Everything you own, including the money in your bank account, your home, and other possessions, won’t be yours forever. At a certain point, you will begin to contemplate where it will all go after you pass away. This is where estate planning comes in.
Why Should I Start Estate Planning?
If you don’t do any estate planning, the court will do it for you – and there is a good chance that they won’t distribute your assets in the way you want.
When you don’t plan, your loved ones will have to go to court and appoint an administrator to determine how your assets will be distributed. If your family cannot hire an administrator, the court will select one, creating more complications. The court may sell heirlooms and distribute assets in a way you wouldn’t want, leading to unnecessary taxes and fees.
What Do I Need?
Estate planning is a team effort. You won’t have to go about this by yourself, which will take the stress out of the process. Estate planning involves selecting personnel, drafting documents, and ensuring those documents are legally binding and safely stored.
Where Do I Begin?
It begins with drafting a will. Consider who you’d like to transfer funds and assets to. Consider what assets you’d like to leave for each person, the funds you’d like to leave behind for them, and how your loved ones will receive funds and assets.
Funds can be distributed as a lump sum or be released at a certain time. This is useful to consider, especially if you have minor children. You may want them to get their funds after reaching a certain age or at a time when they will need to pay for higher education.
Who Else is Involved?
These are the individuals who will play a role in your estate planning:
- Lawyer
- Notary/notaries
- Trustee
- Power of attorney
- Executor
A lawyer can help draft your will and ensure it is legally binding. Notaries oversee signatures. Trustees hold your assets and funds for beneficiaries and distribute them at a designated time. A power of attorney makes decisions on your behalf if you become incapacitated. Executors ensure proper distribution and work to minimize fees after settling the estate.
What are the Final Steps?
Your final steps are to ensure that your will is official and keep it stored safely.
A legally binding will has to be written by you. It must have handwritten signatures, including yours and two witnesses who aren’t beneficiaries.
Once official, make copies. Keep it in a safely stored container, and give your lawyer a copy. Provide instructions for your loved ones as to where the will is so that it never gets lost.
Not planning your estate
An estate plan means preparing for the management and disposal of a person’s estate during the person’s life. It also includes the bequest of assets to heirs and the settlement of a person’s estate. Few people find estate planning to be a fascinating topic, and unfortunately most associate it with dying. However, having an estate plan is much more than that.
First, an estate plan gives you control over your money and your assets. It allows you to have all your documents (will, power of attorney, and possibly a health directive) in one place, providing you with certainty should your health change temporarily or permanently. Second, estate planning helps you transfer your assets in the most tax-efficient manner. This typically includes considering what to do with assets like rental property, small businesses, or corporations. These are assets that, if sold, would trigger significant capital gains tax; probate fees can also be substantial. While such taxes and fees are unavoidable, they may be deferred or lowered by using strategies you can discuss with your financial or tax advisor.
Third, many retirees associate ownership with control, and believe that if they give up ownership, they give up control. With a good estate plan, there are often ways to give up ownership, and yet maintain control. Through the use of trusts or other techniques, you maintain privacy and protect your assets from creditors, all while having your assets pass to the beneficiaries of your choice. If you want your assets and your beneficiaries to be protected when you are no longer able to do so, you should have an estate plan in place. Otherwise, the courts and the Canada Revenue Agency may be making the decisions for you.
