Why Do I Need An Estate Plan?

Your estate plan simply integrates your financial plan with planning for your possible mental incapacity during your lifetime and your eventual death. The intention is to pass your assets to your family, or others of your choosing, in a simple, stress and tax reduced manner.

As the creation of an estate plan is the contemplation of one's ultimate demise it seems to be an element of planning that is often deferred or not undertaken at all.

An estate plan consists of four elements:

1. A Will

If you do not have a will you are leaving it to the government under the Estate Administration Act to provide a scheme of distribution for your family and to appoint someone to administer your estate. The administrator of your estate could be a government official in some circumstances.

X What the government considers acceptable may not meet your requirements. For example, if you are married with children and have a home only in your name upon your death, your spouse would obtain a life interest in the family home and the first $65,000.00 of your estate. Excess amounts over $65,000.00 would be split between your spouse and children. As your spouse would only have a life interest in the house it would make it practically impossible to obtain mortgage financing.

2. A Power of Attorney

Powers of attorney are simple and inexpensive. They allow a person to act or sign legal documents on behalf of another person. The normal power of attorney is one page long. If it is general in scope, it would allow the attorney to perform all acts of the grantor, and endures even if the grantor becomes mentally incapable. Restrictions may be placed on the powers of the attorney.

x In a husband and wife situation , the general power of attorney is a very common way to allow your spouse to manage your financial affairs upon mental incapacity. One misconception is that if land is held in joint tenancy between spouses that both parties do not have to sign transfer documents. This is incorrect. If one of the spouses becomes mentally incompetent the only simple way to transfer property is through a power of attorney or representation agreement.

x In the absence of appointing an attorney or a representative, the only option available to allow someone to look after your affairs is for that person to go to court to have you declared mentally incompetent by a judge and appoint a committee. This is an expensive and a time consuming process. If nobody is prepared to take on the task the Public Trustee will do the job.

Enduring powers of attorney are being phased out as of September 5,2001. Documents signed before this date will continue to be valid.

3. A Representation Agreement

It was perceived by the government that enduring powers of attorney were capable of being abused and there should be more stringent requirements on people exercising these powers. The Representation Agreement Act, which came into force last year provides for a more complicated regime than the fairly simple enduring power of attorney form.

An important part of the new legislation is the ability to appoint a health care representative to make health care decisions. If you do not have a health care representation agreement, a hierarchy of different classes of people related to you will make health care decisions. For example, if you have no spouse but have children, then all children would have an equal say in health care decisions made for you. This can cause problems if your children's philosophical viewpoints are not in keeping with your views or your children have different opinions.

4. Property transfers During Your Lifetime

Although not often thought of as estate planning, setting up a joint tenancy on your bank account or house is a simple estate planning mechanism. A joint tenancy not only provides for an automatic transfer to someone upon your death but also reduces probate fees, as the asset is not technically part of your estate. More complicated estate planning measures such as the creation of trusts and life estates in property may be matters in which property can be disposed of during your lifetime but still controlled in some manner by you.

In an increasingly complex world, with very diverse family structures, estate planning is not just for the wealthy but for all people who wish to have a say in how their financial and personal affairs will be managed upon death or mental incapacity.