Estate planning is the act of outlining how your assets (A.K.A your estate) will be handled after your death. While writing a will is probably the first thing you thought of, it’s only one piece of the estate planning puzzle.
The purpose of estate planning is to ensure that you’ll have someone to look after your personal and financial affairs when you can’t. These plans usually take effect when you’re especially unwell – more specifically when you become incapacitated or deceased.
While this can feel like a daunting task, we’ve broken down the process into 6 steps so you can get started.
What is estate planning?
The process of estate planning encompasses many things, like:
- taking an inventory of your assets and liabilities,
- choosing a power of attorney (or more than one) for finances and personal care,
- considering how you want your assets divided,
- preparing a will,
- choosing an estate administrator (executor),
- minimizing taxes,
- setting up a trust for dependents, and
- planning final arrangements such as cremation or burial.
A lot of thought and planning goes into this process. A well-thought-out estate plan prevents aggravation when heirs and family members attempt to settle the estate. In addition, the people left to administer the estate are grieving, so having a carefully prepared plan will help relieve some unnecessary stress.
When to start estate planning
One of the main questions you may have when it comes to estate planning is when you should start. And of course, the answer is as soon as you can.
Naturally, people who are closer to and planning for retirement are more likely to start thinking about things like wills and their estate. Here’s a look at how one survey tracks the spread of people who have a will based on age:
This Angus Reid Institute’s study on “What ‘will’ happen with your assets?” shows the common practice of waiting until the later years, but it’s never too early to make a plan on these very important tasks, especially if you have children.
Estate planning vs. preparing a will
Really, preparing a will is simply a step in the estate planning process. A lot of the decisions you make while planning your estate will be reflected in your will, but there will be many more decisions and tools outside of your will that your estate plan will cover.
If you have young children, you’ll need to consider who you’ll assign as their guardian if something happens to you. You may consider setting up a trust to provide for the financial needs of your dependents when you pass away.
Your 6-step estate planning checklist in Canada
There are plenty of steps you can take when working on your estate plan. Let’s look at some of the most important actions that will ensure your plan accomplishes your goals.
| Step | Requires help? | Who can help |
|---|---|---|
| Ask questions | No | N/A |
| Gather documents | Maybe | * Accountant * Financial advisor * Insurance representative * Bank representative * Family members |
| Meet with people | Yes | * Family and friends * Estate planning lawyer * Accountant * Financial advisor * Insurance representative |
| Make a will or trust | Maybe | * Estate planning lawyer * Financial advisor * Accountant * Banking representative |
| Assign tasks/titles | Yes | * Friends * Family * Loved ones |
| Make funeral arrangements | Maybe | * Estate planning lawyer * Funeral director * Family and friends |
Each one of these steps has its own process and deserves individual attention.
1. Ask yourself these questions
The more complicated your estate, the more questions you’ll need to ask yourself. Since every situation is unique, there will be as many answers to these questions as there are people asking them.
Still, for guidance, here are some of the most common concerns you’ll want to consider when creating your estate planning checklist.
What if you don’t have a will?
Some people don’t see the value in creating a will, so the first question is: what happens if I die or am incapacitated and don’t have a will or power of attorney?
You may think all your assets will go to a spouse or dependent, or someone can assume your care based on their relationship with you. But, unfortunately, this isn’t necessarily the case.
Each province has rules and guidelines for these unfortunate situations (called “intestate”), so you should check the laws that apply to your province before deciding you don’t want to make a will because your estate may not be divided the way you think it will be.
Who do you trust to make decisions for you if you’re unable?
When you’re ready to set up a power of attorney for finances and/or personal care, you’ll want to appoint someone to act on your behalf if you cannot make decisions for yourself.
The executor is the individual or individuals who will administer your will when you have passed away. Your choice for executor should be someone you trust and who is physically, mentally, and emotionally capable of fulfilling your wishes. Ideally, they should have the time and the knowledge to carry out the necessary duties, or at least know how and where to find help.
