When you die, everything you owned, including real estate, stock, jewelry, art, cars, money in the bank, company shares, and insurance payouts (among other possessions), becomes part of your estate. With this in mind, you need to prepare a comprehensive Estate Plan that will ensure your affairs are handled according to your wishes.
Among other critical functions, an Estate Plan ensures that your possessions pass smoothly to your heirs, avoiding lengthy and costly probates. It is a legal document that details how your estate is going to be managed when you’re dead and provides clear guidelines on who should inherit your estate and the person or people who will make critical financial and health decisions on your behalf, should you become incapacitated.
A Will is just one component of your Estate Plan; it gives instructions on how you wish your estate to be distributed to your heirs after your death. Your Will takes effect when you die, but other components of your Estate Plan, such as a Living Will, can be executed when you’re still alive.
If you die without drafting a proper Estate Plan, the government decides who inherits your estate and even appoints an executor, who may not carry out your wishes. Also, crucial decisions regarding your care and treatment, if you become incapacitated are taken out of your hands. Therefore, regardless of the size of your asset base, you should prepare an Estate Plan to make things easy for your loved ones in the event of your incapacitation or death. In this article, we’ll take you through the basics of creating an executable estate plan.
An 8-Step Checklist of the Basics
If you’re a Canadian seeking to create a proper Estate Plan, read the steps below along with our expert recommendations.
Step 1: Calculate Your Net Worth
The purpose of an estate plan is to preserve your possessions and give clear succession guidelines. This means that you need to keep a detailed list of your assets. You may think that you don’t have much until you start looking around. Begin with the house. If you own it, list it first before going into individual items. List everything worth $100 or more, including your television, stereo system, fridge, furniture, art, kitchenware, jewelry, tools, and electrical appliances, among others. Don’t forget your other physical assets, such as real estate and automobiles, as well as your intangible assets, including stocks and bonds, insurance payouts, retirement plans, savings accounts, company shares and equity, and cash. After you’ve made a list of everything you own, write a rough estimate of the worth of each item on the list and add up the total. From this total, subtract any debts and other liabilities; the difference is your estimated net worth.
Step 2: Draft a Will
A Will is an important component of your estate plan because, without it, you don’t have a say in who will inherit your estate. When you die intestate (without a Will), your property will be distributed according to succession law, which may not reflect your wishes. A Will includes details about your assets (which you prepared in the first step), the names of your preferred executor and your beneficiaries, and guidelines on how your estate will be distributed as well as your desired funeral arrangements and your chosen guardian(s) for your minor children.
Even though you don’t have to hire an Estate Planning attorney to help you draft your Will, doing so will ensure the legal validity of your Will.
Step 3: Make Sure Minor Children are Provided For
In Canada, children under 18 need a legal guardian to take care of them in the event of your death. If you and your spouse die, and you haven’t named a guardian in your Will, the state will choose one for them. This is not the kind of decision you would want to leave to the state.
Naming a guardian is a critical decision that should be well thought out because the guardian also manages your children’s inheritance until they become responsible adults. A guardian must be at least 18 years old and should be someone your children know and get along with so that they are not traumatized by the decision. It is also important to first get the guardian’s consent to raise your children in the event that you are not able to do so. He or she should share your beliefs and values and be someone you can trust to carry out your parenting practices when you are gone.
You can name more than one guardian in your Will or a different guardian for each child if you believe this is the right thing to do; however, naming a different guardian for each child is unpopular as most people would prefer to have their children raised together.
Step 4: Make a Living Will
Also called an Advanced Healthcare Directive, a Living Will is a legal authorization that stipulates your preferred end-of-life medical care to your doctors, caregivers, and loved ones in the event that you become incapacitated. A Living Will saves your loved ones the emotional burden of having to make complex medical decisions on your behalf, such as ceasing medical efforts to preserve your life when you are in a vegetative state.
A Living Will allows you to make health decisions for yourself ahead of time. In it, you name your healthcare proxy, specify the type of medical care you want and whether you want to die at home or in the hospital, and provide guidelines on when you no longer need medical care. A Living Will expresses the healthcare decisions that you wouldn’t wish to leave to someone else’s discretion. A Living Will has power only while you are alive.
Step 5: Make Healthcare Directives
Besides your Will and your Living Will, your Estate Plan includes your Power of Attorney, which is a written authorization that gives someone else the power to make medical decisions on your behalf. The person named in the authorization becomes your healthcare agent or healthcare proxy.
Step 6: Consider Life Insurance
It is important to have life insurance when you know that a hefty tax will be levied on your estate or that you will leave a substantial debt behind. Your life insurance is payable on death (POD), and your loved ones can use the payout to settle your debts and pay the estate tax without having to liquidate the assets you left to them.
If you don’t have life insurance, your debtors can obtain a court order to liquidate your assets to pay off your debt. If you have a mortgage, the house is security for the loan until the debt is paid off in full. It doesn’t matter how much of your estate you leave to your beneficiaries, if you have a large debt, there won’t be much left for them to inherit.
Step 7: Cover Funeral Expenses
The cost of a funeral and burial in Canada, including the burial plot, casket, and funeral service ranges from $5,000 up to $25,000. Cremation is not cheap, either. If you don’t plan in advance, this huge expense will be left to your family, putting a substantial dent in their inheritance. At MoneyWizard.ca, we recommend that you plan for your funeral expenses so that your loved ones won’t have to use part of their inheritance to bury or cremate you.
Today, several insurance products can help you cover your burial/cremation costs. A POD plan is ideal as it leaves more money to cover other expenses, such debts and estate taxes.
Step 8: Store Your Documents
When your Estate Plan is completed and signed, you need a safe and accessible place to store it. But first, you need to ensure that your executor has a copy along with information about your bank accounts, pension plans, insurance, tax, debts, and guardian and funeral arrangements. You can store your Estate Plan and related documents with your executor, at home in a waterproof and fireproof safe box, or in a safe deposit box at the bank with instructions on who can access the box after your death. You may also leave it with your attorney or in a digital archive.
Conclusion & Recommendations
Nobody likes to think about their eventual death, but it is critical that you avoid family feuds, costly court battles, and assets ending up in the wrong hands after your death. If you want your family to get their inheritance without any roadblocks, make sure that you adhere to the checklist for the basic Estate Plan. You can hire an experienced attorney to help you draft your Estate Plan and minimize your involvement. Also, make sure that the document can be accessed after your death because if it cannot be produced, the court will assume that you died intestate.