Three Point Estate Plans

Just as in basketball, a three pointer is worth more. If you are preparing an estate plan, you can choose to see it in three distinct ways. (viewing points) Most people see only one way clearly and see the other two only briefly, if at all.

A couple of weeks ago I talked about GE and how they purposely study problems and opportunities from each of the possible viewing points in their business. I suggested you could use that technique too. Review it here if you wish.

This article is about how to improve your estate plan by seeing it from three different points of view.

Your View:

This is the view that has a memory. You know how you got the assets in your estate. Many will have a story. Many will be emotionally attached to risk, near-loss, hard work, discipline and self-denial. You may have an attachment to some assets similar to the attachment a parent has to a child.

You will tend to see assets at peak value and will tend to undervalue latent liabilities like income taxes, the value of guarantees, and the loss of irreplaceable management or other skills. Then there is the “lame duck” period. The value of no direction in the period between death and estate settled.

In your view, growth and income are important. It will be difficult to see things in any other way.

Your executor’s view.

Your executor will probably not value growth and income very much. Your executor will value simplicity and clear instructions and they will value liquidity very highly indeed. There are many cheques to write. Income taxes, line of credit, donations, estate equalization, final expenses, valuation and legal fees are common.

An executor without liquidity has two hard choices. Borrow and tie up the estate until the loan is liquidated or sell something.

Sell something is influenced by two matters.

  • The executor must do it within one year of death in order to take advantage of the ability to carry any losses that result back to your final tax return.
  • The executor must sell what they can, not necessarily what they want to sell.

Your Heir’s View

The heirs will be interested in speed and value.

  • Did the will transfer assets equitably, to the right heirs, in the right form, in a timely manner?
  • Were cost reducing techniques used by the parent? If not, then the estate value will be too low when transferred.

The heirs will be harmed, potentially seriously, if it takes too long or costs too much. Many estates see 30% to 40% shrinkage at death. In many cases, proper planning could have reduced that.

Your advisers may see it a fourth way, but if they are doing their job correctly, their views will all fit with the ways above. Their role is to help you see the outcomes and to help you find ways to do what you want, efficiently.

No estate plan is complete until it has been examined, in detail, from all three viewing points.

Maybe you should test your will. If you do it while living, you can change it if you don’t like the result. If you wait until you are dead to test it, mistakes will teach nothing.

Mistakes you do not learn from are the only expensive mistakes.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: