Estate Planning

What is Estate Planning?

Estate planning involves the assessment of how your assets are distributed in the event of your death or incapacitation, along with instructions regarding guardianship for minor children. An estate plan is composed of several legal documents and often includes discussions on tax, wills, powers of attorney, corporate structures, control of assets, and legacy objectives.

The estate planning process is dependent on the client’s financial and family needs, along with where they fit within Affinity’s three core advisory platforms. (Multi-Family Office, Private Wealth, Accumulation). Whether complex or basic, an estate plan is an important piece of a comprehensive financial plan.

Estate planning is often one the least interesting and most avoided segments of a financial plan. While estate planning is not the most enjoyable topic to talk about, it is an important conversation to have. Affinity Financial Group is here to guide you through the process as well as identify speciality legal and tax resources as required.

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Tax Planning for an Estate

There are many tax planning strategies that can reduce or defer tax triggered to an estate and/or terminal tax return.

Upon passing, many options and elections are available to create a more tax efficient transfer of wealth to beneficiaries.

  • Analyze net worth, ownership interests, and determine assets that will be subject to a tax disposition and probate fee.
  • Identify how rollovers and the capital gains exemption can be used to defer or save tax.
  • Identify opportunities to convert wealth from a taxable estate asset to a non-taxable estate asset.
  • Identify strategies for post-mortem planning with closely held corporations. This includes reducing the double tax on property held in a corporation along with other planning opportunities.

Business Estate Planning

Business owners experience unique characteristics and estate planning needs.

They may require a variety of advisory services. In addition, family members are often involved in the business. Blending family relationships with business matters may cause significant emotional overtones that affect the planning process.

If there are other partners or shareholders in the business, there may be contracts in place to provide for obligatory purchase or redemption of shares on death. It is important to implement and review an estate plan regularly in order to identify required updates and adjustments as business and family continue to evolve.

Common topics related to business estate planning include:

  • Shareholder agreements and buy-sell coverage.
  • Taxation of the business owner/shareholder on death.
  • Desire to pass business to certain family members while balancing the estate amongst all family members.
  • Disproportionate amount of wealth tied up in the business.
  • Assessing post-mortem planning strategies.
  • Business Loan Coverage

Wills, Power of Attorney, and Executor planning

The Will planning process provides an opportunity to assess the liquidity and tax profile of an estate, the use of trusts, as well as the logistics of transferring wealth and assets.

Every adult should have a Will, Power of Attorney for property and Personal Care Directive to ensure their personal and financial affairs are managed responsibly and in accordance with their wishes.

Beyond naming beneficiaries and guardians, a major segment of a will is selecting the appropriate executor and power of attorney.

Power of Attorney: Choosing a power of attorney for financial management of property is an important decision that should be made after considering all duties and responsibilities. If no apparent option is present, Affinity Financial Group is able to assess a corporate executor.

Executor: Choosing an executor wisely is crucial to effective estate administration. The executors should possess the same qualities as an attorney for property and in addition, they should be able to work together if there is more than one.  If no apparent option is present, Affinity Financial Group is able to assess a corporate executor.

Life, Disability and Critical Illness Insurance

Insurance is used to protect our lifestyle as well as to fund liabilities and other obligations on death. For example, it can also be used to provide additional funds to ensure the distribution of the estate to family members is fair, or to fund charitable gifts. The objectives of reducing liabilities, protecting lifestyle, saving tax, and funding gifts can be effectively assessed to ensure the appropriate amount of funding is obtained to achieve the plan objectives.

The need for liquidity on death is often apparent, but the specific sum and tax saving ramifications are often less obvious.

Trust Planning

Trusts are used for many different purposes, but there are two main purposes: protection of assets or tax planning

Trusts separate the control and legal title of property from the beneficiary. This provides protection for a number of purposes.

There are many non-tax uses of trusts. These include protecting beneficiaries from themselves or others, protecting particular property for use by multiple or for future beneficiaries, and preserving capital for a beneficiary after a life interest. Often the tax benefits of trusts can be combined with the non-tax objectives. The two are not necessarily mutually exclusive.

It is important to carefully consider the designation of trustee to ensure efficiency from a tax, legal, and logistical standpoint. If no apparent individual is available to fill the role, Affinity Financial Group is able to assess a corporate trustee.

Common uses of a trust include:

  • To protect property for minors, young adults, and irresponsible behaviour.
  • To protect property from claims against the beneficiary, such as those of a creditor, or spouse during divorce proceedings.
  • To protect the interest of remainder or residual beneficiaries after a life interest.
  • To provide financial management and protect government support for a beneficiary with special needs.
  • To preserve or manage a particular asset until arrangements can be made to sell or develop a succession plan (such as a business).

Legacy and Charitable Planning

Charitable giving can be integrated into the estate plan to accomplish legacy objectives while taking advantage of tax benefits.

These may include:

  • The donation tax credit
  • The reduced capital gains inclusion rate for donation of property in kind.
  • The benefits of using insurance to fund donations and the capital dividend account should be considered where appropriate.

Probate Fee Planning

Probate fee planning can reduce the cost of probate fees on death, but it should be viewed as part of comprehensive estate planning.

The savings achieved should be analyzed in light of the consequences of implementing probate fee planning, the additional complexity it may introduce to the client’s financial affairs, and other planning opportunities that might reap greater benefits.

The attempt to save probate fees is the most common decision that leads to unforeseen and unwanted results for an estate. It is also one of the leading causes for estate litigation. It is important to consider probate, but not letting it drive the full decision process. Avoiding a one-time fee on certain estate assets is not always worth the risk of negative consequences and potential family conflict.