At my initial meeting with a client regarding their estate plans, we discuss the client’s various assets, debts and potential taxes payable at death. One of the advantages of this discussion is that it helps people visualize the value of their estate that will be available for distribution to their heirs. My clients are often surprised by the amount of wealth they have accumulated once factoring in the increase value of stocks and real estate over the past several years.
A client’s newfound appreciation of their net worth allows them to consider benefiting other individuals and organizations beyond their family. Using estimated amounts of inheritance of the familial heirs – e.g., spouse, children, nieces/nephews – allows the client to assess what is a sufficient amount of inheritance for such beneficiaries. The conversation often evolves into whether there is the opportunity to include more remote family members and/or charitable organizations in their estate plans.
One of the advantages of including gift(s) to charity(ies) in your will is that it can offset any income taxes payable at death. Many common assets held by Canadians, personally – e.g., RRSP/RIF, rental properties, cottage – can result in significant income taxes payable at death. If the deceased leaves gifts directly to charity(ies) in their will, the charitable receipts can be used to offset the income taxes payable. For the family unit, this is likely the most tax-efficient time for such a donation to be made.
When considering charitable gifts, it is always best to involve a qualified accountant in the discussion. They will be able to assess the most tax-efficient way to provide such gift(s), allowing the client to either maximize the remaining funds for their other beneficiaries or increase the overall funds available to the charity. It may prove more advantageous to begin the gift giving during the client’s lifetime as opposed to only at death.
Likewise, there are clear benefits to communicating to the charity(ies) the intended gift. Clients are often hesitant to do so because they may change their mind and make changes to their estate plans in the future. However, charitable gifts are usually made because of a personal connection either the client or their loved ones have to the particular charities. As such, there is real value to the client and the charity in being able to discuss the reason for their potential gift and how the client would prefer to see it used. It also allows the charity to show their appreciation and better plan future purchases and projects.
David Henderson is a partner at Agro Zaffiro LLP law firm with expertise in estates and business law.
My Dad was fortunate enough to retire early. As I got older and became a financial advisor, I would ask him why and how he retired early. He said he had enough money to do what he wanted to do, and he had accomplished all that he wanted in business. He would always end with the question: “How much is enough”? I believe he wanted time to explore other things in life, as my Dad’s business success alone didn’t define the great man he was.
As an advisor, my job is to get people to retirement, and help them live the life they want to in retirement. Then, I turn to helping them with estate planning and leaving a legacy.
Retiring is not easy; we spend so much time working, to let go is a big step. Before you retire, you need to think of the next stage and what you would like to accomplish and what will make life enjoyable. Is travelling in the picture? How often? For how many days a year? What will it cost? Perhaps you want to join a golf club, take an annual cruise or enjoy a ski getaway in the winters. It is worth taking the time to consider these larger expenses along with all of the little things you want to do to make you happy as well? Are you going to volunteer? And where? Are reading or a new hobby in the plans?
The next step is also challenging. It starts once you have settled into retirement. How much will you have left and where do you want your money to go upon your passing? The short answer for people with children is: “to my children, of course.” When I speak with the children, the most common sentiment is: “I don’t really need their money.” Of course, leave something to your family, but you can also leave a legacy that gives you that warm, gratified feeling of helping to make a real positive difference for a worthwhile cause. It’s all in efficiency and smart tax planning, so more of your money can go to the people and organizations important to you, leaving a lasting legacy which the entire family can be proud of.
Lori Dawson, a member of HHSF's Gift Planning Services Committee
