Estate planning is definitely not on the top-10-list of most people. It can be emotionally draining for us to think about what will happen when we die.But if you think about what you have accumulated over the years, your best approach is to frame it as another business decision that will help secure your goals. It never hurts to be reminded of some simple todo’s when it comes to this technically and possibly emotionally, charged discussion. These are estate planning tips from the investment professional, not a lawyer.Creating an estate plan is a very important process that can originate with a financial planner and complete with a family lawyer.Therefore, my number one tip is to engage the services of a lawyer who specializes in family law to prepare your Will or update an existing Will.This will incorporate any changes or considerations, which arise from the estate planning process you have with your financial planner.
WHY CONSIDER AN ESTATE PLAN?
The first step would be to determine if you (and your spouse if you have one) have enough income — enough money and assets to provide you with the income and funds you need to provide a comfortable and financially successful retirement.If the answer to that question is yes, then your next step would be to consider an estate plan to successfully transition your assets to your loved ones.
DON’T LEAVE IT TOO LATE
Please don’t wait until you have health issues or are over the age of 80. You will have fewer choices and fewer options for effective estate planning strategies. The sweet spot for this exercise is between 60 and 75 years of age.
WHO DO YOU WANT TO BE THE BENEFICIARY?
Seriously think about who you want to receive your assets. Do you have children and/or grandchildren, other family members or perhaps a favourite church or charity?Assets can pass efficiently from one spouse or common law partner to another at death, but once the surviving spouse has passed, many assets flowing to the next generation or family member will create a tax liability to the estate. Revenue Canada will get a portion of your estate.It’s up to you to plan to ensure that Revenue Canada does not receive more than a fair share of your estate.
Voice your wishes and plans now with your spouse, children and/or family members that are executors, power of attorneys, trustees and/or beneficiaries.Ask family members what they want and value.If a cottage or vacation property is part of your estate,then find out which family member would like this asset. Second properties will often trigger a significant tax liability to the estate.Will the estate have other financial assets to pay this tax liability? Or will your estate need to sell the cottage or vacation property to pay the taxes due.
Do you have life insurance to cover your final expenses? Do you have enough life insurance to pay the income taxes for the estate? If you are married or in a common law relationship consider ‘joint last to die’life insurance.Adding two lives together creates a wrinkle in life insurance premiums (my opinion) based on actuary rates.The rate of return on a ‘joint last to die’ life insurance policy can be excellent and more importantly provides tax free funds to the estate when the estate needs money for final expenses and the tax liability. Even better, consider life insurance for a favourite church or charity and provide the estate with a large tax deduction to offset the often significant, tax liability to the estate.This is a win-win strategy for everyone. You pay insurance premiums to create a legacy for a cause or charity you feel passionate about and want to support.The charity receives a bequeath to support charitable work, your estate gets a significant tax deduction to reduce the income tax owed and your beneficiaries receive more of the assets from your estate.
CONSIDER EACH ASSET CAREFULLY
Examine the strengths and weakness of each financial or personal asset you have, in order to determine which ones you should try and use up in your lifetime. Registered Retirement Savings Plans (RRSP) and Registered Retirement Income Plans (RRIF) are excellent plans for accumulating assets and creating a retirement income. Both have named beneficiaries and can pass tax efficiently to your spouse or common law partner. If you do not have a spouse or common law partner or if your partner has pre-deceased you and subsequently you name your adult children as named beneficiary,then this asset will be included in income, in the year of death and can create a substantial tax liability to the estate.You want to spend every dollar in your RRSP and/or RRIF during your lifetime.The Tax-Free Savings Plan (TFSA) also has a named beneficiary and if you name your adult children and/or grandchildren then all of this asset will pass to your beneficiaries’ tax free. Investment gains, dividends and income earning in the TFSA do not attract income tax while in the plan nor when removed from the plan, nor when the plan is passed on to your beneficiary.
