The Ultimate Guide to Estate Planning

They say that death and taxes are the only certainties in life. While it is inevitable to escape it we can certainly prepare for it and this is where estate planning comes into play. Estate planning refers to the process of making legal arrangements for what happens to your assets and dependants after your death or when you become incapacitated.

Whether you are an individual, a family, or a business owner estate planning is an important decision to make in the long term. However, going through the whole planning process could be a daunting task.

Let’s take a look at the basics of estate planning, some common misconceptions, the process, challenges and common mistakes, and lastly the future trends.

BASICS OF ESTATE PLANNING

As already stated above, estate planning is the process of making legal arrangements for how your assets should be handled after you die or become incapacitated. There are several key components that you should know before moving forward with estate planning, these components are:

Make a will: A legal document outlining how you want your assets distributed and appointing an executor to carry out your wishes.
Enduring Power of Attorney: In EPA you Appoint someone to manage your financial affairs if you become unable to do so due to medical reasons or loss of mental capacity.
Personal Directive: A Personal Directive is all about expressing your medical treatment preferences for times when you can’t communicate. It involves appointing someone to make health decisions on your behalf, following the guidelines outlined in the PD. Essentially, it ensures that your health choices are respected and upheld even when you’re unable to voice them yourself.
Beneficiary Designations: Ensures proper allocation of assets with named beneficiaries on insurance policies, retirement accounts, and more.
Guardianship Provisions: Appoint guardians for minor children, specifying their care in the event of your incapacity or death.
Executor Appointment: Designates someone to carry out your wishes as outlined in your will.
Review of Asset Ownership: Ensures that assets are titled properly to align with your estate plan.
Tax Planning: Strategies to minimize estate taxes and probate fees.
Funeral and Burial Instructions: Outline your preferences for your final arrangements.

Will vs. Trusts

In Alberta, wills and trusts serve different purposes in estate planning:

Wills

Purpose: A will outlines how you want your assets distributed after your death. It appoints an executor to carry out your wishes.
Probate: Wills generally go through probate, a court process to validate and execute the instructions in the will.
Effective at Death: A will become effective upon death.
Guardianship: Allows you to appoint guardians for minor children.
Public Document: Wills are filed in court and become public documents, accessible to anyone.

Trusts

Purpose: Trusts are legal arrangements that hold and manage assets for the benefit of specific individuals or entities. They can be used for various purposes, including tax planning, protecting assets, and providing for beneficiaries over time.
Probate Avoidance: Assets held in a trust may avoid probate, streamlining the transfer process.
Flexibility: Trusts offer more flexibility in controlling the distribution of assets and can be effective during your lifetime and after death.
Privacy: Trusts are private documents, not typically filed in court, providing a higher level of privacy.

Understanding When Each is Appropriate

Wills are more suitable for most individuals, while trusts are appropriate for complex situations, such as managing substantial assets, tax planning, or providing for beneficiaries with specific needs. They can be particularly useful for avoiding probate.

However, the major disadvantage of establishing Trust is that maintaining a trust can be very complex and expensive.

What is a Power of Attorney?

A power of attorney is a legal document authorizing a designated person to handle your money and make financial decisions on your behalf in case you can’t do it yourself due to medical reasons or if you become mentally incapacitated. Including a power of attorney in your estate plan ensures that someone you choose is ready to step in and manage things if you ever can’t, making sure your financial matters stay in good hands.

What is a healthcare directive, and why is it important?

Personal directives are crucial in estate planning because they empower you to express your wishes about medical treatment and personal care when you might not be able to communicate them. In simple terms, it’s like giving instructions on what kind of healthcare decisions you want if you ever face a situation where you can’t speak for yourself.

This legal document ensures that your values and preferences guide the medical decisions made on your behalf. Having a personal directive is like having a trusted guide for your healthcare journey, providing clarity for your loved ones and healthcare providers during challenging times.

Common Misconceptions

There are various misconceptions associated with Estate Planning even when the reality is very different. Let’s burst out some of the very common misconceptions with a dose of reality:

