Finance and Technology
Feb 2023 | By Luisa Rollenhagen
Estate planning has a number of benefits, saving your family both time and money. Here is why estate planning is so important.
Only two things are certain in life: Death and taxes. While many families treat death as a taboo subject, it is nonetheless important to be ready for its inevitability. In fact, recent studies have shown that 50% of Canadians and Americans don’t have a will. This can lead to a number of consequences, including the uneven distribution of the estate left behind.
Dealing with the death of a loved one is difficult enough, even more so when no estate planning has taken place prior. Simply put, the more prepared you are for that moment, the better off your family will be when the time comes. Estate planning offers estate executors and beneficiaries alike the ability to honour the deceased’s final wishes exactly how they intended.
An unplanned estate will take longer to settle, triggering more fees and legal delays. Clear Estate can ensure all your affairs are in order, saving your family time and money. A planned estate can reduce the average distribution of assets by six months, saving tens of thousands in process. But what exactly is estate planning?
What is Estate Planning?
Estate planning is the process whereby an individual arranges the transfer of his or her assets in anticipation of their death. This can include naming beneficiaries on investment and banking accounts, making funeral arrangements in their will, and giving away personal belongings to loved ones, just to name a few.
Estate planning is designed to preserve the maximum amount of wealth for beneficiaries and protects your loved ones from dealing with complex estate settlement dilemmas in the aftermath of your death. A planned estate simplifies the estate settlement process and offers estate executors a clear overview on how the estate will be divided.
Our complete estate planning checklist will arm you with all the information you’ll need to tackle this process efficiently. Estate planning will prepare your loved ones when the time comes and reduce legal fees and delays. Estate settlement fees can quickly add up when there is no estate plan in place.
Estate Planning Benefits
Now that you are aware about what estate planning is, let’s take a look at the biggest advantages of planning your estate in advance. From avoiding beneficiary drama, to protecting young children, estate planning has a number of benefits.
Prevents Unwanted Inheritors
One of the biggest advantages of estate planning is preventing unwanted inheritors. If no valid will exists, there is no guarantee that your estate will be distributed how you intended. Typically, if there is no will, the probate court will name an estate administrator and subsequently settle the estate according to the formula laid down by the province or estate. Beyond triggering more fees, this can lead to the uneven distribution of assets to beneficiaries.
Estate planning ensures that all your final wishes are honoured, ranging from funeral arrangements to the rightful passing of family heirlooms. This process guarantees all relevant beneficiaries receive exactly what they are entitled to – nothing more, nothing less. Estate planning keeps the distribution of assets in your hands, offering you the ability to create your own legacy.
The probate court reduces the distribution of your estate to a mathematical formula, not taking into account a number of factors. Rather than letting the courts decide, estate planning provides complete transparency to your loved ones, minimizing familial disputes.
Helps Avoid Probate
In some instances, estate planning can also help with avoiding probate altogether. The probate process is whereby the deceased’s will is validated in court and all assets are independently evaluated and assigned a financial value. Avoiding probate is not always possible, however, there are measures you can take to expedite the process.
One way to do so is to give away much of your personal property before your death. If transferred prior to death, these assets would not be considered as part of the estate, simplifying the estate settlement process. This can include giving away money, property, vehicles, investments, and more.
In addition, proper estate planning calls for naming beneficiaries to your investment accounts. Beneficiaries can typically be named to life insurance, retirement, and registered savings accounts, including TFSAs and RRSPs. If a beneficiary has been designated, the funds will be transferred directly to them bypassing the probate process.
Prevents Beneficiary Drama
The last thing you want in the aftermath of your death is family tension and disputes. This is increasingly common in complex estates where there are a number of assets to divide. Estate planning eliminates all confusion, providing beneficiaries with a clear overview of what they should expect to inherit.
Estate executors already have enough on their plate as it is and ultimately must manage beneficiary expectations. Preventing fights between family members is one of the biggest reasons why an estate plan is necessary and helps avoid lengthy litigation in court in extreme cases.
Our beneficiary portal eliminates potential for family drama and is there to streamline communication between estate executors and beneficiaries. Our portal keeps a detailed record of all communications and also offers beneficiaries a detailed overview of relevant assets along with a clearly defined timeline. Every time an asset is distributed, the portal will be automatically updated.
Protects Young Children
Estate planning is also an effective way to protect young children. In this instance, it is less about writing a will to establish beneficiaries and their respective inheritances, and more about defining a legal guardian. Establishing a legal guardian, especially as a younger couple with small children, offers peace of mind and ensures your children will be well taken care of if the unthinkable happens.
If no legal guardian has been set and the children are not 18 yet, the courts will decide who is best suited to raise them. The common choice is typically a family member, however, with a will, both parents have complete say in who it will be. It is a very unlikely scenario, but it is nonetheless better to be prepared for every outcome.
Reduces the Tax Bill
The common theme with estate planning is protecting your family, and in this case, beneficiaries and estate executors. The main purpose of estate planning is to transfer the deceased’s assets to the appropriate parties with the least amount of tax implications imposed on them. Whether beneficiaries are expecting a big or small inheritance, estate planning is the best way to avoid a hefty tax bill at the end of the year.
As illustrated above, there are crafty ways to go about this, such as gifting property, personal belongings, and valuable items before your death. When a person dies, all of the estate will be taxed and any capital gain beneficiaries accrue must be declared. Rather than waiting for the untimely moment, follow our estate planning checklist and reduce your loved one’s tax bill. This can include designating beneficiaries beforehand, leaving property to your spouse or children, or even gifting assets to family members of your choosing.
If you are unsure where to begin, Clear Estate offers one-on-one support and can walk you through the entire estate planning process with innovative solutions and empathetic advice.
Saves Time and Money
Estate planning, put simply, will save your family countless hours and ultimately, thousands of dollars. Common estate planning duties include drafting a will, updating beneficiaries, setting up a trust, gifting assets to loved ones while alive, converting retirement accounts to regular accounts, and more. This also helps avoid probate, sparing your family legal expenses.
Compiling all relevant estate planning documents is yet another effective tactic to save your family time throughout the estate settlement process. Simply store these documents in a safe place and inform the estate executor of their location. That way, when the time comes, your loved ones will not have to waste time coordinating with all your financial institutions and can focus on what matters most.
Estate planning is all about having one eye on the future and being prepared for every scenario. Planning ahead comes with a variety of benefits, ranging from saving time and money, avoiding family drama, and in rare instances, protecting young children.
Think of estate planning as an act of grace and love toward yourself, your family and estate executors. Grieving a loved one’s death is difficult enough on its own, and could be alleviated with these simple, yet effective estate planning tactics.