Estate Planning

An estate plan is an important part of your ongoing financial planning. It tells others how to handle your affairs at death and how to distribute your assets, including money, property and other possessions. An estate plan will help to ensure your estate is divided according to your wishes, rather than the government’s wishes, and it can help to minimize taxes so that more of your estate is left for your heirs.

Generally, the objective in estate planning is to minimize taxes and preserve the estate for the beneficiaries. Since tax legislation deems most capital property to be disposed of for fair market value at death, there could be a substantial tax liability to the estate. This capital gains tax can be deferred on death where such property is transferred to a surviving spouse. Many clients relying on this tax deferral forget that at some point the taxes must be paid. Tax cannot be deferred beyond the surviving spouse’s death. Increases in property values and changes in tax laws could result in a potentially significant tax liability at the surviving spouse’s death.

RRSPs and pension can present another tax problem at death. These retirement plans can also be transferred to a surviving spouse. Any amounts held under such plans at the death of the surviving spouse must be taken into income in his or her estate.

Although, effective lifetime tax minimization strategies (e.g. gifting, estate freeze, trusts) can reduce the tax liability at death, the estate could still be subject to considerable tax. Life insurance on a joint-last-to-die basis can, depending on the age and health of the individuals, provide a less expensive means of funding to cover the tax liability in the estate and preserve the estate for the beneficiaries.

The estate planning process may include:

  • Deciding what you want to do with your estate when you die
  • Identifying everything that forms part of your estate
  • Choosing an executor and executing a will
  • Making decisions regarding living wills, organ donation, power-of-attorney
  • Prearranging a funeral

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