A common question we received is what we should consider when planning our wills and powers of attorney.
The following excerpt from the Book – Preserving Wealth describes this.
APPENDIX C: PLANNING YOUR WILL AND POWERS OF ATTORNEY
Introduction
This document contains background information regarding the planning of your Will and Powers of Attorney.
Its purpose is to further understand the subject matter and related issues to assist you in making key decisions.
Your Will – an important part of your Estate Plan
We often talk about why you need a Will. Perhaps it would be more appropriate to talk about why you want a Will—an up-to-date Will that reflects your current circumstances and is properly planned and created.
Your Will is a key legal tool that is used to implement your estate plan should you die. It will govern how your assets are dealt with, to whom they are given and who has the responsibilities to look after these matters.
Should you die without a Will (or with a Will that does not distribute all of your assets), the “intestacy” laws would apply. These laws can produce arbitrary results that would likely not reflect your wishes. Without an appropriate Will, the administration of your estate would be more complex and costly. Moreover, you can miss the opportunity to use strategies to minimize tax and avoid family disputes by not having an up-to-date and carefully thought out Will.
An out-of-date Will can be almost as bad as not having a Will. It may not reflect your current circumstances, and it may not even deal with all of your assets.
Tax implications of dying
Planning to minimize taxes is an important objective in estate planning. This is because, in Canada, there are significant tax implications to dying.
When a person dies, he or she is deemed to sell all of his or her property for its value at that time. This fictional sale occurs immediately prior to death. Therefore, it is reported in the final tax return of the deceased person. This results in the following:
- The realization of any capital gains or capital losses (and the taxation of those gains)
- Registered plans, such as RRSPs and RRIFs, are taxed on their full value
There are some exceptions, the most significant being where the property is left to a surviving spouse (or partner) or a qualifying spousal trust. In that case, the tax implications are deferred until the surviving spouse dies or until the property is sold. Another exception relates to the principal residence exemption that may be used to shelter the capital gain that is realized on a home or recreational property.
Probate fees or taxes are also a consideration. The amount of the fee or tax is calculated based on the size of the estate.
What will be in your Estate
One of the first steps in planning your Will is to determine which assets will form part of your estate and thus, be dealt with by your Will.
The determination of which assets will form part of your estate depends upon how you own your property and whether you have named beneficiaries in life insurance policies, registered plans and the like. Property that is jointly owned will not form part of your estate. Similarly, where a beneficiary has been named in a registered plan or an insurance policy, the proceeds will go directly to that beneficiary and are not governed by your Will.
Thus, it is important to examine the relevant documents (e.g. title documents, account documents etc.) to confirm the owner and type of ownership and whether a beneficiary has been named.
Essential elements of a Will
A properly planned and drafted Will should consider your current financial and personal circumstances and reflect your goals regarding the distribution and administration of your estate.
Here are the essential elements of your Will:
Naming Executors, Trustees and Guardians:
- Who would be best suited to handle your estate and manage any trusts created in your estate? Your executors handle the administration of your estate, and the trustees manage any ongoing trusts that may be created under your Will. They do not need to be the same people.
- If you appoint multiple individuals to act together, how should decisions be made?
- If there are minor children, who would you wish to name as guardians?
For more information, you can refer to Preserving Wealth: The Next Generation – The definitive guide to protecting, investing, and transferring wealth by Jack Lumsden, MBA, CFP®
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Jack Lumsden, MBA, CFP® Financial Advisor, Assante Financial Management Ltd. This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please make sure to see me for individual financial advice based on your personal circumstances.
