This blog gives you some brief thoughts about how to begin thinking about this topic.
In my daily lawyer world of trust/estate planning, disputes, problems, and litigation, I remain frustrated that the system of estate planning is way too complicated. Most people, inevitably captive to this system, understandably find it so daunting that inaction becomes the most comfortable and common reaction.
This complexity does not stem only from tax planning concerns. But keep in mind, these tax concerns now actually are affecting a larger number of clients as we move closer to a Canadian capital-gain-at-death system. Income tax savings at death with creative use of the FMV stepped-up cost basis is becoming a top priority for estate planning.
Even if tax concerns were off the table, for all of us there is the ever-present risk of what happens to our property if in getting older we end up with age-related incapacity, and when we die.
Will we lose our property to someone taking advantage of us, a greedy caretaker, remote family member, an old-age second marriage, elderly investment scams, nursing home expense, identity theft, etc.?
And for many of us after our death, the universal question will arise about whether we protected our surviving spouse.
Will someone dupe our spouse into an elderly marriage and dissipate the assets? Scam him or her? Pad the investments with oversold penny stocks? Put excess pressure on our spouse to make early gifts and give financial handouts to others? For our children, what happens to our property in the event of their divorce, their own elderly years, etc.?
Here are five threshold points to consider:
One. Have you identified individuals you absolutely can trust to step-in and handle your property and affairs in the event of your incapacity or death? This is the number one difficult question, as it requires your subjective conclusion in making these choices. Also this question is unavoidable. Someone will in all cases take up this oversight role. Optimally you make the choice as part of your planning, rather than later someone else or a court making the choice;
Two. How will the above trusted individuals step-in on your behalf in the event of your old-age or incapacity? This point goes to you having a revocable living trust in place now, and a comprehensive financial power of attorney document;
Three. Who do you trust to handle your financial management? I have finance undergrad and MBA degrees and believe strongly this trust factor is number one in making this choice. I remain appalled at the hype we all read and hear every day for questionable investment seminars, scams, and get-rich schemes;
Four. Do you have the necessary built-in bells and whistles adaptive down the road for optimal estate, gift and income tax savings? This also gets into what I mentioned above about the ever-increasing income tax exposure as a result of death; and
Five. Have you provided protection (using a trust set-up) for your children for the property you leave them in the event they later get into a nasty divorce? This loss of property occurs far too frequently due to divorce property division and alimony. Your children’s divorce exposure can be reduced dramatically with effective trust planning. And, in my opinion with better effectiveness than simply a prenuptial agreement.
Bottom line, there are no good, alternative options for clients who avoid getting into this irritating, complex planning. This complexity is a reality, simply boiling down to a cost-benefit equation. Who pays the time and expense of your planning? And, is this time and expense something you deal with now or let your family address later at your incapacity or death?