Estate Planning Basics

Having an estate plan is an essential part of managing your money. Do you have one?

No one ever likes to talk about death, but today we’re going for it. It may not be your chosen topic to discuss at the dinner table but I’d like to suggest you do just that. Preparing your family for the worst case scenario shouldn’t be seen as a negative. You’re doing what you can now to ensure they are protected and ready for anything.

When you’re young (and you know, invincible) the last thing on your mind is what would happen to your assets if you passed away. This is especially true when you may not have much in the way of assets. But just because you’re in the building stage, doesn’t mean you get a pass on planning. You may not need a full estate plan, especially if you don’t have children, but there are advantages of getting a head start. For example, life insurance will be cheaper when you’re young (more on that in a minute).

Knowledge is Power

Understanding estate planning can also help if you have ageing parents who might need a nudge to get their affairs in order. Being able to ask them the right questions and walk them through the process will make your life easier when they pass away.

And if you already have your own children; it’s vital you get a plan in place ASAP.

At this point you might be wondering what is involved in an estate plan, and how do you get one? There are three main components. I’ll break those down and throw in a few bonus tips that will help.

The Will

This is the big one, and you want (need) to make sure it is done properly. Sure you can buy a ‘Write your own Will’ kit off the internet but just don’t ok? I really recommend having a lawyer take care of this for you, no matter how simple you think it might be.

The last thing you want is for your family to be arguing over non-specific language in your will after you’re gone, and this happens more often than you would think. No matter how close you think your children may be, conflicts over an estate happen. The one way you can control things from the grave (creepy but true) is by having a clear and concise Will.

Yes, it’s going to cost you to have a lawyer prepare your Will, but I promise you it is worth it.

Your Will is where you indicate who gets what of your assets (investments, property, and possessions) and also where you will appoint a guardian to any underage children. Have these conversations before you meet with a lawyer and make sure that people who are getting assigned a job are informed. Sure, that scene in ‘Manchester by the Sea’ where Casey Affleck finds out his brother chose him to take care of his son might have been funny in a dark and painful sort of way but that’s a movie. Real life people need some forewarning. Most estate lawyers will provide you with a questionnaire or worksheet to help you plan all things out before you actually meet.

Enduring Power of Attorney

It makes sense to get a Power of Attorney done while you are getting your Will done.

An enduring POA allows you to choose someone to make decisions about your finances and property when you are no longer able to make such decisions yourself. Don’t worry about hurting anyone’s feelings here. You don’t have to choose someone just because they are family. This is not an easy job for anyone, and it could be a long-term commitment.

You want to choose someone who will make the decisions you would make if you were still able to. If you are married it will likely be your spouse, but it can also be a family member or a close friend.

Personal Directive (Living Will)

A personal directive is similar to a POA in that it gives someone the decision making power when you are no longer able, but the PD covers decisions regarding your health and personal well-being. This includes such things as medical treatment, where and how you will live, and what happens to your children.

Often it makes sense to choose the same person for your POA and PD, but there’s no rule they need to be the same. You know your people. Do what makes the most sense for your situation, and remember, you can always change your mind in the future.

Life Insurance

As I mentioned above, life insurance is better to get when you are young and healthy. It will be cheaper. Any time you have dependents or debts you should consider getting life insurance.

The amount of coverage you get will depend on those factors. You will want to ensure your debts are covered and your loved ones can continue to live comfortably if you die suddenly. The last thing you want is for your spouse to be forced back to work a week after your death because they can’t afford not to.

If all your debts are paid up, and you already have enough assets saved up to ensure any potential beneficiaries are taken care of then insurance isn’t as necessary. However, if that’s not the case, then it becomes almost an essential.

My advice is to get a term insurance policy for an amount that will cover the cost of any outstanding debts (mortgage, loans, credit cards, etc.), the cost of your funeral, and enough additional money for your spouse to live on and raise any children you may have.

Slight side note here…when you are getting a mortgage your bank will try to sell you mortgage insurance; don’t do it. It’s actually kind of a scam, and I’ve talked about it more here. Term life insurance is the way to go.

Additional Tips

Ok, those are the big three important documents that you want to make sure you have in place. Now I’m going to include a few extra tips that aren’t exactly estate planning per se but will make things easier for your loved ones.

Account Authorization

Make sure your spouse is listed as an account holder on any accounts/policies you have. At minimum, they should have permission to make decisions. For example, your spouse should be listed on your utility, phone, and cable bills to make any necessary changes if you’re not around. If you don’t have authorization on an account and your spouse has passed away you may have to jump through some ridiculous hoops to get answers and make any changes to the account.

Copies of Important Documents

Keep a file with copies of your relevant documents. This would include insurance policies, bank and investment statements, birth certificates, etc. Then tell your loved ones where it is.

If you are the executor of an estate, it can be a real task trying to hunt down where the deceased had money. I like to keep things simple myself but that’s not always the case, some people are all about not keeping all their eggs in one basket and have bank accounts and/or investment accounts at numerous different institutions.

Beneficiaries

Make sure the beneficiaries listed in your will match up with the beneficiaries you have listed on your insurance and investment accounts to avoid any confusion. And keep those beneficiaries updated! There are rules in place for this (life insurance trumps Will but Will trumps investment accounts), but it’s an easy change to make and helps avoid any conflict.

Imagine how you would feel if you thought you were the beneficiary on a large RRSP account only to find out the Will specifies otherwise. Ouch.

Pension Plans

If you are lucky enough to have a pension, make sure you (and your spouse) know your pension options. When you are retiring, you will be given different options on how and when your pension is paid out. And if you have a spouse, you will have additional options that will state what happens to your pension in the event of your death. You might get a higher monthly amount if you choose an option where your spouse gets a reduced pension with no guarantee after your death but that might not make sense in the long run. Taking the slightly smaller pension now could ensure your spouse still received payments after your death.

Online Account Information

So much of our lives are online. Think about how many of your banking, investing, billing transactions are done online. Pretty much all of them, right?

It can be helpful to keep a record of usernames/passwords that can be accessed to shut down online services. I’m sure if you take a look through your credit card statement you likely have a few online services that you are paying for (Netflix, Spotify, etc.) and those would all need to be cancelled. There are also things like email accounts, online banking, and social media accounts that may need to be accessed for monitoring or to shut them down.

Pets

If you have pets, you’ll want to make sure you choose someone to take care of them. You can even create a trust account to pay for their care if you’re worried about putting that burden on someone.

Organ Donation

Do you want to be an organ donor? If so you’ll want to make sure you’ve discussed this with your family. It’s important for them to know your choice as they will be the one to make the ultimate decision.  You can sign the back of your Alberta Health Care Card (if you live here), register online, or register the next time you get your driver’s license renewed at a registry.

Hopefully this has motivated you to consider your estate planning. I’d also like to recommend a resource for getting you started on this process. My friend Chelsea Brennan has created an ‘Ice Case of Emergency Binder’ that covers many of these topics and allows you to create a template to prepare your family for the worst. It’s an incredibly valuable and helpful resource.

Having an estate plan is an essential part of managing your money. Do you have one?
This post was proofread by Grammarly.

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