Excerpted from You Can’t Take It With You: Common-Sense Estate Planning for Canadians 6th edition by Sandra Foster (Published by Headspring Publishing an imprint of Headspring Consulting Inc.)
Here are my five D’s to help you create your estate planning framework:
- decide
- design
- discuss
- document
- distribute
While all five Ds are important, you first need to decide what is important to you and then design your estate plan using various strategies and techniques to document and distribute your estate. Of course, it is possible for your estate plan to fall off the rails if you don’t discuss your plan with the various parties involved.
Traditionally, many people think about their estate plan as part of their retirement plan, or on the birth of a child, but estate planning is not age or asset dependent. If you are planning or reviewing your estate plan near retirement, I believe your first priority should be to keep enough money to meet your own income needs. Most people save for their own retirement and end up with an estate, not because they wanted to give something away.
I have not included death as one of the Ds because I think your estate plan should include yourself! You should benefit from your own savings and investments and plan in case you become unable to make your own decisions. Estate planning is not just about death!
Decide
What do you want to achieve with your estate plan? You could decide to build as large an estate as possible, or enjoy your own money while you are able. You might even have a bumper sticker that reads, “I’m enjoying my children’s inheritance!”
You can decide who will receive what, if they will receive it before or after your death, and as a lump sum or over time. You can be sure your beneficiaries will be able to decide what to do with whatever they receive! This includes family members, any charities you want to support, as well as the needs of a business, if you own one.
Your estate plan is ultimately guided by your personal values, beliefs, and priorities, and will reflect your personal situation and your legal responsibilities.
Design
There are many strategies and tools available, but many include:
• ensuring your spouse or common-law partner has enough income
• not paying any more tax than necessary
• maintaining your privacy
• considering the needs and ages of your beneficiaries as well as any legal, financial (and moral) responsibilities.
While you want to keep your plan as simple as possible, sometimes simple strategies aren’t enough. For example, if you have a beneficiary who will never be able to manage money, consider how much, if any, they should inherit outright (see the chapter titled Trusts).
Supposed you have a TFSA and grandchildren, it may seem straightforward to name them as the beneficiaries of the TFSA to have this money pass outside the instructions in your will and bypass probate. But if your grandchildren are under 18 or 19—(with some exceptions for grandchildren and parents for small amounts, or those who qualify and live in certain provinces)—the money could end up with the public trustee until they are legal adults.
You want your plan to distribute your assets and your estate when and to whom you want. If you want all your beneficiaries to receive the same amount after-tax and all expenses are paid, you could use your will’s residue clause to leave your beneficiaries an equal percentage. You or your professionals might consider a number of estate planning scenarios, before deciding on the most appropriate design for you.
Discuss
Discuss your estate plan with your family and those who are close to you, as well as anyone you want to give a job—your executor, guardian, trustee, representative and others, as well as their backups. I don’t believe you need to tell your children or other beneficiaries how much they might inherit. It’s your money and it doesn’t belong to anyone else until they receive it. These numbers will change over time anyway. However, you may want to have a family conversation to:
- clarify if any money you gift while you are alive is an outright gift or an advance on their inheritance
- determine if anyone is interested in assuming (or buying) the family business or cottage
- discuss who to appoint as your executor or attorney
- share your reasons if you are not distributing your estate equally
- inform them of your final wishes regarding health care and organ donation so they can support your wishes when the time comes
- determine if any beneficiary:
- qualifies for the disability tax credit and is eligible for a qualified disability trust (QDT)
- might benefit from creditor protection if their inheritance is held in a testamentary trust (even though the trust could be taxed at the top rate)
- is a minor and might qualify for a lower tax rate if their inheritance is held in a testamentary trust until they turn 21
If a family conversation is beyond your comfort level, ask a trusted friend or an appropriate professional to help moderate it.
Document
Prepare and sign your estate documents and designate beneficiaries on your financial and insurance accounts where appropriate.
Since you don’t usually know the timing of your death, having documented your estate plan means your goals and objectives, and the strategies you put in place decide who gets what (and that can include you), the amount or what they receive (and how tax effective it is), when, and even how (outright or in trust).
If you die without a will, your assets will be distributed according to your province’s default intestacy plan—which may not follow your wishes, nor would any court appointed power of attorney likely know your medical and financial wishes while you are alive.
Where are these details stored? Do you have printed statements, a ledger of your important online files, email addresses and passwords (as well as any other information required to protect your online assets?
On your death, your executor will need this information to administer your assets, pay your bills and file your final tax return.
In addition, if you become mentally incapacitated, your power of attorney for finances will also need to locate the relevant personal and financial details of your life to carry it on, pay your bills, file your annual tax returns, and make ongoing decisions on your behalf, so your life is still there when and if you recover.
You can also:
- organize your statements and financial details
- prepare a digital inventory
- complete an estate planning workbook
- tell your executor, attorney or family where they will find your important papers and documents
so your representative and/or executor can pick up where you left off—and pull together your financial life to wrap it up.
As your goals or personal circumstances change, and they will (you may enter or exit a relationship, have children, become a widow or widower, become seriously ill, inherit money, or move provinces, as just a few examples), or the laws and procedures related to estate planning change, review your estate plan and your documents. Also consider if your executor, guardian, named power of attorney, trustees, and anyone else named in your documents are still appropriate—or update them, if you are still mentally capable.
Your will and power of attorney documents are still the cornerstone documents—the basic tools of any estate plan.
Distribute
You are entitled to benefit from your assets while you are alive—spend your money on yourself—and if you have more enough for yourself and your partner, consider making some gifts to family and friends, to create memories and learn about money before they receive a larger amount.
Don’t write yourself out of the picture too soon.
On your death, your executor safeguards, manages, settles and distributes the estate assets according to the instructions in your will, as smoothly as possible.
Summary of the 5 Ds FOR Your Estate Planning
Some of your assets might be distributed outside your will. For example, assets held in trust will be distributed according to the trust agreement, financial institutions will make distributions to named beneficiaries, assets held jointly with rights of survivorship (where there is no question regarding ownership) transfer to the survivor, and life insurance companies will make payment(s) to the named beneficiary.
The five Ds create a framework that helps Canadians work through the stages of their estate plan.
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Excerpted from You Can’t Take It With You: Common-Sense Estate Planning for Canadians 6th edition by Sandra Foster (Published by Headspring Publishing an imprint of Headspring Consulting Inc.)