Plan in advance: Leave a lasting legacy

By Bryan Sommer
Sep 12, 2018
Photo credit: alexaldo/iStock/Getty Images

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Most of us would like to leave a lasting legacy; however, we may not know what steps to take to fulfil that goal. An advisor can help you assess the options and determine which ones are suitable to your situation. For instance, you may want to donate to a cause that’s important to you, but you don’t know how your family would feel about this. Consider talking to your loved ones about your wishes and address their concerns at that time. 

When you have an estate plan in place, you, your family, and the causes that are important to you benefit from your life’s work. Let’s address some key estate planning considerations. 

Charitable Donations

While donations are just one way to support your favourite charities, they can also provide tax incentives. For the first $200 of donations every year, you receive a 15% federal tax credit. Donations beyond $200 receive a 29% federal tax credit. Each province also offers its own additional credits. You can donate as much as 75% of your net income in a year. You can also combine up to five years of smaller donations to get past the $200 threshold to receive the higher credit. Spouses can also combine their donations on one return; a donation made by either you or your spouse can also be split between you in any proportion for tax purposes.1 

You are not limited to monetary donations. For example, you may wish to donate real estate or artwork—the tax credit on these donations will generally be calculated according to fair market value. You may choose to donate stocks that have significantly appreciated. If you donate stocks, you receive a tax credit calculated on the full value of the shares, and you aren’t taxed on any capital gain.

Life Insurance

Life insurance can play a key role in estate and legacy planning strategies. Life insurance policies often are among assets donated to charity; generally, the amount of the gift is considered to be equal to the cash surrender value of the policy. You may name a charity as beneficiary which provides the estate with a tax credit based on the amount payable. Here are four ways that you can use life insurance in your estate planning.

Take care of dependents: With young adults staying at home longer, many retirees still feel the need to take care of their children. Some retirees will have married later in life, and have stepchildren from a second marriage. Life insurance provides a way to leave a larger estate to those beneficiaries.

Equalize an estate: Perhaps you’ve helped out one of your children significantly more than the other, for example, by assisting with the purchase of a house. You could name your other child as the beneficiary of a life insurance policy.

Coverage for outstanding taxes or debts: Some possessions, such as a vacation property, could be subject to significant taxes and your heirs might not have the money to pay that amount. With a permanent life insurance policy in place, the proceeds can be paid out tax-free to cover that liability. 

Coverage for funeral and final expenses: You may be able to use life insurance to cover these expenses. This can provide your loved ones with significant peace of mind. It’s comforting to know that they won’t have to fuss with the finances in their time of grief.

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Essential Documents

Everyone has an estate plan by default. It’s the government’s plan, but it’s likely not the one that people would choose for themselves. Here are some steps you can take to develop a legacy plan.

Write a will: A will is a fundamental part of estate planning and we should all have one. It also needs to be reviewed every three to five years or whenever there’s been a significant life change. 

Establish a trust: Many people set up a trust to govern the disposition of assets over the long term, with control continuing even after death. A trust can include a variety of provisions including arrangements for children with special needs, and limitations to prevent wasteful spending by an heir.

Trusts offer some tax advantages and can also protect assets from lawsuits, creditors, and divorce claims. They can be somewhat costly to set up, but they can also prevent the costs of the government probate process. In British Columbia, the probate cost is 1.4 percent on amounts over $50,000 (0.6 percent for amounts between $25,000 and $50,000 ), calculated on the value of the estate situated in British Columbia. 

Plan for incapacity: Someone must have the authority to make essential decisions if you are incapacitated. A healthcare directive, or living will, is another important estate planning document. It allows you to record your wishes on end-of-life issues, such as life support and resuscitation. You should also consider setting up powers of attorney for financial affairs and representation agreements for health care.

Name an executor: You need to get consent from the people who you’ve identified as your executor. This role is critical and carries many responsibilities, that’s why having an open conversation with your executors is important.  

For the record: A record keeper helps save your loved ones time and frustration—and potentially a lot of money. It’s used in the event that you pass on or become incapacitated. It allows you to record important information in one convenient place that your executor and loved ones can access. Most information will be financial in nature and should be reviewed and updated at least once a year, and kept in a secure location.

In your record keeper, track everything that you own including investments and real estate, your debts and other obligations, and credit card details. You can list banks and financial institutions, trusts and other estate planning documents. Record the locations of important documents, safety deposit boxes, and keys. You can also include your funeral arrangements. 

When the time comes to move on from this life, you want to be certain that you’ve done all you can to secure an enduring legacy. This is not just a matter of money. You’re passing on your values, your ethics, and the story of who you were and your beliefs. That’s the gift that matters. How you manage your money is just part of the larger picture of how you manage your life. Take the time today to start planning how you will secure your legacy. 

Bryan Sommer, CPA, CA, CFP, CIM, is a portfolio manager with CIBC Wood Gundy and holds the Chartered Professional Accountant designation. This article is based on “Enough for a Lifetime,” a chapter from his book, The Reveal: Stepping across the Line into Retirement.