With professional advice, estate planning ensures that an individual’s wishes are clearly expressed in a will, and minimizes complications for loved ones
Estate planning is the process of managing, preserving and transferring wealth. Done properly, the succession can be carried out without undue complications for loved ones, sophie Ducharme, vice-president, Trust and Advisory service, National Bank Trust, Private Wealth 1859, says. Professional advice is vital to minimize tax consequences and reduce the chances that a court will become involved, she says.
"Peace of mind and a happy family are common goals for estate planning," Ms. Ducharme says.
The cornerstone of the estate process is the will, and the best type is the notarized one, she says. "A notary will helps an individual works through his or her options. If a will is not notarized, it will have to be probated — to have its legal validity established — by a court or a notary at the time of death. A notarial will is enforced immediately upon death, without requiring any additional procedure."
A notary can provide expert advice to ensure that an individual's wishes are clearly expressed in a will, Ms. Ducharme says. A notary's involvement brings an added layer of security, since the document will be stored in a safe place and kept confidential, be difficult to contest and be easily traced after being registered with a provincial body. Trust companies offer multidisciplinary teams that include notaries, tax advisors and financial planners to guide clients.
To create a will, begin by making an inventory of your assets and liabilities, she says, and then establish your objectives — to whom will the estate be distributed, when and how?
Tax, legal and family challenges may seem difficult to surmount. How to ensure that minor children do not suddenly find themselves with money they are too young to manage? One option is to establish a testamentary trust, Ms. Ducharme says. A trust is a legal instrument to which you transfer part or all of your assets upon death. your trustee will hold and administer it in accordance with your predetermined objectives.
If you wish to pass money on to beneficiaries who are minors, you would include instructions directing the trustee to distribute the money at a later date.
"The relevance of a trust depends on your personal and financial reality," Ms. Ducharme says. "It could be very useful if you intend to include several beneficiaries, or if you wish to control how the assets will be distributed, or spread the distribution out over time to protect the beneficiaries and ensure their financial security, or prevent capital from being quickly squandered."
A testamentary trust could reduce an individual's tax bill by allowing for income-splitting among beneficiaries. "The best advice is to speak with your professional advisors. Creating a trust requires customized and conscientious planning, and expert legal and fiscal advice to identify the challenges, risks and tax consequences." But be aware that the advantage of income-splitting for testamentary trust could soon disappear, according to some experts.
Individuals may look down the road and wonder what will happen if their spouse remarries, and subsequently dies. How can people ensure that their assets do not pass forward to their surviving spouse's new spouse?
One answer is to create a spousal trust in which the spouse will be entitled to receive the income during his or her lifetime. "While the spouse is living, no other person is entitled to income or capital of the trust," Ms. Ducharme explains. "At the death of the spouse, the trust can provide that the remaining capital is bequeathed to other beneficiaries, such as the couple's children." (A spousal trust also benefits from tax advantages like a testamentary trust.)
A will can provide that one's spouse has the right to live rent-free in the family residence, and that on the death of that spouse, the children receive the proceeds from the sale of the house.
It is important to plan for the possibility of illness and incapacity, Ms. Ducharme says. A power of attorney (or in Quebec, a notarized mandate) allows an individual to designate one or more substitute decision makers who will address
personal-care issues and the management of assets. A trust company could also be designated as a substitute decision maker for property. Failing to designate a substitute decision maker may mean the involvement of a court and a public guardian, she notes.
some people wish to transfer part or all of their wealth to charity when they die. under the Income Tax Act, when a donation is bequeathed in a will, it is deemed to have been made immediately prior to the individual's death and therefore, a donation tax credit can be claimed in the final tax return of the deceased, or by the estate. But one should consult an expert to make sure the objectives of such a donation will be met.
"Drafting a will depends on each individual's situation," Ms. Ducharme says. "If a deceased has final taxes to pay at death and would benefit from the donation tax credit to minimize taxes, the will should provide for specific charitable donations."
The choice of an estate executor, liquidator or trustees (if a trust is involved) is key, Ms. Ducharme says. The person or the trust company designated as liquidator may choose to accept or renounce the responsibility. your will should specify a replacement liquidator. If the will does not provide for a replacement or if the replacement liquidator or trustee also renounces the responsibility, the heirs may designate one, by a majority vote. If that is not possible, a court may designate someone.
Liquidating an estate is a long, complex and delicate process, Ms. Ducharme says. "Expert advice is essential for proper planning, and for peace of mind."