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360 Private Wealth Management Natural Wealth® Process: Estate Planning Thumbnail

360 Private Wealth Management Natural Wealth® Process: Estate Planning

The Natural Wealth® Process breaks financial life planning down to 5 key elements: Vision, Wealth, Tax (and Estate), Cash (and Cash Flow), and Risk. We have been discussing Tax and Estate matters this calendar quarter and we would like to end the quarter with a discussion about Estate Planning.

Our estate is made up of all our wealth: person, portfolio, and possession. Our estate is for our own use while we are alive and for the benefit of beneficiaries when we die. In the Natural Wealth® Process, we view Estate Planning, aside from our actual wishes as to how we might want our estate dispersed when we die, as an extension of tax planning. It has been said that “nothing is certain except death and taxes”. Income taxes and probate fees are applicable in most cases on death. Estate planning can help minimize the impact of taxes and probate fees.

It is important to note that probate fees on estate assets are not necessarily a bad thing if the fees paid result in a better estate planning outcome. In most provinces and states probate fees are a modest amount. For instance, in Manitoba, the probate fees on $500,000 of probatable assets are $3,500 plus the lawyer’s fees for filing. If the amount paid provides better options for the distribution of a person’s estate, then probate fees and any additional legal expenses associated can be a small price to pay for ensuring your estate is distributed in accordance with your wishes.

Of course, for someone to have a say in how their estate is distributed they need to draft a will. Everyone should have a will even if they don’t presently have estate assets of note. A time will come soon enough where they will have assets that need to be dealt with if they die. Not having a will at the time of death is referred to as dying “intestate” and in these cases jurisdictions (in Canada, provinces) dictate how the estate is to be distributed. However, intestate rules may run counter to a person’s wishes. There are also additional costs associated with dying intestate as estate administrators must make additional filings to settle the estate. In short, if you do not have a will . . . get one.

When drafting your will you will need to appoint an executor who will take up the estate settlement process, and if you have minor children, a guardian (or guardians) to care for your children in the event both you and the children’s other parent die before they reach the age of majority. Choose your executor and guardian wisely and consider making them separate from each other to protect the interest of all involved. Approach potential executors and guardians in advance of drafting the will so they are in the loop. There is a great deal of responsibility involved in these roles. Not everyone would appreciate the surprise of finding out they are named after the fact.

While you are drafting a will consider drafting a power of attorney that will allow someone you trust to manage your affairs in the event you are somehow incapacitated (serious illness or injury) and unable to make decisions about your personal and financial affairs. We have a number of households where a client’s power of attorney is now acting on their behalf because of a serious ongoing illness (i.e. dementia). Choose your power of attorney wisely and approach them before you draft the document to make sure they are comfortable accepting that role. There is a tremendous amount of responsibility in managing another person’s affairs. While they are allowed, by law, to draw a measure of compensation from your estate for their efforts (executors also can draw compensation for their work), it is not normally a significant sum relative to the work they will be called upon to do.

Once drafted, we suggest you make a habit of reviewing your will and power of attorney once a year to ensure everything is still current and in line with your wishes. Executors and beneficiaries die or otherwise disappear from our lives. A simple “codicil” (attached change to an existing will) can suffice in updating your will. A power of attorney may need to be redrafted. 

We recommend you consult a lawyer for all things related to wills and powers of attorney as estates and family situations can be complicated. Wills and powers of attorney need to reflect these complexities or risk creating unintended consequences. Money spent up front making sure your will and power of attorney are valid and well-structured can save thousands of dollars later over a will one might write themselves.

Now that you have your will and power of attorney drafted, review the beneficiary designations on all financial assets and life insurance policies to make sure they reflect your wishes as stated in the will. If you want your estate consolidated and used to care for your children until they are finished their post-secondary education (normally an age above the age of majority), and then have the estate distributed in portions over say 10 years, you do not want the children named as beneficiaries on your RRSP, TFSA, or on life insurance policies. If they are named, all the money in these assets will go directly to the children as long as they are of age (18 in Manitoba) and the terms of the will, will not apply.  Reflecting on how financially responsible we were at age 18, would you want to your child to receive what could conceivable be a very large sum of money at that age 18 with no strings attached? Furthermore, in the case of RRSP’s the money will flow directly to the child but the income tax bill associated will flow to the estate which may or may not have the additional resources to pay the RRSP tax bill.

Minor children are only one aspect of an estate, will, and power of attorney planning that can complicate things. Other situations include a cottage or a family business. Every family has its own unique situation and family dynamics. Estate planning is not something to be considered lightly. Every year we are involved in situations where someone loses the ability to manage his or her own affairs or more sadly, situations where clients pass away. Some situations are well planned allowing for prompt wind up, payment settlement, and a clean estate settlement process. Others are not, creating complications, confusion, and angst on everyone’s part. The time to make sure things are in order and in line is now. Later may be too late . . .

If you want to confirm your plan and insurance policy beneficiaries on various products we manage for you or if you want to review your will and estate plan please call or email us. We can provide the requested information to you or connect with you to arrange a meeting, depending on what is required. Ultimately, we want to make sure your overall estate plan reflects your wishes in the most tax-efficient way possible.

David J. Luke, CFP, RFP, CLU, CH.F.C., CIM | Financial Advisor

360 Private Wealth Management | Manulife Securities Incorporated 

Unit 1 – 25 Scurfield Boulevard, Winnipeg, MB R3Y 1G4 

Main Office 204.925.5868 | Direct 204.925.2073| Fax 204.925.2263 | Toll Free 844.688.3656