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3 Key Estate Plan Building Blocks

Published:

October 20, 2020

Author(s):

• The Estates & Trusts Law Team,

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Estate planning is directed at protecting your assets and your loved ones from creditors and unnecessary income tax or probate fees, and your wishes about the recipients of your assets, through incapacity and death. It’s a customized process; our goal is to create a plan that’s best for your unique circumstances. However, all estate plans share certain fundamental benefits and building blocks.

3 Top Estate Planning Benefits

There are many benefits in addition to your own peace of mind to putting an estate plan in place. Here are three of the top benefits.

1. You choose

You – not a court – will choose who will manage your financial affairs and personal care in the event of your incapacity, and will receive your assets in the event of your death.

2. You save money

Professional estate planning can save you money in the long run. You’ll have the opportunity to plan to minimize taxes and other potential liabilities and costs. For example, financial institutions typically require probate (the public process of obtaining court approval of a deceased’s Will and the Executor’s authority to act) to deal with estate assets, but probate fees are payable on the estate’s assets. There are solutions to avoid the probate process or minimize the assets subject to it, but all require advance estate planning to implement.

3. Your beneficiaries benefit

Anything that costs your estate more, such as probate fees, litigation to challenge your Will, and any court process necessary when estate planning tools aren’t in place, are typically costly, time-consuming, cumbersome, often avoidable with proper planning, and ultimately means your beneficiaries receive less. Furthermore, without proper estate planning, a gift could do more harm than good to a beneficiary, or the beneficiaries you assumed have rights to your assets actually don’t – and the price can be high. And there are circumstances, like owning a business, minor children, disabled or spendthrift beneficiaries, “blended families”, or the myriad of other special circumstances that call for the specialized legal solutions and protections that professional estate planning offers.

 3 Key Estate Plan Building Blocks

Each estate plan, and the documents necessary to implement it, is unique to each person’s circumstances. Some require additional documents, such as trust, property, deeds and corporate documentation, to implement. But at a bare minimum, all estate plans should include these three key documents.

1. Power of Attorney

A Power of Attorney (or “POA”) authorizes someone else (your “attorney”) to act on your behalf in respect to your financial affairs. An enduring POA is a special type of POA under which the attorney’s authority continues in the event of your mental incapacity to deal with your finances. It’s critical to have a POA in place before you need it: you must make it while you are competent. Without one, if you lose capacity to deal with your finances, someone must ask a court to appoint an adult guardian (who might be someone you’d never choose) over you. You can and should name a substitute attorney in case your first choice isn’t able or willing to act. A POA takes effective when it’s delivered to your attorney, even if you’re still competent, and it stops having effect upon your death. You can grant your attorney the general power to do anything you can do, or a specific power to do only certain tasks.

2. Advanced Health Care Directive

An Advanced Health Directive, called a “Power of Attorney (Personal Care)” in some provinces and territories, is an authorization for someone else to make health and personal care decisions on your behalf, but it’s not effective until you’re incompetent. As with a POA for financial matters, you must make an Advanced Health Care Directive while you are competent, and without one, if you lose capacity to deal with your health and personal care decisions, someone must ask a court to appoint an adult guardian over you. The right to choose medically-assisted death in advance still isn’t available, but there are some considerations that can still help those undertaking estate planning in the age of assisted dying.

3. Will

A Will is a legal document dealing with distribution of a person’s (the “testator”) property on their death, and only takes effect upon their death. You must have “testamentary capacity” – a legal test that requires certain competencies – to make a Will. If you die without one, you’ll be “intestate” and your assets distributed not as you choose, but as the applicable provincial legislation dictates: your spouse (common-law partners often don’t qualify) usually receives a set amount and shares the rest with any children; a court appoints someone to be the Administrator of your estate; and there’s no guardian appointment for minor children. Keep these considerations in mind when planning your Will:

Executor(s) and trustee(s). Choose wisely: this is one of the most important decisions you’ll make. The executor/trustee is your personal representative, trustee and fiduciary. People often choose a spouse, family member, friend, lawyer, or other trusted advisor. If the estate is larger or more complex, choosing a corporate executor, like a trust company or a professional advisor, might be the best option. The executor’s key duties are to take control of the testator’s property, pay the testator’s debts and taxes, distribute the testator’s property according to their Will, and administer any ongoing trusts. Executors often carry out these duties with the advice of an estate lawyer, accountant and financial advisor.

Clauses. Decide who gets what. The primary clauses of the Will deal with: the distribution of personal and household effects; specific gifts of money, including charitable gifts; and identification of the primary beneficiary (for example, the testator’s spouse), the secondary beneficiary(ies) (for example, the testator’s children and/or grandchildren) and the alternative beneficiary(ies) (for example, the testator’s extended family or a charity(ies)). Other typical clauses include trust provisions, “technical” clauses (for example, a survivorship requirement), the executor and trustees’ powers, funeral wishes and guardianship of minor children.

Execution. To be valid, the testator must be an adult with “testamentary capacity” when they make the Will and it must be in writing, signed by the testator at the end and signed in the presence of two witnesses who are not beneficiaries. The COVID-19 Pandemic in 2020 has led to interesting developments in virtual witnessing to address the resulting barriers to personal meetings.

Changes. Plan to review your Will when circumstances change or every three to five years. You can change it any time before their death, as long as you have “testamentary capacity”.

Challenges. Minimize the chances of a challenge to the Will and the time, expense and uncertainty a challenge brings, grounds for which include: improper execution; the testator’s lack of capacity when they executed it; undue influence on the testator by another person when the testator made it; the loss of the original Will; and the revocation of the Will upon marriage unless it was expressly made “in contemplation of marriage”.

Please contact your McInnes Cooper lawyer or any member of the Estates & Trusts Law Team @ McInnes Cooper to discuss your estate plan.

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