Where there is a will, … there has not necessarily been proper estate planning done as well

Estate planning is about much more than legal documents and money

When talking about various personal financial matters, it is rather easy to commit the mistake of seeing only the trees instead of the forest. At such times, the whole world gets simplified and quantified; we are dealing with numbers, rates, returns, amounts, costs, and probabilities, … suggesting perhaps that we do not necessarily have to answer the really big qualitative, emotional, or motivational questions that are the driving forces of our lives. However, these come up unavoidably when we turn to estate planning. Some people think that estate planning is about merely will-preparation, something separate from detailed financial planning. It is a gross and dangerous misunderstanding and oversimplification to hold this view.

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What it is?

Estate planning encompasses our whole life, its various aims and characteristics at sequential stages as they unfold, and, very importantly, intergenerational issues. In other words, it is usually long-term and also very value- and emotion-driven. At the same time, it also has to be built on the realities of not just our emotions and values, but on our total assets and liabilities, both of the human and the financial kinds. It is about our whole life strategy, with a special financial focus, in the shadow of the unknown future, including government interference. While in the very narrow (therefore mistaken) sense estate planning is about wills and estate transfer, in a broader sense, estate planning is almost the same as personal financial planning, a ‘primus inter pares’ among the components of financial planning, since it often at least touches on every other aspects of it, such as investing, retirement planning, risk management, etc.

The only way I can distinguish estate planning from full-blown life planning is by saying that it’s only a matter of difference in focus. For estate planning, the the emphasis is more on the end-of-life issues (legacy, wills, estate transfer) than on other issues, while for life planning, the attention/emphasis is more evenly spread among all the relevant issues of planning.

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Here are some sample questions about issues that come under the purview of estate planning:

• What are our aims in life and how can we create the financial conditions to achieve them?
• How much control do we want in life, and regarding what happens to our heirs after our death?
• What lifestyle should we strive for?
• What is the investment strategy we should commit to?
• What level of education do we want for our children?
• When, how, and where do we want to retire, … and how do we want to spend our years in retirement?
• What if unexpected misfortune affects us?
• What is our interpretation of fairness and equity in the distribution of our assets, considering unique situations (needs, means, capabilities, etc.) and family dynamics?
• Are keeping our affairs private and distribution of estate quickly important for us?
• Are we, or others we are responsible for, well protected, even after our death?
• Who do we want to have the right to make decisions on our behalf should we get incapacitated or when we die?
• Who should be the guardian of our children if we drop dead tomorrow?
• Is it important for us to help our parents, our /grand/children, or somebody or some cause financially while we live and/or after our death?
• What can be the financial consequences of breakdowns in our relationships?
• Do we care about how much of our income and assets go to Revenue Canada, either while alive or after we die, … and what can we do about it?
• Who could/should/would be the best trustee/executor of our estate, considering and having discussed a series of relevant issues?
• Do we want to prevent that our business, the cottage, or other asset become a divisive issue among our children when we are gone?

As indicated above, often, estate planning is considered to be a narrower field, in a double sense. According to this narrower interpretation, aspects related to things while we are alive (formulating life goals, investment strategy, etc.) or non-technical considerations about wills and asset-transfer (equity-equality, privacy, etc.) do not have to be explored within estate planning, presumably because they have been dealt with elsewhere, or because they are straightforward, not needing exploration. It all supposed to be about taxes, probate fees, funeral expenses, executor fees, insurance policies, beneficiary designations, etc. According to this method, the whole process is an expertise-driven mechanistic process, using the clear predetermined objectives of the testator / settler (whose estate plan is being done) as input. I believe, neglecting the time and road leading to asset-transfer (life before death, if you want), or not probing the emotional side of estate objectives may easily lead to unrealistic plans, avoidable family tensions, or perhaps unwanted (but unknowingly accepted) sacrifices. If we consider all these things, however, the process will potentially become less straightforward, but as a result of iterations and dialog it will be more meaningful and useful.

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How to tackle the issues?

It is not hard to see how complicated each of the above issues can be, and it is especially true about their interrelationships. It is full blown personal financial planning what is needed here; not just partial solutions, but a holistic view and preparedness. In fact, it takes a team of professionals (at least a financial planner / advisor, and a lawyer, but often also an accountant, a tax-specialist, a stock broker, an insurance broker, etc.) to be able to to provide the expertise and service many people need.

The solutions used to solve estate planning problems can encompass, among others, wills, powers of attorney, various (business buy-sell, pre-marriage, divorce, etc.) contracts, inter-vivos or testamentary trusts, investment portfolio restructuring, estate-freezes, various tax-advantaged retirement strategies, and other insurance-based arrangements. Different issues are in the focus of estate planning at various stages of life: First, the emphasis is on creating and accumulating assets, followed by a moving focus from managing to preserving/utilizing and conserving the estate, … and finally, most effort is devoted to to the issues around transferring it. All the way, special attention should be paid to ensuring not just the size, but also to the liquidity of the estate. Especially because of this latter aspect, balanced management of income and expenses and various insurance solutions are usually important building blocks of estate planning and managing strategies.

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