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Transferring your wealth

Decide where your wealth goes. And how.

Some things are easy to pass along after you pass on. Your son always coveted that old wooden canoe. Your grandmother's diamond ring will go to your daughter. But transferring more significant assets may not always be so straightforward. Here are some ways you can ensure they wind up in the right hands.

Make a will that imposes yours.

Your will is the cornerstone of your estate plan. If you don't have one that's valid, the province will dissolve your estate. And you don't want that. So you need to formally record your wishes and instructions that should take effect after your death. Make sure you review it regularly or when there are changes in your family, such as the birth of a grandchild. In your will you'll typically:

  • Name an executor and specify their responsibilities
  • Outline how you want your estate to be managed and distributed
  • Name a guardian for minor children
  • Provide instructions to minimize taxes
  • Distribute your personal effects
  • Record your wishes regarding final arrangements

In BC there are two types of wills:

  1. Formal Will. Signed by you with at least two witnesses who can’t be beneficiaries or their spouses. Normally prepared by a lawyer or notary to ensure it is legally valid and won't create any legal issues.

  2. Holograph Will. Handwritten and signed by you and not necessarily witnessed. This isn't recommended, since your handwriting may cause problems as well as how you express your wishes. If there is any kind of ambiguity, the lawyers will start circling.

Joint ownership keeps it in the family.

One of the simplest ways to transfer assets is to jointly register the ownership. This is very useful for property. Joint Tenancy with Right of Survivorship means when one person dies, usually a spouse, ownership automatically transfers to the surviving party – at their original cost.

Since it's not considered part of the estate, there are no probate fees, but there are a number of other potential legal and tax complications. Upon the death of the second spouse, the assets are deemed to have been "sold" at fair market value and any increase in value since the time of "purchase" may be taxable.

A Tenancy-in-Common is similar, without the right of survivorship, so the asset can be distributed in the will and is subject to probate taxes. Make sure you get professional advice before proceeding with either of these options.

Pre-gifting prevents post-taxing.

The easiest way to share the wealth is to give it away early. Whether it's helping your children buy a home or finance a business or sending grandchildren to private school, you get to see the benefits while you're alive. Gifting assets can also have tax benefits if they are given to a registered charity or if they produced an income and were taxable.

On the other hand, gifting income-producing assets like stocks and bonds could trigger a capital gains tax hit, particularly if given to someone other than your spouse or an underage child. Talk to your financial advisor before making any decisions.

Trusts – living and… the other kind.

Trusts allow you to transfer ownership but not control. Your heirs can enjoy the benefits of the asset according to your wishes, administered by a trustee. Setting up a trust is usually complicated involving legal counsel, and it is considered to be a legal entity and must pay taxes. There are two types of trusts you can establish:

  1. A living family trust (inter vivos) is created while you're alive (often quite early). It allows you to transfer assets from your estate and still control when and how you distribute the money to the beneficiaries (usually your children). It should be noted that all income kept in a living trust is taxed at the top rate. Your financial advisor can recommend whether it's a good strategy for you.

  2. A testamentary trust only takes effect at death and should be included as part of your will. As with a living will, your assets are passed along to beneficiaries without allowing them control. The assets are invested and managed by the trustee, often but not necessarily your executor, who distributes the income according to your wishes.

Your BlueShore Financial advisor can help you put an estate plan in place that takes into account all your wishes and protects all your worth. Talk to them soon.