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Monday, September 6, 2021

There are plenty of ways to reduce estate taxes and troubles if you plan ahead

A recent article in the Financial Post offered numerous tips for minimizing tax as you pass your assets on to your children (or whoever you want to pass them to). Click here to read the article. 

Something that all of the ideas have in common is that they involve planning. For many people, making a will is the only planning they do. Obviously I recommend that each of you has a will. However, there is so much more that can be done if you think about the mechanics of passing on your estate. 

The idea is that your estate plan is put together like a puzzle. Your will is a huge piece, but it's not the only piece. You also need to think about beneficiary designations, insurance, charitable giving, trusts, tax, and, as the Financial Post article discusses, whether it is advisable to gift assets to your children while you're still alive. 

Obviously people with more assets should do more detailed planning, simply because they are more likely to own assets that will give rise to tax (for example, a second home that attracts capital gains tax upon death). Having more assets also means more opportunities to fund plans such as RRSPs, RESPs, and portfolios of unregistered investments. Wealthy clients are also more likely to be involved in all sorts of complicated but undocumented arrangements with their children, such as the parents buying a house for a child because the child couldn't qualify for a mortgage, and the child paying mortgage payments to the parents.

When I meet clients to talk about their wills, I spend an average of an hour on the initial meeting. It gets pretty detailed. Clients often remark that they are surprised at the level of detail we go into with respect to how assets are held and who is named on various instruments. I do this so that if I spot opportunities to reduce tax or improve how clients have things set up, we can talk about them.

I'm not an accountant or a financial advisor. I have to call on experts in both of those areas to assist some of my clients who really need well-rounded advice to create a proper estate plan. Sometimes this seems like a lot of effort for clients who are busy. But as you will see as you read through the article I mentioned, there are a dozen ways to improve your overall estate plan, if you just take the time to talk to the right people to find out what is best for you.

Of course, a solid estate plan is about more than saving tax. It also reduces disputes and misunderstandings by having everything properly set up and documented. There is nothing worse in my job than a person who wants to contest a will because they believe it does not say what Mom or Dad "really" wanted. People are upset, assets are wasted on legal fees, and families end up divided. Some advance planning really can eliminate a lot of that.

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