So, How Do You Keep Wealth in Your Family?

Have you ever wondered what happens to your hard-earned assets when you become an angel?

The average person spends 40 years of their life working hard to build a legacy for themselves and their family. In those 40 years many plan for a dream home, kids’ education, retirement & vacations.

What often goes unplanned for is one’s estate.

Have you ever stopped to consider what will happen to all of your wealth? If you have any desire to keep the wealth within your family (most of us do), estate planning is essential. 

What is estate planning?

Estate planning is the process of planning for the transfer of your assets (your stuff) upon death. All of the assets that you own make up your estate. This includes your property, savings account, investments, cars, tennis racket and Pokémon cards (just kidding – not really).

The main objective of estate planning is to ensure all of your assets are successfully transferred to your family and beneficiaries when you pass away – all the while, planning for and managing the taxes that will be owed. Without adequate planning you run the risk of owing more tax than available cash and your assets being owned by the government with your family possibly receiving nothing.

When you pass away, all of your assets are frozen and become your estate. 

Before your estate can be distributed to your family there are several taxes and fees that must be paid. If your estate is unable to pay the taxes and fees, the government has the ability to seize and sell your assets to obtain what is owed. Uh… excuse me? Yes, it’s true. 

If you want control over what happens to your assets or you desire your wealth to be kept within your family, proper estate planning is key and it’s never too early to start. 

What do I need in my estate plan?

Your estate plan will have various components, but one key element is a will. Your will includes your wishes (instructions) of how you want your assets to be distributed. If you have minor children, you should also assign guardians to ensure their proper care. You can also set up a trust to further protect your assets and their distribution (more on that in future posts).

You’ll name an executor of your estate – this person will oversee the entire process when you pass away.

Your plan should include adequate life insurance to cover the taxes and fees associated with your estate. This could be separate from the other policies you have (designed for this specific use). This ensures all fees are paid and allows your assets to be transferred intact, to your family and beneficiaries in accordance with your will. 

How much does the estate process cost?

This varies based upon professional fees, the length of time the process takes to finalize in court and the amount of your total assets. Your estate is also subject to Estate Administration Tax or probate fees.

To calculate your probate fee cost, you want to first get the total value of your estate. Next, you will pay $5 per $1,000 of the estate’s asset up to the first $50,000, plus $15 per $1,000 of the estate’s asset over $50,000. For example, if your total estate is $1,000,000, you would owe $14,500 in Estate Administration Tax (insert eye roll here).

How do I or my family pay the probate fees? 

Upon death, your assets are frozen until an estate executor is appointed. At that point probate fees are paid with assets at your executor’s discretion. One way to leave more to your family is by designating beneficiaries, whenever possible. You can designate beneficiaries on RRSPs, TFSAs, segregated fund accounts and a life insurance policy.

Seriously, one of the best strategies to transfer wealth is through life insurance.

The proceeds of life insurance policy bypass the probate process and your beneficiary inherits the proceeds tax free. Then they can use the inheritance to cover the Estate Administration Tax, taxes upon death, any final expenses (medical, funeral, etc.), legal fees and professional fees, etc. 

How much life insurance do I need?

Well, what’s important to you? This needs a deeper conversation. You should also weigh the value of your current assets and those you wish to attain in the future. The earlier you plan this process, the more cost effective it is.

If you take the time to create an estate plan early, you’ll leave a larger inheritance to your loved ones and minimize the tax collected by the government.