Guide to Estate Planning in Canada in 2024

Guide to Estate Planning in Canada in 2024

This comprehensive guide to estate planning in Canada will help you arrange the transfer of your assets upon incapacity or death. A well-thought-out estate plan ensures that your loved ones will be provided for after your death.

In estate planning, you’ll determine how to distribute your assets, name beneficiaries, and appoint an executor. You’ll also consider issues like taxes, probate fees, and long-term care costs.

Proper planning can help minimize taxes and expenses while avoiding family disputes. Getting professional help from an estate planner or will lawyer ensures your estate is handled legally and efficiently.

This comprehensive guide to estate planning in Canada will walk you through the key steps you should know. You’ll also get a checklist that’ll make the process less stressful.

Why do I need an estate plan?

A proper estate plan is essential to ensure your assets are handled as you wish when you pass away. This option is better than leaving it up to chance or the courts.

For example, music icon Prince died in 2016 without a will, resulting in a complex legal battle as various parties fought over control of his multi-million dollar assets and intellectual property.

After years of litigation, Prince’s six sibling heirs finally settled. However, nearly $6 million in legal fees were spent fighting in court when a clearly drafted will could have avoided this.

When you prepare an estate plan, you can name your beneficiaries and executors according to your precise wishes. You can establish trusts to ensure the future well-being of any minor children and appoint guardians for them.

Proper planning can also help reduce taxes owed by your estate and avoid unnecessary probate fees. You can rest easy knowing your assets and loved ones are protected by creating a customized plan with this guide to estate planning in Canada.

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How does estate planning in Canada work?

Estate planning involves the preparation required to efficiently transfer your assets upon your death or if you become incapacitated. Following a thorough guide to estate planning in Canada ensures the quick, orderly, and cost-effective transfer of assets to beneficiaries while minimizing disputes. It also provides for any dependents and helps reduce taxes your estate owes.

The main components of an estate plan include:

  • Will: Legal document detailing how you wish your assets distributed and naming an estate executor.
  • Beneficiaries: people or organizations named to inherit your estate.
  • Executor: A person appointed to oversee the execution of your will and settlement of your estate after you pass away.
  • Guardians: Individuals named to care for any minor children.
  • Trusts: Arrangements allowing others to manage assets on behalf of your beneficiaries.
  • Powers of Attorney: Legal authorizations for someone to handle finances/property (financial power of attorney) or health/medical decisions (medical power of attorney) if you become incapacitated.
  • Letter of Instructions: Document providing guidance on your wishes and critical information survivors will need.

Guide to estate planning in Canada costs

The main costs associated with estate planning include:

  • Lawyer fees: For preparing wills, trusts, powers of attorney, and other documents. Ranges from $500 – $5,000+, depending on complexity.
  • Probate fees: Paid to the court to process a will through probate. Typically, 0.5-1.5% of assets pass through probate.
  • Executor fees: If you hire a professional executor, they typically charge 2-5% of estate value. Family members may charge less.
  • Funeral expenses: The cost for your memorial service, burial plot, cremation, etc., is $2,000 to $15,000 on average. The actual price depends on your province.
  • Estate sale/cleanup: If needed, your executor may incur costs for estate sales and home cleanouts.
  • Accounting fees: Your executor may need to work with an accountant to file estate tax returns.

Having a structured guide to estate planning in Canada can help you reduce costs and fees wherever possible. It can help you choose affordable advisors and minimize assets passing through probate.

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Guide to estate planning checklist

Having a checklist helps ensure all aspects of your estate are addressed for a thorough plan tailored to your situation. You can use our estate planning checklist below to guide your process or download a PDF copy:

1. Leave a will

A last will and testament is the fundamental document in your estate plan. In it, you should lay out your wishes to distribute your assets when you pass away. Carefully name all beneficiaries who should inherit either a percentage of your overall estate or particular possessions.

