Essential estate planning considerations

What is an estate plan?

An estate plan is a set of legal documents and strategies that outline how your assets and affairs should be managed and distributed in the event of death or incapacity. Typically, an estate plan includes a Will, Power of Attorney for Property, Power of Attorney for Personal Care and beneficiary designation forms.

What is the purpose of an estate plan?

Working together, your estate planning documents can help you:

• Provide for the beneficiaries of your choice.
• Protect minor children.
• Transfer your wealth in a tax-efficient manner.
• Minimize the likelihood of legal headaches and/or family disputes.
• Designate a trusted person(s) to make financial and health care decisions on your behalf when you are no longer able.

What happens if you don't have an estate plan?

Without appropriate estate planning documents, you may not have the final say on your estate’s distribution upon death, the guardianship of your minor children, or what financial and healthcare decisions are made for you when you are alive but unable to make decisions for yourself.

When should you create an estate plan?

It’s never too early to start working on your estate plan. One can pass away, become temporarily incapacitated, or chronically debilitated at any time and it is important to plan for those events. Different individuals can be designated to manage your affairs in your Will, Power of Attorney for Property and Power of Attorney for Personal Care.

Elements of an estate plan

What is a Will?

A Will generally outlines your wishes regarding the distribution of your assets upon death, appoints the executor of your choice to administer your estate and distribute assets to your beneficiaries, and nominates guardian(s) for any minor children. Designating a guardian for a minor child in a Will does not necessarily guarantee court approval, however the court may give special consideration to parents' preference of guardian(s) when determining a child's custody.

If you pass away unexpectedly without a Will in place, this is referred to as dying intestate. In this case, your estate distribution will generally be dictated by your province or territory's intestacy laws, which may not align with your desired distribution objectives. For instance, while one may assume that their assets will automatically transfer to a common law partner even without a Will, this is not necessarily the case. In fact, while a legally married surviving spouse generally inherits from their deceased spouse's estate, that is not always the case for common law spouses in all provinces, such as Ontario and Quebec.

What are beneficiary designations?

Beneficiary designations may be an important part of your estate plan. Depending on where you live¹, you may be able to name a direct beneficiary on your insurance policies or registered investments such as Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs) and Tax-Free Savings Accounts (TFSAs).

Upon death, rather than passing through your estate and being distributed according to your Will, those assets can pass directly to the named beneficiary. If the designated beneficiary is not your estate, these assets may not be subject to probate.

In addition, registered investments such as Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs) and Tax-Free Savings Accounts (TFSAs) can generally be transferred to a spouse or common law partner tax-free.

Some people may have a Will that contradicts named beneficiaries on registered accounts and life insurance policies. To ensure your estate is administered according to your wishes, your documents must align and support each other. When you update one estate planning document, review all other documents that could impact your revised estate plan, and if necessary, update them to ensure consistency, and avoid confusion and disputes amongst loved ones.

It’s important to review your beneficiary designations regularly, particularly when your life circumstances change, such as a marriage, a divorce, the birth of a child or the death of a spouse.

What is a Power of Attorney for Property?

A Power of Attorney (POA) for Property is a document that empowers a trusted individual(s) to make decisions related to your property and finances while you’re alive but unable to make decisions for yourself.

If your POA for Property does not specify limitations on the scope of authority your attorney generally has, they may make virtually any decision with respect to your finances and property that you could, such as paying bills, collecting money, maintaining or selling a home and managing investments. However, your attorney for property is generally restricted from changing an existing Will or making a new one, changing beneficiary designations, or designating a new POA on your behalf without your knowledge or consent.

Many people also mistakenly believe that their spouse or even children can continue managing their financial affairs if they become incapacitated without the need for any legal document authorizing them to do so. However, if you do not have a Power of Attorney for Property that names someone to act on your behalf, your loved ones will generally have to apply to court to obtain the powers to handle your financial affairs, which can be costly and stressful.

