Beneficial for any size estate
A common misconception is that estate planning is only important for large estates. Although estate planning is beneficial for any size estate, it is more beneficial to larger ones.

And who knows, your estate may be larger than you think. If you have not yet prepared your own statement of net worth, then you should sit with your financial advisor and prepare one. When you make a list of all your assets, cash, RRSP, home, collectables, cottage and life insurance you may be surprised at the value of your estate.

Tax planning... and more
Without proper planning, the Canada Revenue Agency (CRA) may be one of the major beneficiaries of your estate.

Tax planning is an essential part of estate planning but not the only part. Other things include separation of control and beneficial ownership of assets, treating multiple beneficiaries equally but not the same, charitable giving and providing for a disabled dependent.

A plan based on your situation
Each person's estate plan must be designed for one's own personal situation. People have different amounts of wealth, different types of assets, different family situations and different opinions about the way their estate should eventually be distributed.

A person with business assets will generally have more complex estate planning issues, especially if the business is to be passed on to the next generation.

Some issues to consider
One of the first things to do is to ensure you have a competent team of professional consultants. Ensure each has the training and experience necessary to address the complex issues that will arise. Once you have a team in place you will have to address the core issues.

For example, once you have prepared your Statement of Net Worth, you will want to organize your affairs to minimize tax during your lifetime and also decide when to transfer or sell your assets.

You will need to determine which of your assets has unrealized capital gains and how much cash will be required to pay the taxes so that assets can be passed on within the family unit.

Insurance can be used to provide cash for income taxes and also income for dependent beneficiaries upon your death. Life insurance for estate planning purposes should be purchased when you are relatively young and still healthy. It becomes expensive as you age and may be difficult to get as your health deteriorates.

If there are significant business assets, it may be beneficial to effect an estate freeze and corporate reorganization using holding companies or trusts. There are two types of trusts which can be used, an inter vivos trust, set up while you are living and a testamentary trust, set up upon your death. These are extremely useful in saving taxes, protecting assets, holding assets for minors and disabled dependents and organizing the family's affairs.

If you haven't already started your estate plan, you may think it an overwhelming task. It isn't. Remember, "A trip of a thousand miles begins with a single step". (Unknown) Take the first step today.

(Scott Shears, C.A., is a financial advisor with the Corner Brook branch of Investment Planning Counsel of Canada.)

The Western Star (Corner Brook)
Business, Wednesday, December 8, 2004, p. 25
Money Talk

By Scott Shears