Estate Planning – It’s Not Just for “The 1%”
When you hear the words "estate planning", you probably think of wealthy, grey-haired individuals who own a lakefront mansion, a couple of high-end luxury cars, maybe a yacht, and a few million dollars’ worth of investments. After all, unless you actually have an "estate", there is nothing to plan. Right?
Estate planning is something that we can all benefit from. Your "estate" simply refers to all the property and money that you own, which means nearly everyone has an estate. Now think about this: What will happen to your assets when you die? Who is going to inherit grandma’s china set or the generations-old engagement ring that you were hoping to pass down to one of your children? What happens if you become ill or disabled and can no longer make financial or legal decisions? What happens if you can no longer take care of yourself? What happens if you end up on life support in the hospital? Will your loved ones know what you would want them to do?
At a basic level, an estate plan is a checklist that answers all of these questions and helps you take care of your family (and helps your family take care of you) in the event of your death or incapacity. Most estate plans will include a Will, a Power of Attorney, and a health care Representation Agreement. These three documents are the ones I draft most often in my estate planning practice, so in this blog post, I’m going to talk about how each one works and why you’ll want to make sure they are included in your estate plan.
A will sets out your wishes about how your affairs are to be handled upon your death. It sets out what assets you have, who you want to give those assets to, and how you are going to do that.
If you die without a legally enforceable will, how your assets get distributed and who will be appointed as guardian of any children in your care will be determined according to BC law—and the result may end up being very different from what you expect or what you would choose. In addition, the costs of administering an estate without a will may be higher.
A will is the best way for you to choose who will manage your affairs, what you want done with your property, and who will be the guardian of your children.
Power of Attorney
A power of attorney is a document that authorizes another person (the person you appoint as your "attorney") to act on your behalf and to make financial and legal decisions for you. A power of attorney is the primary tool for future planning as far as your financial and legal matters are concerned.
There are several different types of powers of attorney.
A power of attorney can be general or specific. It can give your attorney broad powers to deal with all of your assets or it can give your attorney powers to deal with only certain specific financial or legal matters.
Usually, a power of attorney automatically ends if you become mentally incapable. However, it is possible to have a what is called an enduring power of attorney, which explicitly states that the powers of the attorney will continue to be effective even if you become mentally incapable. This allows your attorney to continue making financial and legal decisions for you even if you become incapable of managing your affairs because of a mental health condition.
It is also possible to have what is called a springing power of attorney, which provides that an attorney's authority can be exercised only if certain events occur, such as mental incapacity.
The trick with a power of attorney is that in order to create one, you must demonstrate that you have mental capacity. In many cases, this means you can't set one up when you really need it; you have to set it up before you need it.
If you don't have the capacity to execute a power of attorney (and do not already have an enduring or springing power of attorney in place), often the only way for a friend or family member to act on your behalf is to apply to court to be appointed as your committee under the Patients Property Act. This can be an expensive process as it requires a lot of paperwork (including, for example, sworn statements from two BC-licensed doctors stating that you have become incapable of managing yourself or your affairs).
Just as a power of attorney allows you to appoint someone to make decisions regarding financial and legal matters, a representation agreement allows you to appoint someone to assist you or to act on your behalf in relation to health care and personal care matters. It can also cover certain routine financial and legal decisions.
The "representative" that you appoint will have the legal authority to help you carry out your wishes if you need temporary or ongoing assistance due to illness, injury, or disability.
There are two types of representation agreements:
1. A representation agreement made under Section 7 of the Representation Agreement Act has no specific capability requirements, meaning you can enter into this type of representation agreement even if you are incapable of managing your health care, personal care, or legal matters. However, the representative's authority under this type of representation agreement is strictly limited to certain routine financial, personal care, and health care decisions.
2. A representation agreement made under Section 9 of the Representation Agreement Act allows you to give much broader powers to your representative, but because of this, you can enter into this type of representation agreement only if you can meet a capability test. Because of the nature of the powers you are giving to your representative, the law wants to make sure you are capable of understanding the nature and consequences of the proposed agreement.
If you've just gotten married, bought your first house, or had your first child, you may not be in a position to afford a complex estate plan—but that's okay. Start with what you can afford. For a single adult or a young family, the documents I mentioned in this article are a good starting point. As your family grows and your financial situation changes, you can build on your estate plan to make sure it is suited to your changing needs. But the point is to get started on that plan now. None of us like to think about our mortality or the possibility of becoming incapable of making our own decisions, but if the unexpected should happen, you want to have the peace of mind that comes with knowing your estate plan—one that reflects your wishes—can step in to take care of your family.