Will reviews &

estate scoping

Ensure Your Family Has Clarity

Will Reviews

 

The last thing you want is to leave your family in a confusing and emotional predicament when you pass away. At a very vulnerable time in their lives, you will want them to have clear guidelines on how to proceed.

One of the many ways we make wealth matter is by completing a will review for each of our clients as a complement to our investment services. We care not only about our clients’ wealth, but the wealth of their beneficiaries. Our team can review your existing will and make recommendations for updates following major life events.

Failing to address conflicting directives may cause strife within your family, leaving your executor to make difficult decisions. You can count on our expert team to recognize which directives take precedent. For example. the beneficiary named in your life insurance police trumps those named in your will. Our experts will help you sort out who should be named for which accounts and policies, depending on your wishes.

Check out our 7 Essentials of Estate Planning, where we discuss the most critical factors to consider when drafting your will.

We will gladly refer you to a suitable lawyer who can make certain your will is legally valid. Our emphasis as a wealth management firm is on the tax efficiency, distribution, and functionality of your assets.

Estate Scoping

 

In addition to a will review, we also aim to provide estate scoping to clients over the age of 50 at a frequency of no less than every five years. Our estate scoping looks at the potential taxes triggered at death and any planning that might be possible to minimize these. We also address estate liquidity concerns (if present) and estate distribution mapping.

There’s a reason we recommend regular estate scoping. So much can happen in the span of five years; it is easy to overlook something. Making additions or adjustments to an estate plan can be simple but make a world of difference to your family after you pass away.

Transcript

Jim and Allison Bouchard have been married for over 25 years, building a wonderful life together in Calgary. They also built a business called ABC Trucking, which services Alberta.

Jim and Allison are both sixty years old and in good health, but now that all of their kids have graduated college, they’ve been thinking more about what will happen to their company and other assets when they pass away.

They have basic mirror wills which transfer all estate assets to the surviving spouse. On second death, all assets will then transfer to their children.

The Bouchard’s eldest daughter, Ann, is working to take over the family business. Their other children, Patrick and Cindy, have careers outside of ABC Trucking.

Jim and Allison want all three of their kids treated equitably by their estate. The Bouchards don’t know it yet, but this wish is impossible to realize with their current estate plan.

———————

Before we reveal the cause of this inequitable estate plan, let’s take a look at Jim and Allison’s net worth statement and how Qube can use this information in our estate scoping.

The couple’s major assets include their home, an apartment building, their registered investments, and their trucking business.

Jim and Allison own their home jointed for a total of eight hundred thousand dollars at fair market value.

Jim alone holds the apartment building, worth two million dollars.

When it comes to registered investments, Jim has seven hundred and fifty thousand dollars in RSPs, while Allison has RSPs that total two hundred and fifty thousand.

On paper, Jim is the sole owner of ABC Trucking, with shares worth four million dollars.

All together, the fair market value of the couples’ assets total seven point eight million dollars.

———————

On death, all Canadians are deemed to have disposed of their assets, same as if they had simply sold them while living. These dispositions can result in taxable income for the estate. 

Qube can use the Bouchard’s net worth statement to estimate what potential taxable dispositions there would be in the event of both Jim and Allison’s passing.

First, we’ll look at their properties.

We can assume the couple will stay in their current home in Calgary for the rest of their lives.  Their personal residence qualifies for a non-taxable disposition at death. This is the primary residence exemption.

The investment property, on the other hand, which is worth two million dollars at fair market value, was purchased many years ago for only two hundred thousand dollars. This means that the property has a one point eight million dollar unrealized capital gain, which—when sold or disposed of—would create nine hundred thousand dollars of taxable income.

———————

When the second spouse passes away, the registered investments will become fully taxable as income and the deemed disposition of the shares in ABC Trucking will result in a taxable capital gain.

With some estate calculations, our team has to take into account the cost base—meaning the original purchase price of an asset, same as we did with the apartment building.

In this case, we will assume a zero-cost base on ABC Trucking shares because Jim started the company from scratch and has long ago repaid any shareholder loans made during the business’s early years.

To keep things simple, we will also assume that Jim and Allison do not have access to their lifetime capital gains exemption. 

As a result, on second death, a $4 million capital gain results from the deemed disposition of the ABC Corp. shares. Fifty per cent of this gain (2 million dollars) will be taxable as income. 

In Alberta, the $3.9 million dollars of combined taxable income that would in this case be reported on the surviving spouse’s terminal return would attract approximately $1,872,000 of tax.

This tax bill would be paid from Patrick and Cindy’s inheritance, while Ann’s inheritance remains untouched.

