One of the most important things a person can do for his or her family is to ensure that a basic level of estate planning is completed. A brief description of estate planning, and its importance, is set out below.
What is Estate Planning
The creation of an estate plan allows an individual to determine how financial and personal care decisions will be made if he or she becomes disabled, while also providing for an organized and seamless transmission of assets to the next generation upon death. The execution of one (1) or more of the documents described below allows the person who signed the documents (the “Maker”), to control what happens upon death or disability and ensure matters proceed on his or her terms.
Estate Planning Documents
There are many documents which can be utilized to bring a well thought-out estate plan into effect and the most common are described below.
A Last Will and Testament (“Will”) sets out clear instructions as to what is to occur upon the death of the Maker. Some of the items that can be addressed in a properly drafted Will are:
1. The orderly passing of assets to future generations;
2. Trust provisions for young or disabled beneficiaries;
3. The disposition of specific gifts, family heirlooms, forgiveness of debts etc.;
4. Rights to use and final disposition of real estate such as current residence, rental properties and vacation homes;
5. Charitable giving;
6. Coordinating beneficiary designations for life insurance, investments, etc.;
7. Guardianship of minor children; and
8. Funeral directions, donation or organs and disposition of remains.
Enduring Power of Attorney
An Enduring Power of Attorney (“EPA”) allows the Maker to appoint a person or persons to make decisions in the event he or she loses the mental capacity required to make such decisions. An EPA deals only with financial matters and provision can be made for items the Maker might have wished, if competent, such as:
1. Use of funds to benefit the Maker’s spouse/partner or dependent children;
2. Assistance for adult children enrolled in a post-secondary institution;
3. The making of reasonable gifts to family members;
4. The payment of compensation to the persons appointed to make decisions; and
5. Continuing charitable donations customarily made while the Maker was competent.
A Personal Directive (“PD”), allows the Maker to decide who will make personal care decisions in the event he or she loses the mental capacity required to make such decisions. A properly drafted PD allows the Maker to make his or her wishes and values clear while setting out the criteria and governing principals to be followed in making these decisions. A PD covers matters of a non-financial nature including, without limitation:
1. Health care;
2. Where the Maker is to live and with whom the Maker may live and associate;
3. The Maker’s participation in social, educational and employment activities;
4. Legal matters that do not relate to the Maker’s estate;
5. Medical treatment and personal care decisions;
6. Donation of organs; and
7. End of life decisions.
Benefits of an Estate Plan
The benefits of a well-crafted estate plan are many and a few examples are as follows:
1. The Maker is the person deciding who will make all decisions in the event of death or disability and can ensure that only persons who understand his or her wishes and values have this authority;
2. The likelihood of disputes is greatly diminished as the wishes of the Maker can be made clear and unequivocal;
3. Non-legal but important matters such as family dynamics, religious and cultural values and other guiding principles can be expressly adopted into the documents;
4. Family members can be specifically excluded from any decision making if desired and appropriate;
5. Income tax and other financial implications can be identified, addressed and minimized to the extent possible. It is not uncommon for families to be saddled with a significant tax liability that could have been minimized or deferred with a little advance planning; and
There can be significant negative consequences in the event of death or disability without a properly implemented estate plan. For example:
(a) If a person dies without a valid Will, legislation will determine how that person’s assets are divided. This restricts the ability of the Maker to decide make important decisions such as what ages children are to receive significant sums and address other items specific to his or her circumstances; and
(b) In the event a person loses mental capacity due to an unexpected accident or illness without an EPA and PD being in place, his or her family will be unable to make important decisions without obtaining a court order to be appointed as a guardian and/or trustee. The obtaining of such court orders is often very time-consuming, intrusive and cost-prohibitive.