Estate Planning Is Not Just For the Rich

What does estate planning actually mean?  Estate planning is just making sure that your assets pass to the next generation in the most efficient and tax-effective manner possible.

The Government of Canada has a good estate planning checklist.  You go to www.canada.ca and search for the estate planning checklist.

In most cases, estate planning means having an updated Will, Power of Attorney (POA) and Representation Agreement (healthcare directive).   Having these documents will allow your personal affairs to be taken care of in the case of incapacity or death.

Next, you want to make sure that you have considered the tax implications of your estate.  In simple terms, it is like you sold all your assets the day before you died. Thus, any tax implications of the sale of an investment or asset is almost the same upon death or on a sale.  It is important to realize there are provisions to allow the tax to be deferred if the assets are passed to a spouse (and in some limited cases, dependent children).

The only additional government tax is a called probate (BC residents).   If your estate is less than $25,000 there are no probate fees; between $25,000 and $50,000 the fee is 0.6% and over $50,000, the fee is 1.4%.  You would want to structure your investments to reduce probate fees as much as practically possible.

Have you considered giving funds to your beneficiaries before you die?  If you’re not going to use these funds then, if you give them away, you will get to see your children or other beneficiaries use the funds while you are alive. You will also not be paying tax on these funds thus increasing your income today by reducing your current taxes.

Giving to charities can also be a very effective way of reducing taxes now and also upon your death.  Any funds given to a charity will allow you to reduce your taxes because of the charitable receipt from the donation.

If you plan on giving funds to a charity, you should consider giving securities (stocks, mutual funds, ETFs etc.) that have a capital gain because you will get the charitable receipt for the full amount donated and the capital gains on the donated security will not be taxed. If you have funds in your bank account or a mutual fund at your bank that has gone up in value, it is much more effective for you to give the mutual fund “in-kind” as a donation instead.

If you have an old life insurance policy that you’re considering cancelling, you may want to look into giving this to a charity instead.  If the charity owns the policy and you continue to make the payments, these payments are considered a charitable deduction.

If most of your estate is going to a charity upon your death, than you will want to analyze the tax implications of this strategy.  Charitable donations can be made in the year of death (through the Will or direct beneficiary designation) and can be carried back one year if necessary.  We have seen many cases where charitable donation receipts go unused.   Typically, you would want to see if you can give some of your assets to the charity ahead of time (while also making sure you do not run out of money).

If you want to make sure the charity gets a certain amount of capital upon your death, you could buy a life insurance policy (owned by the charity) and you pay the premiums.  The premiums would be tax-deductible, reducing your taxes today then upon your death, the charity will get a lump-sum benefit.   This strategy allows you to bring the tax deductions back to today while enabling you to leave a larger amount to the charity over time.

This article was meant to give a brief overview of legacy planning and how it intertwines with charitable giving. But by no means is this an exhaustive list and you need to review your personal situation to design your personal charitable giving and estate planning strategy.

Clay Gillespie is the Managing Director of RGF Integrated Wealth Management. The views expressed are those of the author and not necessarily those of RGF Integrated Wealth Management, which makes no representations as to their completeness or accuracy.

© 2018 RGF Integrated Wealth Management Ltd.| RGF Wealth Management Ltd., Member – Canadian Investor Protection Fund

Business Owners

The most overlooked area of financial planning for business owners and incorporated professionals is the lack of integration between corporate and personal assets. When the majority of your assets are in your corporation you need very specific, specialized and personalized financial advice.

Learn More