Estate planning is a road map for how your assets – both money and property – will be distributed after you die. It also defines how other important personal matters will be handled according to your instructions. This can include who will take care of any minor children or pets.
Because most people don’t like to contemplate their own mortality, estate planning is often a neglected aspect of financial planning. But as the population ages, it’s a topic that deserves more attention. Especially since nearly one in four Canadians will be a senior by 2030.
Estate planning encompasses a wide variety of elements, including legal documents and preparations for your family. An estate plan can include everything from a ‘living will’ for your health care if incapacitated to a will after your passing. It spans the naming of an executor to carry out your wishes, appointing a guardian for minor children, and more.
Experts are also starting to notice the inclusion of digital assets (eg. bitcoin, social media accounts) and beloved pets in estate planning.
Getting started is easy, fast and free.
The main legal documents are:
A will comes into effect when you pass away. It provides instructions on how your assets will be managed after you’re gone, such as payments to named beneficiaries.
Creating an estate plan provides peace of mind. You can simplify settling your estate, and minimize taxation and administration costs. Proper estate planning can greatly reduce the burden on those left behind. Most importantly, it can avoid uncertainty about how to settle your estate.
Creating an estate plan may seem daunting. First, it’s important to think through your goals and wishes. Making these basic decisions before starting the process can save you time and money. Some questions to ask:
Many people think writing your will is a daunting, overwhelming process. In reality, it’s a simple legal document that outlines a few key roles. While you don’t need to list your net worth or include detailed inventories, the more information you compile for your executor, the easier their job.
Online estate planning platform Willful has compiled a helpful checklist to help you prepare to write your will and Power of Attorney documents. (Download it here.) And we have compiled the following steps you can take to provide as much information as possible for your executor and create your estate planning checklist:
The scope of the estate will often determine how simple or complicated the estate plan will be. Are you a multi-millionaire or have you had multiple marriages and children with more than one partner? If so, your estate planning will likely be complex. Other elements that can add complexity are foreign assets, businesses, and setting up complex trusts.
Do you have young children who are dependent on you? Do you have elderly parents relying on your support? In those instances, your dependents will be a primary consideration in your planning. If you are a senior with no children, you may want to consider leaving a charitable legacy rather than naming beneficiaries.
Are you creating an estate plan to provide for surviving children or other relatives? Do you want to ensure a partner’s standard of living is sustainable after your passing? It’s important to consider what is important to you as you create your estate plan.
This includes choosing a trusted person or persons to act on your behalf should you become incapacitated while still alive. And it includes having a reliable executor to carry out your instructions after death.
The main pillar of your estate plan is your will. A will is a legal document that defines how you want your property distributed and defines care for dependents. That includes your choice of executor, your beneficiaries, what each receives, any special allocations of personal items to specific recipients, and more.
A will is particularly important when there are multiple beneficiaries. Beneficiaries can be defined as primary or secondary. For example, you might name your spouse and children as primary beneficiaries. If they also pass away before the will is executed, secondary beneficiaries would be the recipients.
A will can also include funeral and burial wishes. While they’re not legally binding aspects of the will, they are a blueprint your family can follow.
Willful reported a 500% increase in website traffic and a 450% increase in the volume of wills sold at the start of the COVID-19 pandemic in Canada. It’s human nature not to act with urgency unless there is a compelling reason. But with so many negatives associated with not having a will, it’s clear why a will is considered the key building block of estate planning.
A key part of creating your will is selecting your executor. Executors often have to deal with selling real estate, filing court and tax documents, paying outstanding taxes, and distributing assets. As a result, make sure you get someone who is a reliable resource.
Don’t have a suitable friend or family member? A professional such as an accountant or lawyer can be named as your executor. This is typically a role that requires hundreds of hours of work. Even the simplest of estates can take 12-18 months to wrap up. So ensure you choose someone who has the capacity to take this on. Willful has more about choosing an executor.
For parents with dependent children, choosing the right guardians is critical. It can be a lengthy commitment for guardians and trustees depending on the children’s ages and the timespan of the trust created.
Ideally, people appointed should be younger than you are and live in the same province, given that laws vary provincially. Above all, make sure that people are aware you have selected them for these roles since there are responsibilities that go along with each of being a trustee, guardian, power of attorney, or executor.
In a 2020 survey commissioned with Angus Reid, Willful found that 57% of Canadian adults did not have a will. And a whopping 89% of Canadian adults under 34 don’t have wills.
