7 Essential Estate Planning Tips Everyone Should Know
MORE THAN HALF OF Canadian adults don’t have a will, and that can cause all kinds of problems if tragedy strikes.
The death of both parents in an accident can leave their children’s fate up to a judge. Assets in a blended family may not end up being distributed the way you would like. And, if you’re incapacitated but not killed, the choices made about your medical care may not be those you would want.
If you die without a will, provincial law determines who gets your assets. If you’re single and childless, that may mean your estate goes to your parents or your siblings. If you’re married, your assets may all go to your spouse, or be split between your spouse and children of another marriage. If you’re part of an unmarried couple, your estate goes to your biological family, not your partner. In many cases, this may not be what you want.
Here are 7 essential elements for estate planning:
Executor. When you draw up your will, you need to choose someone who will carry out your wishes. A simple estate can be handled by a friend or relative, with the help of an estate lawyer, but a more complex estate may require professional management.
Trust. A living trust serves two purposes: It allows you to pass on assets without going through the public probate process, and it allows someone else to manage your affairs if you become incapacitated. Your trust can own your house, your car, your bank accounts and other assets. You make yourself trustee, but you also appoint a successor trustee who will take over if you die or can’t manage your own affairs. “While you’re alive, it’s essentially an extension of you as a person,” Phillips says.
Medical power of attorney. This names someone to make medical decisions for you if you’re unable to make them yourself. “Doctors want to be able to deal with the family and know who has the power to make decisions,” White says. “It avoids the threat of people having conflict over what you may have intended.”
Living will. This is also called an advance directive. It provides guidance to the person making medical decisions about what you would want in certain scenarios. Under what circumstances would you want to be kept alive with a ventilator or a feeding tube, for example? It’s wise to discuss these issues with your family and with whoever has your medical power of attorney, so they will understand your wishes.
Financial power of attorney. This allows someone to manage your financial affairs. You can limit it to certain functions or make it all- encompassing. A couple may want to sign such documents designating each other to act at anytime. Or, you may want what is called a springing power of attorney, which only takes effect if a doctor declares you incapacitated. “The power of attorney is frequently overlooked,” Baum says. “These documents avoid significant disruptions in their financial lives.”
Beneficiaries. Retirement accounts, pensions, life insurance and brokerage accounts are passed through beneficiary designations, not a will. It’s important to keep these current, or you ex-husband may end up inheriting.
How you hold assets. Some joint assets pass automatically to the surviving partner upon death. Others may not. Make sure you’re holding title to homes, bank accounts and other possessions the way that will benefit the two of you.