Have you ever wondered what happens to your
assets when you get sick or pass away in canada?
Or How long does it take to dispute
money from a deceased person
Or what do you need to do in order to control
who gets what part of your estate?
So in this video,
I will go over the basics of Estate Planning
in Canada so you don’t have to pay
our governement 50% of your saving!
Hey welcome back, this is Thomas!
here to help Canadians to make better choices
on Retirement, Wealth, and Insurance
my goal is to make sure
you can take 1 or 2 ideas home and
start making smarter financial decisions today
If you found values in this video,
Consider subscribing!
so you will never miss any of my videos.
Let’s jump into it!
First,
let’s have a closer look at what estate planning is.
Estate planning means passing one’s wealth
from one generation to the next,
no matter how small or big your wealth is,
everyone with some assets should do this.
Estate planning deals with the important question
of what happens if someone passes away...
who will get the assets?
Does it go to the spouse,
the children,
some kind of charity?
What part of the wealth will be
own by the business?
What will be kept as memories
and what will be disposed of?
And especially in canada,
If we don’t think about estate planning
while we are alive,
then there is no clarity,
and disputes will arise.
And our governement will step in and could
potentailly take 50% of your asset away.
So indeed,
thinking about our death and what happens after it
isn’t a very comfortable topic.
But think about it this way:
we work hard all life,
so we should be in control of what happens after.
Plus,
when we pass away,
our family will already be in grief.
Leaving all the estate planning to them
will make things even harder for them.
In many cases,
it can even divide a family if things are unclear.
So,
take care of estate planing –
even if you have only one property.
If you need help,
an estate planner can show you
how to structure your estate planning.
Now,
keep in mind,
I’m not a lawyer.
Everything I share is for informational purposes.
Talk to a lawyer to create a will
or power of attorney.
Estate planning is especially important for
business owners or high-networth individuals
It’s important because it gives everyone clear rules
on what’s going to happen with your assets
once you are gone.
Plus,
proper estate planning protects your family –
I will get to that in a moment.
And keep in mind,
even if you own only one property
or have smaller assets,
estate planning is still important. If things go wrong,
your assets could go back to the government...
or become a financial burden to your family.
Keep watching to find out
how to avoid a negative outcome like that.
Okay, so what exactly happens
if someone passes away?
When someone passes away,
then they will enter the probate phase.
Probating is a process where the state
checks if the deceased’s will is valid.
If you want to know more about
what costs await you after your death,
then check my video on this topic
Anyway,
in the probate phase,
there are a lot of things to do.
Debt has to be cleared,
the assets have to be distributed, etc.
and more importantly,
you have to cut a cheque to the governement
before you can claim the asset.
If everything goes smoothly,
this process usually takes 6-18 months.
However, if lawsuits are going on,
or any other issues occur,
then probating can take up to 3-4 years.
I talked about the fees and other costs
involved in the death in my other video.
But for clarity, let me state them again.
The two biggest fees involved in canada are:
The Probate fee
This is very different from province to province,
in B.C. for example,
it’s 1.4% - this can add up to huge fees
Taxes of the passed away person
The thing is,
if a Canadian citizen dies,
everything that person owned will be treated
as if this person sold all their belongings this year.
This can cause a huge tax influx for the family!
For example:
real estates other than your principle residence.
Your RRSP or RRIF accounts.
Let say if you still have $500,000 in the
RRSP/RRIF accounts and no spouse to roll over.
Then the whole $500,000 will be consider your income.
And therefore 50% will go to the cra
That’s why estate planning is so important
to reduce stress for the remaining family.
Now that you know how important estate planning is,
let’s look at what exactly you can do.
What makes estate planning so complicated
and daunting is that it’s different in each province.
So everything I will talk about in
the next section is only an overview.
If you want more videos about estate planning,
let me know in the comments.
Anyway,
here are the things for you to consider
when planning for your estate in canada:
Let’s start off with an easy one,
Your online passwords.
It’s a good idea to keep a record
of all your passwords.
You can either write them down somewhere secure
or use programs like One Password.
