Focus On Estate Planning

Introduction

Estate planning involves much more than the preparation and periodic update of your will.  It is a multifaceted, lifelong event requiring reflection and expansion as you reach milestones in your life and your career.

What is an Estate Plan?

An estate plan is an arrangement of your financial affairs designed to accomplish several essential financial objectives, both during your lifetime and on your death.  The plan should accomplish the following goals:

  • Provide tax-efficient income during your lifetime (before and after retirement)
  • Provide tax-efficient dependant support (after your death)
  • Provide tax-efficient transfer of your wealth
  • Protect your assets

Stages of an Estate Plan

Your estate plan starts as soon as you begin to accumulate your estate, not when you draft your will.  To maximize this accumulation, ask yourself the following questions:

  1. Are there any income-splitting opportunities between my family members?
  2. Does my corporate structure allow for a tax-efficient distribution of funds?
  3. Am I claiming all the deductions possible, or do I need to do some rearranging?
  4. Is all my interest deductible?

Once your income sources have been secured, your estate plan should deal with the preservation of your family’s wealth.  At this stage, the focus should include saving and investing your excess funds for retirement, dealing with income tax, family law matters, protecting the assets from creditors, and growing the goodwill of any business that is a substantial family asset.

The next stage of the plan is the realization of your wealth, through either, selling your business, determining your succession or executing your retirement strategies.

The final step is the transfer of your wealth.  During your lifetime, this can be accomplished by way of sale or gift, but on death, the distribution of your assets should be documented in your will.  Since, in most cases, you cannot predict the timing of this ultimate transfer you should not wait to draft a will until you are ready to transfer your wealth.

Your will should be an evolving document.  Once drafted, it should be reviewed regularly to ensure that it reflects your current intentions and provides your beneficiaries with maximum tax efficiency and asset protection.

Your initial estate plan will not last a lifetime, so be prepared to review it often and change it to keep pace with changing circumstances and laws.

Components and Goals of an Estate Plan

The components of your estate plan could include the following:

  • If a business is a key family asset, a shareholder’s agreement will govern the activities of the current and future shareholders by addressing termination, sale, death, divorce, and wealth extraction.
  • An effective share ownership structure of any business you are involved in can provide for the tax-efficient distributions of excess assets and protect these assets from creditors.  A share structure can also facilitate business succession planning or bequests without compromising the operating business.  For example, shares inherited could have terms such that they can only be redeemed over an extended period of time.
  • Various trust arrangements (spouse trust or family trust) can hold shares for the benefit of others while they are controlled by trustees.  These arrangements are the primary tools for income splitting and multiplication of the tax-free capital gains exemption between family members and between generations.
  • A properly drafted will is an essential component of any estate plan.
  • Insurance arrangements, including life insurance, key man insurance, critical illness insurance and disability insurance, help provide dependant support or fund tax liabilities on your death.

Conclusion

The various components of your estate plan must work together to achieve your desired goals.  As a result, if one component changes, the others should be examined to ensure your intentions will be met.

If you haven’t attended to your estate plan, or if it needs to be reviewed to ensure your intentions will still be met under your current situation, contact Joseph A. Truscott, Chartered Accountant at 905 528-0234 or e-mail Joe at joetruscott@josephtruscott.com.