Estate planning is more, much more, than “death planning.”
Despite the intricate details, the basic bottom line spells it out succinctly. In Canada, estate planning is formally and legally documenting a plan for assets to protect family, business legacy and minimize taxes. A comprehensive estate plan typically includes a will, powers of attorney and beneficiary designations.
“While financial planning and estate planning often overlap, their focus and objectives greatly differ,” says Edmonton wills and estates lawyer Lauren Eckstein, at Vest Estate Law. “Financial planning primarily concerns accumulation and management of wealth during an individual’s lifetime, focusing on budgeting, saving, investing, debt management, insurance and retirement income strategies to achieve financial goals.
“By contrast, estate planning focuses on preservation and distribution of wealth upon incapacity or death. It deals with how assets will be managed, taxed and transferred, ensuring the person’s intentions are managed in compliance with Alberta law.”
She underscores the key distinction, “Financial planning is about building wealth. Estate planning is about protecting and transferring it efficiently.”
The practical and financial importance of estate planning is often blurred by human nature factors like procrastination and not wanting to think about morbid thoughts. Yet, proactive, effective estate planning reduces the tricky financial scrambling and juggling, which is usually compounded by the emotional stress of losing a family member.
Even though the speedbumps of today’s challenging economy are causing some Canadians uncertainty about the immediate future, financial experts warn about a contradiction. While many Canadians prioritize wanting to financially protect their families after they are gone, the facts and trends show that many are not walking the walk and actively estate plan.
According to a recent RBC Insurance survey, a majority (82 per cent) of Canadians feel it is important to ensure that, in the event of death, their family receives money quickly to avoid paying out-of-pocket for a funeral or other end-of-life expenses. While over half (53 per cent) of Canadians confess they do not want to be a burden on their families when they die, only 15 per cent have an actual estate plan for how their money and belongings will be transferred to loved ones after they are gone.
While the number increases to 24 per cent for current retirees, many are surprised by the administrative and financial weight of managing a loved one’s estate. Less than four in 10 (38 per cent) of retirees have set aside money or have life insurance to pay for final expenses, and retirees are also the least likely to be knowledgeable about the various types of insurance policies and overlook the potential that could help achieve their goals. As many as 76 per cent want to ensure their estate is taxed as little as possible to leave their family a larger inheritance, and 70 per cent want to pass money to their family.
“It is a reminder that good intentions don’t always translate into action,” says Farzana Damji, senior director, individual insurance product development with RBC Insurance. “It also underscores why guidance and education play a critical role.
“Without an estate plan, assets may be distributed by the financial court according to local laws, which often do not reflect an individual’s personal wishes. Funds can be tied up in probate, a legal process that can take several months or more, while a court decides what happens to the financial assets and debts.”
Edmonton estate planning experts caution that, even with a prudent will and estate plan, efficiently working through what needs to be done after death takes time. Sometimes it can take as long as two to three years, depending on the complexity of the estate and its assets.
The facts are indisputable. Failing to establish an estate plan in Alberta can create significant legal and financial consequences for families.
“Intestacy can be a significant issue,” Eckstein points out. “Without a valid will, Alberta’s Wills and Succession Act determines distribution, which may not reflect the deceased’s wishes. It can be a complicated problem, especially in the case of blended families and families with estranged family members. There can also be increased costs and delays because probate, legal disputes and public trustee involvement can substantially reduce estate value.”
Estate planners also mention possible family conflict, because ambiguity often leads to litigation among beneficiaries, next of kin and unintended beneficiaries, particularly if common-law partners or stepchildren are excluded or did not receive adequate provisions.
“At its core, estate planning ensures an individual’s wishes for asset distribution are maintained after death and that loved ones are taken care of. It helps provide clarity and control at a time when emotions can be high and decisions can be difficult. More practical than emotional, estate planning can also help reduce taxes at death,” Damji says.
A well-structured estate plan allows not only for a smooth transition of wealth, but also effectively deals with the tricky mine field of tax implications.
Estate planning for a small business is a distinct and unique focus. Eckstein cautions about the private family problems and small business consequences about procrastinating.
“There are many reasons why some people avoid estate planning. For some, it is uncomfortable and awkward discussing death or incapacity, or the touchy topic of family dynamics, fearing conflict or difficulty deciding how to divide assets. Sometimes there is a perceived complexity of the process or a misunderstanding of its importance.”
Experienced Edmonton estate planners emphasize the importance of an effective plan, especially for family-owned businesses.
“In many cases, the business represents a large portion of the owner’s wealth and the family’s livelihood. Without a clear estate plan, the business can face significant disruption,” she adds.
For small businesses, estate planning is not just about deciding who inherits money, it is also about ensuring the business continues to operate smoothly.
The RBC survey notes that for family-run enterprises, effective estate planning plays an even greater role in preserving generational wealth and maintaining family harmony. Life insurance and segregated funds can help by providing liquidity to cover taxes, liabilities or facilitate a family member’s buyout of shares – enabling a seamless transition and long-term continuity.
Eckstein explains, “Estate planning offers continuity of operations if an owner dies or becomes incapacitated. It does this by providing a succession plan to identify who will manage or inherit the business. Estate planning also minimizes tax exposure, including capital gains triggered by deemed dispositions at death, and it avoids the need for forced liquidation or sale to cover taxes or disputes.
“Particularly for small or family businesses, estate planning is both a vital and indispensable risk management factor as well as a smart business succession tool ensuring the founder’s legacy is preserved efficiently and equitably.”
The basics and the specifics are undisputable and important. A strategic and well-structured estate can help provide control and flexibility to formalize how and when assets are distributed and wishes and intentions are honoured; provide peace of mind, knowing that things go according to plan with no room for surprises and preserve the value and legacy of the wealth built through a business or other assets.
