Creating an Estate Plan for 2021
The arrival of a New Year is the time that many of us like to make resolutions. And while that usually means thinking about things that we’d like to do or accomplish while we’re alive, it’s also a good time to think about the legacy that we’d like to leave behind. If you have never thought much about estate planning before – or if it has been some time since you last reviewed what you have in place – there is no time like the start of a fresh New Year to ensure that your wishes are recorded and your family is protected.
Here are a few tips for creating an estate plan for 2021:
Perhaps the most important element in your estate plan is your will. If you die without a will in place, it is called dying “intestate”, and if this happens, it means that the government gets to decide what happens to your estate.
For a will to be effective, it must:
- Clearly state your wishes.
- Who your beneficiaries are and how your estate is to be divided amongst them.
- Be easy to find and verify by the courts.
- Name a guardian for any dependent children.
- State who your executor is.
Power of Attorney
A Power of Attorney (POA) is a document that gives someone you trust the authority to make decisions on your behalf in the event that you become unable or incompetent to make those decisions as a result of an illness or injury.
There are two main types of POA – one that gives authority over financial matters (for example, to access your bank account in order to pay your bills) and one that gives authority over health care decisions. You may appoint separate people for each type of POA, or you may appoint the same person for both.
Without a Power of Attorney, your family members may have to apply to the courts to make these decisions for you.
Although a will and Power of Attorney can be used to convey your wishes, these documents won’t actually protect your family if there is insufficient money or assets left in your estate. To do this, you will need life insurance.
Life insurance can fill a variety of needs at different points in your life. Term life insurance is an inexpensive form of insurance that only lasts for a specific length of time (usually 10 or 20 years). This can be a good option for young couples who would like to make sure that they leave enough behind to pay off the mortgage for their spouse or to cover their children’s education.
Permanent life insurance (such as whole life or universal life) is more expensive but it lasts as long as you continue to pay the premiums. This type of insurance is more appropriate for covering final expenses or using to ensure that your spouse has an income after you die.
Permanent life insurance can also be used for estate equalization purposes. For example, if you have a family cottage and only one of your children is interested in inheriting it but cannot afford to buy the other children out, then an insurance policy could be used to ensure the other children receive the same value of inheritance.
Give it away now
Oftentimes, a parent will decide to give some of their estate to their adult children before they die. This can help to reduce the tax burden on both the parent’s estate and for their children but only if the gift is in cash.
If you do decide to gift some of your estate early, it should be spelled out clearly in writing whether the cash is a gift or a loan, and whether it is part of the child’s inheritance or in addition to their inheritance. Another consideration that should be spelled out in writing is whether or not you also want your child’s spouse to benefit from the gift. (Under family law, if the gift is comingled with the family’s assets, your child’s spouse could claim half of it in the event of a separation or divorce).
Create a trust
If you wish to leave your estate to dependent children or if your children are spendthrift adults whom you feel would squander away their inheritance, one option is to create a trust for them. A trust is a legal entity that distributes your assets according to your wishes – such as in the form of a monthly payment. It can also be set up to pay out when your child reaches a certain age. You can even stipulate how the money is to be used – such as to pay for education or as a down payment on a new home.
Keep in mind however, that setting up a trust can be expensive and as such, this is a strategy best suited to those with a high net worth or to those with dependents who will require lifelong care.
Contact Levy Zavet today
Is one of your New Year’s resolutions to make sure that your estate plan reflects your wishes. If so, contact Levy Zavet today for a consultation.