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Creating an estate plan

Ensure your wealth lives on.

When you pass on, you want your assets to as well. Preparing an estate plan is the best way to ensure that happens smoothly. Your estate plan is an essential part of your total financial strategy. More than just a will, it's a set of instructions outlining ways to tax-efficiently transfer your wealth to family and other beneficiaries.

Formally and legally communicating your wishes can protect your estate from legal challenges in the future and preserve your peace of mind today. Here are 10 steps to get you started.

1. Review your assets and debts.

Do an inventory of everything you own, including home and vacation property, possessions, valuables, special collections, vehicles, registered and non-registered investments, and a current valuation of any businesses you own. Then total your liabilities like mortgages, loans, debts or personal obligations such as family support. This will provide a balance sheet of your net worth. Our Estate Planning Record Keeper is a useful tool to organize this information.

2. Consult your advisory team.

To ensure your wealth transfer is managed properly and preserved carefully, you'll need the advice of professionals you trust. Your financial advisor, lawyer and accountant or tax planner will form the basis of your team. Your financial advisor should be able to help align everyone and bring in any specialists as needed, such as insurance and investment advisors.

3. Decide who gets what.

You'll have a number of things to consider. What do you want your spouse, children, relatives or close friends to have? Do you want your beneficiaries to receive their inheritance money immediately or at some future date through payments from a trust? Are there significant family assets, such as a business or second residence, that need to be addressed? And who really deserves your prize album collection?

4. Make a will and name an executor.

The foundation of any estate plan, a will is the roadmap everyone has to follow. It's an important legal document and should be prepared professionally. Your will outlines how assets such as investments, real estate and possessions should be distributed, identifies beneficiaries and names the executor, the individual or organization chosen to administer the estate. If you die without a will (intestate), the province steps in to arbitrarily administer your estate and will collect the maximum in taxes. It's a good idea to also prepare a Living Will, a written declaration of what life-sustaining medical treatments should be used in the event you become incapacitated.

5. Arrange Power of Attorney and representation agreements.

These other key documents in your estate plan formally declare who can speak and decide for you when you can't, planning for potential illness, accident or condition. An enduring power of attorney empowers a representative to make legal, financial, and property decisions on your behalf if you become incapable. No one else can take over for you unless they jointly own your assets. A representation agreement acts in the same way but also allows the representative to make medical care decisions according to the wishes stated in your Living Will.

6. Consider how to minimize taxes.

Your estate may have to pay income tax or probate fees which can significantly reduce the proceeds. Probate is the process where the provincial court confirms the validity of your will and can take some time, tying up your assets. Probate fees are the taxes paid on the entire value of the estate before the executor can begin administering it. And then because your assets are considered to be disposed of at death, sizeable portfolios, including registered investments like RRSPs and RRIFs (if not directly passed on to named beneficiaries) can be exposed to capital gains tax. The goal is to reduce the value of your estate and there are several tax-saving methods you can use.

7. Review insurance strategies.

Shifting a portion of your assets from fully taxable vehicles like term deposits, bonds or cash into a tax-exempt insurance policy can significantly enhance your estate plan, replacing what's lost to taxes. The policy grows tax-deferred during your lifetime and is paid out to your beneficiaries tax-free. You can also enhance estate value by reallocating lump sums into a tax-exempt life insurance policy where the ultimate estate benefit grows over time and is distributed tax-free.

8. Consider a trust.

Assets transferred to a trust are no longer considered part of your estate but are still under your control. Trusts are an excellent way to deal with larger assets like vacation property or a family business, since they must be administered according to your wishes. Trusts can however be very complex, and professional advice is key to achieving your end goals.

9. Determine any charitable gifts.

If you wish to leave a legacy to a favourite charity, there are several options, including private foundations, charitable remainder trusts, gifts and charitable bequests.

10. Make a business succession plan.

If you're a business owner, your estate plan needs to include your company as well. Buy-sell agreements and estate freezes are two ways to ensure your business receives fair market valuation and tax assessment. Life insurance can be also used to pass a business on, providing funds for tax liabilities, creating tax efficiencies on shares and possibly reducing taxes on the ultimate transfer of the company.

Your BlueShore Financial Advisor can help you put an estate plan in place that takes into account all your wishes and protects all your worth. And because things change (especially tax laws), it's a good idea to review your plan periodically.

† Insurance services provided by BlueShore Wealth.

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