Estate planning is only for the wealthy– Some think that only wealthy individuals need estate plans. However, estate planning is beneficial for everyone, regardless of wealth, to ensure that assets are distributed according to your wishes and minimize complications for loved ones.
Having a will avoids probate entirely– Some believe that having a will means their estate won’t go through probate. But in reality, while a will is essential, probate may still be required, depending on the assets and their ownership structures.
Estate planning is a one-time task- Thinking that estate planning is a one-time activity and doesn’t need regular updates is the biggest mistake. Life circumstances change, thus making it essential to revisit and update the estate plan periodically to reflect current wishes and situations.
Neglecting Non-Probate Assets- Overlooking assets like life insurance policies, retirement accounts, TFSA, and RRSP accounts in the estate plan. These non-probate assets often pass directly to named beneficiaries, making it crucial to align them with your overall plan.
Not Understanding the Importance of Powers of Attorney and Personal Directives: Focusing solely on the will and overlooking the importance of appointing someone for financial and healthcare decisions is another mistake that estate planners make. Powers of Attorney and Personal Directives are crucial for managing affairs during incapacity, complementing the role of a will.
Assuming Joint Ownership Solves Everything: Believing that joint ownership of assets is a foolproof way to avoid probate and ensure smooth transfers. Joint ownership has its complexities and may not align with your overall estate planning goals.
Thinking Estate Planning is Only About Death: Viewing estate planning as solely addressing post-mortem distribution of assets. Estate planning includes provisions for potential incapacity, ensuring your affairs are handled according to your wishes during your lifetime.

Estate planning is beneficial for individuals of all income levels

Apart from the above one of the most common misconceptions about estate planning about which we should talk in detail is that estate planning is only for the wealthy or the elderly. Most people think this however this is not true, estate planning is beneficial for individuals of all income levels and age groups, and here’s why:

Asset Distribution: Regardless of wealth, estate planning allows you to specify how you want your assets distributed after your death, ensuring your wishes are followed.
Minor Children: If you have minor children, estate planning enables you to appoint guardians who will care for them in case both parents are unable to do so.
Incapacity Planning: Estate planning includes tools like powers of attorney and personal directives, which are crucial for managing financial and healthcare decisions during periods of incapacity. This is relevant at any age.
Avoiding Family Disputes: A well-crafted estate plan helps minimize the potential for family disputes and ensures a smoother transition of assets.
Non-Wealthy Individuals: Even if you don’t consider yourself wealthy, having an estate plan can simplify the process for your loved ones, avoid unnecessary complications, and help preserve the value of your assets for heirs.
Life Changes: Life is dynamic, and circumstances change. Estate plans should be adjusted to reflect changes in family structure, financial status, or personal preferences.
Tax Planning: Estate planning can incorporate strategies to minimize tax implications for your beneficiaries, irrespective of the size of your estate.

The process of Estate Planning

Another important aspect to know about estate planning is the whole process of planning from where to start and where to end. Here’s a general overview of the process:

Define Objectives: Clarify your goals and objectives for your estate plan, considering asset distribution, guardianship for minors, healthcare decisions, and more.
Inventory Assets and Liabilities: List all your assets and debts to provide a comprehensive overview of your financial situation.
Choose Executors and Trustees: Designate individuals to serve as executors of your will and, if applicable, trustees for any trusts you establish.
Consider Family Dynamics: Think about potential family dynamics and any unique circumstances that may impact your estate plan.
Draft a Will: Work with a legal professional to draft a will that clearly outlines your wishes regarding asset distribution, guardianship, and other relevant matters.
Powers of Attorney and Personal Directives: Establish powers of attorney for financial matters and personal directives for healthcare decisions in case of incapacity.
Review Beneficiary Designations: Ensure that beneficiary designations on insurance policies, retirement accounts, and other assets align with your estate plan.
Consider Trusts: If applicable, discuss with legal and financial professionals whether establishing trusts is beneficial for your specific situation, such as for tax planning or providing for minor beneficiaries.
Review and Update Regularly: Periodically revisit and update your estate plan, especially after major life events, to ensure it remains current and reflects your wishes.
Consult Legal and Financial Professionals: Work closely with legal and financial professionals who specialize in estate planning to guide you through the process and address any legal or tax considerations specific to Alberta.
Document Storage and Accessibility: Keep your estate planning documents in a safe and accessible location. Inform key individuals, such as your executor, about the location and provide them with the necessary details.
Communication: Communicate your estate plan to key individuals, including family members and those named in various roles, to avoid surprises and ensure a smoother transition.

Personalizing the estate plan

Another important aspect of estate planning is Personalization. Some might ignore this but one must remember that a one-size-fits-all approach doesn’t work for estate planning. Lawyers can personalize your estate plan by:

Understanding Individual Goals: Engaging in detailed discussions to comprehend the specific goals and wishes of the individual or family, considering both financial and personal aspects.
Customizing Will Provisions: Drafting a will tailored to the individual’s preferences, including specific bequests, provisions for dependents, and distribution of assets according to unique circumstances.
Incorporating Trusts: Recommending and establishing trusts when appropriate, such as for tax planning, protecting assets, or providing for beneficiaries with special needs.
Addressing Family Dynamics: Considering and addressing potential family dynamics or complexities to minimize the risk of disputes and ensure a smooth transition of assets.
Guardianship and Custody Provisions: Including detailed provisions for guardianship of minor children and custody arrangements, ensuring the well-being of dependents.
Incorporating Powers of Attorney and Personal Directives: Drafting powers of attorney for financial matters and personal directives for healthcare decisions to address potential incapacity.
Providing Legal Advice on Tax Implications: Offering guidance on tax implications and implementing strategies to minimize estate taxes, taking into account the individual’s financial situation.
Assessing Charitable Intentions: Discussing and incorporating any charitable intentions, whether through direct bequests or establishing charitable trusts.
Ensuring Legal Compliance: Staying informed about and ensuring compliance with Alberta’s laws and regulations related to estate planning.

