It's an essential part of financial planning, but can also be an emotionally-charged topic to address: deciding where all your hard-earned money, properties and belongings go after you die.
It's never too early to start estate planning, especially given modern complexities that include the growth in blended families, the big debt loads being carried by Canadians and the fact people are living longer.
"Without proper estate planning, you will not be able to influence how, when and to whom your assets would be distributed after you pass," says Frank Fazzari, managing partner of Fazzari and Partners LLP chartered accountants in Vaughan, Ont. Estate planning also entails having a proper will, because without one, a provincial or territorial government can appoint someone to decide what happens to your savings and property. If minor children are beneficiaries, your estate could be controlled by government-appointed individuals and/or lawyers.
Experts encourage consulting qualified professionals – such as a lawyer, financial adviser or certified public accountant – as a starting point for developing an estate plan, which should also aim to reduce taxes and other expenses and help you meet your own financial needs while you're alive.
Natasha Nystrom of the Financial Consumer Agency of Canada (FCAC) urges using an estate-planning strategy tailored to your specific needs. The FCAC website offers a checklist on areas to cover, including "arranging who will handle your affairs if you become unable to manage them yourself," she says.
Anne Posno, a Toronto lawyer at Lenczner Slaght with experience in estate litigation, warns the costs of any legal challenges to a will could potentially be charged to the estate. "Nowadays courts do not automatically charge an estate for the costs of a will-challenge or related litigation," Posno notes. "However, if a testator [the person who made the will] makes decisions which are not properly documented and invite a challenge, then the courts will order the estate to fund those litigation costs caused by the testator's poor planning."
Other tips to consider when estate planning:
• Look to reduce taxes/costs. A popular tax-reducing technique is the creation of a family trust to pass along future growth in value to the next generation, according to Fazzari. "Recently, tax law in Canada has significantly evolved around the use of trusts in estate planning, and it will continue to evolve."
• Choose a trustworthy executor of your will. An executor can be a relative, a close friend, a beneficiary, a professional such as a lawyer or even accountant or a corporate executor.
• Buy life insurance. You can use the death benefit from life insurance to leave tax-free, lump-sum payments to beneficiaries; provide a steady stream of income to loved ones, who can use the death benefit to buy an annuity for monthly, tax-free income; and cover final estate costs.
• Plan your funeral. In most cases there's no charge for planning your funeral, the FCAC says, adding that when you prepay the money goes into a trust account or insurance fund until your funeral.
• Give some of your money away as gifts. Leaving money to a charity in your will would give your estate a tax deduction in the year of your death.
|PROTECTING YOUR SAVINGS|
Knowing how to protect the money you are putting away for your family can be as important as estate planning itself. And for many people, setting up trusts plays a role in ensuring the future for loved ones.
When thinking about protecting your estate, it’s important to note that trust accounts are protected up to $100,000 per beneficiary, says Brad Evenson of the Canada Deposit Insurance Corporation. So a trust account in which your five grandchildren have an equal share could be protected up to $500,000.
To find out more, visit www.cdic.ca
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