Therein lies the challenge with the Bouchard’s conflicting goals of transferring the business to Ann while also maintaining an equitable estate distribution.

Without expert planning, Ann gains ownership of the ABC Trucking shares, leaving Patrick and Cindy to share in the residual of the estate after taxes have been paid from their share.

Ann is set to inherit shares of the company worth four million dollars while her siblings each inherit only $964,000.

This is somewhat unfair. 

The current plan sets up the siblings for strife once Jim and Allison pass away—not a scenario any parent wants for their children.

———————

The team at Qube can suggest multiple solutions to the Bouchards’ distribution issue.

One solution would be to have Jim and Allison purchase a life insurance policy. They could use this insurance to equalize their estate by splitting the payout between Patrick and Cindy.

Alternatively, if Ann were to be actively involved in ABC Trucking today, an estate freeze on the corporate shares could be considered, allowing Jim to pass his growth shares on to Ann.

Then the family could sign a shareholders’ agreement—a document outlining the contingencies that allow the transfer of shares—which would direct Ann’s responsibilities when her parents pass away.

Further, the Bouchards could also implement a partial estate freeze, depending on the role of Ann and the continued involvement of her parents.

These are just a couple potential solutions. Our team can explain all possible avenues and discuss with Jim and Allison which route they’d like to take in resolving this issue.

———————

The Bouchards’ case is not that uncommon.

There are many situations that clients fail to anticipate. That’s why it’s crucial to implement a plan prepared by experts.

In summary, proper estate scoping will account for your assets and proactively resolve various issues, preventing a crisis at the worst possible moment.

If you would like to review your own unique situation with us, please get in touch by email at info@qubeinvest.ca or call 780-463-2688 to talk about how estate scoping can help your family.

Ready to create a clear plan for your loved ones?

Tax-Efficient Planning

By working with our team, you may save your estate from paying unnecessary taxes. Our savvy planning can result in more of your hard-earned wealth being passed on to your beneficiaries.

Some of this planning must be done well in advance. For example, you must strategically designate a primary residence on your tax returns to maximize the savings from the principle residence exemption. This is where you will benefit from an experienced portfolio manager. Send us an email or call (780) 463-2688 to talk to our team.

YOUR BENEFICIARIES MATTERS.

Let’s discuss how a will review and regular estate scoping can help your family avoid difficult decisions.

Will reviews &

estate scoping

Ensure Your Family Has Clarity

Will Reviews

 

The last thing you want is to leave your family in a confusing and emotional predicament when you pass away. At a very vulnerable time in their lives, you will want them to have clear guidelines on how to proceed.

One of the many ways we make wealth matter is by completing a will review for each of our clients as a complement to our investment services. We care not only about our clients’ wealth, but the wealth of their beneficiaries. Our team can review your existing will and make recommendations for updates following major life events.

Failing to address conflicting directives may cause strife within your family, leaving your executor to make difficult decisions. You can count on our expert team to recognize which directives take precedent. For example. the beneficiary named in your life insurance police trumps those named in your will. Our experts will help you sort out who should be named for which accounts and policies, depending on your wishes.

Check out our 7 Essentials of Estate Planning, where we discuss the most critical factors to consider when drafting your will.

We will gladly refer you to a suitable lawyer who can make certain your will is legally valid. Our emphasis as a wealth management firm is on the tax efficiency, distribution, and functionality of your assets.

Estate Scoping

 

In addition to a will review, we also aim to provide estate scoping to clients over the age of 50 at a frequency of no less than every five years. Our estate scoping looks at the potential taxes triggered at death and any planning that might be possible to minimize these. We also address estate liquidity concerns (if present) and estate distribution mapping.

There’s a reason we recommend regular estate scoping. So much can happen in the span of five years; it is easy to overlook something. Making additions or adjustments to an estate plan can be simple but make a world of difference to your family after you pass away.

Transcript

Jim and Allison Bouchard have been married for over 25 years, building a wonderful life together in Calgary. They also built a business called ABC Trucking, which services Alberta.

Jim and Allison are both sixty years old and in good health, but now that all of their kids have graduated college, they’ve been thinking more about what will happen to their company and other assets when they pass away.

They have basic mirror wills which transfer all estate assets to the surviving spouse. On second death, all assets will then transfer to their children.

The Bouchard’s eldest daughter, Ann, is working to take over the family business. Their other children, Patrick and Cindy, have careers outside of ABC Trucking.

Jim and Allison want all three of their kids treated equitably by their estate. The Bouchards don’t know it yet, but this wish is impossible to realize with their current estate plan.

