This is the third blog posts in a series of articles on estate planning. In our first post we talked about the importance of wills in light of pop superstar Prince’s passing. Last week we discussed 3 costly estate planning mistakes to avoid. Good estate planning can help minimize taxes owing to the taxman and help ensure probate goes smoothly. On the other hand, bad estate planning can be costly and lead to disagreements amongst loved ones. Let’s take a look at more costly estate planning mistakes to avoid.
Mistake #1: Not Setting Up a Trust
Personal finances are a private matter. You wouldn’t want anyone to be able to find out how much money you had when you passed away. But that’s exactly what happens when you pass away and your executor obtains probate – your will becomes a public document on display for the world to see. How do you avoid this? By establishing a living trust or making provisions for a testamentary trust in your will. A testamentary trust is one created on the day a person passes. This can help keep your last wishes private and avoid hurt feelings among loved ones. A living trust is similar to a will – it’s a legal title to property held by one party for the benefit for another. However unlike a will a trust is private and a trustee administers the assets within it. A trust has beneficiaries and allows your assets to bypass probate so they it won’t form a part of your estate upon death. The trust documents states who is entitled to your assets and how your heirs are to receive them.
It is not a must that everyone should have or make provisions for a trust, it all depends on the number and types of assets you have. As your net worth increases it might be something worth considering. Another big advantage of trusts is also its ability to help you minimize taxes both while alive and upon passing.
Mistake #2: Not Minimizing Probate Fees
They say two things are certain in life: death and taxes. You pay income tax on your paycheque, consumption tax on goods and services you buy and a gas tax when filling up at the pumps (see a trend emerging?). When you pass away, the taxman isn’t finished. He takes a share of your estate in the form of probate fees. The amount of probate fees your estate pays depends on the size on your estate and the province in which you live in. How do you avoid probate fees? Certain assets like the family home can include rights of survivorship. The assets can pass directly to your spouse while avoiding the entire probate process.
It is a great idea to periodically asses your entire estate by working with a financial planner & accountant to assess your potential estate taxes and design strategies to minimize them should you pass away. Your loved ones will thank you for it because not only would this save time, it saves your estate taxes.
Mistake #3: Not Updating Your Will
Wills aren’t set in stone. Your wishes five years ago may no longer apply today. Whenever a major life event happens like the birth of a child or the purchase of a major asset like a home or cottage takes place, you should update your will. Not keeping your will up to date can be almost as bad as not having any will at all. How will your youngest child feel to be completely left out the will because you never got around to updating it? You could have intended to update your will, but if you never actually did it, then there’s nothing they can do about it. Avoid this unpleasant situation in the first place and review your will every couple years to make sure your wishes still apply.
These were three more costly estate planning mistakes you can make. Need some help with estate planning? We have a team of experts who can help you navigate the sometimes complex waters of estate planning. Feel free to contact our office today.