Choose a trusted, organized executor to oversee settling your estate. Outline any funeral or burial preferences so your wishes can be followed.

Store the original will securely, provide copies to your executor and beneficiaries, and update it whenever major life events occur. You can find some great will providers in Canada to help with this process.

2. Name beneficiaries

It would help if you thoughtfully designated beneficiaries on insurance policies and registered accounts like RRSPs and TFSAs. Naming primary and contingent beneficiaries ensures the assets transfer directly to heirs upon your death, avoiding probate.

You can specify individual beneficiaries for insurance policies to receive that particular payout if desired. Revisit beneficiary designations periodically and update them if situations change over time.

3. Plan your funeral

Take time to thoughtfully plan your funeral arrangements and clearly communicate your wishes. Decide on burial vs. cremation and pick a funeral home to use.

Prepaying arrangements can ease the family’s burden. Share organ donation preferences and pertinent medical history. Providing detailed written plans to your executor and family will give them clear direction on how to follow your preferences.

4. Prepay your funeral

Prepaying funeral costs locks in set rates and lifts the burden off family members when the time comes. Research prices from reputable local funeral homes to find the best value.

You can fund prepaid arrangements over time or purchase life insurance designed to cover the costs. Keep paperwork handy so your family can easily access the prepayment when needed.

5. Buy life insurance

Sufficient life insurance provides liquidity to pay off debts, cover taxes and fees, and distribute full inheritances. Review existing policies to confirm payouts will adequately meet projected needs.

Purchase any additional required coverage now while still insurable. Carefully name individual beneficiaries on each policy, so proceeds transfer outside of probate as you intend.

6. Give gifts before death

Lifetime gifting is an effective way to shrink the size of your taxable estate. Irrevocable gifts made more than 5 years before death remove assets from your estate.

Maximize annual tax-free gift amounts to each recipient. Maintain detailed documentation to prove when sizable gifts were given. This reduces probate costs and future estate taxes.

7. Spend unsheltered assets first

Strategically spend down assets not sheltered in trusts to minimize estate taxes when you pass. Pay off mortgages, debts, lines of credit, and charitable pledges while still living.

Limit contributing additional funds to unsheltered, taxable investment accounts. Make donations from accounts not protected by your estate plan to reduce their value.

8. Use final RRSP contributions

Making a final RRSP contribution in the year you pass away reduces the value of assets in your estate since it is paid with after-tax dollars.

This provides a last tax deduction on your final return filed after death. Ensure you have sufficient RRSP contribution room available and communicate the plan to your executor.

9. Buy permanent life insurance

Permanent life insurance builds up a cash value in addition to paying a death benefit, functioning as an investment and estate planning tool. It requires lifelong premium payments.

Research different types like whole life, universal, and variable coverage to understand the options. It can provide tax-sheltered savings while also creating liquidity for your heirs.

10. Transfer property to joint ownership

Joint ownership simplifies asset transfer upon death. Property held in joint tenancy with the right of survivorship automatically passes to the surviving co-owner, avoiding probate.

Add joint owners to homes, vehicles, bank accounts, and investments where appropriate. Understand the potential tax implications before transferring joint ownership.

11. Set up a trust(s)

Trusts control asset distribution outside of probate and can minimize estate taxes. Transfer assets into irrevocable trusts over time. Professionally managed trusts like living trusts, marital trusts, and credit shelter trusts each have specific purposes. Trust assets also avoid public probate disclosure.

12. Make incapacity arrangements

Grant power of attorney to trusted individuals for your finances and healthcare to make decisions if ever incapacitated. A POA allows others to take over your affairs if you become unable to do so. Have agreements professionally drawn up and notarized. Share copies with both primary and alternate POA designees.

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Elements of an estate plan

In this section of our guide to estate planning in Canada, let’s look at the key elements that comprise a complete estate plan in more detail:

Last will and testament

Your will is the legal document detailing how you want your estate distributed upon death. It should name beneficiaries to inherit your assets and appoint an executor to settle your affairs.

