Some of the most important events and decisions in life can be incredibly joyful and terrifying at the same time, such as having a child, buying a home and starting a business. Deciding how to use your wealth to build a legacy – both during and beyond your lifetime – often falls into this category as well.
You’ve worked hard to achieve financial independence and reach the point of not needing to worry about where your next dollar is coming from, yet tackling the question of how best to put your money to use can be daunting. However, inaction is not a reasonable strategy.
To secure your legacy and ensure the spirit of all you’ve worked for lives on, you need to give meaning to your wealth.
Giving purpose to your surplus wealth
So here you are, with wealth beyond your immediate needs. For those with a clear plan for how to use their wealth, this is considered good fortune. For others, grappling with uncertainty and worrying that their family may plunge into conflict after they’re gone can become a burden. Whatever path led you to this point – a stellar career, entrepreneurial success or prosperous forebears – you ultimately have only two choices for this wealth when you die: you can spend it or give it away.
From wills to trusts to insurance, your estate plan covers all the practical considerations required to ensure that your wealth is disbursed and put to use according to your wishes upon your death. These are the mechanisms that will allow you to pass on a family cottage, leave behind money for future generations or direct financial support towards important causes. In other words, your estate plan covers the ‘how.’
But what about the ‘why’?
Building a legacy with meaning
For those who have achieved financial independence, wealth management takes on a deeper meaning. When you die, your prosperity has the potential to brighten the lives of family members, friends, and strangers. However, it also has the potential to result in chaos. We’ve all heard the cautionary tales about families that end up fighting in court, or children and grandchildren going off the rails when access to wealth is not balanced with responsibility and good judgment.
While the estate planning process puts in place the mechanisms to tell your family how your assets should be distributed, it doesn’t address the ‘why.’ To do that, you need to dig deeper to understand and articulate the purpose that you want to drive your legacy.
We call this your family financial philosophy
Putting your motivations, ambitions and inspirations into words can help your family avoid uncertainty after you’re gone. By helping them understand the thinking behind the distribution of your wealth, you can also reduce the risk of family conflict and increase the likelihood that future generations will build on your legacy in a positive way.
Working with a trusted guide
Giving shape to your family financial philosophy takes honesty and introspection. This starts with asking the right questions and considering all the possibilities before you.
Whose lives do you want to touch? What causes do you want to support? Why are these things meaningful to you? What are your hopes for those who will build on what you leave behind?
At Rubach Wealth, we can guide you through this process, ensuring that you have the information and clarity needed to plan your legacy and articulate your philosophy. You can’t explain these things to your family unless you put them into words before you’re gone, so let’s sit down now to give clear meaning to your wealth.
This is not a fun exercise, but it is an important one: imagine that you have recently passed away. Now put yourself in the shoes of your spouse or children who have survived you.
First and foremost, they are grieving. If your death was unexpected and sudden, they may also be in shock. In the days following your death, other emotions may be added to the list: confusion, summed up in the question “what happens now?”, and worry, with surviving family members wondering
“How will we manage financially now that you’re gone?”
The grief, shock and sadness are all natural reactions that cannot – and, arguably, should not – be avoided. On the other hand, the confusion and worry can and should be mitigated as much as possible. Fortunately, you can take active steps today to minimize the potential for this added stress at a time when your family is already grappling with a great loss.
The time for estate planning is now
An estate plan provides a map for your surviving family members outlining how you would like your personal and financial affairs managed after you die. It also serves as a guiding strategy during your lifetime, helping you make the most of available legal, financial and tax tools in order to preserve your wealth, provide for your family and build your legacy.
However, the thing about plans is you have to make them ahead of time. Putting off estate planning until you’re old or sick is a bit like waiting until the last minute to book your dream holiday: you may luck out and snag a great deal, but you’re more likely to end up squished into a middle seat flying to a dodgy resort, or perhaps not being able to go on holiday at all.
The process of creating an estate plan is highly personalized, but in general it includes the following elements:
Identifying your priorities
Creating a will
Designating a power of attorney and executor
Planning for taxes
Organizing all important documents
Some of these steps you may not be able to do right away and some elements may require updating over time. However, the important thing is to make a start. Having an estate plan that evolves over time is natural; having no estate plan at all is like rolling the dice and hoping for the best. Starting sooner rather than later also gives you a longer period to benefit from tax-saving strategies, which can make a significant difference in long-term estate preservation.
Death doesn’t happen on schedule
Death can happen unexpectedly, but what to do when a spouse or parent dies shouldn’t be a surprise. If you were to die tomorrow, would your spouse or children know where to start when it comes to making sense of your financial affairs?
Anyone who has been in this situation can relate to the horror of stepping into a home office or opening a filing cabinet and realizing that they have no idea what to do and what to look for. This is where estate planning can help to ease the confusion and worry. If you have developed a comprehensive estate plan, your spouse and children will be spared some of this stress as there will already be clear steps in place for them to take. Depending on your personal situation, these steps may include:
Contacting your lawyer
Contacting your financial advisor
Calling CPP to arrange death benefits
Having a clear and comprehensive estate plan is also critical to avoid litigation. If you pass away without a will or if you fail to identify a clear beneficiary for every single asset, your estate could very easily end up in court – bogged down by lawyers, legal fees, delays and fighting. Litigation is ugly, expensive and undignified, so clearly not something you want as part of your final legacy.
