On April 19^th, the federal government will table its first budget in two years. This budget comes in the middle of Canada’s third wave of COVID-19 and is set to address the pandemic’s resulting economic challenges. Practitioners can likely expect, if they are not receiving them already, calls from clients eager to update their estate plans in anticipation of the budget.

I am not going to add my voice to the chorus of speculation regarding the contents of the budget (I suspect you may have your own best guess!), or discuss planning strategies to deal with any potential changes. Instead, I want to offer broad reflections on the objectives of effective estate planning, which reflections will be important to keep in mind upon the arrival of what will likely be an impactful budget.

Providing for individuals and organizations that matter

For most (if not all) clients, ensuring that their loved ones are cared for during their lifetime and after their death is their top priority in succession planning. The desire to ensure their spouse will be provided for, or that their children will be protected, is often what prompts them to consider their estate plan in the first place. Many clients also have organizations that are important to them and that they wish to provide for – charities, religious institutions, schools, etc. Practitioners should work to understand who is important to their client and how such client wants to provide for them. Estate planning discussions can then be anchored around these motivations.

Legal obligations

A client may also be legally obligated to provide for certain individuals, either by statute (for example, Dependants Support under Part V of the Succession Law Reform Act) or by contract (for example, a Domestic Contract entered into pursuant to Part IV of the Family Law Act). Such obligations should also be considered in developing a succession plan.

Tax considerations

A good succession plan also requires consideration of the tax consequences of death, including both income taxes and Estate Administration Tax (probate fees). While a client may choose not to avail themselves of every tax deferral or minimization strategy available, it is important to canvas the relevant planning options.

When legislation is tabled that will ultimately result in new or additional taxes, as may be the case next week, practitioners often work to find novel solutions to minimize or defer taxes for their clients, often with great success. A notable and straightforward example is the use of dual Wills, following an increase in the rate of probate fees in the 1990s.

What is important in the discussion of tax-planning options, and the development of novel approaches, is a sense of proportionality. For some clients, minimization of tax is a top priority, sometimes as a result of core philosophical beliefs about the nature of taxation. These clients will often have a greater tolerance for complexity in their planning, if it results in a reduction in taxation. However, it’s important not to “let the tax tail wag the dog”. If a plan intended to reduce taxes will cause substantial increases in legal fees, take longer to implement, require more effort to administer, result in reduced benefits to those who are important to the client, put the client offside support obligations, or risk ultimately not working – either because it may be caught by GAAR, or will likely eventually be disallowed by future legislative changes – it may not, on balance, be a worthy endeavour. It will be important for practitioners to keep this point in mind, as we move beyond budget 2021.