Secrets of a Worry-Free Legacy

6 Dimensions of an Effective Estate Plan

Eccentric American billionaire Howard Hughes died in 1976 without a legal will. After very lengthy legal proceedings, the estate was divvied up amongst his 22 cousins. Not sure if that was his intent.

A 2018 Angus Reid Institute poll found that only 51 % of Canadians have a legal will but only 35% say that their will is up to date. With estimates of at least $1 Trillion of Canadian inheritances passing to the next generation this next decade, that’s a lot of money transitioning without a clear plan!

Are you in the same boat?

Estate planning is not just about drafting a will. It is more about your life and your legacy – while you are living and for many years thereafter.

Everyone with a beating heart knows that they want to anticipate and arrange the management and transition of their wealth during their life, in event of incapacity, and after death. What’s needed is an action plan. Here are six major areas of estate planning and the issues you will want to address:

Health Care

Whether you are in good health or not, your estate plan must prepare you and your family or friends to understand their role when you are in need.

The combination of an aging population and advances in medical treatment mean that many people need to plan for their own and, in some cases, a spouse’s, partner’s, parent’s or child’s future health care needs.

The health care system in Canada can be complex, confusing, frustrating, often expensive, and sometimes frighteningly inadequate. Without proper preparation you can become overwhelmed and procrastinate on this crucial part of your estate plan.

You do not need to become an expert in health care law, medicine or ethics to make decisions about your own personal health care. However, it is advisable that you take the time to learn as much as possible—and involve those you trust—when planning for the future. Estate planning is one of the most important parts of a personal health care plan.

The first step is to understand Powers of Attorney (POAs), Representation Agreements, or Advance Health Care Directives.

A POA allows you to appoint a person you trust (your Attorney) to make decisions on your behalf in the event that, for whatever reason, you are not capable of making or communicating those decisions yourself.
A Representation Agreement allows someone you trust to make health care decisions for you. This agreement allows the most flexibility, especially when your representative is a family member who may better know your needs. The Representation Agreement though does carry a large burden of responsibility that the representative needs to know about in advance.
An Advance Health Care Directive allows you to specify what actions should be taken for your health if you are no longer able to make decisions for yourself because of illness or incapacity. Unlike the Representation Agreement, an Advance Health Care Directive takes the heat off of your family in making health care decisions for you if you are unable to because it was you who told them what to do – in writing!

If you don’t take care of these key documents while you are still healthy and of sound mind, you may not be able to set them up if your mental capacity is compromised. If you plan for your health care right now together with those you love, you will enjoy greater piece of mind and your family or friends will be better able to help you manage your affairs and your health when you are unable to.

Taxes on your estate.

Most of us know the taxes we pay on a yearly basis. This does not change in the year that we die – those taxes will still be payable. However, we often forget the silent liability on our estates that is triggered when we die. These Taxes can affect the following:

Registered retirement savings plans such RRSP/RRIF balances, as well as Locked-In Retirement Accounts (LIRA) and Life Income Funds (LIF).
Balances on Registered Pension Plans (RPP) and Deferred Profit Sharing Plans (DPSP).
Unrealized capital gains. We may hold stocks, bonds, mutual funds, investment or vacation properties, business or other capital property. These items are considered sold or “realized” at their fair market value upon death. The difference between their market value and their cost base is exposed to capital gains taxation.
Recaptured depreciation that we may have claimed on taxable capital property. This is an easy one to forget. We often claim depreciation on capital property in order to reduce our taxes while we’re living, but this can affect our estate when we die.
Probate fees – these vary from province to province and although the percentage fee may seem small, it can have a big overall impact on our estates, especially if we don’t plan for it.

Planning must be done to anticipate these taxes, minimize them where possible and assure they are paid when we die.

Estate Litigation

If your will excludes or fails to make adequate provision for a beneficiary, expect it to be contested. There are many cases where dividing an estate in a truly equal way may be difficult or impractical. The important thing is to clearly communicate with beneficiaries ahead of time and invest in proper legal advice and documentation to make your wishes clear. Estate litigation over unclear wills can be costly and time-consuming.

Estate litigation can arise from many different issues, such as:

Estate planning errors, such as unclear instructions or missing documentation, especially the current valid will.
Estate planning omissions, such as lack of spousal or child support in a will.
Estate administration errors, such as improper documentation for final tax filings.

Estate litigation may also arise as a result of:

Estate beneficiaries contesting the will.
Estate creditors contesting an estate administrator’s decision.
Estate administrators who do not properly follow Estate Administration Act requirements.

