Wealth Planning – What Does It Really Mean?

Do you know that financial assets alone do not define wealth? As a matter of fact, non-financial assets, such as having adequate support in the event of incapacity, peace of mind, and a happy family, etc. can all constitute wealth. Unfortunately, many people define wealth strictly by their financial assets, and so, if they do not have significant financial assets, then no planning is necessary. This could not be far from the truth! Irrespective of your financial and personal circumstance, whether wealthy, low- or average-income earner, single, engaged, married, separated, divorced, widowed, etc., if you are concerned about your future, the future of your family, and your personal well-being, then wealth planning is critical to you. Although a lawyer is the one that creates all the legally enforceable documents to carry out the plan, but wealth planning is usually done best in concert with various professionals such as financial advisors and accountants depending on one’s situation because the process often involves also obtaining advice in the fields of tax, insurance, financial planning, investment planning, etc.

Whilst this article is not intended to advise you on financial, tax, and insurance planning, it is important to discuss briefly and highlight the need for having these plans in place.  

Financial Planning

It involves reviewing your financial situation to determine your financial needs and goals for the present and future. Based on this, you, together with your financial advisor, would be able to determine how much you would need to achieve certain objectives and how much you would need to save to achieve those objectives.

Tax Planning

Tax planning is an essential element of wealth planning. The purpose is to not pay income tax prematurely or to pay any unnecessary tax. If less is paid in tax, more will be available for personal use. It is therefore worth retaining expert advice on how to structure your wealth plan in the most tax effective way.

Insurance Planning

It is another important aspect of wealth planning. Insurance is one of the most effective ways to protect your financial future. There are various types of insurance: life insurance (can be used to pay final bills, income tax due at death, outstanding mortgages, support for the family, etc.), disability insurance (insures income in the event of disability), critical illness insurance (provides the insured with a lump sum payment to assist in living expenses in the event of certain types of illness, for example, cancer, stroke, heart attack, etc.), and long-term care insurance (provides funds in the event you require extensive personal care for a long period of time).

Estate Planning

Turning to estate planning, where my expertise as an estate lawyer comes in, it is the essential portion of the overall wealth planning process. It is the process which involves determining who to manage your assets and finances and who to make your personal and health care decisions in the event of incapacity, and determining how you want your assets distributed upon death. An estate plan primarily comprises of personal directive, enduring power of attorney and a will. For individuals with high net-worth and complicated asset and/or family structures, other documents such as trusts, and various corporate structures may be necessary in the planning process. A trust is where one or more persons hold legal title and administers property for the benefit of another or for a charitable purpose. A trust may result in benefits being provided for a spouse or children and for subsequent beneficiaries in future generations.

Disability/Incapacity Planning

Inasmuch as disability is not a pleasant thing to think about, it is a real possibility. Statistics reveal that most Canadians, especially the young, do suffer from a temporary or permanent disability at some point in their lives than to die. Decisions can be made one day, but not the next day.  Even in some circumstances, choices may be understood without the desire or energy to act. In such situation, who will manage the assets and finances? And who will make decisions about personal care and medical treatment? Many people are under the mistaken belief that in the event of incapacity, a close family member will automatically have the authority to make financial and health care decisions for them. In many cases, this not true. Therefore, it is crucial to have an incapacity/disability plan, which comprises of a Personal directive and an Enduring power of attorney.

A Personal Directive appoints someone to make personal and health care decisions on your behalf in the event you are unable to do so.  In the event you become incapacitated and do not have a Personal Directive, your family may not agree on the nature and extent of the treatment you are to receive.  As you can imagine, this puts your physicians in a very difficult position. A Personal Directive ensures that you receive the type of care that YOU would have chosen if you could have made the decision for yourself. This document does NOT permit anyone to make decisions concerning your property or financial affairs. 

An ENDURING POWER OF ATTORNEY appoints someone to handle your property and financial affairs in the event you are incapacitated and unable to deal with them yourself.  If you do not have such a document in place and you become incapacitated, it may be necessary for your next of kin to apply to the Court for a Dependent Adult Order – a procedure which often incurs significant legal and other costs.

Planning for Death

A Will is a written and signed statement made by an individual, disposing of property on death. Some components of a Will are Personal directive/Executor (the person who administers your estate. i.e., He/she gathers your assets, pays all debts, and then distributes the remainder to the beneficiaries of the estate), and Beneficiaries (the people who receive the proceeds of your estate after all debts and taxes have been paid. If you die without having a valid Last Will in place, your estate may not be administered by an appropriate person and, more importantly, may not pass to those persons whom you would have chosen.  In my next blog, I will discuss in much detail what happens when one dies without having a valid Will in place.

Should you require further information or if you would like us to prepare any of these documents for you, please contact our office [email protected] or 587-333-8933.

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