An Estate Plan for Every Age
If you have been reading our blog posts this month, you will know two important things about an estate plan: 1. You are not too young for an estate plan and 2. You can afford to have an estate plan.
You will also know that there are the 5 things every estate plan should include no matter your age or amount of assets:
- Last will and testament
- Power of Attorney for Property
- Power of Attorney for Personal Care
- Named beneficiaries on investments.
- Financial review
Estate Plan for Every Age
In this article we highlight the sorts of things you might need to consider in an estate plan at each stage of life. Of course, everyone's situation is unique and there will certainly be deviations from the stages below, but this gives you a good starting point.
Just Starting Out
You have a junior position earning enough cash to pay for rent, food, student debt, entertainment and not much left over. If you were to die at this stage, any cash you had would be used first to cover your outstanding bills. Luckily in Canada, federal government student debt is forgiven. Presumably, your last month of rent is already paid for. Here are some things you might consider for your estate plan:
- Named beneficiary on an RRSP personal or through your employer (if they offer a matching program, you should most definitely be participating).
- Named beneficiary on your TFSA.
- Disability and/or critical illness insurance in case you are unable to work (or be okay with moving back in with your parents). While some employers offer this, be sure it offers enough coverage.
Earning More, Beginning to Save
Your student debt is paid off or close to it and you are finally making more money than you need to live on. In fact, you can save some of it. Maybe you are living with a partner.
At this stage, there are usually competing goals: saving for the long-term goal of retirement, and short-term goals like a wedding, travel, vehicle or home. In any case, you are accumulating assets, which is exciting. From an estate planning perspective, not much will have changed except you may want to reconsider your named beneficiary on your investments (RRSP & TFSA) if you have a partner.
Big Life Changes
You have had time to save money and may have even bought a house or condominium. You may have a partner (married or common-law) and you are saving for future goals including retirement, travel, a family, a cottage or otherwise. You may also have accumulated some debt beyond your mortgage or car payments.
- Now is the time to review your named beneficiaries on all investments (RRSP, TFSA, LIRA) and confirm with a professional that they make sense from a tax perspective.
- You also want to be sure that BOTH you and your partner have the right kind and amount of insurance in place including life, disability and critical illness. If something happens to either of you, can the other afford to cover debt payments, expenses and save for retirement without the other's income?
- This is also the stage in life when discussing estate planning with your parents is a good idea, especially if you are a beneficiary. Having their estate plan sorted will make things much easier for you emotionally and practically. Furthermore, assets will be distributed in a tax efficient manner and common oversights, like how capital gains on a family cottage will be handled, can be sorted ahead of time.
Let's be honest: children are expensive! Childcare, clothing, education savings, extracurricular programs, camp and the list goes on. If you were to pass away, you need to be sure all the expenses associated with them can be covered for today and for their future.
From an estate planning perspective, you will need to consider:
- Updating your Will to include children as beneficiaries (especially if you are a single parent), naming a guardian(s) and a trustee(s) to manage finances.
- Naming a trustee for your RESP in order to protect government grants (otherwise it will be collapsed upon the subscriber's death).
- Life, disability and/or critical illness insurance amounts, as they may need to be increased.
- A review of beneficiaries and investment accounts to ensure things are set up for a smooth rollover in a tax efficient way.
- Children with a physical or intellectual disability may qualify for the Registered Disability Savings Plan (RDSP). In this case, there are specific estate planning tools you (and/or grandparents if they plan to leave assets to grandchildren) may need to consider like the Henson Trust.
Getting Ready to Retire and Retirement
Phew! You made it to retirement, or you are almost ready to retire. Ideally your home is paid off and you do not have any outstanding debt. Fingers crossed your kids have left the nest, although these days, that is not always the case.
Now is the time to ensure your assets are set up in such a way as to pass on to your partner (if applicable) or your beneficiaries in the most tax efficient way.
- Review your will and named beneficiaries on your investments (RRIF, LIF, TFSA) regularly as they may need to be changed (death, divorce, birth of grandchildren).
- If you are contributing to a RESP for your grandchildren, be sure you name a trustee in your will so that government grants are not lost.
- If you do not have a TFSA, this is a good time to open one as it is an incredible estate planning tool that leaves your loved ones with more tax-free money.
- Unless you have debt, a life insurance policy likely is not required.
- Consider how the capital gains tax on secondary real estate like a cottage will be handled, especially if the intention is to keep the cottage in the family.
You Need an Estate Plan
As you can see, each stage of life means new things to consider in order to protect yourself and your loved ones financially. I recommend speaking with a financial advisor annually and/or each time your life changes; from opening a new investment account to living with a partner, debt, real estate and children. And don't forget to speak to your own parents/grandparents about their estate plans too. After all, if you are going to be the executor of their estate, it's in your best interest to make sure their estate plan is up to date and tax efficient. Not sure where to start? A financial advisor is a good starting point.
|Tags:TFSARRSPRegistered Disability Savings Plan (RDSP)Estate Planning|