Estate
Planning 101
If you’re like most people, getting your personal financial
plan started can be a challenge. And what about planning your
estate? Well, that subject might really make you shudder.
But why? Too dreary? Too complicated? Too intimidating? Or,
simply not on your list of priorities?
Estate planning should be a financial priority at almost
any stage of life. In fact, an estate plan is absolutely essential
for organizing your financial affairs and providing for the
well being of your family members.
Simply put, an estate plan is written documentation of how
you want your assets to be owned, managed and preserved during
your lifetime and how you want them dispersed after your death.
Why is it important to have a plan? To ensure a simple, tax-efficient
and organized transfer of your assets to loved ones.
When you start your plan, there's a lot to think about. You
want to live your life to the fullest, and ensure that your
heirs will get the most out of the assets you're setting aside
for them. Here are a few of the things you’ll need to
know:
Your Will
The will is a roadmap for planning your estate and should
be updated on an ongoing basis - particularly as your circumstances
change throughout your life. A will is quick and easy to produce
and will generally cover the following:
- The distribution of assets within the estate (e.g. investments,
real estate, possessions)
- Naming beneficiaries of the estate (e.g. immediate or
extended family, institutions, etc.)
- Naming the executor – the individual(s) or organization
chosen to administer the estate
If you should die without a will (referred to as intestate),
the province you reside in will step in to administer your
estate using a formula. In this case, you’ve essentially
forfeited your say on how things are divided and who will
be in charge of the process.
What is Probate?
Probate is the process by which a provincial court confirms
the validity of your will. Potentially, it can be quite time
consuming, tying up your assets for months or longer. Probate
fees are essentially the taxes that must be paid to the provincial
government before your executor can begin to administer your
will. The fees vary from province to province and are based
on the value of the assets in your estate. In most provinces,
the fee structure is tiered.
In addition to probate fees, there are fees payable to the
executor for administration services and fees payable for
legal and accounting services. In the end, the cost of probate
can be significant.
Reducing Taxes
We all know the old cliché that the only two certainties
in life are death and taxes, but how much do we really know
about taxes after death?
If you have a will, upon your death it is your executor’s
responsibility to file a tax return for you. The government
will consider you to have sold all your assets immediately
before your death and any capital gains/losses will be crystallized.
That may lead to a big tax bill.
Depending on your individual needs, there are strategies
you can employ within your estate plan to minimize the amount
of taxes you have to pay and to avoid probate. Below are a
few key examples:
- Maximize asset “roll-overs” - transfers to
your spouse that defer capital gains liabilities
- Get advice on setting up a trust to ensure your beneficiaries
are well looked after
- Give gifts of cash or possessions while you are still
alive
- Consider charitable donations to create valuable tax
benefits
- Buy life insurance that is paid out to the beneficiary
on a tax-free basis
- Restructure investments with insurance companies to avoid
probate on death
The reassurance of having a strategy in place to preserve
the value of your estate for loved ones is something to value.
After all, why pay if you don’t have to? Work with your
financial advisor to determine what exactly is in your estate,
and then devise your plan.
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