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Financial Fitness: Estate planning isn’t just about dollars and cents

When people hear the words “estate planning,” they often assume it’s an activity only for retirees or near-retirees, but if you have a family, it’s never too soon to create your estate plan.

Estate planning can seem like a daunting task, but you’ll find it easier to handle if you break it down into three key areas: distributing your assets, protecting your family and reducing taxes.

Distributing your assets

It is essential that you let your family know how you’d like to see your assets distributed, and to whom. At the very least, you need a will. If you were to die without one, your province of residence could end up distributing your resources; and it might do so in a way you wouldn’t have wanted.

Simply having a will might not be sufficient. Many people make use of testamentary trusts, which provide them with more flexibility in distributing assets. For example, you could direct your trust to disperse assets to children or grandchildren at specific ages—these trusts may also be able to reduce the overall taxes paid by heirs.

Protecting your family

Estate planning isn’t just about dollars and cents—it also involves taking the necessary steps to preserve the welfare of your family if you are not around or become incapacitated. Consequently, you’ll need to name a guardian for your minor children—someone who can step in and raise them should anything happen to you and your spouse.

When your children are adults, you’ll want to help them with decisions that could prove agonizing. By creating a living will, you can state whether you want your life prolonged if you face a terminal illness or catastrophic brain injury and are no longer able to make decisions for yourself. (The enforceability of a living will can vary by province.) By drawing up a power of attorney for personal care, you can name someone to make health care choices for you if you are unable to do so.

Reducing taxes

Subject to certain exceptions, individuals are deemed to have disposed of all of their assets in the moment before death. This can trigger unrealized capital gains or losses.

Depending on the assets in your estate, your heirs may never have to worry about taxes payable on your death. However, if you have assets in a registered account, such as an RRSP or RRIF, there is a very good chance that there will be taxes payable on your death. You may want to look for ways to reduce these taxes.

You could make charitable gifts, creating deductions to offset taxes due. You may also want to consider permanent life insurance. By purchasing sufficient insurance, you can have the death benefit from the policy cover the tax payable on death. This is especially helpful if there are illiquid or sentimental assets that your heirs can’t or won’t sell to cover the tax bill.

Estate planning can be a complex process, so consult with your financial, tax and legal advisers. It will take time and effort, but it’s worth it to leave the type of legacy you desire.

Deborah Leahy is a financial adviser with Edward Jones,
Edward Jones member CIPF.

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