None of us likes to think about our end of days but we should if we want our legacy to be passed on as we wish, to ensure our family is protected, and to limit the taxes levied against our estate.
That's why estate planning is so important.
The basics
• A Will is the foundation of any estate plan. It designates how your estate should be distributed. If you die without a Will (i.e. intestate), provincial legislation will determine how your estate is distributed amongst your heirs.
• A Living Will provides direction for your care in the event of catastrophic illness or disability.
• An Enduring Power of Attorney (also called a Mandate in case of Incapacity in Québec) provides direction for how your property will be managed in the event of incapacity.
• An Executor (sometimes called a Personal Representative or in Québec, a liquidator) is the person named in your Will to settle your estate according to your documented wishes.
• A Guardian should be named in your will to take care of your children during their minority.
• Liquid Assets are important to pay for taxes, debts, the costs of settling your estate and/or other obligations. If you do not anticipate that your estate will have sufficient liquid assets, consideration should be given to purchasing insurance.
• Funeral Services can be prearranged to save your estate some money, avoid extra stress on your survivors, and ensure the service is according to your wishes.
• Financial Assets should be comprehensively listed in your records — and be sure your Executor and/or survivors know where to find them.
Beyond the basics
• Probate or not? Probate is the process by which your Will is validated by a court with fees paid to your provincial government usually calculated on the net fair market value of the assets in your estate. Although reducing probate fees may be desirable, avoiding probate through the use of strategies such as beneficiary designations and joint ownership can lead to problems if some beneficiaries receive more of the estate than others.
These comments are based on the probate process outside of Québec, since the probate process is different in that province.
• Set up a Trust? A Trust specifies a trustee who will manage the assets so long as the assets are held by the trust. Although it is possible to set up a trust during your lifetime, most people set up trusts in their will. A trust set up in your will is known as a testamentary trust, and it can serve several purposes, including maintaining control over the assets until certain beneficiaries are mature enough to manage them, and providing certain tax benefits to high-income beneficiaries.
Your personal estate planning strategies depend on your financial situation and the rules in your province. Your professional financial adviser and lawyer can help ensure your legacy is left as you wish while limiting probate costs and taxes.
J. Kevin Dobbelsteyn is a certified financial planner with Investors Group Financial Services Inc. His column appears every Wednesday.