Everyone knows estate planning is important, yet many people procrastinate. However, since estate planning is so crucial, it deserves your attention now – right? Before we explore the main reasons why you need an estate plan, let’s first define the term.
When a person builds an estate plan, they are creating a formal process – legally recognized and upheld by the jurisdiction in which they reside – of arranging for the management and disbursement of their possessions and financial assets after they die. Estate planning is about making careful decisions that help you safeguard and increase the value of your assets, while putting into place explicit instructions for transferring your assets to your beneficiaries. It’s also an expression of your love for your family and your thoughtfulness for ensuring that they’re well taken care of.
Although estate plans can be highly complicated, depending on the individual and their unique circumstances, the main benefits of implementing an estate strategy are basically the same. An estate plan will help you achieve the following five objectives:
- Protect and take care of your beneficiaries. Typically, the beneficiaries (heirs) of an estate are family members, and who knows better than you what each individual family member needs or wants. By having an estate plan, you can take care of your beneficiaries by precisely stipulating who will receive which assets. Without a plan, the courts will decide who gets what.
- Reduce tax liabilities. When you die, your Will goes to probate court to verify that it is indeed your Last Will and Testament. Then your Will is assessed to see what assets form your estate (and are therefore taxable). If you named a specific beneficiary for certain assets like your RRSP, RRIF, TFSA and life insurance policies, these assets are excluded from your estate and not taxed. The same thing applies to accounts having a designated joint owner with rights of survivorship. Other assets, where the beneficiary is simply “the estate,” will be subject to probate fees, the amount of which varies by province and territory. With an estate plan in place, you can help minimize the taxes your estate must pay, which leaves more assets for your beneficiaries.
- Avoid or minimize family disagreements. Unfortunately, it’s common to see family members struggle to interpret (or disagree about) their entitlement regarding estate assets, and sometimes it leads to legal action. A clearly articulated estate plan can reduce conflict over asset distribution and other estate-related issues.
- Create your legacy. You deserve the right to distribute your life’s assets as you wish. Maybe you want to help out a family member with financial challenges by designating a greater percentage of your estate assets to that person. Maybe certain charitable organizations are especially meaningful to you, or you want to establish a foundation that will execute on your philanthropic wishes. These are just a few examples. Whatever the case, it’s your legacy at stake and having an estate plan gives you better control over that legacy. You may also consider gifting your heirs before your passing, which would help them sooner financially while also giving you the satisfaction of seeing them benefit from your generosity.
- Peace of mind. Creating an estate plan offers you peace of mind that you “have your affairs in order” and will be reducing the burden on your family. When you communicate the contents of that estate plan to your beneficiaries, it provides them with a greater degree of clarity and certainty. Coping with the death of a loved one is stressful enough – without an estate plan, it will be even more difficult for your beneficiaries to deal with the aftermath of your passing.
As you can see, estate planning is critical for ensuring a smooth, desired distribution of your assets. However, the estate planning process also takes into account creating a Will, designating an executor and Powers of Attorney, and other family law considerations (e.g., marriage, separation, divorce, blended families). It’s important to create your estate plan with support from professionals (lawyer, tax and estate specialists, accountant, financial advisor, etc.) who can make the process easier and more efficient.
If you contact our office, we can guide you through the estate planning process and access our network of professionals to support building your personalized estate strategy.
Prior to implementing any strategies contained in this document, Individuals should consult with a qualified Tax Advisor, Accountant, Legal Professional, Financial Advisor or other professional to discuss the implications specific to their situation. Estate law, including wills, powers of attorney and probate fees, vary and are governed by each provinces and/or territories. Please review provincial laws based on where you reside.