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One Key Ingredient for a Successful Estate Plan: Proper Asset Alignment

In our August 2015 post entitled “Keeping Your Estate Plan Healthy with Periodic Check-Ups” we raised the potentially problematic reality that your estate plan may only be truly up-to-date the day you sign your estate planning documents. We put estate plans in place to ensure that our wishes, intentions and goals are achieved in the event of incapacity or death. For most of us though, our day-to-day lives are perpetually changing–whether it be our relationships, residency, health, assets or values.

As highlighted in our August 2015 post, having a successful plan when you pass away (i.e., one that minimizes taxes, is in line with current laws, accomplishes your goals, minimizes family discord, and transfers and distributes all assets in your desired manner) depends upon you conducting periodic reviews to ensure it is kept up-to-date. 

We identified an asset review as being a crucial component of these annual or periodic “check-ups”–in other words, looking at whether your current asset ownership and beneficiary designations are aligned with your current wishes and goals and reflect the structure of your current estate plan.

The process can be as simple as annually reviewing a summary of assets and liabilities to see if any changes or additions have occurred since the last review, and then consulting with estate planning professionals to determine if any such changes impact your estate plan. Assuming you completed a detailed summary of your assets and liabilities when you last updated your estate planning, your personal annual asset review would ideally look at and generally consider the following:

  • Have you made changes to any assets since the date of your estate planning documents or your last review, whichever is more recent (e.g. new account numbers, beneficiary designations, guaranteeing liabilities, registered owners, etc.)?
  • Have you acquired any new assets since putting your estate plan in place or since your last asset review?
  • What are the current values of your assets and have any values changed significantly since your last update or review?

The below scenario illustrates why periodic asset reviews are highly recommended.

Scenario: Your will leaves the residue of your estate equally to your two minor children in the event that your spouse predeceases you. This gift to your children includes the appointment of a trustee and detailed trust provisions controlling access to and the management and distribution of their respective shares while each child is under the age of 30 years. You then subsequently purchase a new life insurance policy on your life with a death benefit in the amount of $2M, and list your spouse as the primary beneficiary and your two children equally as the alternate beneficiaries on the insurance company’s beneficiary designation form.

Outcome: If your spouse predeceases you and your children both survive you and are under the age of 30, the proceeds will not be subject to the extensive trust provisions contained in your will–$1M will be paid to each of them outright if each child is over the age of 18. If either child is under age 18, the funds will have to be paid into court with very limited ability to access the funds for their use prior to the age of majority, and the funds will then be paid out of court directly to each child upon attaining age 18.

A periodic asset review could have identified this new asset and ensured that your will was re-executed with an insurance declaration in it in order to apply the detailed trust provisions to the life insurance proceeds, as well as the residue of your estate, while at the same time maintaining any creditor protection and minimizing probate fees.

“Asset alignment” may sound more like something your auto mechanic handles, but in the estate planning context, it can help prevent unnecessary expense (including legal and accounting fees, probate fees, taxes, etc.), delays and potentially contentious scenarios that cause irreparable damage to family relationships. Described by one legal writer as proactive “maintenance-centric” estate planning, a periodic asset review is one component that aids in maintaining the health of your plan to ensure that when it comes time for its implementation, it will function properly.

Please watch for our next post which will look at when the fiduciary role for an attorney for property begins.

The comments offered in this article are meant to be general in nature, are limited to the law of Ontario, Canada, and are not intended to provide legal or tax advice on any individual situation. Before taking any action involving your individual situation, you should seek legal advice to ensure it is appropriate to your personal circumstances.