In the past few years, there have been deaths of my friends, co-workers, fellow bloggers and their mates. All were under the age of 50. All left their families ill prepared for their untimely deaths. Most did not have wills. Most had not planned their estates; many left behind young children without a parent or a financial plan in case something happened. In this month, where we celebrate love, one of the most loving things you can do is plan for your death. Having an estate plan is one of the most loving acts you can do for your family. Yes, it is a difficult conversation to have. It is an essential one if you do not want to leave a mess for those you love.
Last week, I had a great conversation with Christine Van Cauwenberghe, Vice-President, Tax and Estate Planning at Investors Group. We had a great conversation about life, death and estate planning.
Estate Needs Analysis
Many Canadians do not want to think about death. I know it is a conversation I dread. The first step to being prepared for it though is to have an estate needs analysis done. If you have small children, it’s essential. Meet with a financial advisor who can help you develop a plan.
Your estate plan is simply a part of your financial plan. Do you want your estate to have enough money to cover day-to-day expenses if you are not there? Do you want to pass on a legacy to your children? These are just a couple of things to think about as you plan your life and death.
Naming the Beneficiary
In my conversation with Christine, one of the things she emphasized was to never have minor children named on any insurance plans or RRSPs as the beneficiary. It is better to name the estate and to have an executor in place to take care of the financial needs of the children.
Her suggestion was never to name a young person under the age of 30 as a direct beneficiary. There are several reasons for this. If you die without a will in place and have left your kids as beneficiary, the money they inherit is held by the government for the children until they reach the age of eighteen. If you need to feed them, clothe them etc., you have to apply to the court for access. Really, if you do not have a plan in place, you are leaving a mess for your spouse and are not able to provide care for your children in ways that you may want too.
Minimizing the Tax Hit
Death, taxes and probate fees go hand in hand. Have your will written in such a way that unregistered investments, such as real estate, will pass outright to your spouse or you can use the principal residence exemption to eliminate the capital gains tax.
Have your estate administrator consider, whether it is in your family’s best interest, if an additional spousal RRSP contribution in the year of your death might help lower taxes. While speaking with Christine Van Cauwenberghe, Vice-President, Tax and Estate Planning at Investors Group she said, “Ensure that all possible tax deductions, such as medical expenses and donations are also included in the final tax return.”
Gifts and Family Disputes
Some people try to avoid taxes or simply because they want to see their loved ones enjoying a certain item, will choose to gift an item before death. This is generally not recommended, but if you do decide to give one child part of their inheritance before you die, you will want to somehow equalize your estate through your will to ensure all are being treated equally to ensure there are no disputes.
There are so many things to think about when creating an estate and a financial plan which is why it is best to include an expert in the conversation. Investors Group has experts in tax and estate planning and I know I am now better prepared after my conversation with Christine.
A comprehensive plan really does look at all aspects of your life. It is best to be prepared for life, retirement and even death. Have you designed a plan for your life yet? Check out the Investors Group site to learn how you can be better prepared with a comprehensive plan. It really is more than just thinking about RRSPs.