Most importantly, you want to be assured that the people you choose for either of these roles will have your best interests at heart.
How do you make sure your dependents are looked after?
Family members and dependents are usually at the forefront of your mind when working on your estate plan.
You’ll need to appoint a guardian for any underage children or dependent adults. Deciding who will care for your loved ones can be very difficult, but it’s necessary.
Here are some things to consider when choosing a guardian:
- Would you prefer a couple or a single person?
- How will the age of the guardian(s) affect their ability to care for your kids?
- What qualities do you feel are important for parents and guardians to exemplify?
- What traditions and values do you want your children to learn from their guardians?
- What are your religious beliefs? How will your choice of guardian uphold and teach these beliefs?
- Do you want your children to be around other kids? Should your choice of guardian already have a family of their own?
- If you’re unable to provide much financial aid for your children, does your choice of guardian have the means to properly care for children?
If you’re unable or neglect to choose a guardian, it will be up to a court to decide where they go and who looks after them.
How can you provide financially for your dependents or partner?
Consider what income sources your dependents will receive if you pass away.
For example, if you have a company pension, check your documents to see if your spouse’s income will remain the same if you pass away. Some pensions provide a reduced amount for the survivor (like the CPP Survivor Benefit), and some may have a time limit. This means the survivor will only collect pension monies for a set number of years after the plan holder passes away.
If you have dependents who cannot manage money, you may need to establish a trust. People generally set up trusts for:
- children who are underage,
- children or family members with special needs,
- dependent adults, and
- beneficiaries who don’t manage money well.
Making detailed plans for how your children and dependents should be financially provided for is also important. Again, if this step is missed, a court will have to decide how your money should be used to care for them.
Who should get what?
Dividing assets is another significant issue when drawing up an estate plan. Some people want everything divided equally, while others prefer to leave more to one than other beneficiaries. You may even prefer to leave some property to some beneficiaries, others cash, and still others get assets.
Every person’s plans may be different.
It’s important to consider the implications of the division of assets. For example, one asset could incur a more significant tax burden than another (like land transfer tax). Another consideration is how specific individuals might react to the division of your assets among the beneficiaries.
What happens if you marry, divorce, or remarry?
Life can be complicated, and so can relationships. Not only could your own relationship status change, but so could that of your dependents and other family members.
Since these details can change so significantly for so many parties involved, you should consider how to divide your estate in the event that someone’s family status changes.
Many who remarry have children from previous relationships they want to provide for. Others may wish to amend their will if they divorce.
What are your final wishes?
Here are some thoughts you should consider about your end-of-life plans:
- Would you prefer to be buried or cremated?
- Should your family hold a funeral service, celebration of life, or something else entirely?
- Do you want a traditional religious funeral service?
- Should your service be held in a church, funeral home, or elsewhere?
- If you choose to have a funeral service, what will it look like? Are there specific songs, poems, Bible passages, etc. that you’d like to be included?
- Do you want a visitation time when friends and family can visit you (and each other) before your internment?
- Where would you prefer your final resting place to be? Should it be easily accessible for your loved ones?
Answering these questions will help with the estate planning process and provide significant peace of mind for your loved ones. It will take away much of the stress of planning for funerals and internment, possibly even preventing arguments and clashes of opinions among family members.
2. Gather the necessary estate planning documents
It’ll be no surprise to hear that your paperwork plays an important part in estate planning. Therefore, you’ll want to take the time to look over your personal documents so you can fully grasp your financial situation.
A few examples of documents you’ll need to consider are:
- investment statements from RRSPs, RIFs, LIRAs, LIFs, LRSPs, TFSAs, RESPs, and non-registered assets,
- a list of tangible assets such as your home, antiques, jewelry, etc.
- any life insurance policies you have,
- statements from company pensions and CPP contributions,
- info for all of your bank accounts, and
- statements showing any debts owing, such as mortgage statements, lines of credit, and/or loans.
You might consider providing a list of passwords you have for accounts that would need to be accessed or closed, such as those for bank accounts, credit cards, or even social media accounts.
