This blog post was written by Dave Madan, Senior Manager, Scotiatrust

Following President Trump’s announcement of “Liberation Day,” Canadians are contemplating the reasons behind this decision. Amidst this uncertainty, many Canadians have re-evaluated their relationships with the United States, encompassing their daily interactions, financial affairs, and future planning.

The purchase of American goods has been supplanted by Canadian alternatives. Investments in American companies have been replaced by domestic investments, and Canadians are rediscovering the remarkable vacation destinations within our own country rather than seeking out southern neighbours.

Many Canadians possess American vacation homes or second homes in the United States that they visit. These properties have experienced a decline in usage, and some are even being offered for sale.

The implications of these developments extend to our estate planning. Divesting from the United States can have far-reaching consequences that may not be fully anticipated. The countries have become increasingly intertwined, as have our lives, making the process of undoing this integration complex.

When considering tariffs, we often associate them with trade wars and the impact on large corporations. However, individuals who own businesses, invest in cross-border assets, or hold retirement portfolios may also be affected by these trade policies in ways that may not be immediately apparent. Given the ongoing economic fluctuations, it is prudent to reassess the adequacy of our estate plans to ensure their continued effectiveness.

Business Owners: Defining an Exit Strategy

For business owners, tariffs can lead to increased costs and reduced profits, ultimately impacting the company’s valuation. A lower business valuation may result in a smaller tax liability when it is time to transfer the business to your family. However, if you are contemplating a sale, you may not receive the desired price. It is advisable to revisit your succession plan to ensure that your strategy—whether it involves a sale, a share freeze, or passing the business to family—remains the most advantageous course of action.

Investors: Protecting Your Portfolio

Investors must also be vigilant regarding the potential impact of tariffs on their portfolios. While tariffs can affect the performance of certain assets, they do not necessarily impact all investments. It is essential to assess the specific nature of your portfolio and determine whether any adjustments are necessary to safeguard your investments.

Tariffs introduce market uncertainty, particularly affecting certain industries such as manufacturing and agriculture. If your estate plan is linked to investments, it is prudent to assess the diversification of your portfolio. Spreading risk across various sectors and regions can safeguard your long-term wealth from fluctuations in trade policies.

U.S. Asset Ownership

If you hold U.S. real estate or investments, reside in the United States, or have family members residing there, tariffs can influence exchange rates and the value of cross-border assets. Additionally, U.S. estate tax regulations may apply to Canadians with substantial U.S. holdings. Ensuring that your estate plan accommodates these factors can prevent your heirs from incurring unnecessary tax burdens in the future.

Trust and Tax Strategy Optimization

If tariffs impact business profits or investment returns, they may also affect the efficiency of your trusts and tax-planning strategies. Consider your family trust or your corporate structure. Small adjustments now can significantly contribute to preserving wealth for future generations.

Charitable Giving: Economic Impact Consideration

If charitable giving is an integral part of your estate plan, it is advisable to evaluate how economic shifts may influence the value of your donations, or your gifting priorities. Regardless of whether you are gifting shares, real estate, or other assets, reviewing your strategy can enhance both your philanthropic impact and tax benefits.

Time to Review and Adapt

Trade policies are subject to continuous evolution, and your estate plan should be adaptable to accommodate these changes. Whether you are a business owner, investor, or simply seeking to ensure the well-being of your family, it is opportune to conduct a review of your estate plan. Engaging with your financial advisor, accountant, and estate planner can facilitate the maintenance of your plan’s alignment with your objectives.

Proactive planning today can yield significant benefits for the future. The relevance and impact can vary significantly depending on the client, so keeping these factors in mind will be incredibly valuable as we navigate through uncertain times.