Most people know they should have a will. The harder questions are what should go into it, what else should be considered as part of an estate plan, and what can happen if you do not plan ahead.
Failing to prepare can have significant consequences for both your estate and the people you intend to benefit from it.
Baby Boomers are approaching the largest intergenerational wealth transfer ever, with trillions of dollars expected to pass from one generation to the next. Yet fewer than half of Canadians have a will.
Without a will, you do not get to decide how your estate will be distributed. Provincial legislation does that for you. There can also be significant tax consequences when an estate is transferred.
The good news is that there are practical steps you can take now to make your wishes clearer, better prepare your family and help protect the assets you have worked a lifetime to build.
Here are five important estate planning steps to consider.
1. Write a Will
If you die without a will, you are considered to have died intestate.
When that happens, provincial legislation determines how your estate will be distributed. Each province has its own rules, and those rules—not your unwritten intentions or what your family believes you would have wanted—govern what happens to your estate.
A properly prepared will allows you to provide instructions for the distribution of your estate rather than leaving those decisions to the default rules established by legislation.
For many people, simply making a will is the most important first step in creating an estate plan.
2. Review Your Beneficiary Designations
Your will is not the only document that can determine who receives your assets.
Accounts and policies such as RRSPs, TFSAs and life insurance policies can have designated beneficiaries. When a beneficiary is properly designated, those assets can pass directly to that individual outside of your estate.
For example, you may choose to name your spouse as the beneficiary of your RRSP.
The important thing is to ensure your beneficiary designations remain current and continue to reflect your intentions. Major life changes—such as a divorce—can be a good reason to review who has been named as a beneficiary.
TFSAs also have another important option. A spouse can be named as a successor holder, rather than simply as a beneficiary, allowing the spouse to take over the account and continue to grow the funds tax-free.
Your beneficiary designations should therefore be reviewed as part of your overall estate plan, rather than considered separately from your will.
3. Plan for Taxes at Death
Taxes can have a significant impact on the value of the estate ultimately received by your beneficiaries.
In Canada, when a person dies, a deemed disposition generally occurs. In simple terms, assets are treated as though they have been sold, which can trigger taxable capital gains.
This can affect assets such as:
- Real property
- Shares
- Farm equipment
RRSPs and RRIFs can also create tax consequences at death unless they qualify to be rolled over to a spouse or a dependent child or grandchild.
Without proper planning, taxes can consume a significant portion of an estate. In some cases, the Canada Revenue Agency can unintentionally become one of the largest beneficiaries of the wealth you accumulated during your lifetime.
Considering potential tax consequences before death can help ensure more of your estate ultimately goes where you intended.
4. Prepare a Power of Attorney and Personal Directive
Estate planning is not only about what happens after you die.
A will generally takes effect after death. A power of attorney, however, can help address what happens while you are still alive if you become unable to manage your own finances and estate.
A personal directive serves a different purpose. Rather than dealing primarily with financial matters, it can provide direction regarding issues such as your healthcare, who you associate with and where you live.
These documents can become extremely important if illness, injury or incapacity prevents you from making decisions for yourself.
Without appropriate documents in place, your family may be forced to go to court to determine who can manage your affairs. Your assets can also be affected before your estate ever reaches the point where your will takes effect.
A complete estate plan should therefore consider not only death, but also the possibility that you may one day be unable to manage your own affairs.
5. Talk to Your Executor and the People Involved in Your Estate Plan
Creating the right documents is important. Making sure the right people know about them is important too.
Your executor, beneficiaries and the people appointed to act on your behalf should understand that these documents exist and have a general understanding of your wishes.
Your executor, in particular, should know:
- Where your will is stored
- Which lawyer prepared the will
- Who witnessed it
- Your general wishes
- Your funeral wishes
- The existence of insurance policies, RRSPs and other assets
- Where information about your estate can be found
You are asking your executor to manage the assets you accumulated over a lifetime and help ensure those assets reach your beneficiaries.
Giving them information in advance can make that responsibility easier at an already difficult time. Clear communication can also reduce surprises, misunderstandings and disagreements among family members later.
Estate Planning Is More Than Writing a Will
A will is an essential part of estate planning, but it is only one part.
An effective estate plan should consider how your estate will be distributed, who is named as a beneficiary, potential taxes at death, who can act for you if you become incapacitated, and whether the people responsible for carrying out your wishes have the information they need.
With trillions of dollars expected to transfer between generations in the coming years, having clear instructions in place matters.
A relatively small amount of planning today can make the administration of your affairs significantly clearer for the people you leave behind.
Contact Stringam Law today to discuss how to best protect your estate and beneficiaries.