One easy way to keep this all organized is to store the passwords in a password organizing tool, like 1Password. That way you can just put your master password in a secure place, and whoever is handling your bank accounts and documents after your death will have easy access to everything with 1 simple password.
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3. Meet with key people – loved ones and professionals
Once you decide on an estate plan, appoint a power of attorney, and choose an executor, the next step is to meet with these and other key people.
It may go without saying, but we’ll say it anyway: it’s always wise to check with the people you want to perform specific tasks to ensure they’re willing and able to accommodate your request. Some people may not feel they have the expertise, time, or ability to act as executors, guardians, etc.
Consulting with professionals, such as estate lawyers and/or a financial advisor, can be valuable too. These individuals have expertise in areas where you could use advice, including the roles and responsibilities you’d like to assign to various individuals.
Additionally, these specialists can advise you regarding any negative implications of your decisions – for instance, taxes are a huge consideration when estate planning, and miscalculating can create considerable financial costs and headaches for you and/or your loved ones.
4. Take time to make a will and/or trust
Wills, living trusts, and testamentary trusts can all be part of your estate planning process.
By definition, a will is a legal document that outlines how your assets should be distributed after your death. It can contain information on any appointed guardians for minor children or dependents. As mentioned earlier, if you have no will when you pass away, your estate will be subject to the intestate rules of your province.
For this and many other reasons, writing a will is recommended in all circumstances. It’s essential that the estate be properly settled according to the deceased’s wishes.
Trusts are slightly different from wills.
There are 2 types of trusts and each has different tax regulations: an inter vivos trust, which is also called a living trust, and a testamentary trust:
- An inter vivos trust is a broad term that can encompass a long list of more specifically-designed trusts, all of which are listed on the Types of trusts government page. The duration of these trusts are determined by you, the estate planner and trust creator, and the distribution of assets usually takes place during the creator’s lifetime.
- A testamentary trust, on the other hand, isn’t created until after an individual has passed on. It’s designed to allow a 3rd-party trustee to manage assets on behalf of the beneficiaries, as stated in the will.
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5. Assign power of attorney and an executor
Giving someone power of attorney (POA) means that they’ll be able to make certain decisions and take care of specific details in the event that you’re unable to do so. Yes, you can make a will without appointing a power of attorney, but you’ll likely have greater peace of mind if you do.
There are 2 main types of POA in Canada, the first being POA for personal care. The second, POA for property, can be broken down into 2 further categories:
- General POA: This type of POA ends as soon as you become mentally incapable of making decisions or if you pass away.
- Enduring/continuing POA: This type carries on through any mental or physical incapacity, but you’re able to specify the level of power or authority the individual should have.
No matter the type, it’s very important to note the one significant thing a power of attorney can’t do: they can’t make a will for you.
An executor has a completely different job description. This person is responsible for distributing your estate with the expectation they will follow your wishes outlined in the will. Being an executor can be complicated and time-consuming, so make sure your chosen representative fully understands what’s expected of them in this role.
Some examples of an executor’s duties include:
- reviewing the will,
- notifying next of kin,
- making funeral arrangements,
- filing taxes and maintaining the estate (until beneficiaries take ownership),
- taking inventory of property within the estate, and
- distributing property and assets to beneficiaries.
6. List funeral and interment or cremation preferences
Detailed instructions can help alleviate the stress of planning a funeral, so you should go through the questions we mentioned earlier and as many others as you can to make sure everything is considered.
Your will is an excellent place to include specific instructions regarding your wishes for a funeral, burial, cremation, etc. Since many people prepay their funeral costs, remember to include this information either in the will or some other readily available location where the executor can access it.
Should you get an estate planning lawyer?
Whether or not to seek help from an estate planning lawyer is a consideration that’s different for each person.
If your estate is particularly large, involved, or complicated in any way, consulting someone who specializes in this area can be very helpful.
