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The importance of will and estate planning

By ATB Wealth 8 June 2020 6 min read

Many Canadians are reluctant and often avoid discussing, planning and preparing a will and estate plan. According to a Bloomberg poll, only about 50% of Canadians have an estate plan and less than 25% of Canadians feel that their estate plan reflects their present objectives.

 

Why do you need a will and estate plan?

One reason many families do not address will and estate planning is that they do not believe it is necessary, as they expect the law or their surviving partner will ensure matters will be addressed as intended. In some circumstances that may be true, but that is not a reason to avoid estate planning as the costs of not making a plan can be quite significant for both you and your loved ones.

Creating an estate plan protects you, your estate and your loved ones, while you are living as well as upon your death. Here are a few reasons to plan ahead and develop an estate plan.

 

1. Choose how your assets are managed

You are the best person to determine how your assets should be managed upon your death or incapacity. Your will addresses the distribution of your estate and the enduring power of attorney (EPA) appoints a representative to look after your financial affairs, if you no longer have the capacity to do so.

While jointly registered assets with a partner will help in the administration, many responsibilities would be more easily addressed with a will and EPA.

When someone dies without a will, or dies intestate, the court appoints an administrator to deal with the affairs, including the collection of assets, the filing of tax returns and the payment of debts. In choosing not to prepare a will, not only do you not choose who will be the executor of your estate, you do not direct who will receive what assets and when.

 

2. Avoid delays with estate administration

Communicating with various service providers, government agencies including the Canada Revenue Agency (CRA) and service bureaus can be complicated without a will or EPA, resulting in delays that can otherwise be avoided. In other cases, elections relating to income tax filing that would benefit the estate or a beneficiary cannot be exercised if there is not a valid will or EPA.

 

3. Protect minor children and beneficiaries with special needs

One of the most important reasons to have an estate plan is to protect minor children and beneficiaries with special needs.

Creating a will allows you to nominate guardians, as well as express how and when assets from your estate should be distributed. In some situations, upon attaining 18 years of age, the beneficiary could receive the balance of their interest in an estate. If that estate included proceeds of pensions, real estate, deposits or insurance, an inheritance of any significance can be overwhelming for a young adult.

 

4. Minimize taxes & fees

Creating an estate plan will help you to minimize income taxes and other costs that can be incurred by your estate.

Subject to the size and nature of the assets in your estate, your executor may be required to obtain a Grant of Probate. For example, some institutions, such as Land Titles, will not take instructions from the executor unless a Grant of Probate is provided if those assets are in your name alone.

In most other jurisdictions in North America, the probate fee, which is paid to the court, is variable and is determined by the value of the assets in the estate. This is less so in Alberta, as the maximum probate fee in Alberta is $525. Even with one of the lowest probate fees in North America, there may be opportunities, with the appropriate advice, to efficiently move assets to beneficiaries, including:

  • Designate beneficiaries on registered plans such as RRSPs, RRIFs, RESPs, TFSAs
  • Designate beneficiaries on life insurance policies
  • Establish trusts
  • Gift assets during one’s lifetime

 

5. Appoint an executor you trust

When you make a will and estate plan, you appoint an executor to administer your estate. An executor should be a person you trust and who is capable of handling your affairs. While an executor is principally viewed as having financial responsibilities, their accountabilities are greater and the time needed to administer the estate can be significant.

The executor will need to secure property, get tax advice, manage risk, value assets, sell assets, pay liabilities and correspond with estate beneficiaries. Where the executor lives, their time capacity, decision-making capabilities, financial responsibility and communication skills are important attributes for an executor.

 

6. Take care of your financial, personal & healthcare decisions

You can create an enduring power of attorney to designate someone to make financial decisions on your behalf if you become sick and to address your financial affairs. The nominee in the enduring power of attorney will be responsible for paying bills, accessing bank and investing accounts, paying income taxes, operating a business and more.

Like the enduring power of attorney, a personal directive speaks for you when you can’t. In the personal directive, you nominate a party to make healthcare decisions on your behalf. The nominee, known as the agent, will determine where you live, the standard of care you receive and can make end-of-life decisions.

 

7. Protect other beneficiaries

Due to any unique circumstances of the beneficiaries, it may be appropriate to consider additional planning. If a beneficiary is not good at managing money, if there are blended families, if there are creditor issues or if the future of a marriage is uncertain, a will that includes a trust may be an option. A well-written estate plan can result in long term financial security for a beneficiary and protect them from others who may not have their best interests at heart.

 

Breadcrumbing

If a will or EPA is not prepared, it is unlikely that there is an understanding of the nature or location of the assets and liabilities of the estate.

Will and estate planning are about the present as much as about the future. In having an estate planning mindset, documenting what you own and what you owe is important. Executors of your estate may find themselves becoming private investigators seeking to locate assets and questioning whether everything has been identified and collected. If you don’t want to leave a complete list with your executor today, leave breadcrumbs. Create a file that records your assets and liabilities that your representatives will find.

 

It’s about them and you

Creating an estate plan will save time and money but those are not the only reasons to plan ahead.

While the term legacy is often associated with icons of society, family members and others that touch our lives also leave behind a legacy. A legacy can represent the deeds and accomplishments of a lifetime, but it can also be influenced after death.

An estate plan is a gift to those that are left behind. That plan leads those to complete your wishes with less effort while they also deal with the loss. The presence or absence of an estate plan can have a lasting impact on your legacy.

Reach out to the experts at ATB Wealth to start your estate planning journey.

 

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