Special considerations

There are some special considerations in the case of blended families, business owners, and those with significant digital assets. Addressing these unique scenarios requires careful planning to ensure that all aspects are accounted for.

Blended Families: Addressing the complexities of distributing assets among stepchildren, ensuring fairness and minimizing potential conflicts. With regards to child support, it is settled law in Alberta that child support obligations are binding upon the deceased’s estate. A client whether they are divorced, remarried, or living with another person, often wants to ensure that their former spouse receives no more than they are entitled to receive at law. They do not want their former spouse getting more than they are minimally entitled to support their children.
Business Owners: Ensuring a smooth transition of business ownership and management to the next generation or designated individuals. Business succession planning is crucial, involving the creation of a comprehensive plan that may include buy-sell agreements, naming successors, and addressing tax implications.
Digital Assets: Managing and distributing digital assets such as online accounts, cryptocurrency, and intellectual property. Explicitly addressing digital assets in the estate plan, including providing access information, appointing a digital executor, and specifying how these assets should be handled.
Tax Planning: Mitigating tax implications, especially for business owners and those with substantial estates. Implementing tax-efficient strategies, such as trusts, to minimize tax liabilities and maximize the value passed on to beneficiaries.
Prenuptial Agreements: Navigating the implications of prenuptial agreements on estate planning, especially in blended family scenarios. Coordination between prenuptial agreements and the estate plan to ensure alignment and avoid conflicts.
Guardianship and Custody: Establishing guardianship provisions for children from different relationships. Clearly defining guardianship arrangements for minor children and addressing potential conflicts through legal documentation.
Individuals with substantial charitable giving goals: For individuals in Alberta with substantial charitable giving goals, estate planning takes on a distinctive focus on maximizing their philanthropic impact. They often integrate charitable bequests in their wills, allocating a portion of their estate or specific assets to support charitable causes. Establishing trusts, donor-advised funds, or charitable remainder trusts allows for strategic, tax-efficient giving during their lifetime or as part of their legacy. Coordinating these goals with family inheritance plans ensures a harmonized approach to financial and charitable objectives.

Updating an estate plan

Another question that is often raised is how often one should update their estate plan. To answer this it is crucial to understand that there are certain circumstances in life when you must revisit your estate plan.

In case you got married
In case of divorce or separation
If you have been living with someone for more than 3 years or had children with my common-law spouse
If you have entered into a second marriage or a common-law relationship with stepchildren involved
If your spouse passed away or became mentally incapacitated
If you had children, especially relevant for guardianship
If you have a child with a permanent disability impacting their ability to live independently
If you have grandchildren living with you
If you purchased a property in another province or the United States
If you incorporated a company or bought shares in a private company or farming operation
• In case your representative (executor) or guardian passed away, or become mentally incapacitated, or moved to another country
If your beneficiary moved to another country
If you have received a significant inheritance
In case you are worried about how your child’s troubled marriage might affect your estate plan

Legal and tax implications of estate planning

In Alberta, planning for what happens to your belongings and money after you’re gone involves more than just paperwork.

Creating a will is like leaving a guide for your loved ones, explaining how you want things handled. The legal steps, like validating the will through probate, can take some time and come with associated costs. It’s also essential to appoint someone you trust to handle your finances and healthcare decisions if you can’t. On the money side, while Alberta doesn’t have its estate tax, federal taxes, especially capital gains tax, need attention.

Personal Representative must obtain a clearance certificate from CRA before distributing the estate and assets between the beneficiaries. Smart tax planning, using tools like trusts, can help ensure your loved ones get the most out of what you leave behind. If you own a business, there are legal and tax hoops to pass it on. And if you’re into charitable giving, making sure your intentions are clear in legal documents can also bring tax benefits.

