Having a will is important regardless of your age or financial situation. You need to let others know what you want to happen to your personal and financial belongings after you pass. Often the misconception is that one needs to have sizable estate to consider estate planning. This is a mistaken belief. If you have something of value that you want to pass on or something or someone you want to protect after you should die then estate planning is necessary.
Working with a financial advisor is a great place to start when you consider your estate plan. A qualified financial advisor can help put the overall picture of ‘your estate’ into place. Their services will include preparing a networth statement that will outline everything you own, minus what you owe.
You then need to decide what you would like to do with each asset after you die. Do you want to equally split your estate between your children? Do you want to donate to a charity you care about? What about giving money to the grandchildren or a close friend or sibling? Having your financial worth on paper can help in the decision making process.
You also have to contemplate what to do with personal belongings not included on the networth statement. This can include jewellery, furniture, cars, art and other items of worth. Spending time on this process beforehand potentially saves costs when you visit a lawyer or notary to finalize your Will.
The networth statement is also a good way to determine if you are satisfied with your after-tax and after-debt repayment estate. If it is important to leave as much as possible to your beneficiaries and you’re not happy with the final estate you might look into insurance options.
Having insurance on your debt in case of disability or death is a great way to preserve your estate. If you die and still hold a mortgage but have it insured it will be repaid in full. Leaving the full value of your home intact and if need be, keeping your family in it. Often financial institutions offer insurance when providing you with a mortgage, line of credit, regular term loan or credit cards. You can either accept their insurance offer or you can ask your financial advisor to review your overall insurance needs and provide the best insurance solution.
Looking at the big picture of your estate can also help you to see opportunities to protect your assets and your beneficiaries by using trusts. If you have young children, financially irresponsible adult children, a disabled child or young grandkids and you want to continue to care for them after you are gone, a testamentary trust is a good way to go. You can set up a formal trust with a trust company or lawyer or discuss an informal trust with your financial advisor. The complexity and size of the trust will really determine the route you should go.
The cash flow statement from your financial advisor can summarize your income flow and expenses. This is another valuable tool for estate planning as it provides a visual of what your beneficiaries will receive if you die. If you are the bread winner or have the majority of pension income that decreases or stops after your death deeply impacting the financial well-beings of your loved ones then insurance is definitely a must. You may have some insurance already through work. What happens if you leave your place of employment? Often the group policies obtained through work don’t fully cover debt repayment and income needs. It might be better to look into a personal insurance policy versus a group policy or you might keep your group policy but add some personal life insurance to it to supplement the shortfall.
Insurance can also play a part in funding some or all the taxes owed on your estate after you die. If you have an RRSP or RRIF and it is not rolling over to a spouse, the full value will be considered as income in the final tax return and taxed accordingly. Having enough insurance in place to cover such liabilities means your beneficiaries can get the benefit of the before tax asset. Other taxable assets such as a family cottage may benefit from having insurance in place. Often families hold property that they want to pass down and to be enjoyed by all the children and generations to come. However, tax has to be paid on the gains in the property after you should die. If there is not enough cash in the estate to pay the taxes, the beneficiaries may have to sell the cottage to cover the liabilities. Having enough insurance in place can greatly help your family preserve meaningful assets.
Make an appointment with your financial advisor if you do not have an estate plan in place. They will provide you with an overall picture of your current financial house. Where there are cracks, they can provide recommendations and help to implement. You can then take some time to reflect on the big picture, have a good idea of what you want to happen when you pass and then make an appointment with a lawyer or notary to put to paper your wishes.
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