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Planning the Inheritance

More than controlling from the grave


In the estate planning industry, it’s often referred to as ruling from the grave – the legal practice of creating a set of conditions that govern the distribution of assets after death.

Yet experts say it’s much simpler than that. In fact, it’s about being able to sit together at the table for a family meal.

“The ideal goal of estate planning is after you’re gone, all of your family and beneficiaries still want to get together for Christmas dinner,” says David Beavis, president of the Estate Planning Council of Calgary. “Estate litigation has become huge today because of the fighting that happens when people haven’t had simple conversations beforehand.”

Beavis, who is also president of Counsel Financial, says he’s seen it all during his 30 years in the industry. He’s dealt with disputes between families, executors, beneficiaries and charities. He’s seen blended families were there’s multiple kids from multiple marriages hold up wills in court for years. And he, like others in the industry, are preparing for a new wave of litigation, such as surrogate parents fighting for rights as beneficiaries.

Yet as complicated as inheritance planning will get, the primary component of successful inheritance planning boils down to talking with your family in advance to discuss your wishes, he says. The goal should be to reveal potential blind spots, whether that be succession of a family business or the classic example of dividing up the family cabin.

You don’t want anything to be a surprise, says Beavis.

“People lead very complicated lives. Just imagine people who get married, divorced, remarried, have kids, become estranged….” he says. “In my experience, the most successful plans are where there’s a good discussion among the family members well in advance, the parents take into account the children’s wishes and the children realize what the parents want to do.”

From a technical perspective, estate planning experts say trusts are common mechanisms clients use to protect the family’s wealth. Trusts are legal entities that are controlled by trustees who manage the distribution of assets to beneficiaries according to specified criteria. In these situations, the beneficiaries don’t own the assets – yet. Instead, the trust owns the assets until they are distributed – which could come in the form of incremental payments at specified ages, or discretionary payments for education or emergency situations.

Trusts are common in cases where significant assets are being distributed to a minor.

If you’re considering leaving an inheritance to your children through a trust, the first step should be education, adds Katharine Zhang, a Calgary-based associate with Walsh LLP.

“We often encourage parents to have their kids get legal advice if they are going to be receiving company shares or a large inheritance from their family and are thinking of starting a family of their own, as there are certain rules about how inheritances can be divided, or can be exempt, from being considered ‘matrimonial property,’” she says.

And not just children, but spouses too, adds Shannon Galon, barrister and solicitor with Kahane Law Office.

“It boggles my mind how people just don’t want to talk about it,” she says. “I’ve encountered situations, particularly with older generations, where the husband has passed away unexpectedly and the wife, who has been a stay-at-home mom, has been expected to execute the estate but knows nothing. It’s a good way of losing assets.”

Another way to structure inheritances is through an annuity. Henry Villanueva, legal counsel with MacMillan Estate Planning Corp., likens an annuity to an insurance policy that guarantees for the beneficiaries a certain amount of money over a regular basis.

“It’s like making sure your kid has an allowance for the rest of their lives. This is usually given in cases where the child has challenges,” he says.

“For example, we work with an affluent family who has a disabled daughter who needs a lot of care. What we did in their case was for the other siblings who were pretty independent, we gave them their lump sum inheritance. For the daughter who needed a lot of care, we made sure that she had a home and that we set up an annuity where she would receive $7,000 every month for the rest of her life.”

Zhang adds that in these cases, it’s important to make sure your beneficiary designations for any policy are up to date, and reflect your intentions.

“We see a lot of instances where policies name one child to the exclusion of others,” she says. “Or all the children but one child has predeceased, creating a different distribution result than what was originally intended. If you’re unsure, it’s best to speak with either the insurance provider or an estate adviser to fully understand what the implications may be of a designation.”

Beavis similarly recalls a wealth client he worked with early on in his career.

“They had already gone through a detailed estate planning process to distribute their business assets wherein they had moved assets around to a number of different trust companies,” he says. “But they had done it 10 years ago, and now the way they wanted to go about it was almost the complete reverse of what they had originally intended. You have to be careful to keep on top of it.”

Villanueva points to a further alternative of directing funds to a non-profit organization – the benefit being generous tax advantages.

“Here in Canada, we have pretty awesome donation tax credits,” says Villanueva. “We have … families that choose to donate a certain percentage of their net worth to charities because instead of paying ‘x’ amount of taxes to the government, they can donate ‘x’ amount to a charity and not pay that tax. At least they know where those tax dollars are going.”

He brings up the added scenario in which some of these families have established foundations or charities. When they donate money to those organizations, they are giving their family control over how those funds are distributed to the respective causes.

“It’s often referred to as ruling from the grave, but what you’re really trying to do with any form of inheritance planning is protect beneficiaries from themselves,” says Villanueva. “In many cases, it’s also about protecting that wealth for their grandchildren.”

Inheritance planning should not be viewed as exclusive to the rich and famous, either, says Galon, noting everyone should have at least a will in place.

“Even things like a trust company, the perception is you need several million dollars to have one; you don’t,” says Galon, noting her clients vary widely in everything from age and wealth to marital status. “Trusts can simply act as an uninterested third party in managing estates where there is a dispute.

“It really boils down to, no matter your situation, trying to plan for as much as you can, when you can.”