Understanding the Complexities of Estate Planning

Sheryne Mecklai, Partner, Manning Elliott LLP, says estate planning helps to eliminate both the uncertainties and the tough decisions that your loved ones might face after you die.

To protect assets, a discussion with a professional is advised

The subject of death and subsequent dealings with wills and estates can seem intimidating and often confusing—but it doesn’t have to be.

 “The most important aspects of estate planning are awareness and preparedness,” says Sheryne Mecklai, Partner, Manning Elliott LLP. “Estate planning helps to eliminate both the uncertainties and the tough decisions that your loved ones might face after you die.”

Estate planning, which is the process of organizing one’s financial affairs before death, is key for everyone, regardless of their income.

 “To protect assets and loved ones, people need to discuss their plans with a professional; someone who can guide them and provide them with the best advice,” says Mecklai. “An advisor can help reduce the overall tax liability that would be borne by someone’s estate and their beneficiaries.”

 Professional advisors can assist clients to determine the taxes to be paid when they pass away; they can ensure the assets are distributed according to their wishes; and they can minimize the confusion of dealing with these financial matters.

 “When someone passes away, they are ‘deemed’ to have sold their assets, which results in the payment of income tax due upon death on any assets that they are holding,” says Mecklai, who adds that the term for this is ‘deemed disposition’. “However, if a person’s assets are being passed on to their spouse or placed within a spousal trust, which meets certain terms, the deemed disposition can be deferred until the death of the surviving spouse.”

For tax purposes, deemed disposition means that all that a person owns—such as a house, investments, shares in a business, RRSPs, vehicles, and vacation properties—is deemed to have been sold at fair market value.

At the time of death, for example, if one owns a cottage or a rental property, the difference in value from the time it was initially purchased to the date it was deemed to have been sold is referred to as the capital gain. Half of that gain is taxable. The resulting tax will be approximately 25 per cent of the increase in value, which the estate must pay.

And one of the first steps to estate planning is figuring out how to fund such liabilities.

“Some clients purchase life insurance or set aside certain assets to pay the taxes,” says Mecklai.

Even if such measures are accounted for, there are also probate fees that must be paid when the courts validate that the will is the last testament of the deceased. In B.C., probate fees are only charged on estates worth more than $25,000. But for those who have high net worth, the fees can be exorbitant. Those who don’t seek professional advice may be left with little after all the appropriate fees are paid.

To remedy this, Mecklai suggests that It all comes down to starting the conversation with a professional advisor long before you need to, which can save time, money—and give you peace of mind.

“Sheryne Mecklai is a Partner with Manning Elliott LLP. Sheryne focuses mainly on estate planning and business succession services for Canadian owner-managed businesses in a wide range of industries. For more information regarding this topic, please contact us at 604-714-3600. 

Manning Elliott LLP is one of the province’s largest independent regional accounting and business advisory firms with offices in downtown Vancouver (604-714-3600), Burnaby (604-421-2591), Surrey (604-538-1611), and Abbotsford (1-604-557-5750). The firm has been around for more than 60 years and employs over 200 professionals and staff.

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