Financial Literacy Month – Estate Planning
“Only put off until tomorrow what you are willing to die having left undone.”
There are two fundamental questions that advisors work with their clients to address:
- How do you want to live?
- Who do you want to give?
Most Canadians focus on the first question to determine their lifestyle goals, income requirements, savings targets, etc. But the second question is critical too.
Canadian’s typically give to three parties: (1) family and friends; (2) charity; and (3) CRA.
Very rarely do Canadians want to give more to CRA.
A comprehensive estate plan is critical to ensure your estate goes to the people and charitable organizations you choose.
4 estate planning questions to contemplate
1. What are five life events that should prompt Canadians to revisit their estate plan?
An estate plan should not be considered a static document, it should be reviewed regularly, say every two to three years, to reflect your current wishes and life circumstances. Note that an estate plan is not simply your Will. Your estate plan co-ordinates all testamentary instruments or documents which extinguish or transfer an interest in, or the right to, an asset or property. In addition to your Will, consider property held in joint ownership, and named beneficiary designations on registered accounts or insurance products.
You should review and update your estate plan when the following life events occur:
- Change in relationship status: marriage, common-law partnerships, separation, divorce and death – note several of Canada’s provinces do not recognize common-law partners in the same fashion as married spouses
- Purchase of real property
- Birth, or death, of children and grandchildren, or other beneficiaries
- Change in residency – emigrating from Canada, but also moving to a different Canadian province or territory
- Significant change in health, or financial circumstance
2. What happens if you do not have a Will?
When a person dies without a Will, they are considered to have died intestate. In the event a person dies intestate, their estate assets are distributed according to the respective provincial or territorial laws of intestacy in which they reside. The various Wills, Estate and Trust laws are provincial and territorial mandates, not the federal government’s.
One of the most consequential impacts of dying intestate is the testator has no choice as to his/her beneficiaries, nor the nature or value of estate asset received. Each province and territory considers a preferential share to a spouse or common-law partner (if recognized), child or children. In addition, if one of the intended beneficiaries is considered a minor (under the age of majority), their share is overseen by the respective provincial Public Guardian or Trustee. A surviving parent or intended guardian cannot oversee or access the assets without a court application.
Other impacts include:
- Additional administrative requirements
- Time delays in estate distribution
- Additional income taxes
- No influence in choice of executor, or trustee overseeing the estate
3. Have you informed your intended Estate Executor of their appointment?
An estate executor is tasked with administering the estate and fulfilling the final requests of the deceased. The role of an executor can be a complicated, onerous responsibility. An executor may be personally liable for any actual or perceived negligence. The naming of an executor should be carefully considered, and once decided upon communicated and discussed with the individual to confirm they are willing.
Given the extensive duties of an executor, it may be advisable to:
- Name more than one executor – to share the burden;
- Name an alternate executor in the event the primary executor is unwilling; and
- Name a professional executor who has the experience to competently settle the estate and manage family dynamics.
4. How can you minimize family conflict that may arise after death?
It’s an unfortunate reality that even the closest of families can become divided over the division of an estate. Disagreements arise not just over financial assets, but also memories or sentimental attachment to assets.
Here are some strategies to help minimize family conflict after death:
Consider naming a professional executor.
Very often parents will choose one or all of their children as executor. Not only is it a significant responsibility but it could lead to conflict and mistrust among siblings. A professional executor with no financial or emotional interest in the estate should be considered.
Provide guidance on items of sentimental value
Who is to receive Dad’s watch or Mom’s recipe box? Sometimes a testator and beneficiary’s perspective on an asset’s significance is different. Speak with your beneficiaries ahead of time to understand if there are any items they would like to have.
Update your estate planning documents to reflect current intentions or major life changes.
If your testamentary intentions change, or a major life event occurs that impacts the validity, distribution, or beneficiaries of your estate, then your various testamentary instruments should be updated and coordinated to ensure they reflect your wishes.
Be mindful of putting assets in joint name with your child(ren).
Whether to (a) assist with day-to-day finances (writing cheques, paying bills); or (b) avoid probate, a parent may open a bank account in joint name with their child or add a child as beneficiary of a registered account. Care should be taken to understand the implications of these acts to determine if they align with your ultimate intentions. Joint accounts, or other assets held in joint name are one of the top three reasons for estate litigation.
Organize a family meeting to share your estate intentions.
Communication is critical to minimize family conflict. By proactively sharing your testamentary intentions with your beneficiaries, it provides an opportunity to explain your decisions and avoid surprises that may cause discord after death. One of the best gifts a parent can bestow to their children is a clearly articulated estate plan that has been communicated to their children beforehand.
Please reach out to your Wellington-Altus Private Wealth advisor to discuss these estate planning topics further.
Wellington-Altus believes in the importance of financial literacy and embracing the role we play in supporting our clients and Canadians in this endeavour. That’s why this month, in honour of the 10th Anniversary of Financial Literacy Month, our AWPG is featuring a Q&A with WA. We’ll be sharing simple, impactful financial planning information sourced from our very own team of advisors and wealth planners on LinkedIn.
Stay tuned to our LinkedIn page as we share content to support #FLM2020 and addresses areas of financial planning.
Find an advisor at https://bit.ly/34O0Pok.
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