MACMILLAN ESTATE PLANNING

ASK THE EXPERT WITH SHERI MACMILLAN, CEO

MacMillan Estate Planning is a boutique estate planning firm.

For over 30 years our firm has worked with many affluent families to design their estate plans either in person or virtually. We service clients all over the world, focusing on Canada, the United States and the United Kingdom.

Our goal is that, through our planning process, we can build a Strongroom to safeguard your family’s significance. Essentially, this involves the creation of a bespoke estate plan to protect the things that you care about most. We consider your ‘significance’ to be not only the assets in your estate but also those people that mean the most to you.

We offer our clients the ability to plan their estate from a single location - everything they need to implement the design of their estate plan can be provided by one organisation which includes; lawyers, accountants, financial planners and insurance professionals. Like an architect, we work together holistically to build estate plans for domestic and international clients who often have a multitude of estate planning requirements.

In answering that question, want to start by focusing on the tax exemptions that we have available to us. A tax exempt asset is one upon which you will not pay tax both through your lifetime or when you pass away. This is different to a tax deferral, where we get a tax break in the short term, but in the long run there may be tax consequences - like your RRSP for example.

We often find that our clients are not optimizing tax exemption strategies because they are unaware of them.

Your primary home is an asset which grows in your estate tax free for the course of your lifetime. If you sell it, irrespective of any increase in value since the time of purchase, there is no tax to pay. Equally, when you pass away and the property moves through your estate it is, again, not subject to taxation.

People often find that they have more significant gains in the value of their recreational properties and wonder if they might identify them as their primary home. The answer is ‘yes’. If you have a property in B.C for example and it has greater appreciation than your home in Calgary, then we could elect that the BC property is your exempt asset and reduce the amount of tax in your estate. This is not something that you need to decide upon today. We can decide that in the year of your passing unless you sell the property during your lifetime.

Whilst it can be something of a ‘drop in the ocean’ inside sizeable estates we must endeavour to make the most of our TFSA room. Like your primary home, any growth in the value of your TFSA is also tax exempt. Tax exemption strategies can save you hundreds of thousands of dollars in tax if you take a proactive approach to planning your estate.

Beyond that there are some more bespoke strategies that allow people to tax shelter part of their estate on the basis that the value sheltered can grow tax free during their lifetime and, when they die, it can pass through their estate on a tax free basis. If there is a corporation involved we can further maximise the tax savings and reduce the amount of tax that would be paid when drawing value out of the company. Many of our clients go one step further and use this strategy to grow further wealth and reduce their income tax bill through the use of an interest deduction.

Business owners also like to use what is known as an Estate Freeze within the design of their estate which operates to ‘freeze’ the value of their business for tax purposes at a particular moment in time. This means that the tax bill is also ‘frozen’ such that the business owner is able to plan for and take steps to mitigate the tax bill during their lifetime. Any growth in the value of the business can be attributed to the next generation both as a means of (i) deferring tax into the future and (ii) allowing a family to use multiple Lifetime Capital Gain Exemptions to further mitigate the overall amount of tax paid.

In the last couple of months we have witnessed the collapse of The Silicon Valley Bank. How might this event impact upon our readers’ investment portfolios?

What happened with the Silicon Valley Bank was frightening because, for many, their first thoughts were of the banking crisis in 2008. Whilst Silicon Valley Bank was a fairly niche organisation in the banking world, this was still the second biggest banking failure in US history.

We shouldn’t forget, of course, that over in Europe we also had one of the traditional banking heavyweights, Credit Suisse, suffering some very real issues affecting their stability to the extent that their share price was slashed and they were forced into what has been described as a ‘shotgun marriage’ with UBS.

While the impact of this union remains to be seen, it could be well be significant due to their their international presence.

The extent to which these recent events in the financial world will impact your investment portfolio will depend on the geography of where you invest, the specific sectors that your investments are held in and how proactive you have been about implementing protective measures for your assets and investments.

We are always looking at ways to protect our clients’ assets in a way that makes the most sense for them, their family and their long-term goals . This type of mindset will become more pronounced during times of economic uncertainty and we are able to utilise various strategies to protect our clients’ investments both when times are good and during periods of volatility.

How would somebody best protect their assets during times of uncertainty?

Proactive planning is imperative to ensure the protection of your personal assets. This is not something that should be done as a sudden reaction to market volatility – rather a mindset that is adopted to your portfolio at all times.

From an estate planning perspective, using trusts is a great way to do this because you are essentially able to create a fence or a barrier around your assets. A trust is a legal relationship between the trustees, who manage the trust and the beneficiaries who are entitled to benefit from the assets within the trust. They can be built in several ways, and used in several ‘arenas’, to help to safeguard your estate.

Many of our clients come to MacMillan Estate Planning when they have concerns about losing their assets due to unforeseen and unpredictable economic events. In situations like the collapse of the Silicon Valley Bank, we will often recommend that our clients explore the use of trusts within their overall investment strategy. The reason for this is that these particular kinds of trusts are governed by the general principles of Trust Law as well as The Insurance Act which means that they carry less risk than more traditional investments all whilst providing several benefits that offer both protection and reassurance for the investor.

Trust Planning is, of course, not restricted just to the investment of cash assets. Trusts can be used to protect all kinds of assets – it could be real estate, company shares or life insurance value. The assets held by the trust are protected from external forces. Equally, trusts can be used as part of your estate plan during your lifetime, and then beyond, to protect family wealth as it transitions to your beneficiaries through your Will.

MacMillan Estate Planning Corp. will be hosting a complimentary Estate Planning Webinar on Thursday, Sept 13, 27, Oct 18, Nov 8, 22, Dec 6. We are also holding Seminars at the Fairmont Palliser in Calgary on Thursday Sept 27, Nov 22 to register, please visit www.macmillanestate.com or call 1-833-266-6464.