Estate Planning & Insurance

Estate planning is an ongoing process, as your circumstances, needs and wishes change. Regardless of your age, the issue of estate planning, in conjunction with your will, is an essential element of life planning. There are different stages in a person’s life though, and consequently, certain issues may arise that require different estate planning strategies.

Here are some of the key stages:

Young Family

In this stage, you are just starting to accumulate assets and possibly raise a family. Preliminary planning is important. Do a financial status review, needs assessment and wish list to help with will preparation and estate planning.

  • Draw up a list of all your assets and liabilities, current income and expenses, and projected income and expenses over the next five years.
  • Outline a five-year plan in terms of what goals and needs you have during that time. Assess your life and disability insurance needs and protection to make sure it is adequate for your present and projected needs.
  • Review your savings programs such as RRSPs and education-funding programs for your children.
  • Decide on how you would like your assets to be distributed in the event of your death. Draw up a list of who should receive what. (You and your spouse may want to make separate lists and then compare notes and come to an agreement.)
  • Select an executor and trustee of your will.
  • Decide on a guardian for your young children. This is obviously a very important decision, and great care should be taken in the selection.
  • Consult with professionals, such as a lawyer, accountant, and trust company, on matters to do with wills, estate planning and trusts.

Mature family

In this stage, your priorities, needs, and concerns are changing. Your children are adolescents or in their 20s, so the issue of the guardianship and education of your children is not as important a consideration now. You are probably in your peak earning years and have accumulated considerable assets. You may be separated, divorced, remarried, or living common-law. All these changing circumstances have considerable legal and estate planning implications. Assess your financial status, and personal and life needs, goals, and priorities. This is an ongoing process. In projecting your future financial income, for example, you could be receiving a large inheritance.

Review your will. As mentioned before, this should be a periodic process anyway (at least once a year). There could be changing circumstances that would necessitate reviewing your will more frequently than just once a year (for example, if you are separated, divorced, remarried or living common-law). Changing marital status, or children from a previous marital or common-law situation imply several legal implications. This could include your will being challenged by a dependant from a past relationship or current spouse’s children from a previous marriage. There could also be a challenge for maintenance from a previous spouse. Your responsibility may not end on your death, depending on the laws of your province, so make sure you obtain legal advice.
Re-assess your professional advisors on a regular basis. As your needs, circumstances, and tax and financial situation become more complex, you may need more skilled advisors or additional ones to meet your changing circumstances. This includes your lawyer, professional tax accountant, financial planner and trust company. Re-assess your executor. In the first stage discussed above, your financial situation needs may not have been so complex, but that can change dramatically over a short period of time. If you had selected an individual as an executor and trustee before, you should consider the benefits of having a trust company as an executor and trustee.
Consider a special trust. You may have had a trust earlier, for your young or special-needs children. You may wish to have a trust for other reasons (some of which have been discussed in other articles). For example, a spousal trust is usually created to provide a spouse with income during his or her life only until they remarry. The capital is then passed on to the children on the spouse’s death or remarriage. A “spendthrift” trust provides income to a beneficiary without allowing him or her access to the capital (if the person is financially irresponsible, for example). The trust terms can give the trustees the discretion to release the capital if the person has matured and shown financial responsibility, or for some other worthwhile purpose. Another type of trust is called the “sprinkling” trust, in which income is divided amongst various family members over time, rather than being given all to the spouse.


Older family

In this stage, you could be approaching retirement or planning early retirement. As you are getting older, you and your spouse may have certain health concerns or medical needs. Your assets are probably nearing their peak. Although your children may be married and may or may not need your financial support, you may have a child who is out of work, divorced or separated who requires financial support for themselves or their children.

Assess your financial status, and personal and life needs, goals, and priorities. For example, you may wish to travel, or become a “snowbird” and live in the U.S. for six months of the year. You may wish to sell your existing home, and move to a condominium in a quiet retirement-oriented community that provides social activities that challenge and stimulate. Many people “cash out” by doing this - in other words, they have so much equity in their home, that even after their new purchase they still have lots of money left. Review your will. You need to balance the needs of your spouse against those of your children. You may wish to enjoy your lifestyle and retirement fully and leave whatever is left to your children. Alternatively, you may want to leave a trust for your grandchildren or give additional money to a favorite charity or other worthwhile cause. Especially if your children are already financially independent, these options may be attractive. In some cases, you may even want to completely disinherit a child. Make sure your lawyer words the will carefully in order to minimize the chances of it being contested. Reconsider your executor and trustee. As mentioned in the previous stage, you need to make sure that your executor will fulfill your needs. For a variety of reasons, your immediate family or relatives may not be the best choice as executor or trustee. In order to avoid conflict, you may want to retain a trust company to act as your executor and trustee, and then name a responsible family member as a co-executor and co-trustee. Obtain professional advice on minimizing taxes. The tax issue is always important to consider. Depending on the size of your estate, the tax consequences could be substantial. Federal and provincial income taxes are due when you die. Although Canada has no succession duties at present, unlike the U.S., it does tax your capital gains at the time of your death (i.e., deemed disposition of your assets). Unless you have taken steps to minimize taxes on your death, your estate could be seriously depleted. As mentioned before, it is wise to obtain advice from your lawyer, professional tax accountant and trust company.