A well-planned estate ensures your assets are transferred to the individuals you wish to provide for in a timely, orderly and tax-efficient manner. On a more practical level, estate planning is often seen as a way to ensure that funds are available to provide for your spouse or other family members in the event of your death.
Each method of passing on assets has advantages and disadvantages. Gifting property during your lifetime may have some tax benefits, but it means relinquishing control over the asset (e.g., family cottage or business). Establishing a Living or Inter vivos Trust, (a Trust which is set up during your lifetime), may enable you to retain some control over the asset, but, unless properly structured by a Trust professional, it could have some unfavourable tax implications.
When developing your estate plan, you should consider all four methods (outlined in the diagram below) of passing on your assets. However, most individuals wish to retain control and direct ownership over their property for as long as possible, and very often want to keep their intentions regarding the disposition of their property confidential until their death. The only way to ensure that this happens is to have a Will prepared.
Having an up-to-date estate plan with a valid Will is essential to ensuring your wishes are carried out. If you die without a Will, you may leave your heirs with unanticipated legal problems and tax burdens. What's more, your property may not be distributed as you intended. Listed below are some reasons why it is important to get a valid Will.
Your heirs will be determined by provincial law. Your estate will be distributed according to your province's "intestate succession" laws. These laws provide for the distribution of your property according to a set government formula. Naturally, this may be quite different than what you wanted.
Distribution to your heirs can be delayed. In the absence of a Will, your estate may be left in a legal tangle. No one is empowered to deal with your estate until an administrator is appointed by the courts. This can delay settlement and cause additional legal fees. Without a Will, the law may prevent the distribution of your estate for up to one year or more from the date of death.
The Court will appoint a guardian for your minor children. If you and your spouse haven't made legal provisions for someone to care for your minor children and manage their inheritance, it will be up to the courts to name a guardian. The person named may not be the person you would have nominated for the job.
Many Canadians mistakenly believe that as long as they have a Will, they have a complete estate plan in place. While an up-to-date Will is probably the most important aspect of an estate plan, it is by no means the only thing to consider. Given the wide range of objectives you may wish to achieve, proper estate planning requires careful consideration of many factors. Often in an effort to minimize taxes or avoid probate fees, another objective is thwarted. That's why it's important to weigh and balance the costs and benefits of different courses of action. The following is a list of some of the considerations to think about when developing your total estate plan.
There are three basic steps to establishing your estate plan:
After reviewing your assets, liabilities, tax and insurance situation, your most important step is to have a Will prepared that takes your wishes and objectives into consideration. If you already have a Will, you should have it professionally reviewed regularly to ensure that changes in government legislation, or your personal situation, have not adversely affected your plans.