An estate plan prepares in advance for the distribution of your wealth at the time of death in the most tax advantageous way. Here are a few strategies to accomplish this. Estate planning is generally done years ahead, to avoid taxation pitfalls that can erode wealth transfer to heirs.
Life insurance designed to pay the debt Many owe thousands of dollars on their credit cards. This is important to understand. Despite building wealth, many have estates encumbered with massive debt in loans or unforeseen capital gains taxation in their final tax return. Using permanent life insurance you can plan to achieve debt freedom in your personal estate. Everyone with financial obligations to others needs appropriate life insurance: to pay off the mortgage, educate the kids, provide income for a spouse or a disabled dependent.
Redemption of mortgage debt More than 50% of Canadians do not have mortgage insurance.1 Look into purchasing and owning your term insurance instead of insurance tied only to your financial institution’s mortgage.
Final expenses can be paid Often when a person dies, the nearest family members may have to pay the funeral services bill. If you have life insurance tell your executor where the policy contract can be found.
Estate Taxation If you build significant wealth over the years, chances are you will accumulate not only large RRSPs and unregistered monies invested in stocks and business ownership. You may face a consequential tax liability waiting for your heirs also to inherit—plan with your family how you intend to transfer the wealth to the next generation.
Review your life insurance during each of life’s stages. Your exact life insurance needs can be calculated using a capital needs analysis. Your life insurance plan can change to adapt to your life’s needs as your circumstances change. It is wise to review your life insurance and verify beneficiaries, policy amounts and any riders associated with the plans. As you evolve financially, so do your life insurance needs.
1 Statistics Canada