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Estate planning when you have no heirs

These strategies ensure your hard work in this world creates a meaningful legacy when you’re gone

Estate planning when you have no heirs

If you’ve put off writing a will, you’re in good company. A report from the Angus Reid Institute has found that more than half of Canadians have no estate plan.

Canadians who don’t have a will typically blame it on the high legal costs, but Bud Arnold, CPA and tax partner with Baker Tilly Canada, believes that a lack of obvious heirs could be another factor that leads many Canadians, including farmers, to ignore estate planning. “One of the motivators to make an estate plan is to make sure that you’re providing for your children or the next generation,” Arnold says. “Where (there are) no children, it’s one fewer motivating factor to get an estate plan in place.”

Arnold sees it differently, though, and says “If you’ve worked a lifetime to accumulate assets, you should have an interest in where those assets are going.”

Canadian inheritance law stipulates that when some- one dies without a will (referred to as dying intestate) their estate should be divided between their spouse and children. With no surviving spouse or children, the law states the estate is passed to next of kin, which could include siblings, nieces and nephews, cousins and so on.

As a last resort, the estate would go to the Crown.

“If you don’t have immediate family, your estate could go to a second or third cousin you didn’t even know existed,” says Nate Martin, practising partner at SmithValeriote Law Firm LLP. “By creating an estate plan you have the opportunity to divide your estate amongst your friends or any charities or institutions you value.”

“If you’ve worked a lifetime to accumulate assets,” says CPA Bud Arnold, “you should have an interest in where those assets are going.” photo: iStock/Getty Images

Rather than letting the government decide who receives your assets, advanced planning can ensure that your assets will go where you want.

In the absence of children or grandchildren, there are many ways to distribute your assets to organizations and individuals who would benefit from your generosity.

Individual gifts: The farmer next door who has rented your land, loaned and borrowed equipment, helped with the harvest and served as a confidant and cheerleader during the ups and downs of operating a farm might be top of mind when it comes to designating who should receive farm assets.

Kurt Oelschlagel, an accountant and national agriculture tax leader with BDO Canada, worked with a couple who had no heirs and planned to leave some of their farm assets to their neighbours. The couple wanted to honour their friendship with a substantial gift in their estate.

“You may wish to leave your farming operation to a trusted friend or deserving employee,” adds Martin. “In this situation, you have the choice of gifting the entire operation to an individual or having them pay a certain value to the estate and having those funds dispersed to other individuals or organizations.”

Your estate taxes will be higher if the farm and assets aren’t “rolled over” to a spouse or child but Canada has no inheritance tax, which means that the estate, not the beneficiaries, pays taxes to the provincial and federal governments when the estate is settled.

Conservation easements: A conservation easement limits land use with the goal of protecting it. It’s a permanent legal agreement that might prohibit building structures or altering the natural habitat while providing benefits ranging from conserving wildlife habitats to safeguarding historic properties.

Since 1962, the Nature Conservancy of Canada has conserved 35 million acres of land across Canada and it partners with farmers to manage more than 18,000 acres of grazing and haying systems to benefit the livestock industry and wildlife.

Gifting an easement to a conservation organization is one possible option for designating assets when you have no heirs — and establishing the easement could help reduce the value of your estate and minimize estate taxes, notes Oelschlagel.

You can set up a conservation easement now to sell the land to a conservation organization and lease it, sell a conservation easement to a non-profit such as the Nature Conservancy of Canada while continuing to use the land (while honouring the restrictions) — and receive immediate tax benefits of either option — or donate the land as part of your estate and include instructions that it should be placed into a conservation easement.

Equipment: Your farm equipment might have a lot of value but an organization that fights world hunger will struggle with the donation of a combine or grain cart, notes Brent Dekoning, associate advisor with Lorkovic Wealth Management of RBC Dominion Securities.

“The charities want the cash value of farm assets; they don’t want to be farm owners,” he says.

But beginning farmer programs, farmer-veteran organizations and college agriculture programs may welcome donations of land and equipment and be able to put it to immediate use to train the next generation of farmers.

Arnold adds that designating specific assets requires a “memorandum of distribution” that is attached to the will and lists specific assets and their designated beneficiaries. Before designating specific assets, check with the organization to make sure the gifts are welcome; some charities might prefer the value of the assets instead.

Charitable foundation: You can establish a charitable foundation or bequeath assets to a donor-advised fund through organizations like Canada Gives and Abundance Canada that will oversee the distribution of assets to various charities.

“It takes the burden off of the executor and passes it on to the foundation,” Arnold explains.

In addition to simplifying the process for the executor, setting up a charitable foundation offers significant benefits such as allowing gifts to be made anonymously and spreading out charitable contributions over time.

Arnold notes that you may not want to leave a large gift to a small organization in a lump sum. Rather than leaving $1 million to the local animal rescue league, you could direct a charitable foundation to gift the group $100,000 a year over the next 10 years, creating an impact that lasts long after you’re gone.

The trustees of a charitable foundation also ensure that funds will be allocated to an organization with a similar mission should one of the chosen charities close or merge after your passing.

Charitable donations: One of the most popular (and straightforward) options for farmers with no heirs is leaving the proceeds from their estate to various charitable organizations.

“A direct bequest is the most straightforward option and I often recommend it when there is a fixed dollar amount to be left to a specific charity,” Arnold says. “If you want to leave $50,000 to the Canadian Cancer Foundation, your executor writes a cheque for that amount and the obligation is clear.”

Cash donations are also most convenient for charities because the organizations know to expect a specific dollar amount from an estate. If the bequest is a percentage of the estate or a “residual asset” of what remains when the estate is settled, Arnold warns, “the charity that is receiving the assets has an interest in knowing how all of the funds of the estate have been handled… and it adds a lot of administrative burden to the estate executors.”

You have a lot of choices about who will receive the proceeds of your estate upon your passing but creating a legacy requires advanced planning. Meeting with your accountant, lawyer and financial planner to create an estate plan that reflects your values and honours your wishes is especially important when there are no heirs in line to carry on the family farm or benefit from the assets you built.

“While it may be difficult to select what organizations or individuals receive funds from your estate if you have no heirs, it is an important exercise to undertake,” Martin says.

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