The best way to avoid costly estate litigation in Canada is to properly put your will in order before you die, so a lawyer qualified in wills and estates is essential. Estate litigation is the last thing anyone wants to experience during their lifetime or after they pass away.

Would it be useful to have a checklist designed exactly for you? A checklist that that gives you specific instructions on what to do to start the ultimate estate and legacy plan?

Communication through Family Meetings.

Lack of communication is the greatest reason for nasty estate disputes. Because it can be difficult to have this conversation, it is a good idea to have a family meeting moderated by an independent third party. A Certified Executor Advisor or your lawyer can be a great resource.

It may seem like more than you are willing to share, but keep in mind that the more you discuss in an open and transparent way, the higher the likelihood is that your family will grow closer and avoid nasty disputes in the future.

Here are some ideas to include in your family meeting agenda:

Family history discussion (everyone)

Consider having a free-ranging storytelling discussion about how previous generations created wealth. This type of conversation should focus not only on where the family has succeeded, but also on where there have been setbacks and failures so the succeeding generations can learn. Keeping the family history alive is crucial to creating its unique culture.

Family mission statement (everyone)

Sample statement: “Our family is committed to mutual respect, open communication, confidentiality, calculated risk-taking, hard work and capital preservation.” Refer to page 62 of the book Willing Wisdom for “The Declaration of the Willing,” which can be easily adapted to reflect the personal hopes and desires of any family. Also consider Stephen Covey’s book “7 Habits of Highly Successful Families.”

Family economic update (everyone)

All attendees should give a brief presentation on changes to their financial position since the previous meeting. Some families elect to discuss living gifts and begin to introduce their current financial advisors to the succeeding generation. As a family develops its own meeting style and culture, this section can be one of the most important for preparing heirs to become responsible inheritors.

Presentation on investment returns (financial advisor)

After reviewing the latest investment statements, remember to leave time for Q&A from all family members.

Presentation on trusts (financial advisor, accountant or lawyer)

One of the most confusing aspects of estate planning is the many types of trusts and their different purposes. Financial advisors and accountants can deliver a short presentation on the range of trusts that exist, why they are used and how and when they can be established.

Presentation on taxes triggered during estate administration (accountants and financial advisors)

The family’s accountant or financial advisor can give a short presentation on issues such as capital gains taxes that are triggered on last to die. Assets such as family businesses and family vacation homes are common examples of assets that are subject to capital gains and other forms of taxation triggered by the administration of an estate. This question needs to be asked: “Where will the liquidity to pay those taxes come from?”

Discussion of wills (everyone over age 15)

Encourage the sharing of wills among attendees who are named as executors, backup executors or beneficiaries.

Family business (business owners)

If the family operates a business, they need to have an open discussion about how that business will survive in the event of death or incapacity (regardless of the controlling shareholder’s age). Refer to Every Family’s Business for insights on the dangers of giving an operating business to all or just some family members. Without proper discussion and planning, the transfer or division of a family business can be one of the most emotional and litigious issues for a grieving family.

Family vacation homes/rental properties (property owners)

For the same reasons given above, the transfer or division of a family vacation home or rental property requires discussion and proper planning. Talking openly about how, to whom and when a real estate asset will transfer can prevent family members from operating on assumptions for decades.

Division of personal possessions (owners of assets)

Discuss the process for dividing personal possessions before discussing who gets individual items.

Selection of executors (all family participants over age 18)

Invite a lawyer to give a short presentation on the duties and responsibilities of an executor, including how long it takes to administer an estate and compensation for administering an estate. If the family’s lawyer is not able to attend, ask him or her to draft a short explanation of the duties of an executor for you to present.

Discussion of financial power of attorney (all family participants over age 18)

A lawyer or financial advisor can present a 15-minute summary of the duties of an individual selected to act as financial power of attorney (POA). Encourage all attendees to disclose who they have selected to be their financial POA. Encourage attendees to give a copy of their POA document to the person selected to be their POA and to everyone listed in their will as a beneficiary.

Invite a lawyer to give a short presentation on the duties and responsibilities of a financial POA. Alternatively, a lawyer can prepare a brief explanation about the duties and legal responsibilities associated with being appointed POA for you to present. Remind the family that it is wise to select a backup POA and to make sure that that person also has a copy of the POA documentation.

Discussion of powers of attorney for personal care (everyone over age 18)

All adults are invited to discuss, update and share copies of their living wills. A lawyer or financial advisor can present a short summary on what a living will is and who will manage its administration. Don’t forget to encourage all family members to share a copy of their living will with their family physician.

Discussion of long-term care (all family participants over age 18)

All adults are invited to discuss their hopes, wishes and desires for long-term care, touching on a broad range of scenarios and including what types of care someone would like to receive should they become incapacitated.

Philanthropy (all family participants)

Invite all family members to discuss both individual and joint family charitable causes they support. Many families use their family meeting to discuss joint philanthropic projects. In some family meetings, every participant is asked to present a short case study and pitch for financial support for a particular group or cause. Sometimes family members are tasked with investigating how charities have deployed previous gifts. Some families invite representatives of charities to their family meetings to make presentations for new funds.

The financial amount pledged at each family meeting for philanthropy is irrelevant – it is the process of engaging family members, especially at an early age, that is key to preparing heirs to develop a healthy attitude and context for the wealth they will likely one day inherit.

Outside speakers (authors or consultants)

Invite presenters specializing in family dynamics, communications, meeting facilitation, etc. to speak to the family.

Book review (all family participants or one rotating each meeting)

Family members can present 15-minute book reviews on relevant topics, such as biographies or autobiographies of significant families and their approach to preparing heirs and protecting wealth, focusing on what worked well and what failed. For example, a number of books have been published about the Rockefellers, Vanderbilts and Bronfmans.

Planning Your Legacy

The biggest question we can ask in the estate planning conversation is “how do you wish to be remembered?” Without a financial plan that incorporates estate planning, you run a high risk of excessive taxation, litigation and family animosity. The result is that your legacy could be seriously compromised. No one wants that.

It can be very hard to define exactly what your “why” in life is, especially with so many forces competing to try to tell you what that “why” should be. That frustration you may feel in finding your deeper purpose can be resolved thorough one very simple exercise:

Write your eulogy!

This may sound morbid and it can be quite an emotional assignment, but it will get to the heart of what is really important in your life. It’s a simple exercise:

Picture yourself many years from now as having the task of writing a eulogy for you, having lived many vibrant years living out the values that are dear to you. Even better, write separate eulogies from the perspective of the following:

Your spouse.
Your children.
Your parents.
Your associates/clients.
Your friends.

What matters most to you?

Once you’ve written your eulogy, you will have an excellent perspective to define the values that matter most to you. Pick several words that encapsulate your values. This is deeply personal, so I can’t give you examples, but here is a simple 7-step process to determine your core values:

Write down down five adjectives that describe you. Do it as quickly as you can. Remember: Progress, not perfection!
Review the list and circle the three that resonate with you. These are your core values (for now!)
Write a brief sentence or two on each of the three selected values and why you feel strongly about them.
Consider the people you most admire and the values that drive them? These could be your aspirational values that you are striving toward but may not yet have explored.
Consider those experiences with which you almost lose all sense of time. These will also give you a clue as to your core values.
Categorize all these values into central themes and find the common core value at the centre.
Then again, choose and finalize your top core values from this exercise.

This should give you additional perspective into what your unique gift is to this world and what will define that deeper purpose for you in planning your legacy.

Governance

Some of the most famous people in the world died without wills and each case tells a unique and tragic story:

Jimi Hendrix had no will when he died in 1970. The battle over his estate raged on for more than 30 years!
Pablo Picasso died in 1973 at the age of 91 without a will. It cost $3o million in legal fees and 6 years of deliberations to settle his estate!
Eccentric billionaire Howard Hughes died in 1976. His estate was divided among his 22 cousins.
Abraham Lincoln was a lawyer and still did not have a will!
Princess Diana had a valid will that passed on equal shares of her estate to her tow sons when they turned 25. However, she also had a “letter of wishes” that divvied up her estate differently than was in the will, giving her 17 godchildren a greater share of her assets. Because she did not formally add these instructions to the will as a codicil, her wishes were disregarded.
James Brown also had a valid will in place when he died in 2006. However, he failed to update it to reflect his marriage or to make provisions for his youngest child. It took 15 years of dispute to finally settle the estate. The delays and costs hampered his wishes for the creation of a charitable organization that was dear to him.

For your estate plan to come alive, it must be put into writing. Without regular review of your estate plan, wills, powers of attorney, representation agreements or advance directives, things can get ugly.

This can be a big job and it is so tempting to put it on the “to do” list. You might think that’s a good idea, but every time you procrastinate on this, it brings your estate closer and closer to disaster. You will continue to lose sleep over this until you begin to take action.

Next Steps

Too often we focus our energies on trying to figure out how to solve the estate planning puzzle. Instead, ask who can help you through this process. Find a qualified guide with a comprehensive estate planning process and, together with your family, start the conversation.

It’s important to get clarity and understand exactly what to do next. To get started, you’ll need The Ultimate Estate Planning Checklist. We have a perfect tool for you. Click below to get your personalized Estate Planning Checklist.