Just make sure they are stored somewhere so
your family can access them after you passed away.
Also,
make sure to address what you want to happen to
your social media accounts after you are gone.
Should they be taken down or kept as a memory?
Making decisions like this on their own
can be stressful for your family,
so reduce stress like this early
by being open about it.
Next we have tax documents
and insurance statement.
Keep important documents like this in one place,
so your family can access them.
You might also want to have a card with
important phone numbers and contacts.
Also don’t put these things in a bank vault because
Your family cannot access to them
unless there have clear instructions.
Your will is a huge factor
when it comes to estate planning.
In my opinion,
everyone in canada should have a will.
But what exactly is it for?
Well,
it’s a document with instructions for your family to follow.
When you create your will,
make it clear to avoid any arguments.
Also,
be aware that you have to name your executor,
the person who will gather the beneficiaries
and distribute the assets.
Usually people will name the beneficiary
as the exectuor as well for cost purpose.
the executor is a serious task,
if they make mistakes
other family members could sue them,
so pick someone ready for the task.
Inside the will,
you should have funeral instructions,
instructions on what happens to your assets,
and even guardian choices
for minors and disabled members.
Btw,
in case you are thinking that you can get by
without creating a will,
let me give you an example of why you want one:
If you are based in Ontario,
for example,
and you don’t have any will,
then only the first $200K of your assets
go to your spouse,
the rest is split within the family.
This can be a serious issue if
you have kids under the age of 18.
In some cases,
the family has to document
all expenses of the kids moving forward,
to get or keep the money.
But even if your kids are over the age of 18,
there are still risks.
Your kids suddenly get a huge sum of money,
and there is no control
over what decisions they make.
In many cases,
they are wasting the opportunities.
A proper,
clear will helps everyone to avoid
tricky situations like these.
Also keep in mind that even with a will,
there are laws that
you can’t just leave people out.
Talk to an estate professional in your province
to find out why.
While you definitely should have a will,
it’s also not a magical tool that saves everything.
Plus,
after probation,
it becomes a public document –
so don’t leave unpleasant comments
about family members.
Another big part of estate planning is
the power of attorney.
This is very important in case you cannot
make decisions due to sickness or other reasons.
In such a case,
the power of attorney allows you to
pick someone to act in your name.
There are options to make it temporary,
when you out of the country,
for example.
Family members will be able to
pay your bills for you,
collect payouts,
and make other basic financial decisions for you.
There are also options so family members
can make health care decisions for you.
If you do that,
definitely pick someone who
deeply cares about you.
Regularly,
a Power of Attorney needs two witnesses
to be legal and formal
but some institutions have their own rules.
Depending on your location,
you might need two PoA,
one for health matters and one for financials.
It’s also a good idea to have a backup
in case the first PoA passes away
or can’t continue the role.
Naming your beneficiaries makes it
possible to bypass probate fees,
so it’s a clever idea.
For example,
when you open a rrsp or tfsa account in the banks,
in most of the time,
they will not let you assign a beneificary
so be aware of that.
When you pass away,
most likely your family has to pay final expenes,
probate fees,
and the capital gain tax for you
before they can inherit your asset.
But if they can’t access your estate
it will be hard to pay off.
A delay can cause more fees with the CRA…
This is where life insurance comes into play.
Insurance money gets paid out right away tax free,
this can help your family to pay fees immediately.
Also because life insurance has privacy protection,
so therefore it will go straight into the hands of
beneficiaries without any interference or delay
Another component of estate planning are trusts.
This is a complicated topic but it can be
very effective for big corporations,
real estate investors,
or people with a huge portfolio.
It provides a tax-saving advantage,
estate freezes,
and can even be used as a retirement income stream
for yourself while younger family members work corporate.
As you can see,
estate planning is a topic that goes deep.
This is just the tip of the iceberg!
if you like me to further in details
or if you have any questions,
Let me know in the comment below!
And I hope you get 1 or 2 ideas out of it!
Remember,
the earlier you plan, the less you have to pay!
This is Thomas,