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Every year for the last several years, Craig Clarke and his parents meet with their financial adviser to talk about a subject that some people might view with discomfort: the fate of the assets that the elder Clarkes – both in their 80s – have accumulated during their lifetime.
"It's an ongoing process where you're always trying to dot your i's and cross your t's," says Craig Clarke, whom his parents have named as executor of their estate. "As things change, you have to make sure that your will and whatever other arrangements you've made are also changed accordingly."
Mr. Clarke's parents, who live in Welland, Ont., in the Niagara region, have had an estate plan in place for the last 25 years. This type of financial plan, which details how monies and objects are to be distributed after their deaths, is a must for every adult, says Elizabeth Dorsch, CEO BMO Trust Company and National Director of Trust and Estates at BMO. "People don't like to speak about estates and estate planning, however, these conversations are necessary," she says. Proper planning can address many issues including beneficiaries living out of country, assets owned outside of Canada, protection of vulnerable or handicapped persons, transfer of family business, dealing with family disputes, the transfer of highly sentimental assets (paintings, antiques, cottage), choice of executor, or implications of joint ownership and money owed by family member.
"When it's developed carefully and properly, an estate plan gives you control over how your assets are distributed and ensures they are passed on to the people you intended to receive your estate. Without an estate plan, the provincial government can end up taking control of that process."
In addition to providing instructions – which are contained in a will – on how assets are to be divided and given out, an estate plan should also be backed by financial strategies designed to minimize taxes.
Many estate plans include provisions for charitable giving, which ideally should create tax efficiencies for the estate. Those with businesses should also spell out a succession plan for their company and include strategies such an estate freeze, which basically defers the capital gains tax on corporate shares by locking in the value of the shares and directing future growth to designated beneficiaries. The planning process should start early because some of the strategies could be implemented while the person is alive and by leaving it too late, they could miss out on the opportunity.
Bill Green, the Clarkes' financial adviser and author of the soon-to-be-published book The Success Tax Shuffle, notes that people who have been successful in investing and accumulating assets will need to address two main forms of "success taxes": the tax on deferred retirement asset plans and the deferred or unrealized capital gains tax on capital assets such as real estate or an art collection.
"This is why it's important to arrange your assets and affairs in a way that takes advantage of current tax laws, tax credits, deductions and all other estate-planning tools at your disposal," says Mr. Green, who is based in Muskoka, Ont.
Estate planning is an emotional process for many people and, in some cases, can even tear families apart. Les Kotzer, a wills and estates lawyer with Fish and Associates in Toronto, points to common issues that can cause family conflicts during estate planning including the appointment of an executor, distribution of personal effects and financial inequities that can happen inadvertently when assets change value over time.
"Oftentimes the fighting isn't just about money but also over power and memories," says Mr. Kotzer, who has written several books about family squabbles over inheritance. "So it's important not to take these issues lightly."
The role of executor is often given by default to the oldest child, notes Mr. Kotzer. Instead of automatically going this route, parents should think hard about who truly is best for the job. Ideally, this would be someone who is willing to dedicate the significant time and effort needed to look after end-of-life affairs and who can negotiate effectively between family members and other parties connected to the estate.
Mr. Clarke agrees and adds that it's also important to appoint an executor who can remain objective. He notes that since being named his parents' executor, he has made a conscious effort to be present and active during estate-planning discussions, while giving his parents plenty of space to make their own decisions.
"It's a fine line – you want to be fairly active, but you don't want to sway them in their decisions," he says. "You really need to keep the emotion out of the process and ensure that whatever you say or do is in your parents' best interest."
Careful thought should be given to how personal effects are distributed after death, says Mr. Kotzer. Even objects as seemingly inconsequential as a cake spatula or a book can trigger a spat if the emotional value of these items isn't taken into account.
"A best practice is, if a personal item was given to you by one of your kids, give it back to him or her in the will," says Mr. Kotzer.
Even those who work hard at being fair in their estate plan can slip up by failing to accurately assess the future value of their assets. For example, parents who decide to give one child a condo and another a prized hockey card collection may do this thinking these assets have equal financial value.
"But the cards may go down in value over time, while the condo goes up 10 times in value," says Mr. Kotzer. "This inadvertently leaves one child with a significantly reduced inheritance."
Expert advice is key, says Ms. Dorsch. She recommends sitting down with a financial adviser who is experienced in estate planning.
"A competent estate planner will do a deep discovery to really understand your situation and your wishes and from there [will] work on a plan that takes into consideration how you want to distribute your assets to your beneficiaries and what actions you can take today to preserve as much of your estate as possible" she says. The planner will help outline choices and options available including naming a corporate executor in the will to alleviate the family from the burden, risk and emotions of administering the estate in their personal capacity. "And whatever you decide to do, start the planning process early, involve your family where possible, and be as transparent as possible so there are no surprises for them later."