While many of us would rather create a savings plan for a dream vacation rather than contemplate our own mortality, it’s important to consider estate planning as a critical part of your overall financial plan.
Estate planning is like a road map for those handling your finances after your death. A good estate plan can help those closest to you manage your assets and plan for the distribution of your wealth and property. Understanding the essentials of estate planning can help ensure your wishes are carried out, your loved ones are protected, and may help to minimize potential conflicts.
But where do you start?
We sat down with Nicole Ewing, Director, Tax and Estate Planning, TD Wealth, and Michelle Berger, Senior Manager, Estate Services, TD Canada Trust, to ask some of the questions you might have when it comes to estate planning.
When should I start estate planning?
Nicole Ewing: We like to recommend that people begin estate planning as soon as they reach the age of majority. Estate planning should be a holistic exercise that takes into consideration your unique circumstances and objectives and often involves a Will, Power of Attorney for both property and personal care, beneficiary designations on registered plans and insurance policies, trusts, marriage contracts, and even partnership or shareholder agreements.
Certain life events may also trigger you to begin the exercise, including having children, getting married or moving in with a partner, the breakdown of a relationship, purchasing a home, and becoming aware of a health condition that could result in death or incapacity.
Without estate planning documents, the rules of the province or territory where you live will dictate who has the right to make decisions about your property and personal care, and how your assets will be distributed.
How does a Will fit into my estate plan?
Michelle Berger: While a Will is only one component of a fulsome estate plan, it is an important element. A Will provides your executor with the information they need to act on your behalf and oversee the distribution of your estate according to your wishes.
A common misconception is that you need to have “wealth” to need a will, which is not the case. If something is important to you in life, make sure you are considering what your wishes are for that person, pets, property or cherished heirloom when you die.
If you die intestate (without a Will), the process to appoint an administrator for your estate can be very time-consuming and costly, and your family may need to guess what your final wishes were. This ambiguity can create friction and even disputes. By having a Will, you streamline this process, hopefully saving time, money and stress, and eliminating the guesswork for your loved ones – giving you peace of mind.
When should someone consider a trust?
NE: If you’re unable to enter into binding financial contracts yourself (for instance, if you’re a minor), assets gifted to you may have to be held in trust until you’re an adult. This can be achieved by setting up a formal trust relationship, which typically entails the preparation of a legal document known as a deed of trust, which sets out specifics as to how the trust is to be administered and when and how the trust assets are to be distributed to the beneficiary.
Trusts are incredibly useful when planning for blended families, beneficiaries who are minor beneficiaries, and beneficiaries with disabilities, but they may also be used where maintaining privacy or avoiding a Will challenge is a priority. They are also very useful when succession planning for a family business or for outlining specific requests for beneficiaries.
When should someone appoint an executor and who should they be?
MB: An executor is appointed via a Will and is considered to be your representative to administer your Estate in the event of your death. You can appoint one person or multiple persons to share the responsibility for administering your estate and it is a best practice to consider naming alternate executor(s) in case your primary executor(s) dies or is unable or unwilling to act. Being an executor is a complex and time-consuming role and should be considered thoughtfully when appointing someone.
NE: Being an executor can take many hours of commitment, and can continue for many years and may come with personal liability. We generally recommend naming someone with the skills, willingness, and ability to take on the responsibility. In addition, it’s important to consider the age, geographic location, applicable tax authorities (e.g. U.S. citizens residing in Canada are subject to both Canadian and U.S. tax authorities), and interpersonal relationships of the executor and the beneficiaries.
The type of assets governed by your Will may also play a role in this decision. For example, if you own a business or have extensive collections, you may want to consider appointing someone with relevant knowledge and experience in dealing with such assets. Given all of this, it may be best to name a professional executor such as a trust company.
What’s probate and how does that impact me?
MB: Probate is a legal process where a court formally confirms the Will as the last valid Will of the deceased and approves the authority of the person named in the Will to act as the estate trustee (executor). Many third-parties, such as financial institutions, will require a probated Will before releasing assets.
The probate process can take several months and varies depending on the jurisdiction. In some provinces, there may also be fees collected by the court to provide this approval, based on the value of the estate. Depending on the value of the estate and the jurisdiction, there may be the ability to apply for a Small Estate Certificate instead of probate, which takes less time to process and is also less expensive.
How should I involve my family?
NE: Sharing your plans with your family can help avoid unfortunate outcomes. Rather than assuming your children want certain assets, we recommend confirming their interest.
For example, your children may not want to inherit the family cottage if it means sharing it with siblings. Or they may prefer you decide who gets certain sentimental items rather than leaving them to argue over those items in the future. Making sure your family understands why you’re making certain decisions can go a long way towards maintaining family harmony after you’re gone.
Sharing your plans with your family allows them to ask questions and get clarity while you are here to address their concerns and, if appropriate, make necessary changes to your planning. You should also ensure your loved ones are familiar with the location of your estate planning documents such as your Will, whether they’re held in a safety deposit box, with a lawyer, safe, etc.
What are the most common oversights people make in estate planning?
NE: Besides not doing it, not updating it, or not engaging professionals, one of the most common oversights we see is taxes. Many people neglect to consider how the tax bill will be paid. For example, they may not realize that registered plan assets are fully included in income in the year of a death, which can mean losing a significant portion of the value. Or they may not realize there isn’t sufficient liquidity to pay the taxes on the family cottage, which can mean it may need to be sold rather than being enjoyed by future generations.
MB: Creating an Estate Plan is not a “set it and forget it” type of activity. It should be reviewed and updated regularly, particularly as life events occur – marriages, births, deaths, home ownership, business ownership, accumulation of wealth, moves outside of the country or even to different jurisdictions (e.g., Quebec has very different laws regarding estates and joint ownership of assets). You also need to consider the life events that may impact your designated executors – has their health changed, have they died, have they moved? That may impact their ability to carry out your wishes.
While estate planning may seem like a daunting task, with the right research, support and advice, you can create a comprehensive plan that will leave you and your loved ones with peace of mind.