Estate planning is all about preparing for the inevitable.
Your estate is made up of everything you own, which includes your car, home, bank accounts, investments, life insurance and personal possessions (you might have someone in mind to inherit art or furniture).
And unfortunately, it doesn’t matter if you have a big estate or modest one, you can’t take it with you when you pass on.
Estate planning gives you control over the people or organizations that receive your possessions. An estate plan ensures your wishes are carried out the way you want, meaning who gets what and when.
Good financial and estate planning will also ensure that the smallest amount possible gets paid in taxes and legal fees. Below we outline some things to keep in mind when thinking about financial and estate planning.
1. Identify Your Goals
When it comes to financial and estate planning it’s important to identify your goals.
Understanding your goals will help you manage your assets and ensure your estate tax planning is up to date.
It’s also important to understand that your goals will change as your life does. As a result, your financial and estate planning should reflect these changes and your overall objectives.
2. Will and Estate Planning
The most basic part of financial and estate planning is drafting a will.
Surprisingly, most Canadians do not have a legal will in place. According to a 2018 Angus Reid Institute poll, 51 per cent of Canadians do not have a will.
If you have children or get divorced, the lack of a will can cause a big headache.
If you’re recently married or divorced, you may be surprised to learn that any will you had in place before these events is invalidated after changes to your marital status.
On top of that, most Canadians don’t realize that their spouse doesn’t automatically inherit their state.
The first step in financial and estate planning and protecting those you love is to make a will. And to review and change it, if necessary, from time to time.
3. Power of Attorney
Having a power of attorney, or living will, is another important part of financial and estate planning.
A power of attorney gives someone the right to legally act on your behalf.
If you become injured or debilitated because of illness or injury or are not able to make your own decisions, a power of attorney can make important financial decisions on your behalf.
A power of attorney can also act on your behalf if you leave the country and need someone to do your banking and manage your affairs.
If you don’t have a power of attorney, your family could be stuck having to go to court just to pay your bills.
Most people chose their spouse to be the power of attorney, but it’s also a good idea to have an alternate as well.
4. Protect Your Income
A will and power of attorney can take care of your wishes, but you need life insurance to take care of your loved ones after you're gone.
Again, life insurance will play a different role depending on where you are in life.
For a young family with a mortgage, life insurance might provide safety and security. For someone nearing retirement, life insurance is a good estate planning tool.
5. Reduce Probate and Taxes
Reducing probate and taxes means more money in your loved ones’ pockets. Probate is the process of legally validating a will.
Every estate must go through a form of probate. Like most things, the cost varies by province. Some will charge a modest, flat fee for probate while others have a fee that is structured on the size of the estate.
The trick is to structure the estate to minimize fees and taxes associated with probate. A tax professional can help you develop an effective plan.
FBC, Helping Canadians with Financial and Estate Planning
If you have questions about financial and estate planning, you’re not alone. Many Canadians are unsure about what is involved when it comes to financial and estate planning. FBC.
For more information on FBC and the services we offer, call us today at 1-800-265-1002 or submit an online form and an FBC tax specialist will contact you at your earliest convenience.