You can leave your entire estate to your spouse. Or you can specify certain assets for other beneficiaries like children or charities.

Wills avoid the provincial intestacy laws, so your estate is handled as you wish. You should update your will any time a significant life event occurs, like a marriage, divorce, or birth of a child.

Beneficiaries

Beneficiaries are the individuals or organizations named in your will to inherit your assets. Typical beneficiaries include:

  • Spouse
  • Children/Grandchildren
  • Parents/Siblings
  • Other relatives
  • Friends
  • Charities

You can leave your whole estate to one beneficiary, like your spouse. Or you can specify certain assets for each person, like leaving your home to your children.

Jointly held property with rights of survivorship automatically passes to the surviving owner outside of probate.

Executor

Your will should name an executor (also called a liquidator in Quebec) to carry out your wishes and oversee settling your estate. Responsibilities include:

  • Filing your will with the probate court
  • Notifying beneficiaries
  • Addressing any debts or taxes
  • Cancelling services, memberships, etc.
  • Selling assets and property if required
  • Distributing inheritances to beneficiaries

Choose a trusted, responsible individual like a spouse, adult child, friend, or professional executor. They should be detail-oriented to address all estate settlement tasks.

Letter of instructions

While not legally binding, a letter of instructions provides essential guidance for your executor and family on carrying out your final wishes. It can include:

  • Funeral/burial instructions
  • Location of important documents
  • Details of bank accounts, bills, debts, etc.
  • Contact info for legal/financial advisors
  • Digital asset/online account info
  • Other assets/liabilities not in your will
  • Specific personal/household items to distribute to loved ones

Keeping all this information in one place helps your executor efficiently settle your estate. Store the letter with your will or provide a copy to your executor.

Powers of attorney

Power of attorney documents authorize someone to make decisions on your behalf if you become incapacitated. There are two types:

  • Financial power of attorney: If you can’t, let your appointed representative manage financial and property matters.
  • Medical power of attorney: Gives authority to a designated person to make healthcare choices if you cannot.

These legal authorizations ensure someone you trust can handle your affairs if you become unable to do so yourself. The representative should be carefully chosen as they wield significant control over your finances and medical treatment.

Trusts

Trusts involve transferring control of assets to a trustee who manages them on behalf of your beneficiaries. They can be helpful to estate planning tools for:

  • Avoiding probate fees – Assets in a trust don’t pass through probate.
  • Managing inheritances for minors – Set terms for distributing assets to beneficiaries under 18.
  • Tax minimization – Proper trust structuring can help reduce capital gains taxes.
  • Asset protection – Can shield assets from creditors.
  • Privacy – Trust assets and distributions are not public like assets transferred by a will.

Common trusts used in estate plans include living trusts, marital trusts, charitable trusts, and special needs trusts. An estate planning lawyer can help you establish the appropriate trusts.

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What are the essential documents in an estate plan?

Here are some of the most common documents involved in estate planning and what they entail:

  • Last Will and Testament: A legally binding document dictating how you wish your estate to be handled. Signed with witnesses.
  • Power of Attorney: Authorizes someone to manage your affairs if you’re incapacitated. There are two types: financial and medical.
  • Living Trust: Trust taking effect while you’re alive to manage assets outside of probate.
  • Advance Healthcare Directive: Provides guidelines for medical treatment if you can’t make decisions yourself.
  • Healthcare Power of Attorney: Names someone to make medical choices if you’re incapacitated.
  • Letter of Instructions: Provides guidance to the executor on handling your estate and final wishes.
  • List of Accounts and Passwords: Document to help your executor identify and access all your online accounts.
  • Funeral and Burial Plans: Specify your wishes on organ donation, burial vs. cremation, and funeral arrangements.

