What You Need to Know About Es­tate Plan­ning

Try­ing to save money may cost you dearly in the end

BC Business Magazine - - Mcquarrie -

It’s not un­com­mon for peo­ple to try to avoid the per­ceived ex­penses as­so­ci­ated with re­tain­ing lawyers, at least with re­gards to es­tate plan­ning; but tak­ing mat­ters into one’s own hands by es­tab­lish­ing joint prop­erty own­er­ship can ul­ti­mately be costly, as well as ru­inous to re­la­tion­ships, ac­cord­ing to Elyssa Lock­hart, part­ner at Mc­quar­rie Hunter LLP.

At face value, joint own­er­ship seems at­trac­tive be­cause if one owner dies it gives the last sur­viv­ing joint owner ti­tle to the as­set with­out de­lay. Also, “peo­ple feel they are stream­lin­ing the le­gal process and sav­ing money by tak­ing steps to avoid the need to pro­bate their es­tate,” says Lock­hart.

How­ever, af­ter the death of a spouse, sur­viv­ing part­ners of­ten add one or more chil­dren as joint own­ers of their as­sets— and that’s when the trou­ble be­gins. Trou­ble of­ten stems from what Lock­hart refers to as dif­fer­ing “in­vest­ment time hori­zons.” She ex­plains: “With spouses, join­ture is suc­cess­ful be­cause—in ad­di­tion to truly be­ing own­ers of the as­sets—you have sim­i­lar life plans and life­spans; but sib­lings un­der­stand­ably have dif­fer­ent fi­nan­cial am­bi­tions, time­lines and needs.”

Over time, chil­dren can be­come pro­pri­etary about as­sets held in their names—pre­vent­ing par­ents from sell­ing and us­ing them freely. Of­ten chil­dren do not share th­ese as­sets with sib­lings af­ter the death of their par­ent, as was an­tic­i­pated by the par­ent. And, “Join­tured as­sets aren’t con­fined to prop­erty: they can also be ve­hi­cles, bank­ing and cer­tain in­vest­ment ac­counts—a mul­ti­tude of things,” says Lock­hart. “In­ci­dences of pro­pri­etary be­hav­iour seem to be in­creas­ing, and while le­gal steps can be taken to rec­tify the fi­nan­cial sit­u­a­tion, lit­i­ga­tion doesn’t re­solve the bit­ter­ness cre­ated within the fam­ily.”

The le­gal team at Mc­quar­rie, which is cur­rently mark­ing its 50th an­niver­sary, is es­pe­cially mo­ti­vated to help­ing clients avoid the haz­ards stem­ming from sub­sti­tut­ing sim­ple so­lu­tions for com­pre­hen­sive le­gal ad­vice. “In terms of the le­gal land­scape, the public gen­er­ally does not fully ap­pre­ci­ate its in­tri­ca­cies,” says Lock­hart.

One ex­am­ple of some­thing not com­monly known by lay peo­ple is that join­tures don’t nec­es­sar­ily save fam­i­lies money, even in the ab­sence of lit­i­ga­tion. “If you list a child who doesn’t live on your prop­erty as a joint owner, it is treated as an in­vest­ment in their hands and growth in value can be tax­able as a cap­i­tal gain—a much higher rate than the ap­prox­i­mate 1.4-per-cent pro­bate fee,” says Lock­hart.

Yet more dif­fi­cul­ties can re­sult if a cou­ple opts to draft their own wills. “So­called ‘sim­ple wills’ have their own set of haz­ards. In­stead, we strive for ‘suit­able wills’ to best pro­tect our clients.” For ex­am­ple, sim­ple wills gen­er­ally don’t pro­tect step-chil­dren be­cause, in law, a stepchild has no claim to the es­tate of a step-par­ent. If the par­ent dies and leaves all as­sets to his or her spouse, that spouse may later dis­in­herit the step-child with im­punity.

“By con­trast, a will from a lawyer can be struc­tured to ac­knowl­edge both the spouse and the child.” Plus, law firms such as Mc­quar­rie take the time to ex­plain com­pli­cated le­gal pro­cesses in fine de­tail to clients, so they gain a firm un­der­stand­ing of their obli­ga­tions and the plan­ning strate­gies avail­able to them.

Lock­hart con­cludes: “Con­sult­ing with an ex­pe­ri­enced lawyer is al­ways the best op­tion when you have to make im­por­tant per­sonal as­set and busi­ness de­ci­sions. In the long run it saves you time and money— and pos­si­bly a lot of heartache.”

