More than one-third (37%) of Canadians have prioritized getting their end-of-life plans in order for 2021, according to a survey from Willful, a leading digital estate planning company. This includes writing a will, funeral planning, and having essential conversations with family about estate planning. For those looking to delve into this crucial task, a comprehensive guide to estate planning in Canada is now available.
Estate planning is the process of pre-arranging how your finances and other assets will be managed or used when you die or become incapacitated. It encompasses creating a will, power of attorney, living wills, trusts, choosing an executor or trustee, purchasing life insurance, naming a guardian for minor children, and outlining details about your final arrangements.
Why should you plan your estate? Similar to how a financial plan can help you achieve your financial goals, an estate plan ensures your final financial objectives are met, particularly the timely and tax-efficient transfer of assets to your loved ones. Key reasons for estate planning include the ability to choose your heirs, making things easier for your loved ones, and implementing tax-saving strategies.
Developing an estate plan in Canada is a multi-step process that may involve consultation with various experts, such as legal, tax, and insurance professionals. Depending on the complexity of your estate, you might handle some or all of the process on your own or with the help of online services. Essential tasks in estate planning include taking stock of your assets, deciding who should receive them, choosing guardians for minor children, and selecting individuals to carry out your plans, such as an executor and powers of attorney.
A thorough estate plan consists of several parts, including legal documents and financial instruments. Key components of an estate plan are:
Legal will: A will is a legal document that outlines who should receive your assets and how they will be divided. It must be written by an adult of sound mind, signed by the testator, and witnessed by two people who will not benefit from the estate. There are various ways to make a legal will, such as using online services like Willful or hiring an estate lawyer.
Trusts: Trusts hold assets you want to give to someone else and set conditions for their transfer. A third-party trustee manages the assets. Living trusts transfer ownership while you are alive, and testamentary trusts take effect after you die.
Power of attorney: This legal document names someone to act on your behalf if you become incapacitated. It is essential for managing your assets during such times.
Insurance: Life insurance provides a tax-free lump sum to your beneficiaries when you die. It is a crucial component of estate planning, especially for those with dependents.
Understanding the taxation involved in estate planning is also critical. There are two main types of taxes: probate taxes, which are about 1.5% of the estate's value, and income taxes, which include your regular earnings and any additional income from your estate. A tax advisor or estate planning specialist can help you develop strategies to minimize these taxes, such as using trusts or joint ownership of properties.
Despite the unappealing nature of estate planning, it is an essential task. By planning ahead and utilizing online services like Willful, Canadians can ensure their assets are managed according to their wishes and provide for their loved ones efficiently and effectively.
For more information, visit money.ca.
