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Oct. 6, 2006
Some estate planning basics
Do the groundwork now so your loved ones won't have to later.
SULMAN B. DAMJI
If you're like most people, getting your personal financial plan
started can be a challenge. And what about planning your estate?
Well, that subject might really make you shudder. But why? Too dreary?
Too complicated? Too intimidating? Or simply not on your list of
priorities?
Estate planning should be a financial priority at almost any stage
of life. In fact, an estate plan is absolutely essential for organizing
your financial affairs and providing for the well-being of your
family members.
Simply put, an estate plan is written documentation of how you want
your assets to be owned, managed and preserved during your lifetime
and how you want them dispersed after your death. Why is it important
to have a plan? To ensure a simple, tax-efficient and organized
transfer of your assets to loved ones.
When you start your plan, there's a lot to think about. You want
to live your life to the fullest and ensure that your heirs will
get the most out of the assets you're setting aside for them. Here
are a few of the things you'll need to know.
Your will
The will is a road map for planning your estate and should be updated
on an ongoing basis – particularly as your circumstances change
throughout your life. A will is quick and easy to produce and will
generally cover the distribution of assets within the estate (investments,
real estate, possessions); naming beneficiaries of the estate (immediate
or extended family, institutions, etc.) and naming the executor
– the individual(s) or organization chosen to administer the
estate.
If you should die without a will (referred to as intestate), the
province in which you live will step in to administer your estate
using a formula. In this case, you've essentially forfeited your
say on how things are divided and who will be in charge of the process.
What is probate?
Probate is the process by which a provincial court confirms the
validity of your will. Potentially, it can be quite time consuming,
tying up your assets for months or longer.
Probate fees are essentially the taxes that must be paid to the
provincial government before your executor can begin to administer
your will. The fees vary from province to province and are based
on the value of the assets in your estate. In most provinces, the
fee structure is tiered.
In addition to probate fees, there are fees payable to the executor
for administration services and fees payable for legal and accounting
services. In the end, the cost of probate can be significant.
Reducing taxes
We all know the old cliché that the only two certainties
in life are death and taxes, but how much do we really know about
taxes after death?
If you have a will, upon your death, it is your executor's responsibility
to file a tax return for you. The government will consider you to
have sold all your assets immediately before your death and any
capital gains/losses will be crystallized. That may lead to a big
tax bill.
Depending on your individual needs, there are strategies you can
employ within your estate plan to minimize the amount of taxes you
have to pay and to avoid probate. Some key examples are to maximize
asset "roll-overs" – transfers to your spouse that
defer capital gains liabilities, get advice on setting up a trust
to ensure your beneficiaries are well looked after, give gifts of
cash or possessions while you are still alive, consider charitable
donations to create valuable tax benefits, buy life insurance that
is paid out to the beneficiary on a tax-free basis and restructure
investments with insurance companies to avoid probate on death.
The reassurance of having a strategy in place to preserve the value
of your estate for loved ones is something to value. After all,
why pay if you don't have to? Work with your financial advisor to
determine what exactly is in your estate and then devise your plan.
Sulman B. Damji is an estate planning specialist. He is
a member of the Law Society of British Columbia, the Law Society
of Upper Canada and the Financial Planning Standards Council. Damji
is teaching a class on estate planning, titled, Disinherit the Canada
Revenue Agency – Make Sure Your Estate Goes to Those You Love.
It will be held in the Inglewood Curriculum Centre in West Vancouver
on Saturday, Oct. 28, from 9 a.m.-1 p.m. To register, call 604-981-1045.
Damji may be reached by e-mail at [email protected] or by phone at 604-909-1221.
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