A person who dies without a will is called an intestate, and your assets are distributed according to provincial legislation. Without a will, what you might have envisioned happening to your assets and what actually happens when you die may be completely different.
Even if you have shared your intentions with family members, without a will your wishes may not be carried out. There is much more room for family drama in situations where there is no will.
Without a will, you cannot choose your beneficiaries or who will administer your estate.
Failing to have a will in place can also mean delays in resolving an estate, with higher administration costs and higher taxes. That leaves less for your beneficiaries and more in the pockets of the government and lawyers. Without a will, the courts will appoint an administrator to wrap up your estate, and it may not be the person you would have chosen. Finally, it takes longer, which delays any payments to beneficiaries.
Wills and trusts are not mutually exclusive. Often trusts are created within a will as a ‘testamentary trust.’ This trust appoints a trustee to manage assets on behalf of a beneficiary. Trusts are commonly used when the beneficiary or beneficiaries are minor children or disabled individuals.
The trust can stipulate that funds can be accessed by a child only for educational purposes until a defined age. At that time, for example, 21 or 25 years of age, the child would receive the balance of the trust.
A trust can also be used to reduce tax implications. Finally, it can ensure proper professional management of assets after a person’s death. For example, a testamentary trust could be useful in managing a legacy gift from a deceased person to a charity.
Along with testamentary trusts, another common trust in Canada is inter vivos (living) trusts that come into effect during a person’s lifetime. It could be valuable to think about whether a portion of your wealth should be dealt with while you are living. For example, a family business succession plan could tie into your estate plan. Many older people are even re-evaluating their planned inheritance, thinking they’d like to experience the joy of seeing their children, grandchildren, or younger family members put this money to use.
A lawyer does not have to create your will. It’s simply a document that outlines your end-of-life wishes and distribution of assets. However, there are important elements that should be included in your will. So to ensure that you cover all the bases, it’s best to either use an online will service or consult a lawyer to prepare your will.
Regardless of how you create your will, it must be signed and dated by you and two competent adult witnesses who are both present at the same time. The original hard copy of that signed document needs to be stored in a safe place where your executor or a family member can access it.
For those with straight-forward circumstances, creating a will online is a viable option. Willful has a simple process that walks you through will creation in less than 20 minutes. (Read their guide to online wills to find out more about this cost-effective, accessible option.) The wills produced on Willful are legally-binding when signed and witnessed properly. The cost of an online will is a fraction of traditional wills and incredibly convenient.
In the case of more complex scenarios, or if you want personalized legal advice, it may still be wise to consult a lawyer to create your estate plan. Along with the creation of a will and naming of health care power of attorney, property power of attorney, and executor, a lawyer can help with complex family business implications or challenging tax scenarios.
“There are circumstances where legal advice on will creation is critical to ensure that the goals of your estate plan are achieved. Those situations include instructions for liquidation of assets such as family cottages which may involve multiple stakeholders or beneficiaries in a family,” said Marlenne Doss, LL.B. of Doss Law Professional Corporation.
“It can also be vital for establishing an estate plan for blended families and for the allocation of assets located outside Canada, such as properties in the U.S. Family-owned businesses are another contentious holding For large or complex estates, we do recommend creating your will in consultation with a lawyer.”
One key use of life insurance in estate planning is to equalize payouts to beneficiaries. For example, you may choose to leave your investments to your partner but want to ensure your children also receive a legacy payment. Or one child may be taking over the family business while the other is not. Life insurance can provide additional funds to ensure fair distribution of assets, equalizing the estate and helping you to meet your estate planning goals.
Regardless of how an estate plan is created, it’s important to revisit the plan every few years or at major milestones like a marriage, divorce, buying a home, or birth of a child. That will ensure your estate plan keeps pace with changing circumstances at each stage in life.
Some people may find that prearranging burial plots or cremation, or planning celebration of life services in advance is one step too far. For others, there is reassurance in knowing what will happen when they pass. These pre-planned steps can reduce stress on the family when the time comes.
Another advantage of pre-planning is paying less for such items as funerals, cemetery plots, and more. The cost of these services is continuing to rise so there are financial advantages to being prepared.
Again, whatever provisions are put in place, all relevant documents should be stored in a safe place. Share the location of documents with family and your executor/power of attorney/trustee. You can also register your will on the Canada Will Registry, which will help your family locate it in the event they can’t find it.
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*Advisorsavvy blogger Shelley Grandy is an investor in Willful.
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