‘What to sell’, ‘What to keep’ or ‘What to leave as a legacy’, these are the questions! Although the final decision is yours and your spouse to make, these questions also involve loved ones in the immediate family circle.
In the case of our client William, let’s fast forward 15 years into the future. He is now married and has 2 wonderful daughters. He has also had a few years to build up the investment accounts for both himself and his wife. William and his wife now own a primary property, a cottage, a small mortgage on both of the properties, investments, a business (and business partners), along with some valuable personal possessions. They realized, thanks to their advisor, the need for an Estate Plan, including a will, is put in place a few years ago shortly after William finished the other areas of his Life Plan.
This Estate Plan involved having a will, within which, all plans for our three questions were not only answered but put into writing by a legal advisor so that there would be no question as to final instructions upon either or both of their demise.
Most of the items listed are easily handled if only one of them should pass, the other will simply inherit everything free of estate tax. For example, the RRSPs would roll over to the living spouse’s RRSP account tax free.
In the case of William’s business, he now has a partnership agreement that includes life insurance that would ‘pay out’ William’s spouse and she in turn would relinquish his shares (now her shares) to the other partners. Both parties would satisfy their part of the agreement almost automatically. William’s share of the company, as an asset, would be covered.
The items that needed to be addressed were keeping the cottage as both the girls very much enjoy going there. This would incur some tax upon the demise of William and his wife. The tax implications require a little thought as taxes may be a factor. So too would some of the investments such as all non-registered accounts, which of course were set up as joint with rights of survivorship accounts in order to avoid the immediate deemed disposition at death for the surviving spouse, however not so much for the kids.
The ownership of the primary residence would transfer over to the surviving spouse, again tax free, as too would their personal possessions. If both William and his spouse both pass away, then their daughters would inherit the primary residence.
The case for personal life insurance owned personally or corporately, would serve to cover the remaining two mortgages and any other outstanding debts or funeral expenses along with taxable assets that their daughters would inherit.
Getting the whole family involved in the Estate Plan is not only an essential step, but also can help to avoid problems or issues in future when the event of death eventually happens.
By Gino Scialdone, Black Spruce Financial
Next blogpost: Monitoring the Plan