Steps for creating your estate plan

Ensuring your wishes and legacy live on

Estate planning is often thought of as something to be done later in life – preparing a will and deciding how you want your assets to be divided isn’t the most pleasant of life’s activities. But life can take unexpected turns, so no matter your age or financial situation, creating an estate plan is a smart move.

Having an estate plan is an important part of your overall financial strategy. At its most basic, it’s a properly prepared will. As you acquire more assets, it takes on added layers of complexity. Explicitly stating how you wish your wealth to be distributed when you die will go a long way to avoiding family discord and ensuring those you love are financially protected.

Protect your family and your peace of mind

Whether you’re getting married, having your first child or retiring, having an effective estate plan helps ensure what’s most important to you is looked after. For now, that could mean making certain your spouse and children would have financial security if the unexpected happens. Later it might be about transferring the wealth you’ve worked hard to create to the next generation or your favourite charity as smoothly and tax-efficiently as possible.

Building an effective estate plan isn’t a one-time event. It’s a process that adapts to major events in your life and recognizes how your priorities shift over time.

If you don’t have an estate plan or make the mistake of taking a “set-it-and-forget-it” approach, you raise the odds of falling short. Your loved ones could be saddled with money troubles while dealing with emotional loss. There can be strained family relations. Or, poor planning can result in your estate losing more than necessary to taxes and other expenses.

Ten steps to lead the way

Formally and legally communicating your wishes can protect your estate from legal challenges in the future and preserve your peace of mind today. Here are 10 steps to get you started.

1. Review your assets and debts

Do an inventory of everything you own, including home and vacation property, possessions, valuables, special collections, vehicles, registered and non-registered investments, and a current valuation of any businesses you own. Then total your liabilities like mortgages, loans, debts or personal obligations such as family support. This will provide a balance sheet of your net worth. Our Estate Planning Record Keeper is a useful tool to organize this information.

2. Consult your advisory team

To ensure your wealth transfer is managed properly and preserved carefully, you'll need the advice of professionals you trust. Your financial advisor, lawyer and accountant or tax planner will form the basis of your team. Your financial advisor should be able to help align everyone and bring in any specialists as needed, such as insurance and investment advisors.

3. Decide who gets what

You'll have a number of things to consider. What do you want your spouse, children, relatives or close friends to have? Do you want your beneficiaries to receive their inheritance money immediately or at some future date through payments from a trust? Are there significant family assets, such as a business or second residence, that need to be addressed? And who really deserves your prize album collection?

4. Make a will and name an executor

The foundation of any estate plan, a will is the roadmap everyone has to follow. It's an important legal document and should be prepared professionally. Your will outlines how assets such as investments, real estate and possessions should be distributed, identifies beneficiaries and names the executor, the individual or organization chosen to administer the estate. If you die without a will (intestate), the province steps in to arbitrarily administer your estate and will collect the maximum in taxes. It's a good idea to also prepare a Living Will, a written declaration of what life-sustaining medical treatments should be used in the event you become incapacitated.

Common mistakes when preparing your will

Leaving everything to your spouse: For many people, it makes sense to leave their entire estate to their spouse so he or she is provided for. The assumption is that the spouse will then pass on all of the assets to their children. However, it doesn’t always happen that way. A spouse could remarry and the assets might go to their new partner, for example.

You may want to set up a small trust for your grandchildren’s education, for example, or give cash gifts while you’re still alive in lieu of an inheritance.

Choosing the wrong executor: Many people choose someone who is close to them to handle the matter of settling their estate – spouse, children, friend — despite the fact that most people have no experience in this area. What should you look for in a good executor? Not only does this person need to outlive you, they should also have some expertise, good communications skills, and the time. It helps to appoint someone local as well.

If you’re naming more than one executor, make sure they can work well together. Parents may feel guilty choosing one child over another as executor but need to lay that aside and pick the best person for the job. Co-executors among siblings can damage their relationship, potentially irreparably.

An option is to appoint a friend or family member but you can pay a third party such as a lawyer or accountant to handle the task.

Not working with experts: A lawyer can explain your options, make sure you’ve covered every aspect of the planning and help get the paperwork in order. Your financial advisor also has a great deal of expertise in this area and help you with planning strategies to make the most of your assets as well as preserve them.

Not reviewing it periodically: Circumstances change, and so should our estate plans. Experts recommend revisiting your plan every three to five years — especially when there is a major life event such as marriage, divorce, the death of a spouse or family member, or a new child. Changes to legislation and tax laws should prompt a review as well.

Forgetting digital assets: More of our lives have moved online, which means a growing list of digital assets to keep track of. When we pass away, executors will need to access many of these, which includes everything from cryptocurrencies to accounts on eBay, PayPal, loyalty reward programs and social media websites.

To avoid slowing down the administration of the estate, make an inventory of online assets and passwords.

5. Arrange Power of Attorney and representation agreements

These other key documents in your estate plan formally declare who can speak and decide for you when you can't, planning for potential illness, accident or condition. An enduring power of attorney empowers a representative to make legal, financial, and property decisions on your behalf if you become incapable. No one else can take over for you unless they jointly own your assets. A representation agreement acts in the same way but also allows the representative to make medical care decisions according to the wishes stated in your Living Will.

6. Consider how to minimize taxes

Your estate may have to pay income tax or probate fees which can significantly reduce the proceeds. Probate is the process where the provincial court confirms the validity of your will and can take some time, tying up your assets. Probate fees are the taxes paid on the entire value of the estate before the executor can begin administering it. And then because your assets are considered to be disposed of at death, sizeable portfolios, including registered investments like RRSPs and RRIFs (if not directly passed on to named beneficiaries) can be exposed to capital gains tax. The goal is to reduce the value of your estate and there are several tax-saving methods you can use.

7. Review insurance strategies

Shifting a portion of your assets from fully taxable vehicles like term deposits, bonds or cash into a tax-exempt insurance policy can significantly enhance your estate plan, replacing what's lost to taxes. The policy grows tax-deferred during your lifetime and is paid out to your beneficiaries tax-free. You can also enhance estate value by reallocating lump sums into a tax-exempt life insurance policy where the ultimate estate benefit grows over time and is distributed tax-free.

8. Consider a trust

Assets transferred to a trust are no longer considered part of your estate but are still under your control. Trusts are an excellent way to deal with larger assets like vacation property or a family business, since they must be administered according to your wishes. Trusts can however be very complex, and professional advice is key to achieving your end goals.

9. Determine any charitable gifts

If you wish to leave a legacy to a favourite charity, there are several options, including private foundations, charitable remainder trusts, gifts and charitable bequests.

10. Make a business succession plan

If you're a business owner, your estate plan needs to include your company as well. Buy-sell agreements and estate freezes are two ways to ensure your business receives fair market valuation and tax assessment. Life insurance† can be also used to pass a business on, providing funds for tax liabilities, creating tax efficiencies on shares and possibly reducing taxes on the ultimate transfer of the company.

Is it time to create or review your estate plan?

Whether you’re creating a will for the first time or have a plan that’s in need of updating, your BlueShore Financial Advisor can assist. In collaboration with external partners and in-house specialists from the legal, tax, investment and insurance fields, we’ll work with you to help construct an estate plan that puts your goals front and centre. Contact us today to schedule a review.