SIMPLIFY YOUR ESTATE WITH LIFE INSURANCE INVESTMENTS
Life insurance investments, both segregated funds and GICs, can bypass your estate upon death as per our Insurance Compliance Officer. Proceeds can be paid directly to your named beneficiaries without being subject to the estate administration/probate process and associated fees. This allows you to leave assets quickly, privately and cost-effectively.
Creating an estate plan is a very important process to help you clarify your final wishes.There are many more possible estate planning considerations based on each person’s unique set of circumstances. Seek guidance from a trusted professional, ask questions and explore all of your options.
Pam Mundell is a Financial Planner at Assante Financial Management Ltd. in Kingston, Ontario. She is a CERTIFIED FINANCIAL PLANNER professional (CFP) Chartered Life Underwriter (CLU) and Certified Health Insurance Specialist (CHS). She can be reached for questions and comments at firstname.lastname@example.org.
This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please make sure to see a professional advisor for individual financial advice based on your personal circumstances. Insurance products and services are provided through Assante Estate and Insurance Services Inc.
Blended families created by second and third marriages or common law relationships present a challenge to plan to ensure fairness for all loved ones.You may want to provide your current spouse/current partner with the lifestyle you both enjoy, but also ensure your assets accumulated from a previous marriage/common law are preserved for the benefit of your children and grandchildren. Some assets pass more effectively to a spouse or common law partner, while other assets are more flexible and could transfer well to children or grandchildren.
If you plan to leave your principal residence to your current married spouse or common law spouse, consider registering the property as ‘joint tenants with a right of survivorship’. Upon your death, the property will pass automatically to the other joint tenant and not form part of your estate. Please be aware that there may be immediate adverse tax consequences if you transfer any property to a joint tenant who is not your spouse. If you plan to leave the principal residence to an adult child or more than one adult child consult both a tax professional and legal professional on the consequences of transferring ownership during your lifetime.Property held by two people as‘joint tenants with rights of survivorship’is not subject to probate, as it does not form part of your estate and will become owned 100 per cent by the other person upon your death.
REGISTERED RETIREMENT SAVINGS PLAN (RRSP) AND/OR REGISTERED RETIREMENT INCOME FUND (RRIF)
Investments in an RRSP and the subsequent RRIF are accumulated to provide sustainable retirement income during your lifetime. An RRSP and an RRIF has a named beneficiary and is an example of an asset that passes effectively to a married spouse or common law spouse at death on a tax-free rollover.You may name adult children as a beneficiary of your RRSP or RRIF, however the full value of the registered plan will be included in income in the year of your death and could create a substantial tax liability to your estate (some exceptions for financial dependent children or grandchildren). Consider the tax effects of adding the full value of an RRSP or RRIF into income in addition to all other income,Canada Pension Plan (CPP), OldAge Security (OAS),pension income,income from GICs or other investments that you have earned that year.Stock and bond portfolios and second vacation homes or rental properties will be deemed to be disposed of at the time of death. All of which may create additional tax liabilities.
TAX FREE SAVINGS ACCOUNTS (TFSA)
The TFSA is an excellent vehicle for saving or investing for many purposes including retirement. The TFSA is very flexible and you can name your married spouse or common law spouse as the successor holder of your plan. At death, your TFSA would simply be transferred to your spouse. However, this is also an excellent plan to leave to an adult child or adult children.You can name your adult children as a beneficiary of the TFSA and upon your death the proceeds of your plan are paid out to your named beneficiary.The TFSA with a named beneficiary does not form part of your estate,so does not incur probate fees.The investments in the TFSA are not included in your income, and do not create any tax liability to your estate.
