Estate planning can be uncomfortable, but it’s not just about money

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Estate planning is about family harmony, which is especially important during this challenging time

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Let’s start with a fun family story. As the “lady of the house,” I plan for family vacations, take the family to the dentist, add our baby to the daycare waiting list, etc. My husband is often perplexed when I bring this subject up and says, “Well, if you told me what to do, I would do it!”

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Oftentimes, but by no means always, the task of planning falls upon women, and estate planning is no exception.

“Estate planning is not about money, it is about family harmony” is something we often share at the beginning of each estate review. I emphasize this first because of the importance of family harmony, especially during this challenging time.

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Estate wishes can be an uncomfortable topic of family discussion, but I advocate parents form a habit of communicating early, frequently and to share their rationale. A great resource is Thomas William Deans’ book Willing Wisdom, which depicts a family tradition of incorporating estate conversations at family meetings and shows how they make it a meaningful, yet fun, exchange on what will be some tricky topics.

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What is fair?

Some parents opt to divide the estate equally among inheritors, while others may deem it appropriate to provide additional compensation for the child who does the most to take care of their needs.

If estate equalization is the goal, it is important to be mindful of how taxes factor into the equation. For example, registered accounts such as registered retirement savings plans (RRSPs) can be fully taxable at both parents’ passing while the principal residence is tax exempt.

It is important to consider the after-tax value in estate equalization between the inheritors and which party will be responsible for the taxes payable.

What about the dreaded probate?

Executors will typically be required to probate a will with the provincial or territorial court in order to obtain authority to act, and this process incurs a probate tax. Probate is a question that comes up often and people sometimes go to great lengths to plan and minimize it.

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There are a few simple ways to reduce probate. One is to name beneficiaries on your registered plans such as RRSPs and tax-free savings accounts (TFSAs). Review your beneficiary designations with your financial adviser periodically and make sure they are up to date, and ensure the designated beneficiaries are not contradicted in your will because discrepancies can cause disputes in the future. Similarly, you can directly designate beneficiaries with insurance policies. As long as you do not designate your estate as the beneficiary, probate will not apply.

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Another strategy is for parents to jointly own properties with their children. However, there are pros and cons. First, there can be tax consequences in changing the property into joint ownership. Second, the properties can now be subject to the children’s creditors, including a marital creditor.

Suffice to say, the potential cost of joint ownership can be higher than the probate itself, so both the pros and cons should be thoroughly examined.

Should I gift some assets to my children?

There is no right answer to this question. The main benefit of gifting is for parents to see their children enjoying the gifts during their lifetime, though it can be an effective tax planning strategy as well. Gifting some assets can reduce the future tax burden on the estate. However, parents will have to be OK with losing control of the gifted property.

How much is an appropriate amount to gift? I would advise people to not put their own retirement in jeopardy. Review things with your financial adviser to see how much you will need and if there is sufficient room available. Only then should you consider gifting some assets early.

Rita Li is an investment adviser with RBC Dominion Securities,RBC Wealth Management

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