THE FIVE Ds OF ESTATE PLANNING from You Can’t Take It With You

Excerpted from You Can’t Take It With You: Common-Sense Estate Planning for Canadians 6th edition by Sandra Foster (Published by Headspring Publishing an imprint of Headspring Consulting Inc.)

Here are my five D’s to help you create your estate planning framework:

decide
design
discuss
document
distribute

While all five Ds are important, you first need to decide what is important to you and then design your estate plan using various strategies and techniques to document and distribute your estate. Of course, it is possible for your estate plan to fall off the rails if you don’t discuss your plan with the various parties involved.

Traditionally, many people think about their estate plan as part of their retirement plan, or on the birth of a child, but estate planning is not age or asset dependent. If you are planning or reviewing your estate plan near retirement, I believe your first priority should be to keep enough money to meet your own income needs. Most people save for their own retirement and end up with an estate, not because they wanted to give something away.
I have not included death as one of the Ds because I think your estate plan should include yourself! You should benefit from your own savings and investments and plan in case you become unable to make your own decisions. Estate planning is not just about death!

Decide

What do you want to achieve with your estate plan? You could decide to build as large an estate as possible, or enjoy your own money while you are able. You might even have a bumper sticker that reads, “I’m enjoying my children’s inheritance!”

You can decide who will receive what, if they will receive it before or after your death, and as a lump sum or over time. You can be sure your beneficiaries will be able to decide what to do with whatever they receive! This includes family members, any charities you want to support, as well as the needs of a business, if you own one.
Your estate plan is ultimately guided by your personal values, beliefs, and priorities, and will reflect your personal situation and your legal responsibilities.

Design

There are many strategies and tools available, but many include:
• ensuring your spouse or common-law partner has enough income
• not paying any more tax than necessary
• maintaining your privacy
• considering the needs and ages of your beneficiaries as well as any legal, financial (and moral) responsibilities.
While you want to keep your plan as simple as possible, sometimes simple strategies aren’t enough. For example, if you have a beneficiary who will never be able to manage money, consider how much, if any, they should inherit outright (see the chapter titled Trusts).
Supposed you have a TFSA and grandchildren, it may seem straightforward to name them as the beneficiaries of the TFSA to have this money pass outside the instructions in your will and bypass probate. But if your grandchildren are under 18 or 19—(with some exceptions for grandchildren and parents for small amounts, or those who qualify and live in certain provinces)—the money could end up with the public trustee until they are legal adults.
You want your plan to distribute your assets and your estate when and to whom you want. If you want all your beneficiaries to receive the same amount after-tax and all expenses are paid, you could use your will’s residue clause to leave your beneficiaries an equal percentage. You or your professionals might consider a number of estate planning scenarios, before deciding on the most appropriate design for you.

Discuss

Discuss your estate plan with your family and those who are close to you, as well as anyone you want to give a job—your executor, guardian, trustee, representative and others, as well as their backups. I don’t believe you need to tell your children or other beneficiaries how much they might inherit. It’s your money and it doesn’t belong to anyone else until they receive it. These numbers will change over time anyway. However, you may want to have a family conversation to:

clarify if any money you gift while you are alive is an outright gift or an advance on their inheritance
determine if anyone is interested in assuming (or buying) the family business or cottage
discuss who to appoint as your executor or attorney
share your reasons if you are not distributing your estate equally
inform them of your final wishes regarding health care and organ donation so they can support your wishes when the time comes
determine if any beneficiary:

qualifies for the disability tax credit and is eligible for a qualified disability trust (QDT)
might benefit from creditor protection if their inheritance is held in a testamentary trust (even though the trust could be taxed at the top rate)
is a minor and might qualify for a lower tax rate if their inheritance is held in a testamentary trust until they turn 21

If a family conversation is beyond your comfort level, ask a trusted friend or an appropriate professional to help moderate it.

