Estate planning is so important, yet it is overlooked by many because it may be viewed as being challenging and complicated and bringing about morbid thoughts. However, one of the smartest things you can do is to leave all of your affairs in order so that there is no uncertainty or tough decisions to be made by your loved ones. When undertaking the process of Family Estate Planning, there are some strategies that can be used in order to reduce the financial impact on your estate following your death.
1.Have a Will in place
Dying intestate (without a Will) means that the court will appoint someone to administer your estate. In this situation, the government gets to decide who your beneficiaries are and how your assets will be divided up. Not only does this significantly increase the costs to administer your estate, but it does not give you any choice in how your assets are handled. Having a Will in place allows you to pick someone you trust to administer your estate and allows you to control who gets how much of your estate and when.
2.Add your spouse as a joint owner
There are also ways to reduce probate fees and taxes by holding assets as joint tenants with your spouse or by having your spouse listed as a beneficiary.
Probate is the process of legally validating a Will, and all estates must go through this and there are fees attached to this process. However, holding a house in “joint tenancy” with your spouse will prevent it from going through probate; meaning it will automatically pass to the surviving spouse.
A good way to reduce and/or defer taxes payable upon death is to list your spouse as a beneficiary on your registered accounts, including RRSP’s and TFSA accounts. These accounts will rollover tax-free if your spouse is listed as a beneficiary. If a spouse is not listed as a beneficiary, the entire amount of your RRSP account is taxable as income.
If these assets are not held jointly with your spouse, the general rule is that the Canada Revenue Agency (CRA) will deem them to be sold at fair market value at the time of your death and any future capital gains will be subject to taxes.
3.Keep investments in one place
Not only is it a good idea to have your spouse as a joint owner on your investment accounts but it is also wise to have your accounts in one place versus having them spread across several firms. This will make it much more efficient for your executor when it comes time to reach out to the firm/s.
4.Spend your RRSP’s
Paying taxes on your RRSP’s is inevitable, so it makes more sense to start drawing from your account slowly and spread the taxes over a longer time-period versus being taxed a large amount at the time of death. Additionally, in relation to the point above about adding your spouse as a beneficiary to your registered accounts, if you die without a spouse or listed beneficiary, a large portion of your RRSP’s will end up with the CRA.
In addition to spending your RRSP’s during your lifetime, you may also want to consider, giving away cash gifts while you are alive. Cash gifts are a great way to minimize taxes as there are no taxes payable when dealing with cash gifts.
5.Life insurance policy
There are different options when it comes to types of life insurance policies. For a younger family, the best option may be a ‘term’ life insurance. This will pay out a lump sum if you happen to die during the specified term. It is important to note with this type of policy, you should get enough coverage to pay off your existing debts and replace your future earning potential.
There is also a ‘permanent’ life insurance option but this is often more expensive when compared to the term option. This policy has no expiry date so it does not need to be renewed like the term policy. Details of policy options should be discussed with professionals in the field who will be able to provide you with specifics relating to your situation. However, the idea is that the payout from the policy can be used to settle any debts so that the burden on the estate is reduced.
These are some Family Estate Planning strategies that can be used to reduce the overall burden on your estate with regard to all sorts of fees. Planning for your death may not sound like a fun process but knowing that your family is all set up after you are gone, can relieve a great amount of stress and worry. If you have any questions or would like to start putting together estate planning for your family, do not hesitate to reach out.