LIFE INSURANCE AND LIFE INSURANCE INVESTMENTS
Life insurance proceeds and investments issued by life insurance companies are another example of assets that will pass to your married spouse or common law spouse,but will also transfer effectively to adult children at death. A life insurance policy has a named beneficiary and will be paid out once the life insurance company has confirmation of your death via a death certificate and a claim form completed by the executor and/or beneficiary. Life insurance proceeds with a named beneficiary do not form part of your estate and are not subject to probate. Many life insurance companies also offer investments — GICs and segregated funds — and both of these options are excellent for estate planning purposes to transfer assets to individuals other than a spouse to bypass the estate. Assets that flow outside of the estate can save time,fees and privacy for the estate. A probated will is a public document. Settling an estate takes time, money and an emotional toil. It can be a challenging job and the steps you take during your lifetime to simplify your estate will be greatly appreciated by your executor. Careful estate planning can help simplify your estate and save money for your beneficiaries. Estate planning can be a very complicated process especially for blended families,and once second and third marriages are included. As a certified financial planner, I will often start the discussion so that a client may consider their own unique estate planning objectives.I always strongly urge a client to discuss the very specifics of each plan with a lawyer who specializes in family law. Family law is different in each province and this is an ever-changing landscape. Creating a co-habitation agreement and updating wills with the trusted legal professional is essential to ensure your unique wishes are carried out.
Pam Mundell is a Financial Planner at Assante Financial Management Ltd. in Kingston, Ontario. She is a Certified Financial Planner (CFP) Chartered Life Underwriter (CLU) and Certified Health Insurance Specialist (CHS). She can be reached for questions and comments at email@example.com.
TAX FREE SAVINGS ACCOUNT (TFSA) Many Canadians have embraced the TFSA as a great way to save for education, travel, emergency funds, down payment for a home and also for retirements savings. The TFSA is not merely a savings account. It should be called the Tax-Free Investment Account because that is essentially what it is.
TFSA – THE BASICS The TFSA was introduced in 2009 to allow Canadians to save and shelter investment earnings from income tax. This is one of the few options Canadians have to make an investment return and not pay tax on those earnings. A TFSA can be opened by any Canadian resident who is 18 years of age and over. There is no age limit. Starting in 2009 each year you have the ability to contribute $ 5,000 to your TFSA. This amount is indexed and rounded up to the next $ 500. $ 6,000 is the new contribution amount for 2021. Your contribution room accumulates and if you have yet to open a TFSA, and have been 18 or older since 2009, you have $ 75,500 in available contribution room. You can open a TFSA at a bank, through a financial advisor or broker services. Think of TFSA as an umbrella that can hold many different types of investments. All of the investments gains, interest paid, dividends, and capital gains are completely tax free. Tax free while the investments remain in the plan and also when you sell the investments and withdraw money from the plan. And the TFSA is extremely flexible. Your contribution room is carried forward each year PLUS you can withdraw all the funds in your TFSA and the next calendar year you may replace all funds redeemed.
WHAT HAPPENS TO YOUR TFSA WHEN YOU DIE? If you name your spouse or common law partner as your successor holder, then your TFSA will pass to your spouse/partner without affecting his or her TFSA contribution room. You may also name adult children or adult grandchildren as a named beneficiary and the assets in the TFSA will pass directly to your beneficiary without any tax implications to your estate OTHER IMPORTANT BENEFITS Income earned in the TFSA nor withdrawals from the TFSA affect your eligibility for federal income-tested benefits and credits. TFSA withdrawals are not considered income and do not affect Old Age security (OAS) and the Guaranteed Income Supplement (GIS).
TFSA – THE TAKEAWAY If you are not fully utilizing the TFSA contribution room available to you consult a trusted professional. Speak to a financial advisor or tax accountant before you make any changes or redemptions from your current investments. Please ensure you will not trigger unnecessary capital gains or redemption fees before you make changes to your investments.
Pam Mundell is a Financial Planner at Assante Financial Management Ltd. in Kingston, Ontario. She is a Certified Financial Planner professional (CFP®) Chartered Life Underwriter (CLU) and Certified Health Insurance Specialist (CHS). She can be reached for questions and comments at firstname.lastname@example.org.
This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please make sure to see a professional advisor for individual financial advice based on your personal circumstances.
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