Oct 11, 2012

Create Your Legacy (Part I)

Why Plan Ahead?

In this series of articles presented in four parts, Mary and Karen will talk about estate planning and charitable giving. The information provided in this series of articles is illustrated with real life client situations (names changed for confidentiality reasons) as they progress through different life stages. Read Part II, Part III or Part IV.

Death is a tough subject, so it is no surprise that many people put off the decision to draft their estate plan. However, the benefits of having a well drafted estate plan are numerous. A good estate plan provides peace of mind by ensuring that you control the distribution of your estate on death and that it is done in an effective manner. Creating an estate plan with the assistance of professional advice is an excellent way to ensure that your financial affairs are in order, your wishes are respected, your family is taken care of on your death, and your estate is not burdened with excessive administrative costs or taxes.

There are many negative consequences to not having a proper estate plan in place at the time of your death. These include:

The risk of inappropriate distribution of assets; The risk of claims being made against the estate and litigation; Guardianship/custody issues, if no interim custodian for minor children has been named in the will;

The risk of children inheriting sizable sums of money at the age of eighteen, instead of at a more suitable age of your choosing; No funeral instructions left for your executors; Confusion regarding executors/no choice of executors; Probate (Estate Administration Tax) of assets which could have been excluded with proper planning; No income tax savings or credits to keep more money in the hands of your beneficiaries; No protection from creditors for insurance or registered plans; and Greater time and expense payable by your estate to administer your estate without a will.

An estate plan is more than just a simple will. A comprehensive estate plan tailored to your specific financial and family circumstances will alleviate the above issues, and provide you with peace of mind for the future.

A detailed estate plan will start with your Will at its foundation. A will dictates who will be in charge of administering your estate and spells out the distribution of your assets. In addition, a properly prepared will lays out the rules your executor must follow when administering the estate, which makes it possible for your executor to administer the estate efficiently, and without interference from the beneficiaries or the courts. Your will may also contain trust provisions governing assets payable to children, specific gifts of cash or personal property, charitable gifts, and various other clauses reflecting your wishes.

In addition to the will, an estate plan should include a Continuing Power of Attorney for Property and a Power of Attorney for Personal Care/Living Will. A Continuing Power of Attorney for Property is a document in which you give another person (your Attorney) the power and authority to make decisions concerning your property and financial affairs. The document will allow your Attorney to continue acting on your behalf even if at a later time you should become mentally incapable of making these decisions on your own. By having a Power of Attorney in place, the need for a court application by a family member to be appointed as your guardian for property in the event that you lose your capacity to deal with your financial affairs is avoided thereby avoiding the stress, delay and expense of a court application.

A Power of Attorney for Personal Care/Living Will names an individual to make personal care decisions on your behalf if you become mentally incapable of making them yourself. Personal care decisions include decisions relating to health care, nutrition, shelter, clothing, hygiene and safety and as well, end of life decisions.

Other documents which may be needed for a comprehensive estate plan often include trust documents setting out the terms of trust for assets that are to be payable to a trustee rather than to the estate or directly to a beneficiary. Often such assets include life insurance, Retirement Savings Plans and Tax Free Savings Accounts. There may also be special forms of trusts used for disabled beneficiaries and spouses. Lastly, there may also be documents produced to clarify the intentions of the parties in the case of gifts made during one’s lifetime and jointly held assets.

Our clients, Phil and Anne Thropy, are both in their 40’s and have two children. Phil and Anne own their own home, each has life insurance and each has an RRSP, as well as various small investments and the usual personal assets. Phil and Anne make yearly charitable contributions of a modest amount to various charitable organizations.

Phil and Anne’s Estate Plans include the following:

1. Wills that provide:

a. Each other as the initial executor; b. Their trusted lawyer and family friend Robert as the alternate executor; c. Anne’s sister Judy to have custody of the children if Phil and Anne are both deceased; d. Phil’s’ brother Taylor to be the alternate custodian; e. The entire estate to go to the surviving spouse and if both are not alive, a small legacy is made to each of their favourite charities and then the estate is to be divided and held in trust for their children, with the income earned in the trust to be distributed to the children starting at age 18, and then 1/3 of the capital of the trust to be distributed at age 25, age 30, and age 35, with discretion to the executor to use the funds prior to those ages if needed for the child’s health, education, maintenance and support.

2. RRSP’s and life insurance proceeds are treated the same way as the rest of the estate but through specialized designations and trust directions.

3. A Power of Attorney for Property has been drafted for each of Phil and Anne naming each other as primary attorney, and enlisting alternates in the even the primary attorney cannot act.

4. Powers of Attorney for Personal Care have also been drafted, naming each other as attorney, and also naming alternates.By having the foregoing, Phil and Anne have avoided the possible negative consequences of not planning ahead.

Taking Action

There are numerous ways you can reach your estate planning and philanthropic goals while benefitting you and your estate. Speak to your legal and financial advisors about your goals so that a plan can be tailored to your financial and personal situation.

Photography by William Arthur Fine Stationery