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STUART KIRK: Financial planning: Do you have an estate plan?
Planning your estate is probably not your first priority. The truth is, estate planning should be a financial priority at almost any stage of life.
Why is it important to have an estate plan? To ensure a simple, tax-efficient and organized transfer of your assets to loved ones. It should be updated regularly, particularly as your circumstances change. Here are a few things to consider:
Your will is legal declaration of how a person wishes his or her property to be distributed after death. Wills will generally cover:
• Naming of an executor — the individual or organization chosen to administer the estate. If you die without a will, the province will step in to administer your estate and, in this case, you’ve essentially forfeited your say on how things are divided.
• Naming beneficiaries — this could be family or institutions.
• The distribution of assets within the estate.
Naming a beneficiary other than your estate on an insurance contract allows death benefit proceeds to bypass your estate. This means that your beneficiary will receive the proceeds privately and directly while avoiding probate and estate administration fees, which can be significant. By avoiding your estate, the death benefit proceeds may also avoid claims by creditors of the estate and challenges to the validity of the will, which can delay the distribution of your estate by weeks, months or even years. In addition, insurance contracts offer the potential for creditor protection while you are alive if the beneficiary of the family class is named or a beneficiary is named irrevocably.
Reducing taxes: If you have a will, upon your death it is your executor’s responsibility to file a tax return for you. The government will consider you to have sold all your assets immediately before your death and any capital gains/losses will be crystallized. That may lead to a large tax bill. Here are some strategies to minimize the amount of taxes on your estate:
• Maximize asset “roll-overs, ” transfers to your spouse that defer capital gains.
• Set up trusts to ensure your beneficiaries are well looked after.
• Give gifts while you are still alive
• Consider charitable donations to create tax benefits.
• Purchase life insurance that is paid out to a named beneficiary on a tax free basis.
• Restructure investments with insurance companies so assets can bypass your estate.
The reassurance of having a strategy in place to preserve the value of your estate is something to value. After all, why pay if you don’t have to?
Remember to always consult your advisor before taking any action.
Stuart Kirk is a Wealth Advisor with Precision Wealth Management. The opinions expressed are those of the author and may not reflect those of Precision Wealth Management Inc. For comments or questions he can be reached at firstname.lastname@example.org or 250-954-0247.