A plan within a plan within a plan: Why your tax, estate and financial plans should work together

You can probably think of 100 things you’d rather do than file your taxes. But now that you’ve sent your return to Canada Revenue Agency, you may be enjoying the gratifying feeling that comes with knowing how well you planned and optimized your tax position.


Or did you?


If you’re like the large majority of Canadians who responded to a recent survey about taxes, you probably did little or no planning around what you were going to file with the CRA. According to the survey, only one in five Canadians do regular, year-round tax planning. It’s not surprising that nine out of 10 believe they’re not using all the tax credits available to them.


You do tax planning – congratulations! Just one question


If you are among the minority who does year-round tax planning, you definitely deserve a pat on the back. But before you start getting ready for the next fiscal period, consider this question: Does your tax plan align with a broader financial and estate plan, or does it focus primarily on reducing your tax liability from the previous year by maximizing deductions and credits?


If you answered “no” to the first question and “yes” to the second one, then you may be setting yourself up for scenarios that put you and your family at a financial disadvantage, not to mention an unexpected bill from the taxman down the road.


You’re getting a nice refund so why should it matter?


Unlike financial and estate plans, which provide roadmaps for time periods that extend past your death, tax plans tend to cover a limited number of fiscal periods. When these plans don’t work together as part of a cohesive, holistic strategy, the unintended consequences could bring significant challenges for you and your family.


For example, if you’re a self-employed professional or small business owner whose tax planning is based on keeping you within a lower-income tax bracket, you may find it hard to qualify for a mortgage or business loan in the future. But if you had a tax plan tied to a financial plan that identified buying a cottage or rapid market expansion as goals within a certain timeline, you might have adopted a different strategy to ensure you’re well positioned to achieve these targets.


When it comes to death and taxes, proceed with caution


A poorly thought-out tax strategy within an estate plan could also backfire on you. To avoid probate on their estate, some people choose to transfer ownership of their home – while they’re still living in it – to the children who stand to inherit the property. But what happens if one of these adult children runs up debts and borrows against the house? Or, in truly ugly but very real scenarios, a family squabble could end up with the children kicking their parents out of the home they no longer own. They may have avoided probate, but they exposed themselves to consequential risks.


The essential foundation: A financial plan


Tax and estate planning is important, but a holistic financial plan that ties everything together is the essential foundation. You can’t have a truly effective tax plan if it doesn’t work in sync with a longer-term financial plan that takes into account your short-, mid- and long-term goals for you and your family. Similarly, it’s impossible to build a solid estate plan outside the context of your overall financial picture and that doesn’t consider factors such as family structure and dynamics. These, and so many other variables, form the intricate puzzle of a comprehensive financial plan.


There’s another tax year ahead of us. It’s time to start tax planning, but this time let’s do it within your estate and financial plans.




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