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ESTATE PLANNING What is an Estate? Before we talk about estate planning it’s important to understand what an Estate is. Your estate is made up of everything you own at the date of your death, including the debts because your debts must be paid out the assets. Besides being the assets and liabilities on the date of your death, your estate is also a legal entity that will come into existence on your death. An estate is capable of entering into contracts and can sue and be sued. An Estate is also taxed as an individual. What is Estate Planning In simple terms Estate planning involves planning to build up assets in your estate, and planning what you want to happen to that property after you die. Estate planning ensures that upon your death, your assets are distributed according to your wishes with minimum tax and Estate Administration fees liability on the Estate and its beneficiaries. There are three essential components to an estate plan; wills, tax reduction strategies and powers of attorney. Your lawyer, your accountant and financial advisor are the important members of your estate planning team. Estate planning is not a one-time exercise. Whenever there is a major life event like marriage, children, divorce, significant change in assets, your estate plan needs to be reviewed and revised, if necessary. Why do Estate Planning There appears to be a common belief that estate planning is for the older people. Most people therefore put off there estate planning until later. Unfortunately those people don’t realize that lack of timely estate planning means avoidable expense, delay and aggravation for the people they leave behind. You should start doing estate planning as soon as you have any significant assets. Estate planning also becomes necessary at an early stage if anyone is financially dependent on you, particularly a person with disabilities or special needs. You need an estate plan because you want to ensure that upon your death:
When you are gone from this world, you may be forgotten by everyone but the taxman will remember you. Under the Income Tax Act, your estate comes into existence as a new taxpayer on the date of your death. Estates are taxed as individuals and therefore have to pay income tax and capital gains tax. Income tax, as we all know is tax we pay on all income. Capital gains are profits from the disposition of capital property, which is property with a long-term value, such as real estate and stock. This profit is taxed as Capital Gains Tax. Nobody likes paying taxes, but unfortunately there is no escape. All you can legitimately do is planning to minimize the tax liability. So your tax planning goal should be:
WILLS Why You need a Will A will is your most important estate planning tool. If you don’t have a will you cannot implement your estate plan. A person who dies without a will is said to have died intestate. You can die intestate if you never made a will, or you made a will that’s found to be invalid because you did not have the capacity to make a will or the will lacked formal execution and witnessing.If you die intestate your property gets distributed amongst your family in accordance with the provincial legislation, the Succession Law Reform Act. If you want your property to be distributed according to your wishes and not according to the Provincial legislation, you need a properly draft Will. Consider the following scenarios without having a valid Will:
While having a will may not necessarily make things perfect, it’s a lot better than not having a will. The most important reasons why you should have a Will:
While there are several do-it-yourself tools available for preparing your Will, there is no substitute for professional advice. Cheap self-help kits can turn out to be far more expensive than you could have imagined. It’s fairly inexpensive to have your Wills prepared by a lawyer. The benefits of having a lawyer prepare your Will will far outweigh the relatively small cost involved in preparation of the Will. Any errors or technical defects in a Will can delay administration of your Estate and may even affect the validity of your Will. Here are a few reasons why you may want to have a lawyer prepare your Will. Your lawyer will:
A complete estate plan includes a plan that ensures your financial affairs are taken care of not only after your death but also during your lifetime when you are unable to manage your financial affairs yourself, either due to a disability or absence. This can be done through a Power of Attorney for Property. You also need to plan for the eventuality that should you become incapacitated or otherwise unable to provide instruction or consent to health care providers someone should be able to make important health-related decisions and provide instructions and consents on your behalf. This can be achieved through a Continuing Power of Attorney for Care, also know as a Living Will. Power of Attorney for Property A power of attorney must be created when you are mentally capable. To be considered mentally capable of creating the power of attorney, you must be capable of knowing the value and kind of property you own and of understanding the powers that you are giving to another person. A power of attorney comes to an end on your death. A power of attorney is a flexible tool. You can create a power of attorney for a specific task or transaction or a general power of attorney that allows the attorney to do everything you can do yourself. An ordinary power of attorney is valid only as long as the donor is mentally competent. It automatically expires when the donor becomes mentally incompetent. To keep it alive even after the incapacity of the donor, the power of attorney must state that it is intended to be effective even after the donor becoming mentally incapable. This is called a Continuing Power of Attorney. A Continuing Power of Attorney can become effective immediately upon signing or upon the donor being declared as mentally incompetent by a prescribed medical practitioner. Power of Attorney for Care (Living Will) Before you can receive any health care you have to give your consent. If you don’t give your consent, a doctor or other health care provider can’t treat you, except in case of an emergency. If you’re conscious and mentally capable, you give your consent either by spoken words, or in writing or by gestures. If you’re not fully conscious or not mentally capable, the way to make your wishes known is by having prepared a Continuing Power of Attorney for Care, while you were conscious and capable. Your Power of Attorney for Care serves two important purposes:
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