Estate planning strategies include:
Estate Planning
Estate planning is the process of planning an effective and tax efficient transition of one’s estate to their successors.
Estate Freeze
An estate freeze is a tax deferred exchange of growth shares of a private company for fixed value preferred shares. This locks in the fair market value of one’s investment, thus capping the tax liability triggered upon death. New common shares can then be issued to the next generation, or to a family trust, so that any growth after the freeze date accrues to the new common shareholders.
Family Trusts
A family trust is a very effective tool for passing growth in the value of one’s company to one’s heirs while retaining total control over the shares in the trust and total control over which beneficiaries receive the income from such shares. A family trust also protects the shares from potential creditors of the beneficiaries, including former spouses of a failed marriage.
Capital Gains Planning
Every Canadian resident individual has a lifetime capital gains exemption of approximately $845,000. This amount is indexed to the consumer price index so it rises each year. The exemption is available when a Canadian resident individual sells certain shares of a qualified small business corporation. This exemption is increased to $1,000,000 when the individual is selling a qualified farm or fishing property. However, careful planning before the sale is required to ensure the exemption will be available. Family trusts can be used to multiply access to the exemption for multiple family members.
Asset Protection Trusts
While family trusts are very effective asset protection tools, a disposition into a family trust is generally a taxable event. To protect assets with an accrued gain without triggering tax requires the use of a special type of trust known as an alter ego or self-benefit trust. These trusts allow one to transfer assets on a tax-deferred basis, including one’s principal residence, generally protecting such assets from creditors, matrimonial property claims, forced heirship claims and probate fees.
Wills/EPAs/PDs
Wills are a critical piece of any estate plan. A will provides a very flexible and creative means to implement one’s wishes for their succession plan. This is especially important in blended family situations where there may be concerns about providing for one’s spouse during their lifetime while protecting the estate for the ultimate benefit of one’s direct descendants. Enduring Powers of Attorney and Personal Directives are very important additional documents to pass control over one’s assets and care during times of incapacity, thus ensuring that the right people have such control.