———————

Before we reveal the cause of this inequitable estate plan, let’s take a look at Jim and Allison’s net worth statement and how Qube can use this information in our estate scoping.

The couple’s major assets include their home, an apartment building, their registered investments, and their trucking business.

Jim and Allison own their home jointed for a total of eight hundred thousand dollars at fair market value.

Jim alone holds the apartment building, worth two million dollars.

When it comes to registered investments, Jim has seven hundred and fifty thousand dollars in RSPs, while Allison has RSPs that total two hundred and fifty thousand.

On paper, Jim is the sole owner of ABC Trucking, with shares worth four million dollars.

All together, the fair market value of the couples’ assets total seven point eight million dollars.

———————

On death, all Canadians are deemed to have disposed of their assets, same as if they had simply sold them while living. These dispositions can result in taxable income for the estate. 

Qube can use the Bouchard’s net worth statement to estimate what potential taxable dispositions there would be in the event of both Jim and Allison’s passing.

First, we’ll look at their properties.

We can assume the couple will stay in their current home in Calgary for the rest of their lives.  Their personal residence qualifies for a non-taxable disposition at death. This is the primary residence exemption.

The investment property, on the other hand, which is worth two million dollars at fair market value, was purchased many years ago for only two hundred thousand dollars. This means that the property has a one point eight million dollar unrealized capital gain, which—when sold or disposed of—would create nine hundred thousand dollars of taxable income.

———————

When the second spouse passes away, the registered investments will become fully taxable as income and the deemed disposition of the shares in ABC Trucking will result in a taxable capital gain.

With some estate calculations, our team has to take into account the cost base—meaning the original purchase price of an asset, same as we did with the apartment building.

In this case, we will assume a zero-cost base on ABC Trucking shares because Jim started the company from scratch and has long ago repaid any shareholder loans made during the business’s early years.

To keep things simple, we will also assume that Jim and Allison do not have access to their lifetime capital gains exemption. 

As a result, on second death, a $4 million capital gain results from the deemed disposition of the ABC Corp. shares. Fifty per cent of this gain (2 million dollars) will be taxable as income. 

In Alberta, the $3.9 million dollars of combined taxable income that would in this case be reported on the surviving spouse’s terminal return would attract approximately $1,872,000 of tax.

This tax bill would be paid from Patrick and Cindy’s inheritance, while Ann’s inheritance remains untouched.

Therein lies the challenge with the Bouchard’s conflicting goals of transferring the business to Ann while also maintaining an equitable estate distribution.

Without expert planning, Ann gains ownership of the ABC Trucking shares, leaving Patrick and Cindy to share in the residual of the estate after taxes have been paid from their share.

Ann is set to inherit shares of the company worth four million dollars while her siblings each inherit only $964,000.

This is somewhat unfair. 

The current plan sets up the siblings for strife once Jim and Allison pass away—not a scenario any parent wants for their children.

———————

The team at Qube can suggest multiple solutions to the Bouchards’ distribution issue.

One solution would be to have Jim and Allison purchase a life insurance policy. They could use this insurance to equalize their estate by splitting the payout between Patrick and Cindy.

Alternatively, if Ann were to be actively involved in ABC Trucking today, an estate freeze on the corporate shares could be considered, allowing Jim to pass his growth shares on to Ann.

Then the family could sign a shareholders’ agreement—a document outlining the contingencies that allow the transfer of shares—which would direct Ann’s responsibilities when her parents pass away.

Further, the Bouchards could also implement a partial estate freeze, depending on the role of Ann and the continued involvement of her parents.

These are just a couple potential solutions. Our team can explain all possible avenues and discuss with Jim and Allison which route they’d like to take in resolving this issue.

———————

The Bouchards’ case is not that uncommon.

There are many situations that clients fail to anticipate. That’s why it’s crucial to implement a plan prepared by experts.

In summary, proper estate scoping will account for your assets and proactively resolve various issues, preventing a crisis at the worst possible moment.

If you would like to review your own unique situation with us, please get in touch by email at info@qubeinvest.ca or call 780-463-2688 to talk about how estate scoping can help your family.

Ready to create a clear plan for your loved ones?

Tax-Efficient Planning

By working with our team, you may save your estate from paying unnecessary taxes. Our savvy planning can result in more of your hard-earned wealth being passed on to your beneficiaries.

Some of this planning must be done well in advance. For example, you must strategically designate a primary residence on your tax returns to maximize the savings from the principle residence exemption. This is where you will benefit from an experienced portfolio manager. Send us an email or call (780) 463-2688 to talk to our team.

YOUR BENEFICIARIES MATTERS.

Let’s discuss how a will review and regular estate scoping can help your family avoid difficult decisions.