Ben Franklin said it best when he said, "In this world, nothing can be said to be certain except death and taxes." As morbid as it may seem, death is inevitable and preparing for our last day of life is a key component in a solid financial plan. Without proper planning, death can trigger a significant income tax bill which can cause significant financial stress for already devastated loved ones left behind.
A well thought-out estate plan can also help ensure your last wishes are carried out, providing you with peace of mind and leaving your assets to loved ones in the most tax-effective manner. When it comes to creating your estate plan, the best approach is to be proactive by having key conversations about your wishes with your loved ones before any major life events or illnesses come into play.
When establishing an estate plan, consider the following:
Get a will prepared: A properly drafted will is an important component of any estate plan. It is a document that outlines how you wish to have your assets managed and/or distributed and the guardianship of minors after you have passed or are no longer able to, due to incapacity.
In Canada, if you die without a valid will, the province decides how your assets are distributed. This may mean that your loved ones will have to finalize your estate through the court system which could be a lengthy and expensive process. Given the importance and potential complexity of this document, you should consider professional advice when preparing your will.
Appoint an executor: When drafting your will, an estate trustee needs to be selected. The role of an estate trustee, or executor, is to ensure the wishes you have outlined in your will are carried out. This person is responsible for everything from identifying assets and paying off debts or liabilities to dividing the rest of the estate among beneficiaries. This can be a very time consuming and challenging role so ensure the person you select understands the full list of responsibilities that come with this role.
If you do choose a friend or relative, ensure you name an alternate executor in case the named executor declines the role.
Determine a guardian : For parents who have minor children, a will is arguably the most important thing you can do to ensure your children are in good hands if you die. A custodian or guardian should be appointed to care for your kids until they are legal adults. That same person or another property guardian should be identified to manage your money for your children until they are of age. Without a properly drafted will, the provincial government will be left to determine who will raise and care for your children.
Establish powers of attorney : A power of attorney provides the person of your choice with the power to manage your affairs if you are no longer able to do it yourself. There are two types:
• A power of attorney for property gives a person of your choosing the authority to manage your financial affairs in the event that you are no longer mentally or physically able to do so.
• A power of attorney for personal care, provides instruction for your ongoing healthcare, in the event that you become physically or mentally incapable of making decision for yourself.
If you don't establish a power of attorney, your spouse has no legal authority to do some basic tasks you need assistance with such as paying bills, managing your healthcare needs and filing tax returns.
Align all components of your estate plan: It's important to make sure that your will works in conjunction with the other components of your estate plan, such as your life insurance, business agreements and investments. This is critical to note because some assets like life insurance policies where you have listed a beneficiary will trump what is noted in your will. This means that the funds will be distributed to the people you listed as your beneficiaries in your policy regardless of what's in your will.
Once you draft a will, ensure your loved ones know where to locate it when the need arises.
Planning your estate can be a daunting and depressing task but the peace of mind of knowing your loved ones are looked after when you're gone is reason enough to ensure you plan ahead for the inevitable.
MORE ON HUFFPOST: