We have all heard about a financial plan, but what about an estate plan. Planning your estate is probably not the first thing on your list of priorities. The truth is, estate planning should be a financial priority at almost any stage of life.
Why is it important to have an estate plan? To ensure a simple, tax-efficient and organized transfer of your assets to loved ones when you’re gone.
Your estate plan should be updated regularly, particularly as your circumstances change throughout your life. There is a lot to think about when developing an estate plan. Your goals should be to live your life to the fullest and, at the same time, ensure your heirs will get the most out of the assets you’re setting aside for them. Here are a few things you will need to consider:
A will is legal declaration of how a person wishes his or her property to be distributed after death. Wills will generally cover the following:
Naming of an executor — the individual or organization chosen to administer the estate. If you die without a will (referred to as “dying interstate”), the province where you reside will step in to administer your estate and, in this case, you’ve essentially forfeited your say on how things are divided and who will be in charge of the process.
Naming beneficiaries of the estate (this could be family or institutions).
The distribution of assets within the estate (investments, real estate and possessions, etc.)
Naming a beneficiary outside the will
Naming a beneficiary other than your estate on an insurance contract allows death benefit proceeds to bypass your estate. This means that your beneficiary will receive the proceeds privately and directly while avoiding probate and estate administration fees, which can be significant. By avoiding your estate, the death benefit proceeds may also avoid claims by creditors of the estate and challenges to the validity of the will, which can delay the distribution of your estate by weeks, months or even years. In addition, insurance contracts offer the potential for creditor protection while you are alive if the beneficiary of the family class is named or a beneficiary is named irrevocably.
How much do we really know about taxes after death? If you have a will, upon your death it is your executor’s responsibility to file a tax return for you. The government will consider you to have sold all your assets immediately before your death and any capital gains/losses will be crystallized. That may lead to a large tax bill. Here are some strategies to minimize the amount of taxes on your estate:
• Maximize asset “roll-overs”, transfers to your spouse that defer capital gains.
• Possibly set up trusts to ensure your beneficiaries are well looked after.
• Give gifts of cash or possessions while you are still alive.
• Consider charitable donations to create tax benefits.
• Purchase life insurance that is paid out to a named beneficiary on a tax free basis.
• Restructure investments with insurance companies so assets can bypass your estate.
The reassurance of having a strategy in place to preserve the value of your estate for loved ones is something to value.
After all, why pay if you don’t have to?
Remember to always consult your advisor.
Written by Stuart Kirk, CIM Stuart Kirk is a Retirement Planning Specialist with Hicks Financial Inc. The opinions expressed are those of the author and may not necessarily reflect those of Hicks Financial Inc. For comments or questions Stuart can be reached at firstname.lastname@example.org or 250-954-0247.