As the old joke goes, there are only two things we can’t avoid: death and taxes. Since death is on the horizon for all of us, estate planning is essential to protect our assets and take care of our families. Today, we’ll talk about the importance of having a current will, power of attorney and life insurance.
(This article is designed to provide general information regarding estate planning; it’s not intended to serve as legal, tax or other financial advice.)
What is estate planning?
Estate planning is the work you do to protect your assets after you die. It involves tax planning, designating beneficiaries and powers of attorney, making (or updating) your will and having proper life insurance coverage.
It’s essential for adults with children and/or assets to do estate planning; otherwise, assets are distributed according to provincial legislation which might not be to your liking. For example, according to the Stewart Esten Law Firm, “The Family Law Act defines a spouse as a married person, and the term spouse in this act does not include co-habiting parties or common-law partners.” This complicates things for common-law partners of people who die without a will in Ontario.
Essential estate planning, part 1: Make a will
Investopedia defines a will as “a legal document that sets forth your wishes regarding the distribution of your property and the care of any minor children.” When you make a will, you also designate an executor—this is the person who administers your will (and your final tax return) after your death. Choose a responsible person as your executor and get their permission before you do your will (don’t surprise them with this responsibility).
In their article, Estate planning: What you need to know, Money Sense says, “For a will to be effective, it needs to clearly indicate your wishes, be readily found, and be easily verified by the courts … You must clearly state who will be your executor … decide who gets your assets, and at what age the beneficiaries will receive their inheritance. It should also include instructions for your burial and funeral. Finally, if you have dependent children, you should name a guardian.”
Do-it-yourself will versus hiring a lawyer
To make a will, you can use a will kit or hire a lawyer. Either of these options is better than having no will at all. If you don’t have any kids and your finances are simple, you can go the do-it-yourself route and use a service like Willful to complete your will for less than $200.
However, if your finances and/or family structure are complicated, nuanced or large, it’s in your best interest to talk to your financial planner and hire a lawyer to prepare your will. If you’re a small business owner, talk to a professional who know the laws and can help you minimize taxes upon your death.
For example, Jason Heath, a fee-only certified financial planner, believes it’s important to know the finer points of estate planning. In his Financial Post article, he says, “People often think that their will deals with all of their assets on death. But many assets, like TFSAs, RRSPs, pensions and insurance policies, may have direct beneficiaries. The beneficiary designation will generally trump the will and these assets may pass outside the estate. Joint assets also generally pass outside your estate, with the survivor getting the asset based on the rights of survivorship. Your share of assets held jointly as “tenants in common” can become part of your estate to be distributed under your will, so how your joint assets are registered is important.”
If taking this type of information into consideration is important to you, hire a lawyer to prepare your will.
Essential estate planning, part 2: Prepare your power(s) of attorney
According to Willful, a power of attorney (POA) is “a legal document that gives someone you trust the authority to make decisions on your behalf and represent you to others.” Once you designate a power of attorney, he or she can take care of your financial and personal matters, depending on the rules of your province. For example, in Ontario, you designate two attorneys, one for property and one for personal care.
Having a power of attorney is important in case you become unable to take care of your personal or financial matters due to physical or mental impairment. Choose a responsible person as your power of attorney because it’s a powerful document and the role can require a significant amount of administration and patience.
The point of this article is to encourage you to get or update your will and power of attorney, but we’d also like to encourage you to discuss this with your parents. Many people in the sandwich generation—especially women—have elderly parents to look after. If you’re a power of attorney for a loved one, it’s essential that you have access to the original power of attorney document; you’ll need to provide copies to organizations you deal with as a POA.
When should I update my will and power of attorney?
If you already have a will, that’s great! Remember to update it after significant life changes including births, divorce, re-marriage, deaths, accidents, changes to financial assets etc.
Further resources: Power of attorney
Essential estate planning, part 3: Buy life insurance
Life insurance gives you peace of mind. Life insurance provides a cash payout to your beneficiary which allows you to continue taking care of your family from beyond the grave. Insurance money can be used for current living expenses, to pay off debts, cover funeral costs and future education costs, etc.
Look for a life insurance policy that comes with an accidental death and dismemberment (AD&D) rider for extra coverage.
Term life insurance gives you coverage over a limited time, such as 10- or 20-year terms. This might be the right option to cover you while your kids grow up. If you have a dependent with long-term care needs, a permanent policy may be a better choice.
The bottom line is this: if you support loved ones, you need life insurance.
Further resources: Life insurance
- The only insurance guide you need (Money Sense)
- Life insurance calculator (Government of Canada)
- Group life and AD&D insurance (BeniPlus)
True or false: If you die without a will, the government takes all your assets
There’s a rumour that says if you die without a will, the government takes all your money. This isn’t true in most situations. But in Ontario, Alberta and British Columbia, for example, if you die without a will and have no surviving relatives, your estate goes to the provincial government.
When you die without a will, your assets are distributed according to the laws of your province. This might give you a sense of relief but it’s much better for your loved ones if you have a will. With a will, your estate goes where you want it to go. Plus, your executor can execute your wishes right away. Without a will, one of your family members must jump through legal hoops to become your estate trustee; this becomes more complicated if it’s contested.
It won’t be easy for your loved ones when you die. But dying without a will makes it even more difficult for the ones you leave behind.
Further resources: Dying without a will (not recommended)
- What happens to your property if you die without a will in Ontario?
- When someone dies without a will (British Columbia)
- If you die without a will (Alberta)
Estate planning is essential for everyone, especially business owners, so don’t wait any longer to prepare your will and power of attorney and buy life insurance. Do it all this month and enjoy the peace of mind that comes with estate planning!
We can help you and your employees get group life insurance as part of our simple, flexible and affordable employee benefits program. Did you know that you can claim financial advisor fees and insurance premiums through a Wellness Spending Account with BeniPlus?