Estate planning

Estate Planning

You should consider the following as purely a very short introduction to Estate Planning. If you have any assets or dependents you need an estate plan, otherwise you’ll have to rely on the wisdom of legislation and the courts, operating at the speed of government bureaucracies and speed of the courts. I will draw heavily on the linked references and hopefully reading this short introduction will encourage you to read them, especially Sandra Foster’s book. This is just to whet your appetite and motivate you if you haven’t already got an estate plan get one. But, as the saying goes “don’t try this at home” this is not a do it yourself activity. This post if from primarily a Canadian perspective, however the principles and at least some of the mechanisms apply to Americans as well. At end I’ll also mention some interesting tax issues for Americans between now and 2010.

What is estate planning?

In her excellent book on Estate Planning, Sandra Foster’s “You Can’t Take it with you” (5th ed.) defines estate planning as the mechanism which “can help ensure the desired outcomes for your beneficiaries upon your death”. I highly recommend this book for a more in-depth look at (Canadian) Estate Planning considerations.

Why you need it?

Among the reasons listed by Ms. Foster as to the reason why you need an estate plan are:

-to secure the financial future of your dependents/family

-to insure that your residual assets go to the desired parties (family, charities,…)

-to name executors (e.g. for your will), trustees (e.g. for trusts that you may establish) and guardians (e.g. for your children)

-minimizing taxes and fees, maximizing accumulated wealth

-timely and relatively painless access to the assets in the estate

-and before death, in cases of incapacity and/or unavailability, addressing the questions of who is allowed to manage your financial affairs and the what/how/who of your health care management

-if you are in business, the necessary planning for the survival of your business

– (Ms. Foster suggests that estate may even include”meeting your financial needs for the rest of your life”)

Elements of estate planning

In Financial Post’s recent article   “A simple guide to estate planning” Adrian Mastracci discusses the basic elements including:

-A will – which specifies your desired distribution of accumulated assets (financial, property, personal, etc), how you want your affairs managed and who you entrust with the management, i.e. your designated executors/guardians/trustees

-power of attorney (financial)- unlike the will which deals with your wishes after you died, the financial power of attorney is your designated replacement empowered to deal with all financial matter in case you are incapacitated/unable or (just) unavailable to deal with time-sensitive financial matters

-living will/medical power of attorney/medical directive- unlike the financial power of attorney, this designates both the individual and the framework for making medical decisions if you become  mentally incapacitated and are unable to direct the extent of medical intervention for your treatment (or non-treatment)

-beneficiary designations (on insurance policies, pensions, retirement plans (RRSPs, RRIFs, TSFAs, DPSPs, RESPs, IRAs, 401(k) s, etc)

-Trusts – Tim Cestnick has written a couple of very clear and crisp articles in the Globe and Mail All in the family trust: a guide for helping your beneficiaries…and more tips and “All in the family trust 2” which are a great introduction to the subject of trusts. He points out that a trust (a separate tax, but not legal entity) involves three entities (settler, trustee and beneficiary) and it can be created while settler is alive (inter vivo trusts- taxed at highest marginal rate)) or created upon death through the will (testamentary trusts- subject to graduated rates like a separate individual). Cestnick indicates that trusts have many types of uses, including: income splitting, multiplying exemptions, providing for (minor or disabled)  dependents, managing assets (professionally) and  protecting assets (from creditors or marriage breakdown), controlling distributions (dribble  out income to financially irresponsible beneficiaries), providing privacy (trust are private document whereas wills are potentially public), avoiding compulsory succession and probate and saving taxes (e.g. testamentary trust)

-Insurance- I will discuss  insurance, in a separate future blog dedicated to risk management, though for an individual who is the primary bread-winner in a family and likely for whom human, rather than financial, capital is the predominant asset, insurance would be a key mechanism of securing the  financial future of the intended beneficiaries in the will.)

-location of assets/liabilities and important documents/records/papers

Frequency of review of estate documents

It is necessary to review the estate documents periodically (every two-to-four years) as your wishes (may have changed), beneficiaries (may have died or were born) or executors (may have died or more suitable ones may have emerged) may have to be changed.  Mastracci also suggests that estate plans should be reviewed at all major life changing milestones such as “getting married, separated, divorced, re-married or having children”

U.S. Estate Planning Canadians and Americans

Robert Keats’ “The Border Guide”, a book that I have highly recommended before  all types of cross-border issues, also addresses wills, power of attorneys, living wills and trusts plan but factors in cross-border considerations such U.S. estate taxes in general and on foreign owned U.S. real property in particular, the validity of Canadian estate documents in the U.S., U.S. specific trusts (e.g. QDOT- Qualified Domestic Trust which allow the deferral of estate taxes until the death of the second spouse)

For Americans, according to the WSJ’s Arden Dale “Estate taxes flummox planners”  and the most important estate planning issue is what will happen to federal (U.S.) estate taxes. “A 2001 law phased in a series of changes in the tax. In 2007 and 2008, a tax of up to 45% will be levied on estates over $2 million. In 2009, the threshold will rise to $3.5 million. In 2010, the tax will be lifted completely for a year, but reinstated in 2011 at up to 55% on estates over $1 million.” The uncertainty of the changes in federal estate taxes has simultaneously put a premium on up-to-date estate documents and paralyzed both individuals (who are generally anyways un-inclined to ponder their mortality) and planners because of the uncertainty of the changes.


As I indicated earlier estate planning is usually complex and it is recommended that you use professional help.

Finally there is an interesting article in Business Week “Divvying up the silver” discussing how some families innovatively deal with the challenges of transferring personal/sentimental possessions to the next generation. (short straws, round robin picking, treasure hunts, etc)


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