Mc­quar­rie is a multi-prac­tice, Sur­rey-based law firm that serves the needs of busi­nesses, in­di­vid­u­als and in­sti­tu­tions in the Lower Main­land and through­out B.C. www.mc­quar­rie.com

Af­ter spend­ing a life­time build­ing a busi­ness, ac­cu­mu­lat­ing wealth and pro­tect­ing one's as­sets, seek­ing pro­fes­sional ad­vice on gift­ing af­ter death makes a lot of sense.

A good lawyer can plot strate­gies that will best pre­serve the as­sets that fuel your le­gacy. For ex­am­ple, In­grid Tsui, part­ner and leader of Alexan­der Hol­burn Beaudin + Lang LLP'S Wills, Es­tates + Trusts prac­tice, of­ten ad­vises busi­ness-owner clients to un­der­take “dual” will plan­ning. B.C. es­tates are sub­ject to 1.4-per-cent pro­bate fees and the typ­i­cal de­lays and public dis­clo­sure of as­sets that comes with ap­ply­ing for pro­bate. A dual will plan can re­sult in the Cana­dian pri­vate com­pany avoid­ing all of this.

The sav­ings will gen­er­ally off­set the ad­di­tional le­gal fees as­so­ci­ated with pre­par­ing a sec­ond Will. But there are other ad­van­tages to this strat­egy apart from it be­ing a so­lu­tion to the 1.4-per-cent pro­bate fee is­sue and as­set dis­sem­i­na­tion de­lays: “Ap­ply­ing for pro­bate also causes a loss of pri­vacy, be­cause es­tate as­sets and their val­ues are listed in the filed doc­u­ments, which are pub­licly ac­ces­si­ble,” says Tsui.

There are cer­tain cri­te­ria which the will­maker must im­ple­ment in or­der for a dual Will struc­ture to work, in­clud­ing se­lect­ing dif­fer­ent ex­ecu­tors to act un­der each Will.

Tsui's mes­sage is that busi­ness own­ers should take the time and nec­es­sary steps to con­sider the best plan pos­si­ble.

An­other el­e­ment that can neg­a­tively im­pact the cre­ation of a le­gacy—and some­thing that can be eas­ily rec­ti­fied—is the ten­dency of peo­ple to avoid the ser­vices of lawyers or no­taries and un­der­take their own es­tate plan­ning.

Elyssa Lock­hart, part­ner at Mc­quar­rie Hunter LLP, says: “Peo­ple think they may be stream­lin­ing the le­gal process and sav­ing money by tak­ing steps to avoid the pro­bate process; of­ten af­ter the death of a spouse, a sur­viv­ing part­ner adds one or more of his or her chil­dren to their as­sets as joint own­ers— and that's when the trou­ble be­gins.”

Over time, th­ese new own­ers can be­come pro­pri­etary about as­sets— pre­vent­ing par­ents from sell­ing, rein­vest­ing, and us­ing them freely. “In­ci­dences of this oc­cur­ring seem to be in­creas­ing, and while le­gal steps can be taken to rec­tify the fi­nan­cial sit­u­a­tion, lit­i­ga­tion doesn't re­solve the bit­ter­ness cre­ated within the fam­ily,” says Lock­hart.

Mc­quar­rie's com­mit­ment to the com­mu­ni­ties it serves runs deep, and this year marks its 50th an­niver­sary. Its le­gal team is es­pe­cially mo­ti­vated to help­ing com­pa­nies and in­di­vid­u­als avoid the many haz­ards stem­ming from sub­sti­tut­ing sim­ple so­lu­tions for com­pre­hen­sive le­gal ad­vice. “In terms of the le­gal land­scape, most do not ap­pre­ci­ate its in­tri­ca­cies,” says Lock­hart. “Sim­ply put, peo­ple don't know what they don't know.”

Lock­hart points out that join­tures don't nec­es­sar­ily save fam­i­lies money. She ex­plains: “If you list a child who doesn't live on your prop­erty as a joint owner, it is treated as an in­vest­ment in their hands and

gains in value can be tax­able at a much higher rate than the ap­prox­i­mate 1.4 per cent pro­bate fee.

“The bot­tom line is none of us wants to leave a le­gacy of bit­ter­ness or ex­pense— but by not con­sult­ing with a lawyer, you put your le­gacy at risk to the un­known.”

One is­sue that of­ten arises in dis­cus­sions with clients who are com­mit­ted to char­i­ta­ble giv­ing is: How can I en­cour­age my chil­dren to also give back to the com­mu­nity?

