Fundamental Estate Planning Concepts

Draft a Will

Dying “Intestate” creates legal and financial obstacles for your family, something which could easily be avoided with a Will.

By not having a Will the government will use a default selection, stating how assets are to be split between your spouse and children. The children’s portion is held “In Trust” until they are of legal age, and if funds are needed for living expenses before the age of majority, the spouse must apply to the courts for the release of some of the proceeds.

Further problems are created should both parents die together; Who will be the trustee? Who will be the guardian of the children, and where will they live?

Power of Attorney & Representation Agreements

POA allows your spouse (or adult children) to carry out your financial instructions in the event of your physical or mental incapacity.

Representation Agreements allow your family to make medical decisions on your behalf due to physical or mental incapacity. If you are re-doing your wills this can be completed at the same time for minimal cost.

Make a list of your Assets & Liabilities

Your family needs to know what you own and owe and where the assets are located. This includes bank accounts, stock certificates, and business interests that may have been done before marriage.

Make sure that important documents like Wills, marriage & birth certificates, and insurance policies are easily accessible.

Make a list of your trusted financial advisors along with their contact information, so your family knows who to contact.

Have Assets owned Jointly to avoid Probate

There are very few reasons not to have assets owned jointly, especially the family home. One valid reason would be avoiding liability issues with a business venture. Non-registered investments like mutual funds and stock portfolios can also be owned jointly, but then the tax liability would also be shared.

Name a Beneficiary on your Life Insurance, TFSA & RRSPs

Besides avoiding probate, this technique also protects many assets from creditors, lawsuits, and the Canada Revenue Agency. Note: Only life insurance company products have this protection for Non-Registered investments such as GICs and Segregated Funds.

Spouses should be the primary beneficiary on your RRSPs for tax reasons (called the Spousal Rollover), except on marriage breakdowns or the death of the spouse.

Some favourable tax treatment is available to dependent children if they are the beneficiary, but it is restrictive.

Have contingent beneficiary designations where available.

Own Life Insurance if you have Debts

A general rule is to own enough life insurance to pay off your debts which may include mortgages, lines of credit, credit cards, personal loans, and unpaid income taxes.

If you have dependent children and a surviving spouse, life insurance is also meant as a replacement for your income. While every family situation is different, it is quite common to carry enough insurance to replace your net income for a minimum of 2-5 years.

Consider Segregated Funds for Non-RRSP Investments

Seg Funds which are sold only through Canadian life insurance companies are like mutual funds but have several unique features. One feature is that you can name a primary and a contingent beneficiary, so at death, the proceeds go directly to the individual, rather than through the estate.

Seg Funds many times are also protected from creditors, lawsuits, or the CRA in the event of a business failure.

Look at Trusts to Protect your Assets & your Wishes

 Do you have a spouse or child that you are concerned would frivolously spend or gamble away the estate you are leaving? A Testamentary Trust can be created at your death so that your assets are distributed according to your wishes. Trust assets are also protected from creditors, the CRA, or the marriage breakdown of your children.

An Inter Vivos Trust is ·created during your lifetime and can also be used to protect assets.

Discuss your Wishes with your Family

Have you discussed your funeral arrangements? This would include burial or cremation. Would you like a religious ceremony or just a simple celebration of your life with close friends and family?

Don’t go “cheap” when Shopping for Accounting, Legal or Financial advice

Just because your brother-in-law has offered to do your tax return for a case of beer, does not make it a good deal. The same applies to doing your own Will through a $25 Will Kit purchased online. Always consider the source when getting financial advice.