Planning your Estate
Accepting one’s own mortality is a tough pill to swallow. As such, estate planning can be a morbid topic that lingers in the background of our lives ominously. Nobody wants to plan for their own death! However, the repercussions your family will face are dire if you delay preparing for the unforeseen curveballs that life throws our way.
In order to ensure that our families are secure with a strong foundation no matter what occurs in the future, Canadians must be proactive. With that being said, we will look at the most important elements of estate planning that must be addressed.
With a Will, There’s a Way
Possessing a will that is updated is the most pivotal part of estate planning. A will protects your ability to determine how your finances are managed upon passing away or becoming incapable. Asset distribution will become a timely and costly endeavour for family members if you do not have a valid will as “the government gets to decide who your beneficiaries are and how your assets will be divided up”. 1
There is also an additional financial burden that comes with dying intestate. Your family will face hefty expenses as the court is required to appoint “a bonded administrator to serve as an executor of the estate” along with other legal fees. 2
(Em)Power of Attorney
Appointing a ‘power of attorney’ grants a trusted individual to make decisions on your behalf if you become mentally or physically incapacitated until your death. Without a power of attorney, your assets are essentially frozen. Family members will be unable to access your financial support unless they “apply to the court for the power to act” 3, which is another timely and costly endeavour.
Minimize Probate Fees
Probate fees are the cost associated with certifying to the court that an executor is legally authorized to represent your estate. These fees can take a chunk out of your estate - the Ontario Securities Commission notes that in some cases it can “equal almost 1.5% of your estate’s value” 4. However, there are multiple avenues Canadians can use to offset these costs:
Trusts: The usage of trusts allows you to give away assets to a trustee to hold for a third party beneficiary. By doing this prior to your death, trust assets are no longer associated with your estate. In addition, trusts grant you more autonomy as to exactly where, when, and how your assets will be delivered. As a trust’s terms are more legally binding than a regular will, you are able to make specific instructions to the trustee such as “regular monthly payments from the trust to the heir so the inheritance can’t be spent all at once” . 5
Establish Beneficiaries: You are able to designate a beneficiary on behalf of your life insurance as well as other accounts such as your RRSP. In doing so, all “assets fall outside of your estate and pass directly to the named beneficiaries” . 6
Joint Ownership: Jointly owning an asset with a spouse or adult child is another convenient method to dodge probate fees. By jointly owning an asset, it will automatically pass on to the surviving owner without being considered a part of the deceased’s estate.