According to a recent financial poll conducted by Ipsos Reid, only 30% of Canadian adults have a formal estate plan. The reasons for not having a plan probably vary. Some may feel they're too young to need an estate plan or they don't have enough assets. Others mistakenly believe the government will step in after they pass away or their belongings automatically go to family members.
The reality, however, is everyone needs an estate plan. It's the single most effective way to preserve your wealth and transfer your worldly goods efficiently, tax-effectively, and according to your wishes. It's not something you do for yourself but rather for the well-being of your loved ones.
Depending on your needs and objectives, your estate plan should include a will, one or more trusts and, in many cases, powers of attorney for your finances and health care. In an effective estate plan, these elements work together to provide for the security of yourself and those you care about.
The cornerstone of your plan
A valid will is the cornerstone of any estate plan. In your will, you can outline how you want your assets distributed, arrange for the ongoing care of your dependants, name guardians for your minor children or make a bequest to charity.
If you die without a will, your belongings will be administered and distributed according to the laws of the province or territory you live in. Those you leave behind may have to apply to the courts for support from your estate, which can be a stressful and time-consuming process. There's no assurance your assets will be distributed according to your wishes.
Your executor is the person named in your will who's responsible for administering your estate and carrying out your final wishes. Your executor has many responsibilities, including paying your final debts out of your estate, filing your final tax return, and managing your investments and other assets until they're distributed.
Choosing your executor is an important decision, so make it carefully. You want to name someone you trust, preferably someone who has some experience and capability in personal financial management. You may consider naming a trust company or lawyer as co-executor.
One of the most important reasons for having a will is to name a guardian for any of your children who are under the age of majority. While your wishes may not have the force of law, the courts will generally abide by them when appointing a legal guardian for your minor children. The person or couple you select should be willing to take on this major responsibility and capable of caring for your children until they can live independently.
To ensure the guardians have the financial support they need to raise your children, you may want to establish a testamentary trust in your will. A trust can be established for a specific purpose, such as funding a beneficiary's education. Or you may want the beneficiaries to receive income from the trust in their younger years, with the capital assets paid out when they reach a specified age.
Safeguarding your financial property
Consider establishing a power of attorney for property. A power of attorney appoints a representative to carry out certain transactions or manage specific assets, such as bank accounts, or securities and real estate transactions. It may also include time limits on its powers.
A power of attorney is revoked if you become mentally incapacitated, unless it's a "continuing" power of attorney. A continuing power of attorney stays in effect regardless of any changes in your mental competence.
Protecting your health and welfare
Similar to a power of attorney for property, a power of attorney for personal care (known in some provinces as a health-care directive) enables you to appoint someone you trust to make decisions regarding your health and personal care, if you are unable to do so.
You can give broad, discretionary powers to your representative or include specific instructions in the document. For example, you might specify what kinds of medical intervention you'd allow.
Keeping your plan current
Any major change in your life circumstances, such as divorce, marriage, the birth of a child or grandchild, or sudden change in financial situation — as well as changes in legislation — can affect the elements in your estate plan. In addition, estate-planning laws aren't identical across the country. If you move to a different province or territory, your existing plan may not effectively achieve your wishes.
Reviewing your estate plan every three years will help ensure it reflects your current wishes and circumstances.