Estate Planning Introduction

Estate planning is a process that is undertaken during life to determine what is going to happen to your estate when you die. A primary objective of estate planning is to ensure that there is a plan in place to minimize the taxes payable on a transfer of your wealth at time-of-death.

In addition to taking steps to minimize tax consequences, another objective of estate planning is to avoid friction among family members so as to reduce possible litigation among beneficiaries.

A full estate plan generally focuses on five objectives:

  • 1. The preservation and protection of assets during the owner’s lifetime;
  • 2. The tax-effective transfer of assets to beneficiaries during and after the owner’s lifetime;
  • 3. The preservation and protection of assets in the estate once transferred;
  • 4. The minimization or elimination of estate related taxes;
  • 5. The planning for adequate funding of both the obligations and liabilities arising on death, which can be achieved through the use of liquid assets or life insurance.

The goal of estate planning is to:

  • Reduce any taxes arising on death;
    • o This may involve capping the growth of future capital gains through an estate freeze.
  • Defer any taxes that may arise on death
    • o This may involve a direct transfer to a spouse or the use of a spousal trust.
  • Structure a plan for the orderly transfer of assets to one’s spouse and ultimately the next generation
    • o This may include provisions in the will as to where the assets are to be transferred to, or a shareholders agreement that will include details as to who is to purchase the shares at time of death.
  • Make sure there is sufficient liquidity in the estate to meet any estate tax or other requirements such as charitable donations or cash bequests to named beneficiaries.

From a practical perspective, meeting these objectives often requires:

  • Creating new legal structures, such as corporations and trusts, or  transactions such as transferring assets into joint ownership
  • Executing certain documents and agreements, such as shareholder agreements, partnership agreements, trust deeds, potentially domestic contracts (which may protect their estate against potential spousal claim) and, most significantly, wills and powers of attorney.
  • Acquiring life insurance where necessary to provide for estate liquidity, which is typically used for funding taxes payable on death, charitable bequests, or funding a shareholder buyout under a shareholders agreement.
  • Implementing estate freezes during one's lifetime to minimize capital gains taxes on death.
  • Including any charitable gift plans that will take effect at time of death.

Some of the tools used by tax and estate planning professionals include:

This section will cover these topics, and demonstrate how they can be implemented into an effective estate plan.