“You can’t take it with you,” people say. So, what will you do with your money instead? When you’re younger, that question might not mean much to you. Life is just starting, right? And besides, you probably don’t yet have much money to think about. But as time passes, you may start to feel a bit more pressure. Your parents’ health may be failing, for example. You might even have a health scare of your own. You could have a family to think about. And you may have assets by now, like a home, a TFSA, or an RRSP. Now is the time to start thinking about where your money will go after your death. The process of arranging that is called estate planning.
What does estate planning involve?
One of the reasons people overlook estate planning is that it sounds like something only old, rich people do. The truth is that whatever you own when you die is your estate. That includes your house, your bank account, and your hockey card collection. And you may have already made some estate plans without really thinking about it. For example, when you opened your RRSP or TFSA, you probably named someone to get your money if you die. That’s a part of estate planning. Here are some other common elements of the process:
Write a will
This is the one of the first things you should do. It’s especially necessary if you have children to look out for. And don’t rely on a form you’ve found online. See a lawyer to make sure all the details are complete and correct. If you die without a will (called dying “intestate”), you’ll leave your family with a world of hassle.
Choose an executor
This is part of writing your will. You have to name somebody to manage your estate. That will involve things like paying outstanding bills and debts and seeing that all bequests go where they should. It even means filing your final tax return. Married people often name their spouses as executor, but they don’t have to. You might be single or widowed, or your spouse might simply not want to do it. Your lawyer can help you choose an executor. Being an executor can be a lot of work and responsibility. Whoever you choose, make sure they agree to do it.
Create a power of attorney (POA)
A power of attorney is a legal document. It transfers the authority to manage your finances to someone else if you become incapacitated by illness or injury. Your spouse doesn’t automatically have that right; you have to put it down on paper. Make sure the person you designate knows where to find the document, because he or she will need to produce it to act on your behalf. Creating a POA isn’t technically estate planning, as it isn’t used after your death. But lawyers will often draw up a POA along with a will, as part of a package.
Sort out your business
If you own a small business, you need to plan for what will happen to it. That’s true whether it’s a sole proprietorship, a partnership, a corporation or a co-operative. Decide whether you want the business to be sold off or passed down, and make plans for how that will happen. Discuss your plans fully with your partners, your family, your lawyer, and your accountant.
Look into life insurance
You know life insurance can protect a young family from financial disaster. Did you also know life insurance is a powerful estate planning tool? It’s something to consider after retiring, when you have an idea of how big your estate might be. Generally speaking, everything in your estate will pass to your spouse tax-free. But if you’re divorced or widowed and leave your estate to your children, they could face a heavy tax bill. They might even have to sell off some of your assets to cover the cost. That could mean losing the family cottage, for example. A life insurance policy can let you pass a significant chunk of money to your heirs, tax-free, to help them pay the taxes on your estate.
Consider the tax implications
Do you expect to leave a substantial estate? It might be larger than you think, especially if you die before using up your savings. Along with life insurance, there are steps you can take to structure your affairs tax-efficiently. Talk to your advisor, accountant and lawyer to explore your options.
A few final notes
Remember to share your plans. Keep your spouse and grown children in the loop. Make sure they know your bank account numbers and your lawyer’s name. Tell them where to find the key to your safety-deposit box, your tax files, and copies of your POA, will, and insurance policies. And don’t put what’s euphemistically called your “final wishes” in your will. Events can move quickly when someone dies, and a will is often not read until after the funeral. Write your wishes down and share them now. Funeral or no funeral? Burial or cremation? There are a lot of decisions to make. If you already own a burial plot or have even prepaid for your funeral, share those details, too. You can’t force your family to follow your wishes. But if you make them clear, things will be much easier for them when you die. And that’s a gift you can give the people you love most, even when you’re no longer around.
Talk to an advisor
Want to talk it out? A Financial Planner can help walk you through the estate planning process. Sort out what you have – or will have. Decide where you want it to go. And make a plan to keep the tax bill down. Meet with a Meridian Financial Planner.
