Introduction to Estate Planning

Estate planning is a key component of a healthy financial plan.  In fact, if you were to view your financial plan as a house that you are building, Estate Planning would be comparable to the house foundation:  if the foundation is weak, the house will ultimately fall.

Estate planning looks at how the financial assets that you have accumulated over time will be distributed to your beneficiaries.  Beneficiaries typically include your immediate family, but can extend to charities and other individuals.

The most common tool in the toolkit for estate planning is the Will.   A Will is a legal document that declares how a deceased individual wishes their assets to be managed and how (and when) they are to be distributed to their beneficiaries.  A Will is seldom the stand-alone component of an estate plan, however.  This is because we hold certain assets that are not distributable under a Will.  These assets may include, but are not limited to:

• Your RRSP – where you can designate a beneficiary to receive the proceeds of the RRSP on your passing;
• Your Life Insurance – where a similar designation can be made to a named beneficiary;
• Assets held in joint title (more accurately described as joint tenancy with rights of survivorship) – where the surviving joint titleholder of the asset receives the entire asset on the passing of the other joint titleholder under law.

Many people have not drafted a Will.  Many others have drafted a Will but have not realized that some of their assets are distributable irrespective of the Will.  A proper introduction to an estate plan can review the assets that have been accumulated, and how those assets will be distributed through a combination of direct designation, right of survivorship, and by means of the Will.  It is then often the case that estate plans are changed on this introduction, as there are unintended results or deemed unfair allocation of assets.

I have seen improper estate plans were one beneficiary gets more assets (typically through direct designation) and another beneficiary is left with less due to the estate taxes to be paid, including income tax, probate fees and property transfer taxes.

Common situations where I would recommend a basic review of the Estate Plan is:

• Second marriage situations – where an individual is looking to provide assets to both their second spouse and their children from their first marriage.   Not only do you want to ensure that each is getting their allocated share, but you will want to ensure that the BC Wills Variation Act* is considered.
• A widowed spouse – where the individual wishes to reassess how the assets will move to their children, what series of taxes will be payable, and what planning steps could be taken today to reduce the future tax bill.
• Families with corporate holdings or real estate investments – these situations typically take on an added complexity, and require some considerations of both a tax planning and a life insurance nature to ensure a successful transition of the assets.

The above represents a brief introduction to estate planning, and is not to be construed as providing an opinion or advice.

For further information, contact Marco at 604-789-3888 or marco@mgfadvisory.ca.