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Role of an Estate Planning Lawyer |
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Wills and Estate Planning:
Developing a good estate plan involves more than telling your lawyer what you want your will to say. An estate planning lawyer is first-and-foremost an adviser. He or she asks you about your family, your assets and liabilities, and your goals. Your lawyer may then advise you about your options, assist you in developing, and then implementing, an estate plan.
Let’s take a straightforward set of facts. A husband and wife in their sixties have two grown children, each of whom are married with children. The couple owns a house worth $500,000, have investments in joint accounts worth another $500,000, and Registered Retirement Savings Plans worth $200,000. They have paid off their mortgage and do not have any debts.
They could tell their lawyer to draw a will in which each leaves everything to the other. Each could say they want to leave everything to their children equally after both spouses have died.
At minimum, their lawyer will need to know of the family members, and of the assets.
Their lawyer might ask what they would intend to happen if one of their children dies before them. Do they want the child’s own children to take the share of a deceased child?
Even in these relatively simple set of circumstances, there are planning opportunities. For example, there may be some future income tax savings to the surviving spouse if, instead of holding the investments in a joint account, each spouse has some in his or her own name. Each then provides in the will that his or her investments will be held in a trust for the survivor. Because of the way Canadian income tax laws work, the tax on income from the investments may be less if the investments are held in a trust created in a will, than if the investments are all owned by the surviving spouse outright. This is because Canada has graduated rates of income tax, with increasingly high tax rates as income increases. The rate of tax on investments held by the surviving spouse outright will reflect the fact that the spouse has other income, which may put the spouse in a higher income bracket. If some investments are held in a trust created by the deceased spouse’s will, the same investment income can be taxed in the trust at a potentially lower rate.
Similarly, there may be tax advantages to the children on investment income earned in trusts created for them in their parents’ wills when compared to income taxes paid on income earned on investments owned by the children outright. If the each child receives an outright inheritance of say $500,000, which the child invests, the child will have to pay tax on the income earned on the investment income at a tax rate that reflects the fact that the child has other income. In some cases, this will result in a high rate of tax. As in the example for the surviving spouse above, if the investment income is earned in a trust created on death in a will, the same income may attract a lower tax rate.
This type of planning is more sophisticated than drawing simpler wills in which spouses leave everything to each other and then to the children. Not everyone will choose this type of plan, but it illustrates how even in relatively simple circumstances there are often several estate planning options to consider. A good legal advisor can present options so that you can make well informed decisions.
There are many other circumstances where the facts are more complex. For example, the couple may be in a second marriage, with children from previous marriages. They may have a disabled child receiving disability benefits. They may have a child with a drug or alcohol dependency. They may have an active business, which they want one of their children to run. There are a myriad of other possibilities that require more complex estate planning.
In my opinion, it is a mistake to treat wills like a commodity that can be mass produced and priced like HB pencils.
By Stanley Rule, of the law firm Tinker, Churchill, Rule
You may read his weblog, “Rule of Law,” at www.rulelaw.blogspot.com
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