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Published August 25, 2022

What is Estate Planning?

Estate planning ensures that your end-of-life wishes are carried out and your assets are handled according to your desires.

A last will and testament is just one element of a comprehensive estate plan.

Estate planning involves deciding what will happen to your assets when you die, as well as deciding who will carry out those wishes, setting up possible trusts, implementing strategies to minimize taxes, making arrangements for business partnerships, making funeral arrangements and more.

When to start estate planning

If you have valued assets or people who mean a lot to you, it’s time to think about creating an estate plan. Even if it’s just a collection of old baseball cards or a favourite niece you want to provide for, an estate plan can help ensure that your wishes are honored.

Major life events — such as getting married or divorced, having a child, experiencing a significant change in assets, retiring, a serious medical diagnosis, or starting a business — are also good times to make or update your estate plan, because they are most likely to impact your desires for asset allocation.

» MORE: How much money you’ll need to retire

Why is estate planning important?

You might assume that if you die without a will (also known as dying intestate), your loved ones will be responsible for equitably dividing your assets. The truth, however, is very different.

If you die intestate, it’s not your family or friends who determine what happens to your estate, but rather the estate laws in your province or territory. For example, in Ontario, the province’s Succession Law Reform Act delineates how a person’s money and possessions are distributed.

Some Canadian jurisdictions favour the spouse when dividing up an estate, while others favour the children or divide assets between the children and the spouse. Such arrangements could potentially make it very difficult for your spouse to maintain the household or pay the mortgage.

Furthermore, each province has different rules concerning when (or even if) a common-law partner is considered a spouse or at what age a child can or cannot inherit assets. Additionally, if you and your spouse were to die at the same time without a will, it would be the courts and not your remaining family who would decide who would become the guardian of any children.

It’s also worth noting that when you die intestate, the distribution of your assets could be significantly delayed. Plus, your estate might be subject to higher probate taxes if you don’t have a will with named beneficiaries.

Estate planning is important because it allows you to ensure that your assets are divided according to your wishes is to write a will, rather than leaving it up to the courts and jurisdictional estate laws.

» MORE: What are Canada’s tax brackets?

Steps for basic estate planning

1. Inventory your assets

A helpful first step in estate planning is to write down a list of your personal assets, including property, money in savings or investing accounts, valuables (like art or jewelry), and any sentimental items that you may want someone special to have in the event of your death.

Listing out your assets can also help you assess the complexity of your estate. If you have few assets and a relatively simple estate, you may be able to use an online will service, which is more affordable than hiring an estate lawyer to document your wishes. An estate lawyer, however, can potentially offer you more peace of mind and avoid potential legal problems, especially if you have a large or complex estate.

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2. Choose your beneficiaries

A beneficiary is the person or persons who receives some or all of your assets when you pass away. There are several instances in which you can and should name an intended beneficiary, including life insurance policies, registered accounts, joint bank accounts, and on property titles.

3. Name an executor and award power of attorney

The executor of your estate — also referred to as an estate representative — manages your will and ensures all beneficiaries receive their entitlements. When picking an executor, select someone who is financially responsible and has the capacity and willingness to take on such a big responsibility.

In addition to an executor, you may also consider authorizing power of attorney, which is a document that gives the person of your choosing the right to make decisions about your healthcare and/or finances, should you be mentally or physically unable to do so. There are significant risks and benefits to awarding power of attorney, however, so make sure you are fully informed about your province’s rules before doing so.

4. Make funeral arrangements

It is possible to pre-pay for both funeral and burial services. If you have strong preferences about your funeral, or would prefer not to leave the cost to others, making these arrangements in advance can bring some peace of mind.

Helpful estate planning tips

  • Tell your family and loved ones. While it may seem easier not to discuss your estate plans with others, it’s smart to give your intended beneficiaries at least an idea of your overall intentions as it will help reduce any potential conflicts, and hopefully prevent challenges to the document that can cause long delays.
  • Consider setting up trusts or selecting a guardian. These options are especially important to incorporate if you have underage children or dependents.
  • Consult an accountant or estate lawyer. These professionals can help you avoid mistakes, ensure your documents are legally binding, and discuss ways to minimize your estate’s tax burden.
  • Think about non-human family members. If you have a beloved pet, consider whether you want to name a pet guardian and allocate funds for the pet’s care.
  • Decide what will happen to your business or clients. If you own a business, make it clear who will inherit the business or its assets, and consult a lawyer to see if there are any other important estate considerations relating to your company.
  • Double check beneficiaries often. Keep an eye on any on joint bank accounts, life insurance policies, pensions, and registered accounts such as a Registered Retirement Savings Plans (RRSP) or Tax-Free Savings Account (TFSA), and update the beneficiary if needed. This is an important step because in most provinces and territories the beneficiary you have listed on your policy or registered account will be given priority, even if you name a different heir in your will.

About the Author

Sandra MacGregor

Sandra MacGregor has been writing about personal finance, investing and credit cards for over a decade. Her work has appeared in a variety of publications like the New York Times, the UK Telegraph, the Washington Post, Forbes.com and the Toronto Star. You can follow her on Twitter at @MacgregorWrites.

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