Document

Prepare and sign your estate documents and designate beneficiaries on your financial and insurance accounts where appropriate.
Since you don’t usually know the timing of your death, having documented your estate plan means your goals and objectives, and the strategies you put in place decide who gets what (and that can include you), the amount or what they receive (and how tax effective it is), when, and even how (outright or in trust).
If you die without a will, your assets will be distributed according to your province’s default intestacy plan—which may not follow your wishes, nor would any court appointed power of attorney likely know your medical and financial wishes while you are alive.
Where are these details stored? Do you have printed statements, a ledger of your important online files, email addresses and passwords (as well as any other information required to protect your online assets?
On your death, your executor will need this information to administer your assets, pay your bills and file your final tax return.
In addition, if you become mentally incapacitated, your power of attorney for finances will also need to locate the relevant personal and financial details of your life to carry it on, pay your bills, file your annual tax returns, and make ongoing decisions on your behalf, so your life is still there when and if you recover.
You can also:

organize your statements and financial details
prepare a digital inventory
complete an estate planning workbook
tell your executor, attorney or family where they will find your important papers and documents

so your representative and/or executor can pick up where you left off—and pull together your financial life to wrap it up.
As your goals or personal circumstances change, and they will (you may enter or exit a relationship, have children, become a widow or widower, become seriously ill, inherit money, or move provinces, as just a few examples), or the laws and procedures related to estate planning change, review your estate plan and your documents. Also consider if your executor, guardian, named power of attorney, trustees, and anyone else named in your documents are still appropriate—or update them, if you are still mentally capable.
Your will and power of attorney documents are still the cornerstone documents—the basic tools of any estate plan.

Distribute

You are entitled to benefit from your assets while you are alive—spend your money on yourself—and if you have more enough for yourself and your partner, consider making some gifts to family and friends, to create memories and learn about money before they receive a larger amount.

Don’t write yourself out of the picture too soon.
On your death, your executor safeguards, manages, settles and distributes the estate assets according to the instructions in your will, as smoothly as possible.

Summary of the 5 Ds FOR Your Estate Planning

Some of your assets might be distributed outside your will. For example, assets held in trust will be distributed according to the trust agreement, financial institutions will make distributions to named beneficiaries, assets held jointly with rights of survivorship (where there is no question regarding ownership) transfer to the survivor, and life insurance companies will make payment(s) to the named beneficiary.

The five Ds create a framework that helps Canadians work through the stages of their estate plan.

Buy your personal copy of You Can’t Take It With You from amazon.ca here

Excerpted from You Can’t Take It With You: Common-Sense Estate Planning for Canadians 6th edition by Sandra Foster (Published by Headspring Publishing an imprint of Headspring Consulting Inc.)

Don’t Dismiss Digital Assets in your Estate Plan

With more of our lives revolving around our digital devices and accounts, it is important to include digital assets in your estate plan. You don’t want their financial and sentimental value overlooked on your death. Emails and texts have replaced the handwritten letter, blogs have replaced the diary, and while we may take hundreds of photos, most of them are stored online rather than printed. Even cash has been replaced in many instances by electronic transactions.

There might be gold in your digital assets, but if your executor has to sort through all your online clutter, something valuable or important might never be found.

Huge gaps in Canadian estate planning legislation make it challenging for your executor to deal with your digital assets unless your will—and the person named in your power of attorney document for financial matters—specifically authorizes them to do so as part of your estate plan. Even though part of the role of the executor and attorney is to find, secure, and manage liabilities and assets that have a current or future monetary value, the wording of digital user or service agreements, as well as privacy legislation, could actually prohibit these people from accessing information they need to carry out your wishes.

WHAT DIGITAL ASSETS?

Digital assets or accounts normally include your email accounts, photos, social media accounts, as well as those that might earn money, such as

social media accounts, such as uploaded videos and blogs
virtual currency, such as Bitcoin
a highly developed character created for an online role-playing game that might be worth millions—or nothing
other intellectual property stored online
accounts that hold a cash balance such as PayPal
balances in a loyalty program.

These assets do not include digital ebooks and music that is held under a non-transferrable agreement or license, which gives you personal use rights only—with no rights to leave the content to your beneficiaries.

But how would someone looking at your computer and other digital devices know which assets have value, and gain the authority to access those assets? While some service agreements allow you to assign an alternate person on your account and indicate what you want done with that account, these agreement do not cover most digital assets. Other service providers will delete a digital account and its contents after a period of non-use.

There are three main steps when considering your digital assets.

