Estate planning is about much more than having a will, and a proper estate plan can significantly reduce the stress and personal risk executors otherwise face. Assets that are included in the will are also subject to probate fees (Estate Administration Tax – “EAT” – in Ontario), which can create liquidity challenges, and they lose all confidentiality, since probated wills are in the public domain. Anything bypassing the estate is not directed by the will, and nor is it the responsibility of the executor.
Envision ‘packing up’ your estate into three boxes:
The first box is labeled “Named Beneficiary”. In this one you can put your life insurance, RRSPs, RRIFs, TFSAs and segregated funds (essentially mutual funds through a life insurance company), but not non-registered accounts (GICs, mutual funds, etc) held at a bank or credit union. In addition to bypassing the estate and avoiding probate,
naming beneficiaries is incontestable and assets should typically transfer within 2 or 3 weeks, making them highly liquid. Risk is generally limited to naming the wrong people as beneficiaries or if they pre-decease the testator (but you can also name contingent beneficiares).
The second box is “Joint Ownership”, of which there are two types: Tenants in Common, where the deceased’s share goes to their estate; and Joint Tenancy (aka Joint Tenants with Rights of Survivorship), where their share disappears and the survivor becomes the sole owner. This can be risky in some cases however, if for example the new joint owner is sued or becomes divorced, and capital gains will be triggered on taxable properties.
The third box is for everything that didn’t ‘fit’ into the first two boxes. This box is the deceased’s estate, directed by their will, and managed by their executor. Anything in this box will be subject to probate (Estate Administration Tax) as well as creditor claims.
Planning tip: be sure no assets end up in more than one box, or there will be problems!
As a Financial Planning professional, Del works primarily with successful business owners, professionals, and retirees. His unique process will Organize, Simplify, and Optimize your financial life. If your current “plan” is actually just a collection of investments but no actual plan reach out to Del for a better perspective.
