wish for certain assets to go to certain family members. For example, if the family business is to go to Mary but Bobby will get real estate instead, it is important to have a conversation about this and discuss the valuation. Having these discussions earlier can be difficult but it could avoid future conflicts, and future legal fees between your children.  You may decide to revisit your will with any major life event, such as a new family addition, or a passing of a member. 

At the initial drafting of your will, you may also start to consider your power of attorney and living will, as those factors will impact your family members as well. 

Preserve Wealth.  

By starting the estate planning process earlier, planning opportunities may be enacted to reduce the overall tax liability on death. In Canada, there is a deemed disposition of one’s assets at fair market value when an individual dies. This is Canada Revenue Agency’s last opportunity to tax any appreciated gains. As such, the tax liability at the time of death could be quite significant. 

There are a number of different tax planning opportunities that can be enacted to minimize the taxes at the time of death. In addition, depending on what province you live in, there may be a probate fee applicable for all of the assets that pass through your will. Probate fees vary from province to province. B.C. for example is roughly 1.4%.  Therefore, if the value of your estate is $3,000,000, the estimated probate fee would be $41,450. There are various planning opportunities to reduce your probate fees that you and your advisors can assist with if they are set up prior to death.

One simple planning opportunity to reduce the amount of probate fees that may be applicable to your estate is to try to have certain assets pass outside of your will.  RRSP’s and RRIF’s can pass outside of your will if they designate a beneficiary on the account.  By doing so, the asset may be rolled over to the beneficiary directly and therefore may avoid probate fees and the income inclusion to the deceased. There are certain restrictions that apply.  If the value of the RRSP was $1,000,000, the probate savings in B.C. could be $14,000 and $540,000 in an income tax deferral.

Reduce stress.

Many of the items listed above are all interrelated.  By starting the estate planning process early, planning opportunities may be identified and put in place, insurance policies can be set up at an earlier age when the individual is healthy and insurable, and you can avoid leaving a mess for your loved ones. No one wants to leave a mess for their loved one’s but unfortunately ignoring or deferring the problem will only shift the problem to your beneficiaries. We encourage you to start this process as early as possible which will reduce the stress for the entire family!

Collaborate was designed to allow users to easily track and manage their financial assets in one place but also to allow you to collaborate with your trusted advisors and loved one’s to identify planning opportunities and take the stress out of estate planning.

Disclaimer: The content of this article is intended to provide a general guide to the subject matter.  Specialist advice should be sought about your specific circumstances.

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      Conrad Yen

      Founder & Owner, Collaborate

      Collaborate was created after I saw many of the struggles that my clients experienced after losing a family member. There seems to be a trend in which a client’s loved one who passes away is also the person that looked after all the family financial affairs. The surviving spouse or children, who hasn’t been in the loop, may not know the details of
      the assets they own, what liabilities exist, or even which financial institutions they have accounts set up with.

      Without that information or a password to access their estate
      affairs, it is extremely challenging to execute a will or transfer accounts. Another challenge I see as an accountant is that many of my own clients defer estate planning much too late, and when the estate planning needs to be done, it’s done the old fashion way.

      The process is extremely time consuming and becomes out of date quickly since assets values and liabilities change quite often. I think of my own situation and realize; even my wife would have a difficult time navigating through all the family financial accounts, and she is very financially adept. I don’t want to put my own family through this – and that’s why the idea of Collaborate was formed.

      Outside of work, I’m an avid tennis player and an amateur Iron-Chef. You’ll often find me with family & friends trying out a new restaurant or enjoying a round of golf.