If you are like most people, getting your personal financial plan started can be a challenge. But what about planning your estate should you die?
A common misconception is that only wealthy individuals need to concern themselves with estate planning. This misconception can result in significant unnecessary costs to the estate and additional burdens for your loved ones.
Just about everyone can benefit from the development of an estate plan. Young or old, wealthy or middle class, an estate plan can reduce the taxes and expenses of an estate, simplify and speed the transfer of assets to the next generation and help ensure that beneficiaries are protected.
An estate plan defines how you want your assets to be owned, managed and preserved during your lifetime and how you want them disbursed after your death. The plan also deals with the important decision about who will look after your estate.
Drafted properly, an estate plan can do the following:
Orderly transfer of assets
- Your wishes are clearly stated and there is no confusion about what is meant to happen
- Administration of your estate is streamlined so it proceeds as quickly as possible.
- Immediate needs of your dependents are considered. Money is available to them when they need it
Transfer more tax-efficiently
- Taxes and other expenses are minimized so the estate is as large as possible
- Strategies like joint ownership of property or naming beneficiaries on life insurance and registered plans can be used to pass property directly to beneficiaries without cost
Disburse assets as you intend
- By having a Will, you control exactly how your estate is shared
- You can include friends, extended family or charities who would not otherwise share in your estate
- You can ensure that vulnerable people are protected
- By having a Will and/or Trust, you can establish terms and conditions under which your estate will be distributed
Minimize burden on loved ones
You can appoint the best qualified person (or professional) to be the Executor in charge of the estate, removing the duty of months sometimes years of work from people you do not wish to burden
Plan for Business Succession
- Bill payments can be arranged to keep the business running
- Strategies can be created to minimize taxes in certain jurisdictions
- You can arrange for beneficiaries who work in the business and those who work outside of the business to inherit different assets
Make arrangements in the event of incapacity
You can appoint someone you trust to handle your financial affairs in the event you become mentally incapacitated
By having an Advanced Directive (Living Will) you can leave instructions on what kind of medical treatment you wish, or do not wish, to receive if you are not able to speak for yourself
TRANSFER OF ASSETS
The method most people consider to pass on property to a surviving spouse or other family members is through a Will. Transferring property through your estate by creating a legally binding Will can give property to beneficiaries outright for their own immediate use.
Your Will can also set aside property for use according to your specific instructions in a Trust created upon death (Testamentary or Will Trust.)
However, there are also three other ways property can be transferred to beneficiaries, each of which has advantages and disadvantages:
1. Gifts of property during your lifetime: although it provides beneficiary certainty and some tax benefits, it also means giving up control over the asset (family cottage or business) and could accelerate the tax consequences for certain jurisdictions.
2. Living Trusts: transferring property to a Trust created while you are alive allows you to transfer beneficial ownership to an intended heir while retaining control over how the property is used. This also provides immediate access to the contents of the Trusts should expenses be needed such as school/university fees, mortgage or rental payments, household utilities etc.
However, it is imperative that a Living Trust is properly structured by a trust professional to avoid unfavourable tax or implications for certain jurisdictions.
3. Direct Transfers: there are two common types of direct transfer that apply to most people who own property jointly (joint tenancy) and naming a beneficiary (for life insurance or pension). These methods can reduce Executor and probate fees but potential legal and tax issues could result if solely relied upon.
It may also limit your control of the asset while you are alive.
MINIMIZE YOUR COSTS AND FEES AT DEATH
In addition to possible tax liabilities, other fees and costs including probate fees, funeral expenses, Executor fees and legal fees will be incurred after you have died.
Planning ahead can save you and your family money, time and stress. Having an up-to-date and effective estate plan is the only way to ensure your property is distributed according to your wishes.
Your personalized estate plan is the blueprint from which your Will is developed.
I hope that you found this helpful and happy to answer questions or concerns.
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