Will planning may not be at the top of your to-do list, but a will is the foundation of your estate planning, helping protect your family and assets. And the sooner you make a will, the better.
You are not legally required to make a will, but in Canada if you die without a will, your provincial government decides who your beneficiaries are and how your assets will be distributed. Some Canadians may think if they don’t have a will, their spouse will automatically inherit the estate, but that’s not the case. Depending on the province you live in, the surviving spouse will inherit the first $50,000 of an estate (after your debts are paid) and the rest is split with children if you have them.
If you're not legally married, it's important to make a will. Common-law spouses do not have the same property rights as legally married couples.
Make sure to update your will
Wills shouldn’t be static. Because your life circumstances may change, it’s important to update your will on a regular basis. If you want children or those in your will to receive the same amount, you will need to revisit and update the will.
When making a will, list all of your assets and the estimated value of any property, to ensure the divided asset amounts are similar. For example, the value of a home generally increases over time, whereas a car is a depreciating asset.
You will also want to include an alternate beneficiary. For example, you may want your sister to inherit your cottage. But if she does not survive you, then you could name someone else. If you don’t provide an alternate beneficiary, your sister’s husband and children would inherit the cottage, when instead you may want it to go to another sibling or a friend.
You will also need to update your will as your family changes due to major life events like a birth, death, divorce or a change in your finances.
If you have small children, appoint a guardian; someone you trust to take care of them emotionally and financially.
Name an executor and power of attorney
One of the most important parts of a will is naming your executor and power of attorney.
This is a representative appointed by you in your will, who is responsible for settling your estate when you die. That means arranging the funeral, securing your assets and distributing everything in accordance of the will. This representative is also responsible for filing your tax return. Most people will pick their spouse to be the executor, but it’s a good idea to have an alternate as well.
Power of attorney
This is a written document that allows someone to act as your legal representative and look after your finances, including investments, bills and debts. A power of attorney is very similar to an executor, except they only get called on if you’re incapacitated. You will require a separate power of attorney for healthcare to make decisions on any surgery or treatment you might need. They are also tasked with making tough decisions if you are on life support.
Protect your income
To protect your family and income, you’ll need to get life insurance.
Where you are in life will dictate what the life insurance is for. If you’re young, married, have children and a mortgage, life insurance provides security and safety. This means buying enough life insurance to pay off your current debts and replacing your future earnings potential.
If you’re nearing, or in retirement, life insurance can be used for estate planning (like donating money or paying taxes so your heirs don’t need to).
Probate and taxes
Probate is when a will is declared legally valid. All estates need to go through a form of probate. The fee for probate varies from province to province.
A tax professional can help you structure the estate to minimize probate taxes and fees. One way to minimize taxes is to give a child some or all of their inheritance before you die. You simply need to say whether the money is a gift or a loan and that provides an advance on their inheritance. Giving cash while you’re still alive can help reduce the tax burden on your estate. You do not need to pay tax when you give cash to your children.
This only works for cash. If you give your children an investment portfolio or property, the Canada Revenue Agency will view the transfer of assets as a sale at fair market value. This means you are responsible for any capital gains taxes. On the other hand, those assets are not part of the probate process when you die.
Download a free will planning workbook
Download FBC's free will planning workbook, a comprehensive guide to preparing your will. When you're ready to put it all together, FBC's Will Preparation specialists can help ensure everything is documented and accurately represents your wishes.
Why FBC? Since 1952, we've worked exclusively with Canadian small business owners, farm operators and independent contractors to optimize their tax returns.
To learn more about how we can help keep more money in your pocket, call us today at 1-800-265-1002 or submit an online form to request an appointment.