It all starts with communication and planning
Nothing aside from time and support from family and friends can ease the pain of losing a spouse or parent, but it is possible to ease the stress of dealing with such a loss. By ensuring an estate plan is in place, you can give your spouse and children peace of mind and a clear path forward at a time when they are likely feeling lost.
However, it is important to recognize that estate planning goes beyond the formal elements like creating a will and designating an executor. It also includes sitting around the kitchen table speaking openly about your wishes in the event of a serious illness and your preferences regarding funeral plans. It includes ensuring that your spouse and children know where to find property deeds, account numbers and other important information about your assets. And it includes sharing your hopes and worries for the future. Whether these issues come up naturally in conversations with your loved ones or you organize a family meeting specifically to talk about them, what’s important is that you have these discussions.
Thinking about your own mortality can be grim business, let alone planning ahead for your eventual death. However, when viewed as an opportunity to ease the emotional stress your family will face when you die, suddenly the importance and value of estate planning become clear.
Lawyers play a big role in preparing the legal components of an estate plan, but in general they are focused only on executing your instructions. In contrast, financial advisors can work with you to guide the process of estate planning and develop strategies that match your needs. At Rubach Wealth, we can help you build a robust estate plan to ensure that your family is well taken care of now and in the future, come what may. Contact us today to discuss how we can support you and your family.
Planning for your own death is a difficult concept to embrace. No wonder we often choose to avoid thinking about how our loved ones will be affected when we die. However, in doing so we tend to ignore important issues such as the support of a surviving spouse, the long-term needs of a disabled child or guardianship of minor children.
Proper planning can help you choose an arrangement that best suits the financial requirements, individual personalities and welfare of your loved ones while providing them with the assurance of financial security later in life.
Without a will, a person dies “intestate” and the court appoints someone to administer the estate and distribute its assets according to provincial laws. As a result, the distribution may not suit your wishes or your family’s needs.
Planning your will
A good approach to planning a will is to apply the “Who?”, “When?”, “What?”, and “How?” tests.
To start, think of the people whom you want to benefit from your will and who should carry out your wishes. You can distribute your assets generally by leaving all or a portion of your estate to an individual or individuals, including charities, or you can simply gift certain assets or sums of money to specific parties. A combination of these approaches is also effective.
Spouses often leave all their assets to the surviving spouse, with the provision that if both spouses die at the same time, the children share equally in the assets. If minors are included as beneficiaries, trust provisions are usually included to ensure that children do not receive their full entitlement at once, but rather receive staged distributions from a trust arrangement on a periodic basis. This is typically done to ensure the inheritance is not squandered by the children at a young age.
The timing for the conferring of benefits under a will is an important consideration. You have numerous options in this regard:
Immediately upon your death
On a life interest basis (i.e. as long as the beneficiary lives)
Terminated on the occurrence of an event (e.g. remarriage)
Provided for a specified period only
Available on a discretionary basis as the need arises
Contingent on other events occurring
Full disclosure of your assets is very important if a proper disposition – or transfer of ownership – is to be made. However, the disposition of certain assets will often be predetermined independently of your will. For instance, life insurance or registered retirement plans under which a beneficiary is named will pass to that named beneficiary and bypass the estate. If you have children, it is also important to include a guardian provision for any children under the age of majority in case both parents pass.
The will may also include burial instructions or provisions to prohibit or enable the donation of body parts or organs for medical research or transplant purposes. These are only a few examples of the “personal wish” clauses that you can include.
You can accomplish your objectives through a variety of means. For example, you may make outright gifts in your will, create a trust or create contingent gifts to apply only under specific circumstances.
The use of primary and secondary wills is becoming increasingly common in estate planning. With multiple wills, you can place assets that require probate in one will while placing assets that do not require probate in another, thereby avoiding the applicable estate administration tax (also known as probate fees) on the value of the latter assets.
The most notable types of assets to include in a secondary will include:
Shares in a privately held corporation.
Any interest in a partnership or joint venture.
Amounts owing by virtue of a trust.
Any personal property of significant value, such as jewelry, antiques or artwork.
By placing these assets in a secondary will, you avoid the tax payable on the value of these assets and you keep your testamentary wishes private and confidential.
Power of attorney
Your power of attorney, also known as a “living will,” is just as important as having a will in place. A power of attorney appoints another person to make medical decisions and manage your affairs while you are alive but physically or mentally incapable. If you do not appoint a person to manage your bank accounts, investments, home and valuable assets in the event that you are incapable of doing so, a court may choose to appoint someone for you. This process can be time consuming and expensive and it does not ensure that the person chosen is the one you trust the most.
Doing it right
Testamentary documents are often deemed invalid when they do not meet specific legal requirements. When planning your estate, it is therefore a good idea to consult a lawyer to clearly set out your wishes and ensure that all documents are valid and enforceable. Keslassy Freedman LLP would be pleased to assist you in the estate planning process.
This blog post was written by Adam Freedman of Keslassy Freedman LLP. For a free consultation, please contact them directly.