Regardless of how little or much you have of something, you will always have a desire of where you would like this asset to be distributed in the event of your death. Estate planning refers to the process required to transfer and preserve your wealth in an orderly and effective manner. The best way to achieve this desired distribution is to strategically plan ahead through the creation of a Will.
The first step to proper estate planning is to consider all your assets that you will want to give away to specific loved ones. These assets can include your current household, a second household, cottages or rental properties, as well as any financial accounts including GICs, mutual funds, bonds, RRSPs and any other personal effects you wish to pass on. You may also want to include personal property such as family jewelry, antique furniture or fine art. Constituting an Estate Plan will help you allocate these assets to your beneficiaries.
Secondly, proper estate planning will also require that one considered the possible tax costs before and after ones death and provincial legislations. Some key objective points that many people consider when estate planning are;
- Guaranteeing an orderly distribution to his/her beneficiaries (often through a Will);
- Maximizing the value of one’s assets;
- Maximizing after-tax income before and after death;
- Attempting to minimize the income tax and other costs applied before and after one’s death.
There are multiple avenues that can be taken in order to achieve these objectives. Some of these techniques include leaving assets to family members that are in a lower tax bracket. Other methods can also include;
- Creating trusts for your children in order to maximize tax savings;
- Establishing estate freezes which helps reduce the tax one will pay in the future on the increased value of the asset;
- Making use of the benefits created through charitable donations, holding companies and/or dividend tax credits;
- Taking advantage of any income tax options that help minimize tax payments on your current assets.
After creating a list of assets and considering the different objectives that he or she wants when distributing these assets, an individual is ready to prepare a Will that will carry out these desires at the time of death. Wills are designed to state your wishes and objectives in the event of your death and are legally binding. It is important that once you have created a will, you continue to have it professionally reviewed consistently in order to ensure that any government legislative changes do not affect your plans. Also these regular meetings allow for you to re-consider your personal situation and make any corrections or additions to your Will as needed. Estate planning is an ongoing process, so is your personal circumstance, and therefore needs and wishes can change. Regardless of your age, the advantage of estate planning is an essential element of life planning.
Life Stages of Estate Planning
Depending on the individual’s age, there are different needs associated with that stage in one’s life. Therefore, because of these different stages, there are specific issues that can arise that require alternative estate planning strategies to correspond with individual’s wants.
In this initial stage, individuals are just beginning to acquire family assets and plan for raising a family. In order to assist with Will planning, it is important to begin in this preliminary stage by creating a Will list, needs assessment and a review of you and your spouse’s financial situation. This contributes to a well planned estate strategy that allows for you to keep track of your assets as well as begin financial planning for the future. This stage is the starting point for creating your Will and therefore you may consider some of the following to ensure protection of your assets.
- Outline a 5 year plan to determine your goals and needs in that time;
- Assess your current life insurance policies to guarantee adequate coverage in all aspects of your current and future needs;
- Consider any savings programs such as an RRSP for your children or potential children’s post-secondary education;
- Each person should create a list of who they want to receive specific assets and how they should be distributed at the time of your death. Creating separate lists allow for spouses to come to an agreement when comparing notes;
- Select an executor and trustee of your will as well as a guardian for your young children;
- Lastly, consult a legal professional who is qualified and knowledgeable in estate planning and therefore can assist you in considering all issues you will want to include into your Will.
During the second major stage in an individual’s/couple’s life, one’s priorities, needs and concerns are probably changing. Most often during this period, children are in their adolescent years or older and therefore concerns of ensuring an adequate guardian for your children is probably not as strong as before. This is also the time that one becomes more financially stable and therefore the accumulation of assets has increased considerably. Your marital status (single, married, divorced, etc.) may have changed since you initiated your Will and these changing circumstances can have legal and estate planning implications. Now you will have to re-consider your goals and needs in order to maintain your Will and your personal estate planning strategy. The following are some considerations that may be taken into account.
- Assessment of your financial status and personal goals and priorities. As with young family planning, this assessment is mandatory during all stages of one’s life and therefore will be an ongoing process;
- Review your will and make necessary changes. Reviewing your will should be done regularly (approximately once a year) to keep up with any provincial legislative changes and also to change your Will to correspond with changing circumstances. If your marital status changes, it is important to make this change within your Will in order to prevent it from being challenged by a past spouse or children of a previous marriage;
- Consult expert professionals regarding your Will as well as your financial situation. Generally your needs, circumstances and financial/tax situations become more complex and therefore you should consider obtaining more skillful advisor to meet your specific circumstances;
- Re-asses your choice for an executor to match the complexity of your personal and financial assets.
For older families, one could be approaching retirement or planning for their retirement. At this stage, you and your spouse may also have health concerns or medical needs that should be taken into account. Assets owned are probably at their highest and although you may have children whom are married sometime you may still need to provide some financial support to these members. Since there are so many life changing events during this stage is it important to consider some of the following to guarantee proper estate planning.
- Continue to assess your financial and personal status, needs, goals and priorities. Soon you may consider selling your home and move to a desired environment or you may wish you spend your retirement travelling;
- Continue to annually review your Will. At this time you can choose to use your money for personal adventures for yourself and your spouse and leave the remaining money to your children. Alternatively, you may want to leave money for your grandchildren’s education or provide a starting point for their lives. You may also choose to disinherit an individual from your Will or create new clauses that correspond to your wants. Here you must make sure that your lawyer uses accurate and appropriate words in order to prevent your Will from being contested at another time.
- Again, re-assess your executor and trustee. You may also wish to appoint a co-executor and co-trustee if necessary.
- Seek professional advice in order to reduce taxes consequences for your beneficiaries.