Your estate planning lawyer can help prepare and file these documents. It’s critical to store your will and other estate papers in a secure but accessible location your family knows.

Choosing an executor

Selecting the right executor is an important estate planning decision. Consider the following when choosing an executor:

  • Responsibility: Are they organized and comfortable handling financial/legal matters?
  • Impartiality: Will they manage the process reasonably and distribute assets according to your wishes?
  • Proximity: Do they reside in the same province as you to handle estate administration easily?
  • Age: Will they be around after you and capable of fulfilling duties?
  • Skill: Do they have the financial/legal aptitude to efficiently settle an estate?
  • Fee structure: If hiring a professional executor, what are their fees?

Ideally, pick an executor responsible, impartial, and skilled with finances/legal matters. Discuss the role with them before finalizing your will.

You can name alternative or successor executors in case your first choice cannot serve when the time comes. Your estate lawyer can help you make the proper executor selection.

Understanding probate in Canada

You must go through the probate process to have your will validated and your executor given the legal authority to settle your estate. It involves:

  • Filing your will with the probate court
  • The court reviewing your will and any claims against the estate
  • The court officially appoints your executor if your will is accepted
  • The executor receiving legal authority to distribute your assets to beneficiaries

Not all assets pass through probate, though. Joint accounts, pensions with named beneficiaries, life insurance payouts, and assets in a living trust avoid probate.

Your executor handles the probate process. Legal fees vary by province but often depend on the value of assets passing through probate. Expect the process to take a few months.

How to avoid probate

Many aim to avoid the probate process since probate can entail court fees and delays. Here are some ways to bypass probate:

  • Joint accounts – Assets like bank accounts and property held jointly with the right of survivorship automatically pass to the surviving owner.
  • Named beneficiaries – Life insurance and registered accounts (RRSPs/TFSAs) are transferred directly to named beneficiaries.
  • Living trusts – Setting up a trust and transferring assets into it keeps them out of probate.
  • Gifts before death – You can gift assets before you pass away to reduce the value of your estate.
  • Payable/transfer on death accounts – Allows you to name beneficiaries for accounts that can receive funds outside of probate.

Consult an estate planning lawyer for the most effective probate avoidance strategies for your situation. There are costs associated with methods like trusts that should be considered.

Estate planning for non-Canadians

If you are a non-Canadian planning your estate, there are some important considerations:

  • Governing law: Determine whether provincial or home country laws govern your estate. Get clarity on legal procedures.
  • Tax exposure: Understand tax implications in Canada and your home country, depending on where your assets/beneficiaries are situated.
  • Probate process: Learn how any assets in Canada will be handled. Your executor must be eligible to act in Canada if probate is required.
  • Asset location: Carefully plan how assets will transfer, especially those located abroad. If beneficiaries are overseas, funds face costly wiring fees and exchange rates.
  • Citizenship: Probate costs may be higher in some provinces for non-Canadians.
  • Language: Documents should be drafted in your native language or clearly translated if your beneficiaries speak a different language.

Conclusion

Proper estate planning ensures your wishes are fulfilled, and heirs are cared for when you pass away. This guide to estate planning in Canada can help you understand the key steps and documents needed for an effective estate plan tailored to your unique situation.

You can find an experienced estate planning lawyer to help you find strategies to efficiently transfer assets to beneficiaries. They’ll also show you how to minimize taxes and fees.

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FAQs about estate planning in Canada

Who should you choose as your estate executor?

Choose a responsible, organized individual comfortable with financial and legal matters. Often, a spouse, adult child, close friend, or a professional executor service.

Does estate planning have to be complicated and expensive?

No. Basic estate planning requires a proper will and assigning beneficiaries/executors. More complex planning with extensive trusts can increase costs.

What documents should be included in your estate plan?

At a minimum, have an up-to-date will, powers of attorney, letter of instructions, and funeral/burial instructions. Other documents, like trusts, depend on your specific situation.

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December 7, 2023
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