A so­lu­tion for very wealthy in­di­vid­u­als is to es­tab­lish a pri­vate foun­da­tion dur­ing their life­time. Oth­ers, who ex­pect to leave a sub­stan­tial es­tate when they die, may wish to ear­mark a large por­tion of it to es­tab­lish a pri­vate foun­da­tion in their names. How­ever, as Brian Mul­hol­land, a part­ner at Ed­wards, Kenny & Bray LLP points out: “A pri­vate foun­da­tion needs peo­ple to run it and re­quires a con­sid­er­able fi­nan­cial com­mit­ment. Founders may en­cour­age their fam­i­lies to get in­volved in the run­ning of the foun­da­tion, but that in­volves a sig­nif­i­cant time com­mit­ment, which is of­ten not what fam­ily mem­bers are will­ing or able to give.”

Mul­hol­land, whose firm works with many in­di­vid­u­als and busi­nesses who have cho­sen to make char­i­ta­ble giv­ing part of their lives and part of the lega­cies they leave, sug­gests that: “In­volv­ing your fam­ily in your char­i­ta­ble ac­tiv­i­ties is a great way to in­still the spirit of char­i­ta­ble giv­ing in them.”

Over the past decade, Mul­hol­land has be­come in­creas­ingly fo­cused on es­tate plan­ning and ad­min­is­tra­tion for own­ers of fam­ily en­ter­prises and high net-worth in­di­vid­u­als. He goes on to note that for many clients who ei­ther do not have suf­fi­cient wealth or do not wish to set aside the kind of money re­quired to es­tab­lish and fund the on­go­ing ad­min­is­tra­tion costs of a pri­vate foun­da­tion, giv­ing to donor-man­aged funds or specif­i­cally choos­ing one or two char­i­ties to sup­port both dur­ing your life­time and from your es­tate is an ex­cel­lent way to cre­ate a le­gacy of char­i­ta­ble giv­ing.

For clients who want to en­cour­age their chil­dren to em­brace char­i­ta­ble giv­ing, Mul­hol­land sug­gests: “You can be­gin the process by hav­ing fam­ily meet­ings to ex­plain why you have cho­sen to sup­port a cer­tain char­ity or char­i­ties, what you do, and what you hope the out­comes from your char­i­ta­ble giv­ing will be. By mak­ing the char­ity and the work it does fa­mil­iar to them, you're in­creas­ing the chance that they will want to get in­volved. And if they ac­tu­ally be­gin do­nat­ing their time to the cause, it's more likely that they will con­tinue to give back, ei­ther to your cho­sen char­ity or one of their own choos­ing, af­ter you're gone.”

Dwight Dee, part­ner with Miller Thom­son LLP, says: “We are find­ing more and more peo­ple ex­press­ing their de­sire to leave a phi­lan­thropic le­gacy through their es­tates, which makes sense in B.C. con­sid­er­ing the wealth that is ac­cu­mu­lat­ing due to our high real-es­tate val­ues.”

Miller Thom­son's pri­vate client and so­cial-im­pact lawyers through­out the coun­try work with do­mes­tic and in­ter­na­tional clients alike and are well con­nected with ad­vi­sors through­out the char­i­ta­ble and es­tate-plan­ning sec­tors. “We quickly get to the heart of what a client wants and work to­gether for prac­ti­cal strate­gies and so­lu­tions,” ex­plains Dee. “This is im­por­tant, be­cause while lega­cies take ef­fect af­ter you're gone, ef­fec­tive plan­ning now can en­sure you get the most im­pact for your gift, now and in the fu­ture.”

With a special fo­cus on both pri­vate client plan­ning and char­i­ties, Miller Thom­son sets up char­i­ta­ble gifts in wills and through trusts, and con­sults on donor-ad­vised funds and es­tab­lish­ing pri­vate foun­da­tions. More­over, its So­cial Im­pact Group is one of the largest teams of le­gal ex­perts in Canada ded­i­cated to help­ing char­i­ties and other not-for-profit or­ga­ni­za­tions with strate­gies that address le­gal is­sues and keep them ahead of chang­ing reg­u­la­tions.

An­other op­tion avail­able to peo­ple who want to give back is to es­tab­lish a donor-ad­vised fund at a com­mu­nity foun­da­tion, which en­ables them to make a char­i­ta­ble con­tri­bu­tion, re­ceive tax ben­e­fits, and then rec­om­mend grants from the fund over time.

Elyssa Lock­hart, part­ner at Mc­quar­rie, says that some peo­ple feel they are stream­lin­ing the le­gal process and sav­ing money by tak­ing steps to avoid the need to pro­bate their es­tate. But sound ad­vice can help them in the long run.

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