KEYS TO A PERSONAL WEALTH SUCCESSION PLAN

Neufeld Legal PC: Chris@NeufeldLegal.com - 403-400-4092 / 905-616-8864

Succession A personal wealth succession plan is a comprehensive strategy for managing and distributing your assets during your lifetime and after your death, while minimizing taxes, maximizing value for beneficiaries, and ensuring your wishes are carried out, which goes beyond a last will & testatment (which is of itself a key foundational document).

A. The Will (Last Will & Testament)

  • Foundation of the Plan: Your will is the cornerstone. It legally outlines how your assets will be distributed upon your death, names an executor (also called an estate trustee or personal representative) to carry out your wishes, and can name a guardian for minor children.

  • Intestacy: Dying without a valid will (intestate) means your estate will be distributed according to provincial laws of intestacy, which may not align with your intentions and can lead to delays, increased costs, and family disputes.

  • Regular Review: Wills should be reviewed and updated regularly, especially after major life events (marriage, divorce, birth of children/grandchildren, significant changes in assets or beneficiaries, or changes in tax laws).

B. Powers of Attorney / Personal Directives

  • Incapacity Planning: These documents are crucial for managing your affairs if you become mentally or physically incapacitated during your lifetime.

    • Enduring (or Continuing) Power of Attorney for Property: Grants someone (your "attorney" or "agent") the authority to manage your financial affairs (bank accounts, investments, real estate, paying bills). It continues to be valid even if you lose mental capacity.

    • Power of Attorney for Personal Care (or Health Care Directive/Representation Agreement/Living Will): Grants someone the authority to make decisions about your healthcare, medical treatment, diet, housing, and personal care if you are unable to do so yourself. A "Living Will" typically outlines your wishes regarding end-of-life medical care, which can be incorporated into or separate from a Power of Attorney for Personal Care.

  • Avoiding Court Intervention: Having these in place prevents the need for court applications (e.g., for a guardianship or trusteeship order) if you become incapacitated, which can be time-consuming, costly, and may result in someone you don't know making decisions for you.

C. Trusts

  • Control and Flexibility: Trusts are powerful tools for wealth transfer and can offer control over how and when assets are distributed, protect assets, and provide tax efficiencies.

    • Inter Vivos (Living) Trusts: Created and effective during your lifetime. Examples include:

      • Alter Ego Trusts/Joint Partner Trusts: For individuals 65+ (or spouses jointly), these can help avoid probate, provide for ongoing management, and manage a deemed disposition at death (tax deferral).

      • Family Trusts: Can be used for income splitting (subject to specific rules like TOSI), multiplying the capital gains exemption (for qualified small business shares), and distributing assets to beneficiaries over time.

    • Testamentary Trusts: Created through your will and only come into effect upon your death. They can be used to protect assets for minors, individuals with disabilities, or to control distributions to beneficiaries over a long period.

  • Probate Avoidance: Assets held in a trust are generally not subject to probate fees upon death, as they are not legally part of the deceased's estate. In certain jurisdictions, such as Alberta, the cost associated with probate is minimal.

  • Complexities: Trusts are complex legal instruments and require careful planning and professional advice to ensure they achieve their intended purpose and comply with tax laws.

D. Tax Planning and Minimization

  • Deemed Disposition at Death: In Canada, when you die, you are generally deemed to have sold all your capital property at its fair market value immediately before death. Any accrued capital gains become taxable on your final income tax return.

    • Spousal Rollover: A tax-deferred transfer to a spouse or common-law partner is usually automatic, deferring the capital gains tax until the surviving spouse's death or earlier disposition.

    • Capital Gains Exemption: For qualifying small business shares or farm/fishing property, the Lifetime Capital Gains Exemption can reduce or eliminate capital gains tax upon sale or deemed disposition at death.

  • Probate Fees (Estate Administration Tax): These are provincial fees calculated on the value of the estate that passes through the probate process. They vary significantly by province (e.g., being high in Ontario and British Columbia, while low in Alberta). Strategies like joint ownership, beneficiary designations, and trusts can help minimize these fees.

  • Gifting Strategies: While Canada has no "gift tax," gifting appreciated capital property during your lifetime can trigger a deemed disposition at fair market value, leading to immediate capital gains tax for the giver. Careful planning is needed, considering attribution rules for gifts to spouses or minor children.

E. Choosing Fiduciaries (Executor/Trustee, Attorney)

  • Crucial Role: The individuals you appoint (executor, trustee, attorney) will have significant responsibilities and legal duties.

  • Considerations: Choose someone trustworthy, capable, organized, and willing to take on the role. They should understand your wishes and be able to handle potentially complex financial and legal matters. You can appoint family members, friends, or professional trust companies.

  • Compensation: Executors and trustees are generally entitled to reasonable compensation from the estate for their services.

F. Communication and Documentation

  • Open Discussions: Discussing your plans with your family and beneficiaries can prevent misunderstandings and conflict after your death.

  • Organized Records: Keep all your important documents (will, PoAs, trust deeds, financial statements, insurance policies, property deeds, etc.) organized and in a secure, accessible location, and ensure your executor knows where to find them.

G. Business Succession Planning

  • Specific Challenges: If you own a business, succession planning is a critical, often separate, but integrated part of your personal wealth plan. It addresses how the business will transition (e.g., to family, employees, or a third party) upon your retirement, disability, or death, considering valuation, tax implications, and ongoing operations.

For knowledgeable and experienced legal representation for succession planning and a href="http://www.lawtax.ca/trusts.html"> trusts, contact lawyer Christopher R. Neufeld at Chris@NeufeldLegal.com or call 403-400-4092 (Calgary, Alberta) / 905-616-8864 (Toronto, Ontario).

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