What is estate planning? Most people leave estate distribution to chance because they think only the rich need an estate plan. But the people you leave behind will not necessarily be able to figure things out without your help. If you do not make an estate plan, the government steps in with its own default plan, which doesn't leave any room for your personal wishes, flexibility, or saving on taxes.
What are the three most common estate planning mistakes?
1. Paying Too Much Tax - When a person dies, the Income Tax Act will act as if some of their assets were sold at market value. An estate plan can give away your property and reduce, or altogether eliminate, taxes. Your beneficiaries will thank you.
There are several taxes that apply at death:
Registered Assets (RRSP, RRIF, pensions): 53.53%
Capital Gains (shares, real estate, business equity): 27%
Corporate Holdings (retained earnings, shares, real estate, cash): 47% +
Estate Administration Tax: 1.5%
2. Not Dealing with Charities, Insurance, and Business - There are certain tax-free advantages with charitable donations, insurance or a qualified corporations. An estate plan is not complete without these items being considered or implemented. There are many ways to make strategic charitable giving part of your financial plan, each with its own level of control and tax benefits. Some options provide immediate or future tax deductions while others can provide a continuous income stream.
In the context of an estate plan, the two main ways of donating to a charitable organization are by providing for a gift in your will called a “charitable bequest” or by listing a charity as a beneficiary to a policy or plan (like an insurance policy or an RRSP) outside of your will. The method in which you donate can have tax implications.
3. Not Making A Will - To make sure your wishes for your estate are carried out, you should draw up a will with the help of a legal professional and plan your estate while taking taxes into account. If you don't make a will, one will be made for you based on statutory rules. You will not be able to choose who will administer your estate, who will inherit your money, or how and when the money will be distributed. Also, you will not be able to include any strategies to reduce taxes and increase the money in the hands of your loved ones. Sometimes people will make a will without the help of a lawyer. But wills have stringent legal requirements and your "home will" make not get probated.
If you need to make a will or discuss your estate plan, please get in touch us today.
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