What You Need to Know About Estate Planning
Trying to save money may cost you dearly in the end
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.