Estate Planning Part 1: What is an Estate Plan?
An estate plan is a plan to organize the transfer of personal and business assets to an individual’s beneficiaries in a tax efficient manner. The objective of an estate plan is to preserve the maximum amount of wealth possible for the intended beneficiaries and flexibility for the individual prior to death. Every estate plan is unique and has many integrated parts that should include a Will, Power of Attorney and a Representation Agreement.
Prepare a Will
In general terms, a Will is a legal document that coordinates the distribution of your assets after death and can appoint guardians for minor children. You can learn more about Wills and why it is important to have a Will in our previous post: Why You Should Have a Will.
Appoint a Power of Attorney and Prepare a Representation Agreement
An Enduring Power of Attorney is a legal document that allows you to give legal authority to a trusted person (i.e. – your attorney) to manage your legal and financial affairs if you are not capable and cannot make your own decisions or need help with decision making.
A Representation Agreement is a legal planning document that allows you to give someone you trust the legal authority to represent you and make personal and/or health care decisions on your behalf if you are incapable of making these decisions independently.
A comprehensive estate plan should be practical but also consider tax planning opportunities in order to maximize the transfer of wealth from one generation to the next.
Provide Sufficient Finances for Family Members
As parents of two young children, it was essential that our estate plan provided for adequate financial support for our children in the event that something was to happen to both of us. Various insurance arrangements such as life, disability and critical illness insurance can provide financial support to your dependants and/or fund tax liabilities on your death.
Plan for Probate
Obtaining a grant of probate is the process of having a Court of law establish that a Will is valid. The grant of probate also determines the value of an estate in order to calculate the probate fees that are to be paid out of the estate. The probate fee in British Columbia is equal to approximately 1.4% of the value of the assets of the estate and includes your principal residence. You can read more about probate and probate planning strategies in our previous post: Probate Planning Strategies.
Consider the use of a Trust
There are many benefits of using a trust for estate planning purposes. The use of a trust can provide asset protection and privacy, as well as help minimize probate fees and permit the timely transfer of assets. A beneficiary’s interest in a trust can also protect family wealth from creditors or divorce claims. A trust is also commonly used by small business owners when implementing an estate freeze. An estate freeze is the term commonly given to a transaction where you lock in or “freeze” the value of appreciating assets. We will explore the use of trusts and estate freezes further in part 2 and part 3 of our estate planning blog.
If you would like to learn more about estate planning, connect with Ish Lila or Shelly Lila at Ashdin Law – Corporate and Tax Lawyers, located in Coquitlam, B.C. The primary benefit of working with Ish is that he is also a CPA & CFP, so he understands the legal, financial and tax planning considerations required to implement a personalized estate plan.
The above provides a practical overview about Estate Planning. This blog is for informational purposes only. Readers are cautioned this blog does not constitute legal or professional advice and should not be relied on as such. Rather, readers should obtain specific legal advice in relation to the issues they are facing.