Why is estate planning important?
Estate planning is the process of managing your assets during your lifetime and after your death. It involves creating a plan to ensure that your assets are distributed according to your wishes and that your loved ones are taken care of after you are gone.
Estate planning is important for everyone, regardless of age, wealth, or marital status. It can help you to:
- Avoid probate, which is a time-consuming and expensive legal process that distributes your assets after your death.
- Protect your assets from creditors and lawsuits.
- Ensure that your assets are distributed to your desired beneficiaries in the way that you want.
- Minimize estate taxes.
- Provide for your minor children and other dependents.
- Make your wishes known for your end-of-life care.
What is probate?
Probate is the legal process of distributing a deceased person's assets. It involves proving the validity of the deceased's will and appointing an executor to carry out the wishes of the deceased.
Probate can be a complex and time-consuming process, and it can also be expensive. The probate fees charged by the courts vary from province to province, but they are typically based on the value of the deceased's estate.
How to avoid probate
There are a number of ways to avoid probate, including:
- Living trusts: A living trust is a legal document that transfers ownership of your assets to a trustee. The trustee will manage your assets during your lifetime and distribute them to your beneficiaries after your death. Living trusts are a complex estate planning tool, so it is important to speak to an estate planning lawyer to determine if a living trust is right for you.
- Joint ownership: Joint ownership is a type of ownership where two or more people own the same asset. When one joint owner dies, their interest in the asset automatically passes to the other joint owners. Joint ownership can be a simple and effective way to avoid probate for certain assets, such as bank accounts and real estate. However, it is important to understand the rights and responsibilities of joint ownership before transferring assets to joint ownership.
- Beneficiary designations: Beneficiary designations allow you to specify who will receive certain assets after your death, such as insurance policies, retirement accounts, and bank accounts. Assets with beneficiary designations are not subject to probate.
Other estate planning tools
In addition to living trusts, joint ownership, and beneficiary designations, there are a number of other estate planning tools that can be used to avoid probate and protect your assets. These tools include:
- Powers of attorney: A power of attorney is a legal document that gives another person the authority to act on your behalf. You can create a power of attorney for financial matters or for healthcare matters. A power of attorney can be helpful if you become incapacitated and are unable to manage your own affairs.
- Guardianships: If you have minor children, you will need to appoint a guardian to care for them after your death. You can appoint a guardian in your will.
- Wills: A will is a legal document that specifies how you want your assets to be distributed after your death. If you die without a will, your assets will be distributed according to the laws of intestacy in your province.
Benefits of estate planning
Estate planning offers a number of benefits, including:
- Peace of mind: Knowing that your affairs are in order and that your loved ones will be taken care of after you are gone can give you peace of mind.
- Reduced legal costs and delays: Probate can be a time-consuming and expensive process. Estate planning can help to reduce legal costs and delays by avoiding probate.
- Asset protection: Estate planning can help to protect your assets from creditors and lawsuits.
- Tax minimization: Estate planning can help to minimize estate taxes.
- Family protection: Estate planning can help to ensure that your assets are distributed to your desired beneficiaries in the way that you want.
- End-of-life care: Estate planning can help to make your wishes known for your end-of-life care.
How to get started with estate planning
The first step in estate planning is to gather your information. This includes making a list of your assets, debts, and beneficiaries. You should also think about your end-of-life care wishes.
Once you have gathered your information, you can start to create your estate plan. It is important to speak to an estate planning lawyer to get help creating an estate plan that meets your individual needs.
Hire an estate planning lawyer
An estate planning lawyer can help you to:
- Understand your estate planning options
- Create an estate plan that meets your individual needs
- Review your estate plan regularly to ensure that it is up-to-date
Gather your information
Before you meet with an estate planning lawyer, it is important to gather your information. This includes making a list of your assets, debts, and beneficiaries. You should also think about your end-of-life care wishes.
Create your estate plan
Once you have gathered your information, you can start to create your estate plan. This may involve creating a will, a living trust, and other estate planning documents. It is important to work with an estate planning lawyer to create an estate plan that meets your individual needs.
Review and update your estate plan regularly
Your estate plan should be reviewed and updated regularly to ensure that it is up-to-date and that it reflects your current wishes. It is especially important to review your estate plan after major life events, such as marriage, divorce, or the birth of a child.
Example of how estate planning can avoid probate
Here is an example of how estate planning can avoid probate:
John and Mary are married and have two children. They own a home, a bank account, and a retirement account. John and Mary want to ensure that their assets pass smoothly to their children after they die.
John and Mary create a living trust and transfer their home and bank account to the trust. They also name their children as the beneficiaries of their retirement account.
John dies, and Mary inherits his interest in the living trust. After Mary dies, the assets in the living trust are distributed to their children.
Because John and Mary's assets were held in a living trust, they avoided probate. This saved their children time and money.
Conclusion
Estate planning is an important part of financial planning. It can help you to protect your assets, ensure that your wishes are carried out after you are gone, and reduce the burden on your loved ones. If you have not already done so, I encourage you to speak to an estate planning lawyer to get started with your estate plan.
