Wealth Insights - May 2017

Wealth Insights

May 2017

Managing the ‘known unknowns’

According to a June 2016 study, Canadian baby boomers will inherit some $750 billion over the next decade.1 This represents the largest intergenerational wealth transfer in Canadian history, and it underlines the importance of estate planning. Without effective planning, much of that wealth may not go where its owners want.

Planning for contingencies

Estate planning would be easy if you knew exactly when you were going to pass away and how your circumstances would change between now and then. But you don’t. Nobody does. That’s why your estate plan needs to take contingencies into consideration, especially the following three.

  1. Shifting relationships.

    Divorce, remarriage, or the premature death of a beneficiary can blur the lines between generations and create unintended beneficiaries. Precise wording can help make your intentions clear and legally enforceable (one of the reasons it’s a good idea to have your will drawn up by a professional).

    Consider adding “contingent” (secondary) beneficiaries in addition to primary beneficiaries. For example you might leave half your estate to your son, with his portion going to his children if he passes away before you do.

    To keep your plan up-to-date, review it any time there is a significant change in your family circumstances (marriage, birth, death) as well as every couple of years.

  2. Shifting asset values.

    It’s difficult to know with any certainty the value of an asset decades in the future. The stock portfolio that’s worth half a million dollars today might be worth only 70% of that amount in the midst of a market downturn. Or the family cottage that you purchased 10 years ago for $40,000 might be worth 10 times that amount by the time it passes to your children.

    The best we can do is conservatively estimate the future value of your total estate and plan from there. One way to leave a guaranteed amount to your heirs is through life insurance. The death benefit of the policy won’t change over time.

  3. Tax changes.

    When you pass away, your assets are likely to be subject to both capital gains and income tax. But tax laws can change over time. At one time, capital gains were entirely tax-free, whereas today they are taxed on 50% of their value. As you can see, changes in tax laws can have a big impact on how much of your estate goes to your beneficiaries rather than government.

    There are a number of strategies available that can help preserve your estate from tax erosion, including transferring assets during your lifetime, transferring assets into a trust, and using life insurance to cover the anticipated tax bill.

Staying on track

Whether you're creating a plan for the first time or reviewing and existing one, taking the time to communicate your intentions to the key people in your life can go a long way to avoiding misunderstandings and hard feelings once you're gone. Explain your reasoning behind decisions affecting your beneficiaries and the disposition of your assets. Where you can, do it in writing. Alert your executor and advisors to potential family conflicts and where they can find vital information they'll need to deal with your estate.

By avoiding secrets, being flexible and keeping lines of communication open, you improve the odds your estate plan will work as intended.

A well-though-out estate plan is the cornerstone that can give you confidence your assets will be distributed the way you want them to be. But it’s an ongoing process. It’s equally important to review your plan on a regular basis.

Get the right advice.

Your life doesn't stand still. Neither should your estate plan. If it's been a while since you last reviewed your estate arrangements, talk to us. Your Westminster Savings financial planner will help you identify what's important and develop solutions that work – for you and your loved ones.

Want to learn more about what we can do for you? Call us at 604-517-0100 or send us your question online and we'll respond to you within one business day.

1CIBC Capital Markets, June 6, 2016.

Westminster Savings Financial Planning Ltd., offering financial planning, life insurance and investments, is a wholly owned subsidiary of Westminster Savings Credit Union Ltd. Westminster Savings Financial Planning Ltd., is a trade-mark of Westminster Savings Credit Union Ltd, and is used under license.


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