ARM’s Guide to Estate Planning

What is Estate Planning?

The word Estate in Estate Planning refers not to real estate, but to the whole basket of financial assets an individual acquires during a lifetime.

Estate Planning is the entire process of accumulating and preserving those assets and then transferring them to a spouse, ex-spouses or children or other beneficiaries.

estate planning

You should think of your finances as a sequence of three phases:

  • The first phase is the accumulation of wealth by investing wisely and diversely.
  • The second is the preservation and consolidation of that wealth by tax and portfolio planning.
  • The third is the transfer of your assets to your family.

Estate Planning particularly refers to this last phase, that is distributing your assets before/after death with the maximum efficiency, least hassle and minimum tax.

What are its benefits?

  • The principal benefit of good Estate Planning is to make sure that the maximum possible proportion of your estate is passed on to your beneficiaries – those who inherit from you – by minimising both taxes and the involvement of probate courts.
  • Good Estate Planning also ensures that you designate guardians for minor children and plan for disability or incapacity to work.

What different types of Estate Planning are available?

The various Estate Planning tools include:

  • Wills (see our separate Advice section);
  • Trusts
  • Holding Companies
  • Various forms of property ownership
  • Gifting
  • Powers of attorney

Two of the tools listed above are discussed in further detail below. It should be noted that typically Estate Planning often hinges on Trusts.

What is a Trust?

The concept of trust is an ancient and ingenious one. The English Crusaders of the 12th and 13th centuries developed a trust law that enabled them to temporarily entrust their land to managers whilst they went abroad.

Today, a Trust is an arrangement whereby assets of the person who owns them are managed by another person / persons or organisation for the benefit of a recipient.

A Trust is created by a Settlor who entrusts some or all of his assets to a person/people of his choice called Trustees.The Trustees hold and manage the property for the benefit of one or more individuals (or organisations) specified by the Settlor who are known as the Beneficiaries. The Settlor can also be a beneficiary of a trust.

A simple way of summarising this is that Settlors give or transfer assets; Trustees manage and maximise those assets and Beneficiaries receive those assets.

The Trustees owe a financial and moral responsibility to the Beneficiaries and can indeed be held personally liable for any shortcomings in the Trust. The relationship between the Trustee and the Settlor/Beneficiary is a fiduciary one i.e. the trustees owe a duty of care to the Settlor/beneficiaries.

The Trust and Trustees are governed by the terms of the trust document, written as a legal deed by a lawyer on behalf of, and in consultation with, the Settlor.

What are the benefits of trusts?

  • Confidentiality; the trust assets are held in the name of the trustees. Therefore, the identities of the Settlor and beneficiaries are not public information.
  • Trusts protect personal assets against litigation, unfavourable government policies or those who might squander those assets.
  • It ensures the smooth transfer of assets from one generation to the next.
  • It minimises taxation when you have investments in more than one tax jurisdiction.

What is a Holding Company?

A Holding Company is a company registered for the purpose of holding all of ones assets such as real estate, shares and fixed income securities.

What are the benefits of a Holding Company?

  • By holding all your assets in a single Holding Company you can simplify your Estate Planning. This structure allows you to transfer all of your assets, by transferring the shares of the Holding Company, to your beneficiaries rather than having to transfer them individually.
  • A Holding Company enables you transfer your assets while still alive without going through probate. However, this route should not be taken without understanding the tax implications of owning a company.

Is Estate Planning for me?

Anyone and everyone can benefit from proper Estate Planning.

It is especially important for those that have children and for those that are at a mature phase of life.

How do I start?

ARM Trustees, a wholly owned subsidiary of ARM, can assist you in setting up your Estate Plan. For more information, contact an ARM Wealth Advisor about Estate Planning.

Last Update: June 20, 2017  

September 21, 2016   238    Trustee  
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