08/06/2014 12:26 EDT | Updated 10/06/2014 05:59 EDT

Estate Planning Will Give Your Loved Ones Peace of Mind


Being the executor of a loved one's estate can be a very difficult task. With an estate plan in place and by taking a few basic steps to prepare, you can reduce the stress and loss of estate value considerably. Estate planning involves tough questions that ultimately give you and your loved ones peace of mind.

Who is estate planning for?

While I think it's a mandatory exercise for everyone, I definitely recommend that anyone with dependents, a spouse, children, and/or elderly parents create a plan. As well as, anyone who owns property, a business, or has a significant amount of assets they want to protect.

Simply stated, estate planning is having a say in what happens to your assets at death. It protects your wealth for the enjoyment of your beneficiaries. Your estate plan should reflect what's most important to you and your loved ones. Two main concerns are the tax treatment and probate of your assets, and the ease of administration for your executor and beneficiaries. Below you'll find five questions I encourage my clients to ask themselves. Of course, we work together to come up with the answers.

Who will be in charge?

Unfortunately a financial professional alone can't help you here. Some financial planning firms offer a one-stop shop and have a team of lawyers on hand to help, but if this is not the case, it's important to find a lawyer. A lawyer will help you draft a legal Will, which outlines who inherits your assets, and appoints an Executor, the person who is authorized to distribute your assets according to your wishes after you die. This document is the backbone to any estate plan.

Your Executor is the person who is in charge of carrying out your wishes. The clearer the Will, the easier their job will be. It is also a good idea to have a small insurance policy in place so the Executor can have access to funds to cover the costs incurred during the execution process. A note to all potential Executors: I recommend that you ask to look at the will before you agree to the job. It will save you some potential headaches later on.

Who are my beneficiaries?

Make sure to update your will, life insurance policies, and certain investment accounts discussed below, to reflect any changes in your life. I typically have my clients do this at our annual review, or in the case of a major life event such as buying a house, getting married, having children, getting divorced, or experiencing the death of a spouse. Estate plans, and the wills that make up their blueprint, are dynamic documents. They are specific to your financial situation and family status and should evolve alongside your life and be well-coordinated with your financial plan.

How can I leave money to my beneficiaries?

It turns out that certain types of assets are more tax-efficient and estate-friendly than others. Registered assets such as Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs) allow for a designated beneficiary. Consequently, these assets can potentially bypass probate and receive preferential tax treatment when passed to a spouse. Other assets such as a primary residence or jointly-held non-registered accounts simply become wholly owned by the survivor. Specific estate planning tools such as permanent life insurance also offer many benefits like a named beneficiary to bypass probate and a tax-free death benefit. These policies are also extremely liquid because the death benefit is payable as cash, which is highly useful to the executor who is settling the estate.

What's my strategy for minimizing taxes and off-setting fees?

You can leave this one up to your advisor. A properly structured investment portfolio, in combination with a comprehensive financial plan and professionally drafted wills, can be paired with advanced insurance strategies to maximize the value received by your beneficiaries by minimizing your portfolio's exposure to taxation.

What do I want my legacy to be?

Are you planning on making a donation to your favourite charity or financing a scholarship at your alma mater? As well-intentioned as you may be, you need to formalize a plan in order to ensure that any funds are channeled to the recipients of your choice. Options include: an outright gift, an endowment, or through a foundation. There are many strategies for charitable giving, each with its own pros and cons. Your financial advisor can help you to navigate these waters to make sure that your charity of choice receives your gift in the most efficient way possible.

With all of this said, you can see why it's important to have these conversations with your financial advisor, lawyer, accountant, and your family in order to keep more money in the hands of your heirs and avoid a made-for-reality-TV brawl.

A financial professional can help you estimate the size of your estate, purchase insurance, carefully structure your investment portfolio to avoid unnecessary taxes and administrative delays, and ensure that your assets are distributed as simply, effectively, and as tax-efficiently as possible to the beneficiaries of your choice. All you need to do is decide who gets what.


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