One of the most important aspects of financial planning is probably the one that’s the least comfortable: having a well-thought-out strategy for passing along your money and property after your death.

Recent research shows that half of Canadians don’t even have a will. And while a will is an essential tool for minimizing costs and stress for the people you care about, it’s just one part of a comprehensive estate plan.

The goals of any estate plan are simple: to leave as much as possible for the people and causes that you care about, while minimizing stress and tough decision-making. This involves thinking through different scenarios in advance - and ideally, getting professional advice along the way.

When creating your estate plan, consider these important tools

Your will

The purpose of a will is to outline how you want your assets distributed after your death, appoint a guardian for your kids or other dependents, and leave other important instructions. (If you don’t have an up-to-date will, we created this easy guide to help you get started.)

Powers of attorney

A power of attorney is a legal document that allows another person to make decisions on your behalf if you become incapacitated. They have two main types:

1. Property: this allows someone else to manage financial tasks for you, like paying bills, applying for government benefits, collecting pension or other income, and managing investments. You can appoint a permanent (or continuing) power of attorney, or if you spend lengthy periods of time outside of Canada, you can appoint a non-continuing power of attorney to manage specific tasks on your behalf, for a defined amount of time.
2. Personal Care: this allows someone to make healthcare decisions on your behalf, typically focusing on your medical treatment, quality of care or end-of-life decisions.

Without powers of attorney in place, if you were to lose the capacity to make major decisions, a court would have to appoint a substitute decision-maker for you.

Like choosing the executor for your will. It’s best to appoint a power of attorney who’s willing and able to take on the responsibility, who’s financially literate and good with financial decisions, and whom you trust to act in your best interest.

Advance directive or living will

An advance directive is a written summary of your wishes specific to the healthcare you want to receive if you don’t have the mental capacity to make these decisions yourself. It serves as an important decision-making tool for your loved ones and power of attorney for personal care.

Your directive should include details about the medical treatments that you do or don’t want, including decisions about life support or life-prolonging measures. Make your instructions as straightforward and clear as possible; you can find tips and examples in this article.

When preparing your advance directive, have a conversation with your family, loved ones and your power of attorney so that they know and understand your wishes.

Trusts

A trust is a legal entity that allows assets to be held and managed on a beneficiary’s behalf. They’re typically used in more complex family situations, such as blended families or a disabled dependent who requires financial support, or for meeting specific financial goals like making a charitable gift or enabling minor children to receive assets when they reach a specific age.

Trusts have two primary types: testamentary trusts, which take effect after your death, and living or inter vivos trusts, which allow you to transfer ownership of assets during your lifetime. Learn more about how trusts work.

Trusts are complex strategies, and an estate and trust advisor can help you pick an approach that meets your goals.

Other cost-reducing strategies

Overall, estate settlement costs come from three main sources:

1. Probate fees: Probate is the legal process of settling an estate. In BC, probate fees are based on the value of the estate, to a maximum of 1.4% of the estate’s total assets.
2. Capital gains taxes: When individuals die, they’re legally deemed to have disposed of their assets as though the assets have been sold. The beneficiary who receives these assets would then have to pay a capital gains tax.
3. Taxes on registered savings plans: When savings inside a tax-sheltered plan like a RRSP, RRIF or TFSA are transferred to another individual, the value of these accounts are typically charged as income tax int the beneficiary’s hands. Married or common-law spouses are exceptions to this rule.

To help minimize these costs, there are a number of financial planning strategies to consider that vary from simple to complex. Whether you want to keep your cottage in the family without causing financial strain, structure your estate to benefit specific family members, or establish a succession plan for your business, your estate plan could need different solutions. An experienced professional can review your full financial picture and recommend a strategy that helps you steer clear of unintended consequences – be they legal, financial or emotional.

Some aspects of your estate plan, like your will or powers of attorney can be done on your own. But more complex financial situations benefit from the help of an experienced estate and trust advisor.

Sound like a lot? We’re here to help

Sometimes the toughest part of estate planning is just getting started. No matter your financial situation, our team of Estate and Trust specialists is here to support you at every step of the way. For help putting your plans to paper, give us a call toll-free at 1-888-741-1010 or schedule an appointment today.