AVONMORE -- Equalizing an estate to be fair to both farming and non-farming children or grandchildren is a difficult and very complex topic, and of course every family has its own unique situation -- and personalities.
Estate equalization was one of the topics discussed at a conference on succession planning recently, with presentations from Collins Barrow, Horner & Pietersma and O'Farrell Financial Services, at the North Stormont Community Centre.
Keeley Patterson and Hugh O'Neill of O'Farrell Financial presented several options and used different examples, reminding the audience that fair is not always equal.
They discussed possibilities such as using permanent life insurance policies as part of the solution -- comparing it to investments.
Cash flow should be reviewed, as well as assets including the principal residence. They also discussed setting up tax free savings accounts, and other tax deferral accounts (RRSPs, RESPs, RRIFs). One of the advantages of bequeathing life insurance proceeds and accounts, especially to non-farming children, is the liquidity of those assets. You don't want to be tying the farm up in a complicated estate settlement for years, or ending up with children who won't speak to each other.
Permanent life insurance is joint, that is the last to die receives the benefits, so if set up that the non-farm kids are beneficiaries, the policy is paid out to the survivors. (Depending on the family, you might want to be careful with that one...). Premiums are expensive, in the range of $50,000 paid over 12 years, but death benefits are large. An initial payout is over $1.7-million and benefits paid at 30 years are almost $2-million. Having a named beneficiary also eliminates probate fees on that asset at death, and can be applied to other assets, particularly non-farm assets.
Probate fees are another thing to avoid if possible and there are many scenarios that can reduce them. Legal and accounting advice are strongly recommended.
Regarding income for the elderly parents or grandparents, it may be worth it to take CPP early and cash in registered retirement saving plans. RRSPs must be cashed before age 80, or in some cases, 85, to avoid a sudden big tax hit late in life or at death.