Leaving a Legacy Requires a Good Estate Plan
Leaving a Legacy Requires a Good Estate Plan
Creating a legacy for you might be as simple as leaving money or assets behind to make sure grand-children get a good education. You might want to help your adult children out so they have a brighter future, or you could have grander aspirations. If you have more accumulated wealth that you want to pass on, either inside your family or to not-for-profit organizations it should always begin with a strategy and a plan.
This brief web-page will outline a few common scenarios where you can plan for simple legacy creation or you can use Trusts for more complex situations. The process of creating a legacy could get fairly complex and is beyond the scope of an insurance advisor alone. If your plans for giving gifts or inheritance becomes complex in any way, Life Guard Insurance has team members who are Estate Lawyers and Tax Accountants to help design a comprehensive plan that meets your needs.
Simple Legacy Giving
If your legacy is mainly for immediate family, and your will is up to date naming beneficiaries and heirs then you are most of the way there. A fundamental piece of the plan would be taxation of your assets at death, and how much will be lost to the Canada Revenue Agency (CRA). Do you own assets that have gone up in value over the years? How much is your recreation property worth today vs. the price you originally paid for it? Very often you can offset high capital gains taxes like this very affordably with permanent life insurance. You might be able to buy $1.00 of tax free death benefit for $0.15 or $0.20 of premiums, all in. That would create a guaranteed, locked in benefit for your estate to alleviate future taxation.
Another major concern for you might be that you want to enhance the value of your estate and give more to you children and grand-children. Must you settle for giving what you have saved to date? Are there ways to enhance your gift today? The answer for many Albertans is YES there are options through life insurance to enhance your gifts to family on a fully guaranteed basis and with a reduction of taxation and final expenses. For example see the Estate Bond concept.
Family Business Continuity Planning
If a major part of your legacy is the business you have built up over the years, and that business is to stay in the family, some serious planning needs to take place to minimize the taxes due and expenses of transitioning the business. If your business is a family farm there are special tax roll-over laws that allow family farms to pass within the family at their original cost base and no capital gains on land need be realized. This is a special taxation exemption that applies only to family farm property. If your family business is not a farm, the entire capital gains of that business will be crystallized at death (can be rolled over until the death of thelast spouse, but taxes due when passing to children). these taxes could be in the hundreds of thousands of dollars, and unless the business is sitting on a lot of retained capital, there might be a situation where assets need to be sold just to pay the tax man. that is now way to pass on a successful business.
There are a number of options here. One common one is using a Family Trust to create an Estate Freeze on all assets today, lock in the taxation owing for the future and deal with the single problem via a life insurance policy to offset the future tax burden. That last sentance had a lot packed into it and needs to be unpacked for you with the help of legal and accounting advice. Each situation is unique and will be planned out according to your needs. In the end, the savings your estate will see from this type of planning far outweighs the professional advice fees of insurance premiums paid to design the plan.
Estate Equalization Planning
This type of legacy planning is very common among family farm corporations and family business.Imaging, you own a business that is worth a lot of money in assets, but does not hold large amounts of cash on reserve. In order to make money you invest back into the business. now imaging you are getting older and one of your children is being groomed to take over the family business, yet you have one or more other children who have moved on to have lives of their own and are not involved. By giving the one child the assets of the business he/she will get the lions share of your estate, with only small gifts given to your other children through the will. Is this fair? Would you like to give more of an inheritance to your children not involved in the family business?
If the answer is yes, you have an Estate Equalization problem. Remember, fair does not mean equal. The child taking over the business has put sweat equity into that business so far, and has earned more than an equal portion. He/she is also taking on all the future financial risk of running the business while the other non-involved children have no risk. The amount of inheritance that is FAIR should be worked out via a family discussion where there is general agreement on the division of the estate (in this case the value non-involved children will be getting while the other child inherits the business).
Once you have arrived at a number, life insurance is usually your best investment to make this plan a reality. It provides a guaranteed tax free benefit for the non-involved children, payable immediately upon death, and avoids the estate where it would be reduced by probate, legal and executor fees. The proceeds of the life insurance policy could be built into a family agreement as a part of the will to remove non-involved children for making a claim on the assets of the business.
Dealing With Complex Families
Not every family situation is so clean cut. As we know, families are messy and that mess can create major legal and financial issues upon death. Some of the most common messy situations are blended families, remarriages after you are gone, or children who are irresponsible or have an abuse problem. How do you deal with your estate in these situations, and create the legacy for your heirs you really want.
Just drafting a will usually does not solve these issues. A will can be contested at your death, and your assets could become tied up in the courts for years while families fight over them and no one except the lawyers win in that scenario. There are two excellent ways to design a legacy plan for these situations to make your wishes a reality. Either create a Family Trust while you are alive, or pass your assets into a Trust established at your death through your will. You can set out terms of how you want the assets in the trust to be administered, by whom (the Trustees) and who will benefit from the assets in the trust (the Beneficiaries).
All this complex planning is done mainly with an Estate Lawyer to establish the trust agreements, and with a Tax Accountant to value assets and make sure they all pass into the trust, with the proper papaer trail for the eventual CRA audit. It is highly likely that some form on permanent life insurance plan will be included in the final plan to create liquidity for the trust and/or pay off taxes owing. This is where Life Guard Insurance can be of service to you. Actually, we work closely with some of the best Estate Lawyers and Tax Accountants in Calgary and can put you in contact with them for an initial discovery meeting.
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