This month’s blog post was written by Laura West, Partner at Norton Rose Fulbright Canada LLP.
Effective estate planning can take many forms and can differ greatly depending upon the specific circumstances, individuals, families and assets involved. However, when an estate plan is developed that is comprehensive, coordinated, and consistent, it can help to maximize efficiencies and minimize the potential for issues to develop in the future.
There is often an inclination to have estate planning discussions begin and end with the Will. In many ways, this makes sense given that it is the primary instrument individuals use to appoint personal representatives to administer their estates and to direct how their personally owned property will be distributed on death.
However, a Will is not the only way that property interests can be disposed of upon death. An individual can designate by separate instrument the beneficiaries they wish to receive the proceeds of their registered plans or insurance policies. That individual can also choose to own property with another person as joint tenants and have that property pass to that person on his or her death by right of survivorship. The individual can transfer certain property to trusts established during their lifetime, the terms of which provide for specific distributions of trust property on death. The individual could also obtain certain powers under the terms of a trust established by another person, including the power to direct how that trust property will be distributed on his or her death, and can then choose whether to exercise such powers. The individual may also have entered into certain contractual arrangements impacting the manner in which his or her property may be dealt with upon death, such as marriage or cohabitation agreements, separation agreements or shareholders’ agreements.
Death is not the only circumstance in which an individual will need to consider the appointment of individuals to administer personally owned property. If an individual becomes incapable, then unless he or she has appointed attorneys pursuant to an enduring or continuing power of attorney or similar instrument to do so on his or her behalf, a court proceeding will usually be required to empower other persons to do so. Even if the individual has an enduring or continuing power of attorney in place, the individual may have certain interests or powers that will be impacted by his or her incapacity that will not automatically fall within the ambit of the attorneys’ authority. For example, the individual may have personal rights that may only be exercised while he or she is capable, such as personal powers of appointment granted under a trust instrument. The individual may hold certain offices, such as trustee of a family trust or director of a private corporation, which will cease upon his or her incapacity. Attorneys appointed under a continuing or enduring power of attorney will not have an automatic right to assume these personal offices on an incapable individual’s behalf. Determining the persons who will succeed the individual in these offices and how and by whom those successors will be appointed may be necessary to ensure there is appropriate coordination and consistency amongst the decision-makers who will be playing key roles following the individual’s incapacity and upon his or her death.
Therefore, although a Will is always going to be an essential part of an estate plan, in many circumstances it is advisable that the estate planning process is not limited to it. The terms of beneficiary designations, joint ownership arrangements, marriage, cohabitation or separation agreements, powers of attorney, trust instruments, shareholders’ agreements and similar documents and arrangements may be relevant to planning issues arising upon an individual’s death or incapacity. The Will can be just one pillar of an effective estate plan.
A comprehensive review of all of these documents and their terms is therefore often warranted to ensure that they are coordinated with one another and that they have consistent terms that reflect and give effect to the individual’s wishes regarding their overall estate plan. For example, consider a situation where an individual is the sole trustee of a family trust holding shares of a private company, the beneficiaries of which are the individual’s spouse, children and remoter descendants, and where that individual personally holds all of the remaining shares. Are the persons named as the alternate trustees under the trust instrument the same as the persons named as the individual’s executors and trustees under his or her Will? If not, should they be? Are the beneficiaries of the trust different from the beneficiaries of individual’s Will? Are the dispositive terms of the trust instrument applicable on the individual’s death, including any holding provisions for minor or young children, consistent with the dispositive terms set out in his or her Will? If not, should they be? Does the trust instrument provide that the individual ceases to act as a trustee or ceases to be able to exercise certain powers in the event of his or her incapacity? If so, is the definition of incapacity and the method of determining when it occurs the same as what is set out in the individual’s enduring or continuing power of attorney? If not, should it be?
It is often not enough for estate planning discussions to focus only on putting in place a Will that provides for the disposition of an individual’s personally owned property on death. Instead, it is often important for there to be a comprehensive consideration of the entirety of the individual’s personal circumstances to ensure a coordinated and consistent approach to their estate planning.
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