Estate planning is meant to alleviate the uncertainty that can come with losing a loved one. (Getty Images) ·NoSystem images via Getty Images
Losing a loved one is hard, and it can become even worse when their final wishes are unclear, says Christine Van Cauwenberghe, head of financial planning at IG Wealth Management. Estate planning is meant to alleviate that uncertainty.
“It’s just one less thing to worry about if there’s a clear plan and there are instructions for the family to follow,” Van Cauwenberghe said in an interview with Yahoo Finance Canada.
Estate planning is “critically important” for young families, families with an individual living with a disability, and blended families, says Wilmot George, vice-president and head of tax, retirement, and estate planning at CI Global Asset Management.
But anyone who wants a say in how their assets should be distributed after their death should have an estate plan, he stresses.
“I can’t think of very many groups of Canadians who don’t need it,” George said in an interview with Yahoo Finance Canada.
And yet, only one-third of Canadians have an estate plan in place, according to the annual IG Wealth Management estate planning study. The study also found that fewer than half of Canadians have “general knowledge” of estate planning.
Here are the key components experts say you should know.
The 'cornerstone' of estate planning
George says the first step of estate planning should be to speak with a professional to get an understanding of the tools that may be available to you, and the potential suitability of those tools. From there, he says the will is usually the first piece to put into place.
“The will acts as a roadmap for carrying out your estate plan,” George said, referring to it as a cornerstone. “It gives you a voice when you don’t have a voice.”
Without a will, your family would have to go to court and nominate an “administrator” to manage the estate, Van Cauwenberghe says. Then, the estate would be distributed according to provincial legislation, which can be “fairly random and arbitrary,” depending on where you live.
“Sometimes, it might align with your specific wishes,” George said. “And sometimes, it might not. Not having a will kind of takes the decision-making away from the person leaving the assets and puts it in the hands of the government.”
Generally, Van Cauwenberghe doesn’t recommend getting overly specific in the will, because you would have “no idea what you may or may not own at the time of death.” Rather, she says a will typically indicates that the estate is to be divided – often between a spouse and children – after paying off any debt and taxes.
The will is also where you’ll designate an executor, who’s responsible for carrying out your wishes, and nominate a legal guardian for any minor children, Van Cauwenberghe adds.
Power of attorney 'arguably more important' than wills
Estate planning doesn’t only involve planning for what happens after your death.
It’s also important to give someone else the ability to act on your behalf if you become incapacitated, using a power of attorney document. In fact, Van Cauwenberghe believes it’s “arguably even more important” than a will.
“Especially for younger people, it’s almost more likely that they could have a significant disability over the course of their life than die prematurely,” she said. “And no, your spouse does not automatically have the ability to act on your behalf.”
Van Cauwenberghe notes that power of attorney generally covers financial decisions, but you can also authorize the same person – or someone else – to make healthcare decisions.
“They are fiduciary … so they’re only supposed to act in your personal best interest,” she said. “But there is a lot of financial abuse out there. You want to make sure you choose someone who’s trustworthy, competent, and capable.”
She says it’s also helpful to choose someone who lives close by. A non-Canadian resident would have trouble managing your investments, she explains, because investment advisors in Canada are generally only able to take instructions from Canadian residents.
How Canadians use life insurance and trusts in estate planning
While every estate plan should include a will and power of attorney, there are several other tools to consider, such as life insurance and trusts.
Some Canadians who haven’t had the opportunity to save enough use life insurance to effectively “create” an estate so they can leave something behind for their family, Van Cauwenberghe explains. Others use it to “preserve” an estate, paying off any major tax bills at the time of death, or to “equalize” an estate. One child may receive a vacation property, and the other may get your life insurance distribution.
“That’s a fairly frequent use of insurance to minimize the chance of dispute and ensure everyone gets the assets that were intended for them,” Van Cauwenberghe said.
Trusts, meanwhile, are primarily used as “control vehicles” for the purpose of estate planning, George says. If you have a family member living with a disability, or a child who isn’t responsible enough to handle large sums of money, you can name a “trustee” to manage those funds on their behalf – based on your instructions.
“Perhaps as opposed to $100,000 directly to a beneficiary, you want $10,000 paid out each year over 10 years, for example,” George said.
Once it’s complete, George recommends reviewing the estate plan following any major life events, or every three to five years at a minimum.
Farhan Devji is a freelance journalist and published author based in Vancouver. You can follow him on Twitter @farhandevji.