Update your will so your executor has the authority to deal with your digital assets and digital accounts, and the power to hire and pay a computer expert, if needed
Update your financial power of attorney so your attorney has the authority to deal with your digital assets and accounts, and the power to hire and pay a computer expert if needed, in the event of your mental incapacity
Prepare a personal digital inventory that lists all your digital accounts, including those that have a financial value, and provides handling guidance to your representatives so they know where to find your digital assets and accounts that have financial or personal value

The Personal Digital Inventory

Develop a personal digital inventory that lists your digital assets and digital accounts that will provide a roadmap of your digital life to your executor. Store this personal digital inventory with your important papers so your representative will know what you have and what you would like done with them.

Your digital inventory could indicate:

each physical device and its access information
each digital account or asset and its purpose or use
access information, including username (userid), and any secret questions (with answers), as well as any other information required to access the account
renewal due dates, where applicable
whether or not the digital asset makes or receives automatic deposits or withdrawals, and the related financial account
instructions or special handling

Access Information

You have been rightfully told not to share or write down your passwords but this information will be required by your representatives to access your computer and other devices and digital assets. You never want to compromise any accounts or legal obligations. Your lawyer may provide an appropriate solution for your situation when you update your legal documents. One possible solution might be to encode and encrypt the passwords or the file and store separately from the master digital inventory.

Instructions and Special Handling

While the instructions in the will or power of attorney document govern, your instructions in the digital inventory can provide your executor or representative with information that will help them identify which digital assets have value , might be sold or transferred to a beneficiary, or indicate that arrangements have been made with the service provider. Secure your own important files, contacts, photographs, movies, blogs and other information by making regular backups.

Authorize Your Representatives

Update your will and power of attorney document for finances with specific language—to give your representatives the authority to access, control, manage, dispose, and distribute your digital assets and accounts.

The following is part of an excerpt from a power of attorney for financial matters related to digital assets in one province. Obtain legal advice for the current wording to use where you live.

“I authorize my attorneys to:

access, use and control my digital devices, including but not limited to, desktops, tablets, peripherals, storage devices, mobile phones, smartphones and any similar digital device which currently exists or may exist as technology develops for the purpose of accessing, modifying deleting, controlling or transferring my digital assets
access, modify, delete, control and transfer my digital assets, including but not limited to my emails received, email accounts, digital music, digital photographs, digital videos, software licenses, social network accounts, file sharing accounts, financial accounts, banking accounts, domain registrations, DNS service accounts, web hosting accounts, tax preparation service accounts, online stores, affiliate programs, other online accounts, and similar digital items which exist or may exist as technology develops
obtain, access, modify, delete and control my passwords and other electronic credentials associated with my digital devices and digital assets described above”

Summary

It is up to you to include your digital assets in your estate plan. Help your representatives navigate through your digital life by giving them the authority and a roadmap to save your estate time and money. Consider curating a digital family album and closing old online accounts.

There might be gold in your digital assets, but if your executor has to sort through all your online clutter, something valuable or important might never be found.

Buy your personal copy of You Can’t Take It With You from amazon.ca here

6th edition of You Can’t Take It With You: Common Sense for Canadians is now available

Front Cover of 6th edition of You Can’t Take It With You: Common-Sense Estate Planning for Canadians by Sandra Foster

Traditionally, estate planning meant having life insurance and a will. The modern estate plan ultimately arrives at the same conclusion—to distribute your assets and property as smoothly and tax-effectively as possible to your beneficiaries—while respecting the rights of family members under family law. Certain strategies traditionally accessed by only the wealthy are available today by more Canadians. Continue reading “6th edition of You Can’t Take It With You: Common Sense for Canadians is now available”

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If you or a family member are eligible and have not yet applied to be approved for the DTC, you could miss out on the ability to: Continue reading “5 Reasons to Apply for the Disability Tax Certificate”

The Cost to Die Has Gone Up

On death, even the middle class could end up in the new 33% tax bracket, perhaps for the first time in their life, or death. Finance Minister Bill Morneau’s announcement that increases the top federal tax bracket from 29% to 33% could affect anyone dying after December 31, 2015 if the taxable income on their final tax return is over $200,000—and also increases the amount of provincial tax due. But it is said, the dead don’t complain. Continue reading “The Cost to Die Has Gone Up”