What is estate planning and why is it important?
Estate planning is arranging your affairs so that when you die, your property is preserved and distributed the way you want.
Estate planning is important because it helps:
- Minimize disputes over your assets between those you leave behind
- Ensure your loved ones are taken care of
- Minimize your tax liabilities
When you should start estate planning
Now is the perfect time. If you have savings, life insurance, investments, real estate or other assets, you have an estate. Your estate includes all your financial and non-financial possessions.
If you died tomorrow without an estate plan, your estate might not be preserved and distributed the way you want. And if you wait until the last minute, like before travel or surgery, you might be forced to make rushed decisions.
How to plan your estate
Regardless of the size of your estate, you can use these steps to create your estate plan.
Prioritize your goals
Separate your goals into those you want to achieve during your lifetime and after you’re gone.
During your lifetime you may want to:
- Create retirement income and income for those who depend on you
- Make gifts to your family or to charities or causes important to you
- Financially prepare if you become incapacitated or need long-term care
- Help your business transition to new management when you retire
After you’re gone, you may want to:
- Pay funeral and other final expenses
- Minimize taxes and (outside Quebec) estate fees and provide money to pay them
- Provide financial security for those you leave behind
Take an inventory
List all your possessions in 1 document. Include assets and accounts like registered retirement savings plans, savings accounts, non-registered accounts, and life insurance policies (personal and workplace). Include titles, deeds and proof of ownership for property and vehicles. Don’t forget heirloom items and keepsakes, and online assets such as email accounts, passwords, online banking, photo libraries, cloud storage and other digital assets.
Build your estate plan
With the help of an advisor and input from your beneficiaries, you can begin building your plan by answering some important questions.
- How will your estate pay income taxes on your death? And, outside Quebec, how will it pay probate fees (estate administration tax)?
- What income sources will your dependents have after you die and how much will they need?
- What are your goals for your estate?
- How will your dependents cover your funeral costs?
- Do your beneficiaries have assets or family heirlooms they prefer to have or not to have?
- How will your estate leave money to people or important charities or causes?
- For your business, what should you include in a succession plan and buy-sell agreement?
Implement your plan
To implement your estate plan, you’ll need to:
- Make a will or update your current will. Your spouse should do the same, so your plans are in sync.
- Update your financial arrangements including insurance and investment beneficiaries, property ownership and those related to your business.
- Sign a power of attorney for property and for health and personal care. In Quebec, you can give a protection mandate to cover health, personal care and property in case you become incapacitated.
- Choose an executor (called a liquidator in Quebec) to administer and distribute your estate.
Share your estate plan
Talk about your plan and funeral arrangements with your family and anyone who will receive part of your estate. Reveal whom you’ve chosen as executor and to whom you’ve given powers of attorney.
Monitor and adjust your plan
Annually, adjust your plan for any changes in your life, and update your inventory of assets as necessary. Let your family know about any changes.