Estate Planning Introduction

Estate planning is a process that is undertaken during your lifetime to establish what is going to happen to your estate when you die.  A primary objective of estate planning is to ensure that your assets go to the people or causes you desire in a manner that minimizes family disharmony and avoids possible litigation among beneficiaries.  It is also important to ensure that taxes are minimized on death to preserve as much as your wealth as possible for your intended beneficiaries.  Other planning objectives include ensuring that you are properly taken care of in the event of mental or physical incapacity, and there is someone in place that you trust to manage your assets in the event you are not in a position to do so. 

A comprehensive estate plan generally focuses on the following 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 they are transferred.
  4. Having appropriate arrangements to deal with the situation where you become incapable to manage your health care and wealth.
  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.
  6. Ensuring that family members and other stakeholders understand and respect the terms of your estate plan. 

The goal of estate planning is to:

  • Reduce any taxes arising on death - This may involve the transfer of assets while you are alive and/or capping the growth of future capital gains through an estate freeze.
  • Defer any taxes that may arise on death - This may involve a direct transfer of property to a spouse or the use of a spousal trust and appropriate beneficiary designations for registered assets and life insurance.
  • Structure a plan for the orderly transfer of assets to one’s spouse and ultimately the next generation - This may include the use of inter vivos trusts, 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 through appropriate funding strategies.
  • Avoid family conflict and possible litigation that could ultimately demolish your planning.

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, domestic contracts (which may protect the estate against a potential spousal claim) and, most significantly, wills and powers of attorney.
  • Acquiring life insurance 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.
  • 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 a number of these topics and demonstrate how they can be integrated into an effective estate plan.