A Beginners’ Guide to Estate Planning for High Net Worth Individuals

Estate planning means you must think about your living financial circumstances, as well as the fiscal matters that happen when you die. It can be tricky without guidance, so we’ve broken estate planning for high net worth individuals into four sections:

  1. Picking a trustee
  2. Reducing estate taxes
  3. Planning for incapacitation
  4. Writing a will

A personal consultation with Sim Gakhar is the ultimate way to create a solid estate plan. But, it’s always a good idea to understand the basics beforehand — and that’s what our guide is here to do.

 

#1 Picking the Correct Trustee

As a high-net-worth individual, you may feel inclined to try and handle your estate planning needs yourself. However, this isn’t wise. The intricacies are complex and constantly changing, making it near-on impossible to keep up with the alterations.

Hence why you need to hire a trustee, like Sim Gakhar.

 

What Is a Trustee?

A trustee is a firm or person that deals with your assets and/or property on your behalf. They make decisions in your and your beneficiary’s best interests.

But it’s important to choose a well-respected trustee. You don’t want to be part of the HNWI group that ends up losing money, thanks to less-than-respectable firms.

 

How to Choose the Best Trustee for You

Research is the key to finding the best trustee. Make sure you read reviews from those who are currently using the firm or person. People are more than willing to let you know when a service is fantastic or quite the contrary!

Once you’ve read some reviews and are happy with a decision, don’t get too attached just yet. It’s worth asking the trustee a few questions to ensure they fit your needs. Some queries to bring up include but aren’t limited to:

  • How long have you been operating? The more experienced, the better. The firm or individual should’ve seen their prepared documents jump into action after their client dies. Therefore, they’d have faced court challenges or disputes with the Canada Revenue Agency.
  • Can you create a complex estate plan with trusts, life insurance, and wills? They should know all of these areas and understand how to link them for HNWI. You may want them to discuss each of these planning components so you can decide which ones best fit your wishes.
  • How do you charge? Understand whether it’s a flat rate or an hourly figure. In some cases, it’s both.

After choosing a trustee, you can move on to achieving your high-net-worth estate planning goals.

 

#2 Reducing Any Estate Taxes as Much as Possible

One of your countless goals is probably to save for retirement and establish wealth to leave your beneficiaries when you die. But sadly, it’s not as easy as jotting down a will. Instead, you must consider the taxes that could cause you and your family to lose a large chunk of money.

Death and death taxes happen simultaneously. In which case, a significant section of your income could fall into the highest tax bracket, causing 45% of your wealth to go straight to the Canada Revenue Agency.

 

Understanding Death Tax

As soon as you pass away, you’re no longer a part of Canada’s tax ecosystem. Thus, when you die, you’re subject to tax for the final time.

The country’s tax law states that any income or accumulated gains you have upon death are subject to tax unless you’re passing your assets onto a common-law partner or spouse.

 

Understanding Income Tax

All assets are said to be sold at the time of death for income tax purposes. The proceeds are considered the asset value, and capital gain is the difference between the cost and proceeds.

If you have rental properties, the CRA may recapture previous depreciation claims, which are sadly fully taxed.

 

Understanding RRIFs and RRSPs

Any registered retirement income funds and registered retirement savings plans are deactivated on your death. The value of the plans is included on your final tax return as income unless your beneficiary is your spouse or common-law partner.

Even though RRIFs and RRSPs offer cash to fund the tax through liquidation, the leftover value can be dramatically less.

The best estate plan allows you to live the life you love, but upon your death, you’re less wealthy on paper, meaning you benefit from a lower tax exposure.

 

#3 Planning for Incapacitation

Another aspect of an HNWI estate plan is to ensure your wealth doesn’t dwindle or disappear. You should want to ensure that even in the event of your incapacitation (i.e., due to illness, ageing, or an accident), you can:

  • Provide care for any dependents (individuals who rarely on you for money)
  • Guarantee the correct management of your estate
  • Receive your preferred end-of-life treatment if you enter a vegetative state

There are plenty of things you can do within your estate plan to deal with incapacitation, such as:

  • Power of Attorney for Personal Care (POAPC) — A document specifying an individual to make decisions on your healthcare, housing, and other personal needs if you can’t make such decisions.
  • Health Insurance Portability and Accountability Act (HIPAA) release agent — Somebody who can access your medical information in line with the 1996 Canadian law.
  • Power of Attorney — A document signed by you giving the stated person or people the right to manage your money and property.

 

#4 Choosing a Living Trust Over a Traditional Will

Wills are important, but any estate planner worth their salt knows that a living trust costs more upfront but offers the best value over time. The biggest advantage is that you’ll avoid the probate process (the process that validates your will).

Other advantages include:

  • Setting limitations on how beneficiaries should use their inheritance
  • It can be changed or revoked at any point if it’s a revocable trust type
  • Moving assets in and out without worrying about taxes

 

Kick Start Your Estate Planning with Sim Gakhar

Now you know the foundations; it’s time to let Sim Gakhar build the house! So give us a call to solidify your high-net-worth estate’s future.

 

FAQs & Helpful Resources Regarding Life Insurance for Estate Planning