What is estate planning?

By planning for tomorrow today, you can retain more of your assets, protect your estate and leave a lasting legacy for your family. An estate plan is absolutely essential for organizing your financial affairs and providing for the well being of your family. I think we could all use a little financial organization in our lives.

Who is estate planning for?

A common misconception is that only the wealthy need to concern themselves with estate planning. This misconception can result in significant unnecessary costs to the estate and additional burdens for survivors. In fact, just about everyone can benefit from the development of an estate plan. Young or old, wealthy or middle class, an estate plan can reduce the taxes and expenses of an estate, simplify and speed the transfer of assets to the next generation and ensure that beneficiaries are protected.

Estate planning should be a financial priority at almost any stage of life. In fact, sometimes the terms estate planning, financial planning and retirement planning are interchangeable and refer to the same kind of planning.

Why is estate planning important?

An estate plan defines how you want your assets to be owned, managed and preserved during your lifetime and how you want them dispersed after your death. Why is it important to have a plan? It ensures a simple, tax-efficient and organized transfer of your assets to loved ones. Drafted properly, an estate plan can do the following:

Divide your assets the way you want them to be divided. Without an estate plan, your provincial government would determine how your assets are divided and neither you (since you'd be deceased) nor your family would have any say in where those assets end up. They could even go to non-family members before anything goes to your dependents.

Help with the speed and efficiency of the transfer of the estate. As a financial expert, I could tell you about many estates that took years to settle. With a little planning ahead of time, an estate plan can help create efficiency for the executor and the beneficiaries.

Determine how your assets are owned, organized and managed while you are alive. In some circumstances, if you get into a situation where you are not able to manage your financial affairs due to an accident or illness, an estate plan can set out the details as to how you want your affairs attended to. Enduring powers of attorney, personal directives and trusts are some effective tools to help people properly manage their estate if they are unable to.

Minimize your income taxes at death. When you die, the federal government regards all of your capital assets (stocks, mutual funds, etc.) as disposed of for tax purposes. This dumping of capital assets can result in a huge income tax bill. With an estate plan in place, you can transfer the ownership and minimize the taxes incurred on them.

Minimize your costs and fees at death. When you die, not only will you have to pay taxes but often other fees and costs as well, including probate fees, funeral expenses, executor fees and legal fees. Once again, planning ahead can save you money as well as time.