Three steps to an estate plan

Everyone thinks of estate planning as highly complex, but it really comes down to three basic steps.

They are:

  1. Know where you are now

  2. Know what you want to accomplish

  3. Putting a plan in place

Let’s look at each in turn.

Step 1 – Know where you are now
The first step in this process is to determine exactly what you own. Start by making a list of your assets, to get an estimate of what your estate is worth. This is known as your "gross estate". Your list of assets might include:

Real estate: your home, perhaps a cottage or a rental property

Personal property: cars, a boat, jewelry, art or antiques

Canadian and foreign investments: CSBs, GICs, bonds, mutual funds, stocks, etc.

Registered investments: RRSPs, RRIFs, LIFs, pensions and annuities

Insurance policies

Business interests (proprietorships, partnership, etc.)

Remember to list not only what you own, but also how you own it. The latter will definitely influence your estate planning. For example, is your spouse the designated beneficiary on your RRSPs and insurance policies, or is it your estate ? What about eloyer pension benefits ? Clearly note which assets you own jointly (whether with your spouse, or some other person), and what you own singly. Your ownership of assets will decide whether they will pass to the beneficiaries through the will, or outside the will, and thus not form part of your estate for probate.

Step 2 – Know what you want to accomplish
Your objectives may be very broad or very simple. Many Canadians will find that they have goals in common. But everyone will have goals that are unique to them. Your goals will be influenced by such factors as your age, marital status, the ages and needs of children, whether you are a business owner or an employee, etc. These factors can change over time. This is why estate plans need to be reviewed regularly. The estate plan of a 38-year-old parent with a mortgage, a spouse and dependent children will be different than that of a 60-year-old with substantial net assets and no dependents. Here is a list of some common objectives you might consider:

  • To ensure that your estate has sufficient cash to pay taxes and other liabilities after your death.
  • To provide financially for your loved ones.
  • To select an executor who will manage your estate to your satisfaction.
  • To leave as much of an estate as possible to your heirs.
  • To make sure your dependent children or grandchildren (if any) will have a suitable guardian.
  • To distribute assets according to your wishes.
  • To make gifts to your church, your college, or your favourite charities.
  • To ensure that your children have sufficient funds to acquire a post-secondary education.

There are also some common problems you would want to avoid, such as leaving any financial burden on your family, loss of assets due to excessive taxes and fees which could have been avoided, delays in having your estate settled, causing increased costs and greater distress for survivors, and leaving assets to those who are incapable of managing them properly.

Step 3 – Putting a plan in place
By now, you should know your net worth, and who owns which assets. You should also have a pretty clear idea about what you want your estate plan to accomplish. The final step is to involve the appropriate professionals to assist you to draw all these elements together. At a minimum, you will probably be looking at completing a will and powers of attorney. Beyond that, your estate plan will be as individual as you are. Your estate plan may require the establishment of a trust, or creative uses for life insurance, etc. It is strongly recommended that you seek out the assistance of the appropriate professionals to guide you in the achievement of this important work. The consequences of not doing so are potentially serious indeed, and will be discussed in future updates.