Estate Planning for Canadians

With an aging population, I have really noticed a jump in the numbers of people interested in estate planning. The clientele is more sophisticated in acquiring wealth but remain surprisingly ignorant as to how to organize their assets to match their desired goals of estate planning. Estate planning is more than just writing a will but it is an incredibly broad topic. It is beyond the scope of this article to address every aspect. Instead, I will simply try to address the most common issues.

Do I need Estate Planning?

The most common reason for estate planning is to avoid or reduce the taxes due on the transfer of your estate. From this perspective, good estate planning will arrange assets in such a manner as to pass them “outside of your estate” meaning they will not be subject to tax. For example, a bank account or home held jointly will pass to the surviving joint owner without being subject to tax. This is a most common way in which spouses set up their assets.

There may be other reasons to review your estate as well, such as creditors. Creditors are paid first before your beneficiaries. In the event that there are not enough assets in the estate to satisfy the debts, they cannot claim against the named beneficiaries, if they did not receive anything under the will and the executor of the estate will bankrupt it. However, there may be ways to provide for your beneficiaries without having to pay your creditors. For example, the death benefit portion of life insurance policies is generally not considered an asset of the deceased unless it names the estate as beneficiary.

Insurance

Life insurance is a unique part of estate planning. There are many types of life insurance but, without going into different kinds of policies, I tell my clients to think of life insurance as an asset bought for someone else. Generally speaking, the principal goal of life insurance is to replace your contribution to the maintenance of another person or people. It is not an asset that you will ever enjoy yourself.

The beautiful thing about insurance is that you are asked to name a beneficiary when you purchase the policy. In most cases, you will name a person – your spouse, children or parent. You die and that named person receives the death benefit, subject to whatever conditions you may have imposed on the policy (i.e., if you have borrowed against any cash surrender values, that will be repaid from the death benefit prior to disbursement).