Top 3 reasons you need to do some estate planning
Even if you don’t think you have an estate, think again. An estate is simply the totality of an individual’s ownership of money, real estate and personal property. These are just a few of the reasons that people are confused and are asking, “Do I need to do estate planning”?
In essence, an estate plan establishes your wishes for the transfer of your money and property and the care of your children in the event of your death. As discussed in our blog post 4 Tips for Making Estate Planning Easier, an estate plan provides legal clarity.
A well-rounded estate plan includes a will, named executor, power of attorney, a full list of assets and accounts and other financial details. Here are the top 3 reasons you need one.
1. Avoid unnecessary expenses and hassles
Though there are no inheritance taxes in Canada, when you die, the Canada Revenue Agency treats your estate as a sale, and as a result your estate could be faced with deemed disposition taxes. Depending on your tax rate, this final taxation can be substantial.
Probate fees are another cost that your estate could be faced with, even if you die with a will. If you are currently doing probate then you might want to also get yourself a probate lawyer.
Probate is the process of:
- proving the will is valid and there are no challenges to it,
- confirming the appointment of your executor,
- dealing with any claims against the estate under court supervision.
Deemed disposition taxes and probate fees are just two examples of costs that a good estate plan can help avoid. In the case of deemed disposition taxes, they can be deferred if the assets are transferred to a surviving spouse.
To avoid probate fees — and the stressful and time-consuming probate process that your family might have to go through — you can undertake one or more strategies such as transferring property to a trust, designating beneficiaries, and establishing joint ownership. Read more about avoiding probate fees.
A solid estate plan also includes the appointment of an executor. Choosing the right executor can help avoid a lot of problems. You need someone reliable, organized, knowledgeable and willing to undertake what is often an onerous, complex task with many details that need attending to.
There are many other ways that a solid estate plan, executed with the help of a professional such as a lawyer or financial advisor, can help your beneficiaries inherit as much of your money as possible and avoid as many hassles as possible. We have mentioned only a few of them here.
2. Make certain your wishes are carried out
A cornerstone of a good estate plan is a will. A will ensures that your financial affairs and property are managed according to your wishes. Without a valid will in Canada, you are considered to have died intestate, and the province you live in decides how your assets are to be distributed. Plus, delays and extra expenses will be incurred.
There are three main types of wills in Canada, and each provides for different situations. It’s a good idea to get to know more about them and what you need:
- Last will and testament
- General durable power of attorney
- Living will (also called an advance healthcare directive)
Get professional help to make sure you have the right will (or wills) so that it’s legally binding and gets the job done. Depending on your situation, you may need one, two or all three wills listed above.
3. Ensure you have enough insurance
Life insurance is a pillar of any good estate plan. When you draw up a well-rounded estate plan — which includes a will, a named executor, a power of attorney, a full list of assets and accounts and other financial details — you will get a good sense of how life insurance fits in, and how much you need.
Life insurance covers the loss of your income after you die, pays for your funeral expenses and other expenses relating to disposing of your estate and ensures that your dependants’ everyday expenses are met, as well as their plans for the future. Life insurance can cover the cost of your spouse’s retirement and your children’s education, for example.
Read more: Who do you want to be when you retire?
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