Creating Your Estate Plan
Typically, an estate plan need not require a substantial commitment of time or money. Most often, an estate plan can be constructed following six simple steps.
Step 1: Prepare an Inventory of Your Assets and Liabilities
This information is necessary for various elements of your estate plan such as tax minimization and Will planning. A list follows.
Assets that might be included are the following:
List all liabilities you currently have:
- your home and vacation property
- your registered (RSP or RIF) and non-registered investments
- bank accounts
- the face value of annuities and insurance policies
- personal property (i.e. cars, jewelry, art, etc.)
- pension assets (i.e. membership in a company pension plan.)
- the current value of any business you own
In your inventory you should also document where the following items are located:
- mortgage on your home and vacation property
- investment related debt
- credit cards
- other personal obligations (i.e. family support)
To assist you with the completion of your inventory of assets and liabilities and other important documents, contact one of our advisors for a copy of the RBC Investments publication, The Family Inventory.
- your original Will(s) and Power of Attorney/Mandate
- birth and marriage certificates
- marriage contracts
- insurance policies
- real estate deeds
- location of safety deposit boxes
- details of pre-planned funeral arrangements
- list of your professional advisors
- location of trust documents
- names and addresses of executor(s)/trustee(s) and beneficiaries of your Will
- names and addresses of guardians/tutors for children (if not set out in your Will)
Step 2: Define your estate planning objectives
There are a multitude of potential estate objectives that might be considered in the development of an individual estate plan. Individuals must consider both personal and financial objectives that they may wish to achieve with their plan. While objectives will vary between individuals, here are some of the core questions that must be answered in the determination of your objectives.
a) Who will the beneficiaries of the estate be?
b) What impact will the estate plan have on your family?
c) How long do you intend to provide support for your immediate family?
d) Are there significant family assets that will need to be addressed?
e) Is the minimizing of income tax and probate taxes important?
f) Do you want your beneficiaries to receive their inheritance immediately or at some future date?
g) Do you wish to leave any portion of your estate to charities?
Step 3: Evaluate your objectives based on your current situation
Once you have clearly defined your estate objectives, the next step is to determine how your objectives can be achieved based on your current financial position. In conjunction with your objectives, you will need to consider other factors such as inflation, tax liabilities due to the deemed disposition rules and U.S. Estate Tax. The potential tax liabilities that arise at death are discussed in detail later in the publication.
Inflation is a key issue that must be considered with any long-term planning such as retirement or estate planning. While we are currently experiencing a period of relatively low inflation, ignoring its long-term impact could result in significant hardship for your surviving heirs. Even a modest rate of annual inflation can, over a period of time, significantly reduce a beneficiary's spending power.
Step 4: Determine which actions are necessary to achieve your objectives
Your action plan will result from the issues identified in your estate evaluation conducted in Step 3. The fundamental component of your action plan will likely be the construction of a Will or, if you currently have a Will, at least a review of the document. A significant number of potential issues can be easily resolved through a well-constructed Will. For example, tax planning opportunities such as the use of testamentary trusts and special provisions for beneficiaries can be addressed. To assist you with this phase of your action plan refer to the RBC Investments publication called Wills and Will Planning.
Other potential elements of your action plan may include changes in the legal ownership of assets (i.e. the use of Joint Tenancy agreements), the purchase of additional insurance to address estate preservation objectives and possibly the gifting of assets prior to death. It should be noted that Joint Tenancy agreements With Right Of Survivorship (JTWROS) do not apply for residents of Quebec.
Step 5: Consult the appropriate advisors to implement the components of your plan
This step is crucial to ensuring that your estate plan is properly implemented. You may require the assistance of several professionals such as: an estates lawyer (or notary in the province of Quebec); an accountant; a financial planner; possibly a trust officer; and your advisor. Make sure that as you seek out these advisors that you select individuals with an expertise in estate planning. Think of it this way. Would you go to your family physician if you required heart surgery? Of course not, you would go to an expert. Why should your estate planning be any different?
Questions you should ask potential estate advisors would include:
- What degrees or relevant designations do you hold?
- How long have you practiced in the estate planning area?
- Have you implemented estate plans of similar complexity to my own?
- What information can I provide to facilitate your implementation of the estate plan and reduce your work time? Remember, you will likely be paying these advisors an hourly fee for their services.
- Is there any charge for an initial consultation? Do I have the option of an hourly fee or a flat rate for your services?
Step 6: Periodically review your plan
You should always be vigilant and cognizant that changes in your personal situation and in legislation may require changes to your overall estate plan. Periodic revisions are a must to ensure that your estate plan is still attaining your objectives that were set in Step 2.