Get Started on Your Estate Planning, the basics
What is estate Planning?
Estate planning is the process by which an individual plans to pass on his or her wealth upon death to their beneficiaries of choice.
The planning usually tries to achieve a few objectives:
Preserving and/or enhancing the value of the estate
Ensuring the intended amounts are being distributed to the intended beneficiaries
Minimizing taxes, where possible
Where to start?
For the most part, a conversation with your family is usually a good starting point. It might be helpful to do an inventory of your financial assets and think about who will be your executor, trustee, and guardian if you have minor children. Which child would be interested in the cottage?
The Will
A Will and Testament is a document that serves 2 functions: To make key appointments and instructions on the distribution of your assets upon your death. A properly drafted Will also prevents the time and expense of litigating your estate, protecting the inheritances of your loved ones and preventing a dispute from fracturing the family.
Are all assets distributed according to the Will?
Only assets that are not jointly owned and do not have named beneficiaries will form part of your estate that are distributed based on your Will. As a result, RRSPs, Pension Plan, RRIFs, TFSAs, and Insurance policies are passed to the named beneficiaries directly. It is also possible to name your estate as beneficiary of the above listed accounts and be distributed according to the Will as well.
Do my assets just go to my spouse if I don’t have a Will?
Yes, only if you do not have any children. If you do have children, the estate will be distributed according to provincial law. In Ontario the spouse will receive the first $200k, and then the spouse and children will equally split everything above the $200k.
What if I don’t have a spouse or children?
Without a Will, if you do not have a spouse or children, then the order of inheritance will be; parents, siblings, nieces and nephews. If there are no relatives, then the estate will be passed to the government.
Does my common law partner inherit my estate?
If you live in BC, Saskatchewan, Manitoba, NWT or Nunavut, your common law partner has the same rights as a married spouse; in all other provinces including Ontario, the common law partner will receive NOTHING. However, there is a provision for the common law partner to make a claim to the court if they are financially dependent on you prior to your death.
What are some of the taxes I have to pay?
Your assets are deemed disposed of at time of death at fair market value except to the extent they pass to a spouse. Registered assets are treated as income of that year, as are capital gains realized on taxable assets, if the market value of your properties at death is greater than your cost (except for principal residence). Canada does not have estate tax like the U.S. However, if your Will needs to be probated, there is an estate and administrative tax. In Ontario, the fee is 1.5% of your estate for the amount greater than $50,000.
What is probate?
Probate is a process where the Will is being validated by the court as the “Last Will and Testament” so your appointed executor can distribute the estate free of competing claimants.
Why is Estate Planning Important?
The Will is fundamental to your estate plan. It saves your family members time and frustration and will help ensure that your assets are dispersed in the manner you intend. Only through planning will you be able to identify some of the issues you could be facing when distributing your estate.
Do you know what your tax liabilities are upon death and how to minimize them?
How do you minimize probate fees?
Are you in a blended family situation?
Is equal = fair distribution to your children?
Do you have a corporation that needs to be liquidated upon death?
Are the people you thought to appoint as executor and trustee capable and willing to handle your estate?
Estate planning can be a complex and emotional process. Often time, strategies needed to be implemented long before your death to be effective. The earlier you get started, the more prepared you and your family will be to face a variety of challenging situations.