Estate planning is a key component of your financial plan. That process includes drawing up a will and taking actions that ensure your wishes are carried out after you pass away.
Setting up a will allows for the distribution of your assets according to your wishes when you are no longer here. If you die without a will in place, you have died intestate. And, if that happens, the government may have to step in and distribute your assets to your creditors and next of kin, which may or may not be what you had intended.
No one likes to think about dying. In fact, many will push back when asked if they have thought about it and whether they have an updated will. I have heard some people say, “my family would never fight over money.” You’d be surprised as it happens much more often than you would believe. “I put a will into place,” is another response I have heard many times. That’s a start, however, your family dynamics may have changed, tax laws have likely been updated, and it’s possible you may now think differently about the beneficiaries and charities you previously named.
In addition, I’ve noticed a greater sense of urgency around life planning and planning for the unthinkable, as a result of the pandemic.
How to get started
Begin by listing your assets and liabilities. You will need a snapshot of your financial life at a particular point in time. This, in turn, should lead you to drafting a list of your estate planning objectives and then, having conversations with your advisors to help execute your plan. Once that’s done, periodic reviews will ensure your will continues to reflect your wishes, which as mentioned, can change over time.
With that in mind, the only thing worse than not having a will, is having a poorly drafted one that doesn’t account for how the law will apply to your situation. Getting advice from a lawyer will help ensure your wishes are carried out as you intended.
Your will should clearly outline guardianship of your children as well as the beneficiaries and executors of your estate. Ask yourself who needs to be financially secure or who deserves to receive a portion of your money when you pass away. These are tough questions, but they need to be answered.
It is your money and your estate plan. However, I encourage you to have those difficult conversations when you are here to do so. Sadly, if you get it wrong, you won’t get a second chance to make it right. Your will could unintentionally cut like a knife and relationships could be severed forever.
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Other things you need to consider
In addition to preparing a will and keeping it updated, estate planning includes several other components.
Power of attorney (POA) for property
This is a legal document that can vary in name and application across the country, and it enables you to authorize a person or organization to manage your financial affairs if you are unable or unwilling to do so. It does not replace your will and can be revoked at any time, and it is separate from a power of attorney for personal care.
A POA for property cannot change your will or beneficiaries, nor can the person you selected to act as your power of attorney transfer their power to someone else. Think very carefully about who you might consider for this role. That person must be trustworthy, respected and always act in your best interest.
When you plan for retirement, that’s the time to consider implementing a POA, if you haven’t already done so. Not having that document in place can make it more challenging for your spouse or family to manage day-to-day finances. Sadly, if you become unable to manage your affairs, it might be too late because the process to assign a guardian becomes much more complex.
Joint ownership
By setting this up, if something happened to one account holder, the other would have access to the funds in a bank account, property or even investments. However, proceed with caution. There could be unintended outcomes if one party goes through a divorce, for example, and your assets become part of their equalization payment. Getting legal advice before making decisions like that is always a good idea.
Your HOOPP pension
If you are a HOOPP member, survivor benefits are one of the important features of the Plan. They are a valuable benefit, and the rules on who will receive them are different from the rest of your estate. It is very important to understand the definition of a qualifying spouse according to HOOPP, as that person will generally have priority to receive the benefit. Whether you are single or in a relationship, learn more about your HOOPP survivor benefits.
Registered plans
Where possible, you might want to designate beneficiaries for your RRSPs, TFSAs, and RRIFs. However, seek professional assistance as there may be tax consequences, which can be complex and result in an unequal distribution of your assets in after-tax dollars.
Estate planning must consider all the people and organizations you care about. It is one of the most loving things you can do for them as it provides peace of mind, takes the guesswork out of decision making and ensures your wishes are carried out as you intended.