5 Simple Steps for Estate Planning

Estate planning ensures that the wealth and assets you have worked so hard to build go to the right people after your death. An estate may include bank accounts, investments, properties like land or vehicles, and personal valuables like jewelry.

Estate planning has two goals: preserve your assets by minimizing taxes and court fees, and appropriately distribute them according to your wishes. In this article, we’ll go through each of the tasks involved:

Write a Last Will and Testament
Name an executor who will be in charge of implementing your will
Minimize estate taxes through trust accounts, charitable donations, etc.
Establish Power of Attorney (POA)
Prepare for Advance Directives and Funeral Arrangements

Write your Last Will and Testament

Your will is an official legal document that gives your instructions on the distribution of your assets and custody of your children.

Authenticity of the Will

A will’s authenticity is determined during the legal process called a probate. This must be done within 30 days after death, and is needed to initiate the distribution of assets.

To avoid any legal problems, it’s best to provide a written will that is signed in front of two witnesses who are of legal age and are not part of your list of beneficiaries. Under Canada law does not recognize oral wills, even if they are videotaped.

Possible beneficiaries

Aside from your partner or children, you are free to name anyone in your list of beneficiaries, including siblings and parents, non-relatives, or charities.

While it is possible to exclude children or spouses from your will, you have to consult with a lawyer about the best way to do this to avoid the will being contested and overturned in court.

Guardianship and custody

If you have children who are minors, it’s important to think about who can take care of them if they lose either one or both parents. Make a shortlist, and be sure to discuss this with them to see if they are ready and willing to take on the responsibility.

You also have the option to select a different person (such as a lawyer or financial firm) to manage your children’s inheritance until they reach the age of majority. In Ontario, this is 18 years old.

Choose an Executor for your Will

The executor plays an important role. Responsibilities include:

Locating all the assets (including bank accounts, retirement accounts, stocks and bonds, deeds or titles of both properties and vehicles, and valuable items like jewelry or art
Determine the value of the assets
Pay off any taxes or debts (and in some cases, take the debt to court to determine if the claim is valid)
File income tax returns
Distribute the remaining estate to the beneficiaries

Minimize Estate Taxes

Estate taxes can make a large dent in the actual amount that your beneficiaries will receive. One of the benefits of estate planning is that you can funnel some of your assets into instruments that will reduce or even eliminate taxes. Click here to know more.

Trusts

Your will may also include the declaration of a trust. A trust transfers some of your estate to another party to manage in behalf of your beneficiaries. You have two options:

Living Trust transfers the assets the moment you sign the document. You still maintain ownership and can revoke the trust at any time. After your death, these assets will be directly transferred to beneficiaries outside of probate court.
Testamentary Trust. You name a trustee who will control the distribution of assets after your death. Unlike the assets in a will, these do not pass through probate court.

Even if you decide to put most of your assets into a trust, it’s important to still have a will to cover anything you may have missed.

Educational funds

You can invest in an educational plan that will ripen by the time your children are in college. This is more tax-efficient than simply placing the money in an account which they will use to fund their tuition.

Charitable contributions

Donations don’t just allow you to contribute to a worthy cause and leave a priceless legacy, it can also lower reduce estate taxes.

In a nutshell, any gifts or charitable contributions are excluded from the taxable estate. However, you must select a “qualified donee” and provide the necessary documentation. Work with your financial planner to find out the best strategy.

Life insurance

Life insurance is a versatile estate planning instrument. It can be used to pay for funeral expenses, estate taxes, and debts such as remaining mortgage fees.

Furthermore, life insurance proceeds are given in a lump sum and are tax-free. Your family does not even have to report this in their Canadian tax returns—regardless of size or type of insurance it was (ex: life insurance, term insurance).

You will name the beneficiaries in the life insurance plan, so the money goes directly to them and will not go through probate court. The exception is if the state is named as the beneficiary, in which case it will go through the same estate tax and probate fees.

Consult with your life insurance planner to find out more about the best strategy for your needs.

Establish Power of Attorney

A Power of Attorney is a legal document that empowers someone to make legal, financial, and medical decisions for you in the event that you are physically or mentally incapacitated.

Power of Attorney is a necessary part of estate planning, since it can facilitate important transactions like transferring bank accounts and coordination with your lawyer, accountant, insurance agent or financial advisor, etc.

You can give someone General Power of Attorney which gives blanket authority, or Special Power of Attorney which limits the scope. For example, you may wish your partner or child to make medical decisions for you.

Prepare advance directives and funeral arrangements

Advance directives outline your preferences for medical treatment, such as the use of dialysis or assisted breathing machines, or resuscitation after your heart stops beating.

Funeral arrangements including stating your preferences, or taking out insurance plans that can cover funeral costs.

While it may be uncomfortable to think about these matters, planning ahead ensures that your wishes will be followed, and spares your family members from the emotional agony of having to make these difficult decisions.

Talk to an Ontario Expert on Estate Planning

Estate planning involves many details, decisions and documents. Sim Gakhar is an experienced financial planner who can help you through the process, and help you understand your different options. Contact us to find out more.

Useful references and resources

https://www.investopedia.com/terms/e/estateplanning.asp
https://www.ontario.ca/page/administering-estates#:~:text=You%20are%20not%20legally%20required,authority%20to%20administer%20your%20estate
https://www.canada.ca/en/revenue-agency/services/tax/individuals/life-events/what-when-someone-died/final-return/complete-final-return-steps/common-types-income-a-final-return/federal-non-refundable-tax-credits/line-34900-donations-gifts.html