Getting your estate in order probably seems like a big chore and not very urgent. After all, we’re all expecting live to 100, right?
Well, maybe not. According to Statistics Canada the average lifespan for males is 79.8 and females 83.9. Sure, you might be the exception, but making an estate plan is not a big chore, so why wait if it means your hard-earned assets get distributed exactly how you want them to be?
More importantly though, having an estate plan makes handling assets much easier for the ones you leave behind. At a time when grief is deep, this is one of the most thoughtful gifts you could give your family and friends.
What is an Estate?
One thing to clear up first: An “estate” in this case just means the things you own. Real estate, vehicles, investments, cash, art, jewelry – everything.
The value of your estate doesn’t matter with estate planning. The point of having a plan is simply making sure your assets, however big or small in value, go to who you want them to go to in the most tax efficient way.
Name Beneficiaries on Registered Accounts
While many might guess a Will is the most important part of an estate plan, I would argue that having named beneficiaries on registered accounts like the FHSA, TFSA, RESP. LIRA and RRSP are more important. This is because in general, the bulk of wealth, beyond a home, is found here.
From my perspective, step one is naming beneficiaries on all your registered investment accounts. This should be done with a beneficiary form from the financial institution managing your investments.
This is especially important if you have a spouse/partner as there are significant tax advantages to inheriting some of these accounts. The TFSA is a super star in this category .
Make a Will
Next, make a Will so that the rest of your assets, including your home, go to whomever you want them to.
In most cases, named beneficiaries and the beneficiaries named in a Will are the same. However, it’s important to understand that unless you name beneficiaries for your registered accounts separately from your Will, the tax advantages are lost.
Without a named beneficiary, the registered account gets lumped in with your estate assets and is distributed based on your Will’s instructions, after a probate tax is applied. (This means less money for your beneficiaries).
Double Check Beneficiaries
Named beneficiaries on registered accounts almost always take precedence over those named in a Will. Assets held in registered accounts automatically go to the beneficiaries named on those accounts, even if your Will leaves everything to someone else.
Since a Will doesn’t hold all the power, it’s best to check named beneficiaries of registered accounts and your Will regularly. Once a year should suffice.
Birth, death, divorce and marriage are common reasons for required updates. A simple way to do this is to make a master list which includes:
- A list of registered investment accounts with corresponding beneficiaries.
- Important designations in your Will: beneficiaries, executor(s), guardians for kids, RESP successor subscriber, trustee for kids under age 18, etc.
- The beneficiary named on a life insurance policy
- The beneficiary listed on employer-issued registered accounts, pension plans or life insurance policies.
This way, instead of checking each document, you can take a quick look at your master list to ensure you don’t want to change anything. Making the initial list might take you 20 to 30 minutes. Checking it once a year will take you less than one minute. Worth it!
Estate Plan and Taxes
One of the main goals of an estate plan is to make the distribution of assets as tax efficient as possible. In other words, less money paid in tax and more money to your beneficiaries. At CSR Wealth Management, we use financial planning software to help create tax-efficient estate plans that provide our clients with peace of mind. Book your estate planning meeting with Frank Gasper.
