Why You Need a Will and The Basics of Estate Planning
A few personal finance bloggers contacted me to contribute to their group writing project about wills and estate planning. I’ve written about wills before with it being a must have item if you care at all about where your assets go upon passing. However, I’m going to be honest with you, procrastination has gotten the better of me, and it’s only now that I’m looking into getting a will. Better late than never right?
Here are some of the reasons why you need a will:
- Know where the money is going. Without a will, the government decides how your assets will be divided. If you have children, some provinces will allocate a fixed portion to the spouse and the rest to the children. For me, with young children, I would want to make sure that my wife has control of the assets.
- Tax Deferral. A will organizes where large assets go to maximize tax deferral without confusion. Essentially, transfer taxable assets to the surviving spouse to delay taxation as long as possible. More on this below.
- Know where the dependent kids are going. If both spouses were to pass away with surviving dependent children without a will, the courts decide who the primary caregivers would be.
- Be Organized. A will is simply a plan and helps reduce chaos especially if the one that passes is the family chief financial officer.
Basics of Estate Planning
You’ve worked hard for your money, pay taxes on the money you’ve earned, why not minimize taxation upon your death? Here are some of the very basics of estate planning to reduce “death” tax:
- Get a Will. As mentioned above, there are too many benefits of getting a will to ignore. Planning a will properly will also reduce taxation.
- Real Estate. Assets can be transferred to a spouse tax free, but there is a tax hit once the money moves between generations. Make sure that large assets like real estate are under “joint tenancy” or else the property (besides principle residence) will face capital gains even if the property isn’t sold!
- The Family Cottage. If you are fortunate enough to have a family cottage for you and your kids, it probably has a lot of sentimental value. However, upon the owner of the cottage passing, there will be what’s called “deemed disposition” which means that it’s considered sold and tax owed. Joint tenancy of the property when purchasing will defer those taxes until both spouses have passed.
- Investment Accounts. As you may know, RRSP’s can be assigned a beneficiary. The beneficiary should be your spouse as it will ensure that the account will transfer to your spouse tax free. Otherwise, the account will go to the estate where probate fees along with income taxes will have to be paid before distribution to family members.
- Power of Attorney. In the case of incapacity, a power of attorney should be assigned to take care of essential business.
Here are some articles written by personal finance blogger colleagues about wills and estate planning:
- Four Pillars tells us about “my last will and testament“.
- Thicken My Wallet wrote about “Top 5 myths about wills“.
- The Financial Blogger has “6 common mistakes on a will“.
- Canadian Capitalist came up with “A guide to getting your will done through a lawyer“.
- Where Does All My Money Go provides some “Benefits of a professional executor“.