Reasons to use an estate planning lawyer
Estate planning lawyers specialize in estates. They can plan, advise, or litigate depending on their area of expertise. Here are 2 great reasons to consider using an estate lawyer.
1. They can ensure everything is settled long before anything happens to you
If you have a large or complicated estate, an estate lawyer can help ensure your affairs will be in order in the present and when you pass away. For example, you might have remarried, have dependent children, have a business, or own multiple properties. These can all require detailed attention.
An estate lawyer will ensure your estate follows all the required laws and will plan efficiently for the tax implications of your estate. They also provide reassurance that your dependents are looked after.
Appointing and informing a power of attorney, creating a living will, and establishing trusts are all complicated tasks that these attorneys can hold your hand through.
2. Their involvement can prevent legal disputes over your estate
Estates can be sensitive topics and sometimes cause tension among grieving loved ones. An estate lawyer can help you create your will in a manner that minimizes the possibility of being legally challenged, allowing the administrator of your estate to carry out your wishes with no complications.
Your attorney can also assist your estate administrator with settling the estate. People in these positions often need help with this if they aren’t familiar with the process or are concerned about personal liability.
Why an estate planning lawyer might not be for you
Of course, there are also reasons you might choose not to engage an estate lawyer. While they do offer significant benefits, their help may not always be necessary.
1. Your estate is small and simple
You might not need an estate lawyer if you have a small estate that will be relatively simple to fulfill and distribute.
While it’s still a good idea to see a lawyer for a will, you could use a less-specialized type of attorney to help with this.
2. Hiring a lawyer can be pricey
Using the services of an estate planning lawyer can be expensive and if your estate is straightforward, you may be better off saving your money.
If you’re unsure, research possible options and ask a loved one to help you decide which avenue is right for your needs.
Estate and inheritance tax considerations
Though there is no official “inheritance tax” in Canada to worry about, there will be a final tax return prepared for you after your death by your executor or administrator. Any tax owing at that point will need to be paid before your estate is distributed to your beneficiaries.
That means your estate may be subject to:
- income tax for any income you made in the tax year of your death,
- capital gains tax for any of your investments or properties, and
- principal residence tax.
At the point of your death, the CRA treats most of your property as if you sold it at market value right before you died (called “deemed disposition”). It’s that value that’s used to determine the capital gain tax that you’ll need to pay, half of which is taxable.
For complete information on how to prepare a return for a deceased person, see the CRA’s Preparing Returns for Deceased Persons guide.
Have you started estate planning yet?
Estate planning is never easy. But having a plan, the necessary documentation, and the right people to help can make things much easier for your loved ones.
Have you already planned your estate? How did you find the process? Do you have any tips you’d like to share?
Feel free to leave us a note in the comment section below.
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$25 GeniusCash + Delicious meal choices with fresh ingredients + Front-door delivery.FAQ
What is estate planning?
Estate planning is the process of ensuring your loved ones, your possessions, and your finances are looked after if something happens to you. It involves assessing your assets and liabilities as well as determining how your dependents will be provided for if you’re not present to do so yourself. You can read more about estate planning here.
Are there specific estate planning documents I need?
Yes, there are several documents necessary for this process, including investment statements, a list of bank accounts, and more – you can find a suggested list of estate planning documents here. These documents will be used to prepare your will, inform your power of attorney, and be included in your living will if you choose.
Do I need an estate planning lawyer?
The size and complexity of your estate will determine if you need an estate lawyer. However, before eliminating the possibility of an estate planning lawyer, contact a few offices of estate planning lawyers to see if their services can benefit you. You’ll find more information on estate lawyers here.
Is there a family estate planning guide?
There are many guides to help you with the estate planning process. For example, some banks and life insurance companies offer guides on their website, and there are many books available to buy or borrow that are dedicated to this topic.
What about a specific Canadian estate planning guide?
Canadian banks and life insurance companies frequently offer guides on their websites, and some will provide you with pamphlets and information if you visit a branch or location. It never hurts to reach out to these businesses and ask what they can do to help.
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