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Personal Wealth and Finance

Updating your estate plan

November 1, 2021

What is estate planning? The nature and extent of an owner’s rights concerning land, property, and financial assets and life insurance benefits can be given over to heirs using documents referred to as the last will and testament, drawn up by a lawyer.

It is essential to plan the most efficient manner of leaving hard-earned assets to heirs. Try to avoid the following mistakes:

Update your testamentary trust. There are many phases in life, and each brings change that can necessitate a difference in a will. Deceased heirs may be named, or monies in a trust may conflict with your current situation without an updated will. Make sure your will is updated.

If there is no will, the government will decide who gets what, and the estate may be subject to increased probate fees. Your estate may be deemed intestate, and your provincial government can appoint trustees who may then divide the estate according to legislation, not your wishes.

If you have children, you may need a guardian directive. If there are young children and no will, who will care for the children if both parents die? A directive in the will must establish who will be the children’s prearranged guardian.

Specify assets to heirlooms. Even in a simple estate, it may be unwise to generalize—such as “I leave all my household items to my children”—not selecting specific heirs for certain assets. In this case, a dominant child-executor may rummage alone through the house, pre-selecting, removing, and even selling heirlooms, that other siblings may hold precious.

Update your beneficiaries. Beneficiaries of your assets may need to be changed over time to coincide with your wishes. You will also need to assure that your beneficiaries are updated on your various investment accounts (such as segregated funds) to allow passing these assets directly to named beneficiaries. Life insurance can also name specific beneficiaries helping you to achieve estate equalization. Tax-free proceeds from life insurance can be allocated per heir as you choose.

Equalize your estate. In situations where one child inherits the family cottage or business, consider leaving equivalent cash assets to other siblings. If there is not enough cash in the estate, life insurance can be purchased to create new tax-free money to divide up among siblings who will not inherit a significant family asset. Also, life insurance benefits can be assigned to beneficiaries outside of the will.

Acknowledge future estate erosion by taxation.

  • RRSPs and estate taxation Where there is a surviving spouse, RRSPs/RRIFs can rollover free of taxation. If not, registered money will be taxed as income in the final tax return of your estate.
  • Capital gains taxation Taxation on capital gains can erode bequeathed assets such as capital investments, cottage, home, or business shares left to adult children. Such assets are deemed to be disposed of at death where there is no spouse or dependent, in most cases, creating taxable capital gains on the difference of the current asset value minus the purchase price. Life insurance can help pay capital gains taxes, such as keeping a cottage or business in the family.

Address debts in your estate. Many people miss covering all personal and business debts with life insurance. Thus, they can saddle their heirs with the estate debt if a lien is on business or personal assets. You can free up much of your estate value by paying off these debts tied to assets with life insurance.

Provide for the immediate family. Some people never chose to provide a nest egg (upon their decease) from which the family can invest to create an income for dependents such as a spouse, children, and ageing parents who may need long-term care. In these cases, there may be no savings set aside for a rainy day—emergency; or retirement. Life insurance may be the easiest solution to this problem.

Note: Tax exemption changes to investment components can incur a need to adjust estate planning over time.


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