Common mistakes

Mistakes are bound to happen however they could lead to unintended, unnecessary consequences for the beneficiaries. Let’s explore some of the key mistakes that potential estate planners must stay vigilant to and how to avoid:

Procrastination Delaying the creation of an estate plan, assuming there’s plenty of time. To avoid the hassle start the estate planning process early to ensure ample time for thoughtful consideration and adjustments.
Incomplete or Outdated Wills: Having a will that is incomplete, outdated, or doesn’t reflect the current circumstances. Regularly review and update your will, especially after significant life events like marriages, births, or divorces.
Neglecting Powers of Attorney and Personal Directives: Overlooking the importance of appointing someone for financial and healthcare decisions in case of incapacity. Create powers of attorney and personal directives alongside your will, addressing potential incapacity.
Ignoring Non-Probate Assets: Failing to consider assets like life insurance policies and retirement accounts, which may not pass through the probate process. Ensure beneficiary designations align with your overall estate plan and regularly review them.
Ignoring Tax Implications: Overlooking the potential tax consequences of estate planning decisions. Consult with legal and financial professionals who can provide guidance on tax-efficient strategies tailored to Alberta’s laws.
Failure to Plan for Business Succession: Neglecting to address business succession planning if the individual owns a business. Incorporate business succession planning into the estate plan, ensuring a smooth transition of ownership and management.
Incomplete Asset Inventory: Failing to create a comprehensive inventory of assets and debts. Keep a detailed record of all assets and liabilities, updating it regularly for accuracy.
Failure to Seek Professional Advice: Attempting to navigate complex legal and financial matters without professional guidance. Consult with experienced legal and financial professionals in your province who specialize in estate planning to ensure a legally sound and comprehensive plan.

Juriscorp Law’s approach to estate planning

At JurisCorp Law, our approach to estate planning is characterized by a personalized and comprehensive process. We initiate each client relationship with an in-depth initial consultation, during which we attentively gather instructions and address any questions they may have about their estate planning.

Our commitment extends to providing valuable inputs and suggestions tailored to their circumstances, ensuring that no aspect is overlooked. Following this, we schedule a second meeting to meticulously review the first draft of wills, powers of attorney, and enduring powers, ensuring alignment with the client’s wishes. The collaborative nature of this process allows for any necessary adjustments.

Upon finalization, we proceed to sign the documents, providing the client with the originals to take with them. This hands-on and thorough approach sets JurisCorp Law apart, aiming to create estate plans that truly reflect the individual needs and preferences of our clients.

An example

Let us tell a story that underscores the importance of estate planning and also validates our approach- once, a lady came to us when her brother was on his deathbed. He had prepared a will with a notary, not a lawyer, and it didn’t mention important assets like TFSA, RRSP, and life insurance.

We immediately noticed this gap and advised them to redo the will through our services. Just a week after finalizing the new will, her brother passed away. The impact became clear when the sister returned to our office, grateful that we had spotted the missing TFSA. As it turns out, those accounts held $350,000, and without our intervention, it would have gone to a friend his brother hadn’t seen in 16 years. Now, the sister rightfully inherited it, and her relief and gratitude were immeasurable. It’s moments like these that remind us of the real impact estate planning can have on people’s lives.

Our advice to prospective clients

We would encourage anyone feeling hesitant or unsure about starting the estate planning process to consider it as a gift to themselves and their loved ones. It’s not just about paperwork; it’s about ensuring your wishes are honored and your loved ones are taken care of. Think of it as a way to provide clarity and peace of mind for the future. Starting the conversation doesn’t mean everything has to be decided immediately – it’s a gradual process where we work together to address concerns and tailor a plan that feels right for you. It’s a step towards securing your legacy and making things easier for those you care about. So, take a deep breath, and let’s start this journey together, ensuring your intentions shape your estate plan exactly the way you envision it.

So before our first meeting to discuss your estate plan, think of it as a conversation about your life, wishes, and the people you care about.

Take a moment to jot down key points – like who you’d want to handle your affairs if needed, any specific assets you have, and thoughts on beneficiaries. Consider if there are family dynamics or concerns you want to address. It’s not about having everything figured out; we’re here to guide you.

Bring any existing documents, like wills or powers of attorney, if you have them. This isn’t just a legal process; it’s a chance to ensure your values and desires shape your legacy. So, gather your thoughts, and let’s have a chat – relaxed and open – about creating an estate plan that truly reflects you and what matters most in your life.

Future trends

In Alberta, estate planning is keeping up with the times, and there are a couple of trends worth noting. First off, there’s a shift towards using technology in the process. Think of it like making estate planning more user-friendly – digital tools are making it easier to create and store important documents.

Now, you can even include your digital assets in your will, considering everything from your online accounts to cryptocurrencies. Another handy thing is that probate proceedings, the legal steps to validate a will, have become more streamlined online. It’s like cutting down on the paperwork hassle, making it smoother for your loved ones to navigate and get the necessary permissions.