5 steps to estate success

More than half of Canadians don’t have up-to-date wills and almost two-thirds haven’t prepared powers of attorney, according to a LAWPRO survey. But most Canadians acknowledge they should have these important documents.

A will is a key component of all estate plans. Dying “intestate” (without a valid will) means:

• assets will be distributed according to the formula set out in provincial legislation;
• forfeiture of income tax and probate planning opportunities (where applicable);
• loss of the opportunity to establish testamentary trusts for special needs beneficiaries, appoint guardians (or tutors, in Quebec) for minor children and to make charitable bequests;
• a more costly and less efficient estate administration; and
• appointment of a personal representative to administer the estate whom the client may not have chosen or wanted.

The following roadmap will help facilitate the planning process.

Read: What not to do in estate planning

Step 1: Identifying assets and liabilities

Assets may include: investments (stocks, bonds, mutual funds, bank accounts); retirement plans, including RRSPs, RRIFs, pensions and annuities; personal property (jewellery, cars, artwork and antiques); real estate; insurance policies; and business interests. Consider liabilities to determine the net value of the estate. Clients with a financial plan will be well-positioned at this stage.

Also consider what’s owned and how. Assets owned jointly with right of survivorship (not applicable in Quebec) may be treated differently upon death than assets owned only in the client’s name. Where applicable, note the designated beneficiary of assets such as RRSPs/RRIFs, life insurance and tax-free savings accounts.

Step 2: Deciding how to distribute assets

Clients must decide whom to leave their estates to (family and/or other loved ones, charities, etc.). They should also plan for the possibility beneficiaries die before they do. For instance, what happens to a daughter’s inheritance if she dies before her parents? They should decide in advance if her share will go to her children or be distributed evenly among surviving siblings.

Clients also need to factor in possible restrictions on their ability to dispose of assets as they wish. These include contractual obligations (domestic contracts/separation agreements/business agreements), as well as spousal and/or dependents’ rights.

Read: Prevent estate battles

Step 3: Determining the best plan for transferring wealth

Should assets be transferred outright or by way of a trust? A trust distribution under the will may be preferable when the client:

• has minor children or grandchildren and/or beneficiaries with special needs;
• has assets he or she wishes to preserve and transfer across generations (such as a family business or cottage);
• wants to leave a charitable legacy; and/or
• is in a blended family.

Beneficiary designations and inter vivos trusts may also be usefuls. For example, by designating a beneficiary on an RRSP/RRIF, life insurance policy or TFSA, probate fees, where applicable, may be reduced. Inter vivos trusts may also provide probate planning opportunities and may form part of a comprehensive plan for potential future incapacity.

Step 4: Choosing the right personal representatives

Your client needs to appoint an executor, trustee, attorney and potentially a guardian (tutor, in Quebec) for minor children. The executor (liquidator, in Quebec) is responsible for administering the estate in accordance with the client’s will. The trustee manages trusts established during the client’s lifetime and/or in the will. The attorney is responsible for managing the client’s financial and/or personal care under his or her power of attorney. In B.C. Representation Agreements govern personal care and may also govern financial matters.

Professional corporate trustees may be the best choice as executor or trustee if the client:

• has no qualified family members living close by;
• owns complex assets such as a private company;
• has a blended or non-traditional family;
• has family members with special needs;
• has beneficiaries residing out of the country and/or owns assets out of Canada;
• wishes to insulate family members from the potential for personal liability; and/or
• anticipates family conflict.

When a client appoints an individual as executor or attorney, it’s important to name an alternate in case her first choice becomes unable or unwilling to act.

If the client has minor children, she should think about who will be guardian or tutor in the event both parents die.

Read: When your client wants to change beneficiaries

Although subject to court approval, an appointment by will is generally recommended as it can take effect immediately upon the parents’ death, and provides a clear indication of client wishes when court approval’s sought.

Step 5: Documenting the plan

Before a client meets with an estate planning professional, she should prepare an inventory of assets and liabilities, including:

• personal identification;
• marriage contracts or separation agreements;
• real estate documents;
• partnership or shareholder agreements and other private company documentation;
• recent tax returns; and/or
• current will and powers of attorney (protective mandate, in Quebec).

Also, wills and estate plans should be reviewed every three to five years, or when the client’s personal or financial situation changes significantly.

Read: Don’t delay planning

Elaine Blades is director, Fiduciary Services, at Scotia Private Client Group.