Estate planning

Estate planning is the process of anticipating and arranging for the disposal of an estate. Estate planning typically attempts to eliminate uncertainties over the administration of a probate and maximize the value of the estate by reducing taxes and other expenses. Guardians are often designated for minor children and beneficiaries in incapacity. Typical elements of an estate plan are: last will and testament; power of attorney for finance; and living will (power of attorney for personal care). High net worth individuals and blended families may find trusts a useful estate planning tool.

You also should remember to keep your estate plan up-to-date, as your circumstances may change due to life events and legislation may change. Suffice it to say, that this area of financial planning that generally requires professional assistance.

Life insurance
If you have dependents, you probably need life insurance.

Beneficiaries
Simplify your affairs by naming beneficiaries for life insurance policies, registered plans such as Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs), Tax-Free Savings Accounts (TFSAs) and company pension plans. Such designations allow assets to pass outside your estate, which will speed distribution and reduce costs. Note however that although registered accounts with a designated beneficiary are transferred directly to them, the estate will still have to pay tax on this, as part of the deceased's final return, unless the transfer is a tax-deferred rollover. This can end up "unintentionally favouring one beneficiary at the expense of another" (if one is a direct beneficiary and the other is a heir through the estate).

The rules are different in Quebec; for example, it is not possible to name a beneficiary directly in a RRSP or RRIF. Such designations must instead be made in the will.

Last will and testament
You should prepare a last will and testament. This document specifies how your property is to be distributed to your heirs, names the person responsible for overseeing this disposal (the executor but also sometimes trustee, administrator, or liquidator), and suggests who should be responsible for the care of minor children. A will can also include burial wishes. If you are in anything other than the simplest family and financial situation, engage a lawyer to do it right. (Residents of Quebec should consult a notary.) To save the lawyer time and yourself fees, prepare beforehand by: If you have a spouse, it is best to have the lawyer/notary prepare both wills at the same time to make sure they match. Once completed, the will should be stored in a secure and easy to find place, such as a fire safe or safety deposit box. Tell your executor where your will is.
 * considering who would make a good executor, preferably a trustworthy adult, younger than you are, and residing in the same province
 * communicating with the potential executor to verify that they are willing to serve
 * identifying an alternate should the primary executor be unable or unwilling to serve at your death
 * identifying trustworthy people who will be good guardians for your minor children (perhaps the same as the executor, perhaps not)
 * identifying the beneficiaries who will receive your assets and what fraction of your estate will go to each

Choosing your executor
Choosing your executor is an important decision, since this is the person who will make sure your final wishes are fulfilled and manage your estate. The executor is a fiduciary and has legal obligations to the estate. This job requires "a substantial amount of time and effort – and the ability to make capable, and financially responsible decisions". Your executor should be someone: If nobody in your family or friends fits this description, or if you have a complex estate or are concerned about potential family conflicts, consider appointing a professional, like a lawyer or a trust company, as an executor.
 * You trust to manage your affairs the way you want and is reliable
 * Lives reasonably close to you, so it’s easy to deal with your family and your assets
 * Has some knowledge of tax, investments and financial decision-making and knows when to seek guidance from others such as tax professionals or lawyers
 * Is capable, sympathetic and good at getting things done and communicates well
 * Is likely to survive you

Probate
If you have more than minimal assets at death, your will is subject to a process called probate (in some provinces, administration). Probate is essentially an approval by a special judge, who will usually confirm your wishes as expressed in the will and issue what are generally called letters probate. Such documents will be required by your executor to take temporary title over your assets so that they can be distributed to beneficiaries. Fees for this process vary considerably by province.

In Quebec, a notarial will (a will prepared by a notary) does not require any form of probating (validation).

Guardians
The court will also name guardians for minor children. Your desires as expressed in your will carry considerable weight. However, the court is tasked with ensuring the welfare of such children and has considerable latitude with respect to guardianship. (The court also has the power to vary the will's disposition of assets should it disadvantage minor children or other dependents.)

Dying without a will
If you have no will at your death - this is called dying intestate - provincial law specifies how your assets are distributed. This may or may not correspond with your desires and objectives. It will certainly result in delays as courts and the Public Trustee will be involved.

Taxes
Inheritances are not taxable in Canada. This means that beneficiaries will not be taxed on their inheritance, not that no taxes are involved when settling an estate. The executor will have to file the deceased’s final T1, and perhaps at least one T3 return for the estate.

A major consideration is that all capital assets (including investments and property) are supposed to have been sold on the day of death. This is known as a “deemed disposition” and can generate taxable capital gains, if the current value of the assets is more than their adjusted cost base, and there are no offsetting capital loses. Tax on these net capital gains must be paid on the final tax return of the deceased.

There are some ways to minimize this, see Tax-efficient investing.

Mental incapacity
You should have an enduring (sometimes durable) power of attorney for financial matters. If you become mentally incapable and unable to look after your own finances, name someone you trust who can and will do the job. In most provinces, you must have a lawyer draft this document. Take care about who you name to hold this power, as the document empowers the person to act as if they are you with respect to all of your assets.

You should also have an enduring power of attorney for health and personal care, sometimes known as a living will. (The name and format of this document varies from province to province.) If you become incompetent to make decisions about where you live and your health care needs, someone needs to make those decisions for you. Appoint someone you trust to do so.

If you do none of these, the provincial government and/or the courts will step in and act in your stead. You may not get what you want and the costs may be high.

Communicating your plan
Once your estate plan is ready, communicate it to your loved ones, to make sure they quickly have access to the information they will need if you die or become incapacitated. . You can create an "information package" for your spouse, executor or attorney containing: It is a good idea to discuss your estate plan with those concerned, for example when giving them the information package.
 * a copy of your will and POA, plus the location of the original signed copies
 * a list of all your financial accounts
 * a list of your digital assets such as social media accounts, music streaming accounts, etc.
 * a list of all the benefits your family members may be entitled to, such as life insurance and pensions.
 * a list of your debts and your major assets

Death of a spouse
According to Statistics Canada, in 2003, 82% of widowed Canadians aged 65 and older were women, and senior widows outnumbered senior widowers by about five to one.

One's affairs can be in perfect order but the surviving spouse still has to deal with the loss which can be overwhelming. At the same time the spouse knows that life goes on and that there are things requiring attention and, yet the ability to think straight, seems to be missing. Life is a jumble: ''I feel unable to do just about anything on my own at this point. To help me through this process-life insurance-pension-taxes-rrsp's-investments etc., do I need a lawyer, accountant, financial planner or a combination of professionals?'' The questions are daunting. You can begin at the funeral home. Funeral homes do more than just deal with funerals. They offer grief counseling. They will usually help with the Canada Pension Plan death benefit application. Try not to make any long-term decisions right away.

If you are the executor, see Settling an estate.