You also generally get to dictate when your POA for property becomes effective. For instance, some people may choose to make their POA for property effective as of the signature date without extending its use to  periods of incapacity. Others may only want to activate their POA for property when they are mentally incapable of making decisions for themselves. It is also possible for a POA for property to be effective immediately while also enduring during periods of incapacity. Since POAs are catered to your specific circumstances and needs, it is crucial to determine what authority you want to give to an individual acting on your behalf and when you want that authority to be activated.

What is a Power of Attorney for Personal Care?

Depending on the province or territory, a Power of Attorney for Personal Care can also be referred to as Representation Agreement, Personal Directive, Health Care Directive, etc.

A Power of Attorney (POA) for Personal Care empowers a trusted individual(s) of your choice to make health care decisions on your behalf while you’re alive but unable to make them for yourself. Unlike a POA for Property, a POA for Personal Care is typically only effective when you lack the capacity to make health care decisions for yourself.

A POA for Personal Care may give someone authority to make decisions about your health care, housing, nutrition, personal hygiene, and even clothing. Because your attorney for personal care may have to make important decisions about your well-being and quality of life, it is good practice is to select someone with whom you have a close, caring, and personal relationship with.

What professionals should be on your estate planning team?

Building an estate plan can feel overwhelming, and having a trusted team of professionals to help you navigate any intricacies is indispensable. Your team of professionals can include:

• Estate planning lawyer - provides legal advice and drafts legal documents.
• Tax professional – recommends steps and structures that may reduce taxes liabilities at death.
• Financial advisor - verifies that your investments and named beneficiaries align with the estate plan your lawyer and tax professional outline for you.

Talking to loved ones about your estate plan

Having regular conversations with your loved ones about who will play a role in your estate plan can help them better understand your wishes, clarify each person’s role in the process and make them aware of any complexities to the administration of your estate. It’s especially important to verify whether your named executor(s), person(s) designated in your POAs and guardian(s) of minor children, are willing and capable to take on this role. If these individuals cannot or are unwilling to act when necessary, a court appointment may be necessary, which may not align with your wishes and can lead to additional delays and complexity for your loved ones. When you make changes to your estate plan, you may consider updating anyone who is affected.

Keeping your estate planning documents up to date

Life changes, and so do laws, and your final wishes and estate plan may be impacted. Events such as marriage, divorce, the birth of children and death can affect your estate plan. It is important to review your plan annually or any time there is a major life event to ensure documents are aligned, up to date and accurately reflect your wishes. You also shouldn’t forget to regularly verify whether key players named in your estate documents are still willing and able to fulfill their responsibilities.

Ensuring your estate planning documents are accessible

Once an executor is appointed, that person should not only be familiar with your financial affairs but know where financial records and other important documents are kept. This will make the job easier and ensure beneficiaries receive bequests in a timely fashion. When planning for your estate, don’t forget to address your digital footprint, which can include everything from online accounts and social media profiles to cryptocurrency wallets and other digital assets. Accounting for these assets in your estate plan will enable your executor to access and manage these assets after you pass away, which will help with distribution being completed in a timely manner. In addition, ensure that your estate planning documents are in a safe location that is accessible by your executors or powers of attorney when required. For example, placing estate planning documents in your safety-deposit-box while your executors or power of attorney are unable to access them will lead to unnecessary delay and stress for loved ones.

Do-it-yourself estate planning

Building an estate plan is not as straight forward as painting the garage. Every province and territory in Canada has unique laws and regulations that may impact your estate planning, and they can change over time. Estate planning is also not a one-size-fits-all approach because every person’s situation is unique. For instance, considerations for blended families, dependents, or beneficiaries with disabilities can vary significantly.

How we can help

Your Edward Jones Financial Advisor can work with you and your team of legal and tax professionals, upon your agreement to put a personalized strategy in place that meets the needs of you and your family. It’s also a good idea to provide the key players in your estate plan with your Edward Jones advisor’s contact information. Your estate plan is an essential part of your comprehensive financial strategy, and we are happy to walk you through the process, help you prioritize your goals and help you coordinate your estate planning team.