With the value in real estate and other holdings, many Canadians have accumulated a significant estate that involves planning. Talking about estate planning need not be uncomfortable. For many, this naturally leads to who you would like to receive your estate – either family, friends, and/or charitable groups. The process involves mapping out a plan that minimizes tax, while at the same time ensuring your distribution goals are met.
The second stage of the estate-planning process is when we ask for clients to bring a copy of the documents they currently have in place. We also obtain a copy of their family tree and information about current executor(s), representative, or other individuals currently named in the will.
To illustrate the process, we will use a typical couple, Mr. and Mrs. Gray, both aged 73. They last updated their wills 24 years ago. They have what is commonly referred to as “mirror wills” where each leave their estate to their spouse in a similar fashion. The will also has a common disaster clause that if they were to both pass away within 30 days that the estate would be divided equally amongst their three children. We will refer this to as the “traditional method”.
Since they last updated their Will, all three of their children (currently aged 56, 54, and 52) have started families of their own. In fact, the Gray’s now have seven grandchildren between the ages of 11 and 32, and two great grandchildren (aged seven and three). None of which were born when they last updated their Will.
In reviewing their will, we noted that this traditional method of estate distribution left everything to their now financially well-off adult children, to the exclusion of their grandchildren. We highlighted that the current will does not mention the grandchildren or great grandchildren. In exploring this outcome, they expressed they wanted to map out an estate plan that also assisted those that needed help the most.
The last time the Gray’s updated their will they had a relatively modest net worth, but in the last 24 years they were able to accumulate a significant net worth. We had a discussion with Mr. and Mrs. Gray that focused around the timing of distributing their estate.
The traditional method effectively distributed nothing today and everything after both of them passed away.
We discussed the pros and cons of distributing funds early. During our discussion, the plan that was created was combination of components, parts involved a distribution to the grandchildren based on certain milestones. They also wanted to make sure their grandchildren obtained a good education. The estate plan details that we outlined in the short term were relatively easy to put in place and were as follows:
- For the youngest members of the family they wanted to set up and fund Registered Education Savings Plans (RESP) for all eligible grandchildren and great grandchildren. The RESP contribution shifted capital from a taxable account to a tax deferred structure. This effectively results in income splitting for the extended family. Another added benefit is that RESP accounts would receive the 20 per cent Canada Education Savings Grant based on the amounts contributed.
- For the family members already in university, the plan was to assist with the cost of tuition and other university costs up to $10,000 per year per grandchild.
- For the grandchildren who were at the stage of wanting to purchase a principal residence, they wanted to set aside a one-time lump sum payment of $50,000 specifically to assist each grandchild with the down payment on a home.
One of the more challenging areas of the Gray’s estate plan dealt with their real estate. In addition to their principal residence, they also owned a recreational property in the Gulf Islands. The recreational property had some significant unrealized capital gains. It was important for the Gray’s to ensure both properties were kept within the family, if possible. We called a family meeting together where we outlined different options to achieve this goal. The key with this part of the estate plan was communication with Mr. and Mrs. Gray and their three children. We were able to obtain a clear plan that was satisfactory to all family members.
The finishing touch to a well-executed estate plan is ensuring the details are clearly documented in an up-to-date will.
Kevin Greenard CPA CA FMA CFP CIM is a Portfolio Manager and Director, Wealth Management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week in the TC. Call 250.389.2138. greenardgroup.com
This is for information purposes only. It is recommended that individuals consult with their financial advisor before acting on any information contained in this article. The opinions stated are those of the author and not necessarily those of Scotia Capital Inc. or The Bank of Nova Scotia. ScotiaMcLeod is a division of Scotia Capital Inc., Member Canadian Investor Protection Fund.