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What is estate planning? The nature and extent of the rights to asset ownership with respect to land, property, and financial assets and/or life insurance benefits can be given over to heirs using documents referred to as the Last Will and Testament, drawn up by a lawyer.
It is important to plan the most efficient manner of leaving hard-earned assets to heirs. Try to avoid the following mistakes:
The testamentary trust (the will) is not updated. There are many phases in life, and each brings change that can definitely necessitate a change in a will. Without an updated will, deceased heirs may be named, or monies in trust may conflict with your current situation. Make sure your will is updated.
If there is no will, the government will decide who gets what and the estate may be subject to increased probate fees. Your estate may be deemed intestate, and your provincial government can appoint trustees who may then divide the estate according to legislation, not your wishes.
There is no guardian directive. If there are young children, and no will, who will take care of the children if both parents die? It is very important that a directive in the will establishes who will be the children’s prearranged guardian.
Specific assets for the heirs are not articulated. Even in a simple estate, it may be unwise to generalize—such as “I leave all my household items to my children”—not selecting specific heirs for certain assets. In this case, a dominant child-executor may rummage alone through the house pre-selecting, removing, and even selling heirlooms other siblings may be attached to.
Proper beneficiaries have not been named. You will also need to assure that your beneficiaries are updated on your various investment accounts (such as segregated funds) to allow passing these assets directly to named beneficiaries. Life insurance can also state specific beneficiaries helping you to achieve estate equalization. The proceeds from life insurance can be divided proportionately as you chose. Beneficiaries of your assets may need to be changed over time to coincide with your wishes.
The estate is not equalized. In situations where one child inherits the family cottage or business, consider leaving equivalent cash assets to other siblings. If there will not be enough cash in the estate, life insurance can be purchased to create proceeds to divide up among siblings not inheriting a significant family asset. Also, life insurance benefits can be assigned to beneficiaries outside of the will.
Allowing the estate to be eroded by taxation.
RRSPs and estate taxation Where there is a surviving spouse, RRSPs/RRIFs can rollover free of taxation. If not, registered money will be taxed as income in the final tax return of your estate.
Capital gains taxation Taxation on capital gains can erode bequeathed assets such as a cottage, home, or business shares left to adult children. Such assets are deemed to be disposed of at death where there is no spouse or dependent, in most cases creating taxable capital gains on the difference of the current asset value minus the purchase price. Life insurance can help pay capital gains taxes, for example, to keep a cottage or business in the family.
Debts may not be addressed. Many people miss covering all personal and business debts with life insurance. Thus, they can saddle their heirs with the estate debt if there is a lien on business or personal assets. By paying off some or all of these debts tied to assets with life insurance, you can free up much more of your estate value.
The immediate family’s provision was unaccounted for. Some people never chose to provide a nest egg (upon their decease) from which the family can invest to create an income for dependents such as a spouse, children, and/or ageing parents who may need long-term care. In these cases, there may be no savings set aside for a rainy day—for emergency or retirement. Life insurance may be the easiest solution to this problem.
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Life Insurance policies vary according to contract terms. Please read any
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