Estate planning allows you to protect your assets and ensure they reach their rightful owners should you become incapacitated or pass away. Here are four key components of an estate plan you should know:
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Drafting a Will
A will is a legal document that determines how an individual’s property or other assets will be distributed upon their passing. It allows you to document your wishes and intentions and name a trustee to execute them.
Without a will in place, your property will be distributed based on the laws and regulations of the place you’re living in. Moreover, it might take an extended period of time before your loved ones get their share. Therefore, it is important to draft a will, even if you’re young and healthy.
A will can be updated as life changes occur, such as the birth of a child or separation from your spouse.
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Designate Beneficiaries
The next step is designating a beneficiary, which is the process of naming an entity or person who will financially benefit from your estate. The assets can be linked to an insurance policy or retirement account, which will be made available to the beneficiary upon the death of the account owner. You can name beneficiaries for:
- Registered Retirement Income Funds (RRIFs)
- Registered Retirement Income Funds (RRIFs)
- Life Income Fund (LIF)
- Locked-in Retirement Account (LIRA)
- Prescribed Retirement Income Fund (PRIF)
Depending on your account type, you can also designate more than one beneficiary. This can include family members, such as spouses and children, as well as organizations.
Plan Taxes
One of the biggest advantages of estate planning is reducing the tax payable on the estate. Here are some strategies you can adopt to minimize tax liability:
- Designate your spouse as the beneficiary of your RRSP or RRIF to allow them to transfer the assets to their own RRSP or RRIF accounts without paying any tax.
- Gift assets to your heirs during your lifetime.
- Make a large bequest in your will to a registered charity.
- Use a life insurance plan as a medium to give assets to your beneficiaries.
To further minimize tax liability, consider taking help from a reputable estate planning agency. They have a team of expert estate planners on board who know the ins and outs of estate planning law. They can help you save costs and ensure your family is taken care of.
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Power of Attorney
A power of attorney (POA) is a legal document that gives authority to an individual to act on your behalf. This designated person can make financial and medical decisions for you if you become unable to manage your affairs due to an illness or injury.
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There are two types of POA documentation you need to add to your estate plan:
- POA for property and financial matters
- POA for personal care
A POA is an essential part of your estate plan as it will keep your affairs running. Remember to review the scope of the powers awarded to a POA to prevent complications down the road.