Personal Finance

What you need to ask when reviewing your estate plan
By Gail Bebee | 06/01/15

The dawn of a new year is a natural time to reflect on what the past year has wrought. It is also the time to imagine future possibilities and make plans for the year ahead. One area that does not always receive the attention it deserves during this process is estate planning.

About the Author
Gail Bebee is an independent personal finance speaker, teacher and the author of No Hype--The Straight Goods on Investing Your Money. She can be reached at gbebee@gailbebee.com; her website is www.gailbebee.com.

Estate planning involves arranging your personal affairs so that the disposition of your assets after you die is in accordance with your wishes. Preparing a will and powers of attorney for property and personal care are key components. It may also involve selling or giving away assets before you die, arranging your affairs to minimize the taxes that your estate must pay, and buying life insurance to provide for your dependents and/or cover taxes.

Contemplation of one's future demise is not a comfortable topic. However, life is never static, and changes in your life or in the surrounding world could affect your estate plans.

Have your financial assets changed significantly over the past year? Buying or selling the family cottage, receiving an inheritance or suffering a major financial loss are some examples of changes that should trigger an estate-plan review.

Have you moved? If so, your estate plan should be revisited. Perhaps your assets now include a house. If you relocate to another province, different estate laws apply, this area being largely a provincial responsibility. For practical and sometimes legal reasons, you may need to name a different executor of your will and appoint new attorneys in your powers of attorney for property and personal care.

What has occurred on the family relationship front? Did you marry, divorce or begin a spousal relationship? Has one of your children married, divorced or had a child? Has a new baby joined your household? Alterations to your family status could mean revising your life-insurance coverage, changing the provisions of your will or updating your powers of attorney.

Have there been changes to the health of you or a family member? A major illness could necessitate revisions to your will. Your views on the care you wish to receive could change, prompting an update to your power of attorney/personal directive for ongoing care and end-of-life decision-making. If your spouse or child is diagnosed with a debilitating chronic disease, providing for her long-term care could require a revision to your will.

Are your executor and your attorneys still appropriate? If you have named a family member or friend, are you still on good terms? Has anyone moved to another province or country? Are these individuals still willing and able to serve?

"An estate plan should be reviewed whenever there is a life-status change, and in any event, every three to five years," says Elaine Blades, director, fiduciary services at Scotia Private Client Group. "A review does not always mean updating your plan. You might conclude that it is still appropriate."

Recent major revisions to estate laws and regulations in several provinces including Alberta, British Columbia and Ontario, along with pending changes at the federal level to the taxation of testamentary trusts, attest to the value of a regular review. For example, in Alberta and British Columbia, a will is no longer revoked automatically on marriage. Forthcoming regulations in Ontario will overhaul the process for probating a will and increase the workload of executors, underscoring the importance of choosing your executor carefully .

Revisions to the Income Tax Act over the past 20 years have gradually eliminated the capital-gains tax due on publicly listed securities that are donated to a registered Canadian charity. A review of your estate plan could identify new opportunities to give to charity and reduce the tax bill on your estate.

For instance, many investors own securities that have appreciated significantly since the 2008-2009 bear market. Let's assume an investor bought $5,000 worth of Magna International Inc. Class A MG shares in February 2009 for a non-registered account, and that the holding is currently valued at $37,000. If the investor died, capital-gains tax of $6,400 would be due, assuming a 40% marginal tax rate.

However, if the shares had been instead donated to a registered charity, the estate would avoid the $6,400 tax. Furthermore, the estate would receive a donation tax receipt for $37,000. This would result in a tax credit of $14,819 to $19,574 depending on the province, according to the CRA's charitable- donation tax- credit calculator .

Security holdings and other assets change over time. For your estate to take full advantage of this income-tax rule, your executor needs the authority to decide on the best asset to donate to a charity that is a beneficiary. Now is the time to review your will and update the wording, if necessary, to provide for this authority.

An estate can avoid paying the probate fees (estate administration tax) due on charitable donations made from assets in registered plans. According to Keith Thomson, managing director at Stonegate Private Counsel in Toronto, no change to your will is required. It is simply a matter of obtaining a multiple-beneficiary designation form from your RRSP/RRIF/TFSA plan administrator, completing the form which includes naming your chosen charities among the beneficiaries, and returning it to the administrator. This particular estate-planning technique is worth considering if you reside in a province that levies hefty probate fees .

Your estate-planning needs change as you move through life, as do the applicable laws. A regular estate-plan check-up is the best way to ensure the smooth, efficient settlement of your estate in accordance with your final wishes.

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