Understanding estate planning
Estate planning can be a seemingly overwhelming subject to those persons just starting to learn about it. For some, it’s like learning a new language complete with terms like ‘estate splitting and ‘income sprinkling’, ‘inter vivos’ and ‘testamentary trusts’, and ‘estate freezes’ and ‘holding companies’.
Nevertheless, to understand the scope of estate planning, it’s necessary to go beyond the labels and to keep in mind the underlying objectives of the process. The principal objective of estate planning is to help ensure that within the framework of your intentions, your property will be managed most efficiently during your lifetime and your wishes will be carried out most effectively after your passing.
Estate planning is not just for very high–income earners. Every family man or woman and every business and professional man or woman should have an estate plan as well as every grandparent and every great grandparent. Generally speaking, an estate plan is applicable to every person who needs: to create an estate to conserve assets, guidance in making appropriate plans for the distribution of assets to him/herself as income during his/her lifetime or to his/her spouse, children, descendants after death.
Initially, an outline will have to be drawn up as to how the estate assets and/or the income derived from them are to pass to the beneficiaries. To meet these intentions, the basic item in every estate plan is the will.
Often a valid will (that is periodically reviewed) is all that is required for purposes of estate planning. In other cases, a plan that will enable you to split your income to reduce taxes is needed.
In more complex cases, the plan can accomplish an estate freeze to reduce the income tax payable on certain types of property which may be deemed to be disposed of immediately before death. You should always make the decision as to the distribution of assets to dependents and others who have a claim.
Of course you’ll be concerned about reducing taxes (this would include both federal and provincial income taxes).
Some may feel that the interests of the beneficiaries are of the utmost importance when dividing up the assets and/or income. Others may be of the opinion that reducing or deferring tax is the primary consideration.
In all of this, the most important thing to remember is what your primary goal is in setting up your will.
Flexibility is a key ingredient in any estate plan. The plan should be adjustable in the event of either a change in the law or in family circumstances. For instance, what will happen in the event of the birth of an additional child, premature death of an intended beneficiary or a divorce?
The desire for flexibility will often call for the implementation of a simple plan at least in the initial stages, with room for amendment to more complex arrangements as the need arises.
Our role in such a setting is to be part of a team of professionals which may include your lawyer and accountant. We may also act as a guidepost and sounding board as we’ll have an understanding of both your financial situation as well as your personal goals. By using such resources, we’ll help you to implement the most appropriate estate plan to meet your needs.