Your estate consists of everything you own or owe at your time of death. Estate planning refers to planning what happens with your assets and debt when you pass away.
Estate planning is more than just creating a will. It’s an important process that can help guide your loved ones take care of your affairs. Our step-by-step guide for estate planning can help protect your assets and legacy.
But first, let's start with the basics.
What Is Estate Planning?
Estate planning is the process of outlining a plan in advance for your assets (or your “estate”) for after you pass away. Estate planning has several components including creating a will, designating your beneficiaries, outlining your funeral wishes, planning charitable gifts, and addressing financial matters (bank accounts, insurance policies, etc.). At the end of the day, it protects and helps guide your loved ones once you’re no longer around.
Estate planning may might complex and difficult to understand. But we've put together a glossary of estate planning terms to help you stay on top of the common estate planning lingo.
What Is A Will?
Your last will and testament is a legal document where you’ll document many parts of your estate plan.
What Is Power Of Attorney?
A good estate plan also includes preparing for the event you are medically incapacitated and unable to manage your affairs. This is where power of attorney comes into effect.
If you get injured and are medically incapable of managing your affairs, an attorney (which does not refer to a lawyer in this context) will make decisions (that you have already outlined in your estate plan) about your personal property, finances, personal life, and medical care.
Unlike a will, a power of attorney comes into effect while you’re still alive, so it's never too early to start planning for your healthcare needs at the end of your life.
Why Is Estate Planning Important?
Estate planning is important because it makes wrapping up your affairs easier and ensures everything is taken care of according to your individual wishes.
Estate planning doesn’t just involve distributing your home and finances — it should also cover things like your furniture, jewelry, sentimental items, and carrying out donations to organizations you care about.
Other important aspects of estate planning include:
- End of life planning: You should designate a person to be your power of attorney for personal care so they can make decisions for you when you're unable to do so. This can give you a sense of security because you can choose a loved one who will be in charge of your care close to the end of your life. You should also consider things like where you’d like to live as you age and funeral and burial plans.
- Planning for your minor children: If your children are under the age of 18, they’re considered minor dependents. You’ll want to name guardians in your will, in the event that you die. Otherwise, it will be left to the government to decide who takes care of your children.
- Helping your executor pay off your debt: If you pass away and have debt, your executor will be responsible for reconciling your debt and closing any bank and investment accounts. Ideally, they should know exactly what debts you owe, so they can make sound decisions and avoid creditors seizing your assets. A good estate plan can include a list of all your debts, to help them make this process smoother for your executor.
- Minimizing taxes and fees: Canada doesn’t have an estate tax or inheritance tax; however, when you die, you effectively leave the Canadian tax system and are taxed one last time. Most provinces also charge a fee to process your will—called probating—which is based on the value of your assets. Effective estate planning involves tax planning so you can have as few assets as possible on paper to minimize your taxes for your final tax return.
- Protecting your identity and making sure your needs are met: Families, relationships, and health care needs come in all shapes and sizes, but not all are treated the same by Canadian law. If you identify as a member of the 2SLGBTQIA+ community, for instance, there are some additional estate planning considerations you may want to review.
Wills vs Estate Planning: What’s The Difference?
To put it simply, making a will is part of estate planning. Your will is a key component of your estate plan, along with powers of attorney and any other arrangements you need to make regarding the transfer of your estate upon your death.
Learn more about the differences between estate planning and wills.
The Estate Planning Process In Canada
Estate planning can feel overwhelming for a lot of individuals. While it is important, it’s actually quite simple and can be completed in a few easy steps.
1. Identify the key people involved
Before sitting down and writing your will, it’s essential to outline the list of people you’d like to fill the following key roles.
Executor and Estate Trustee: Ideally a spouse, relative or close friend, this person executes the wishes in your will, distributes funds to your beneficiaries, and can act on behalf of your business and financial interests.
Custodian(s) and Guardians(s) : A custodian is responsible for the physical custody of a minor if you (and the other parent) passes away. The guardian will assume management of the assets (ie. an inheritance). These roles are often filled by the same person and can be a single person or a couple that you trust to take on the role.
Emergency Financial Representative Or Attorney For Property: This person will make decisions about your property and finances if you are medically unable to do so yourself. Choose somebody you trust such as a spouse, relative or a close friend. The specific name of this role may vary from province to province.
Emergency Medical Care Representative Or Attorney For Personal Care: A spouse, relative or close friend with good judgment, this person will be the voice of your healthcare decisions if you are unable to communicate.
Witnesses: Your will and power of attorney documents will need to be printed and signed in the presence of two witnesses. You should take some time to consider who you’d like your witnesses to me. Keep in mind that not everyone can take on this role (ie. if they benefit from the will).
Backups: Specifying backups (also called substitutes) will add additional layers of certainty to your plan. Your initial choice may refuse the task, or be unable to act for other reasons, which is why it’s important to have a plan B.
Choosing the right person for each role in your estate plans can be a challenging task. Learn more about choosing the right person for each role.
2. Allocate your estate
After thinking about the key individuals who will be involved in your estate plan, you’ll want to consider what you actually want to do with everything you own. This includes money, large assets of financial value (such as a home or car), and even smaller things with sentimental value. Keeping track of all your assets can be hard, which is why asset lists are so helpful!
The people to whom you pass on your belongings to from your estate after you pass away are called your beneficiaries. Beneficiaries can be chosen for specific items or even just a percentage of your estate.
This is also a good step to consider if there are any charitable causes you’d like to contribute to after you pass away.
Learn more about beneficiaries and gifts here →
If you’re married or have a common-law partner, you may want to work together to make decisions on your shared assets or dependents. Some people may choose to leave everything to their surviving spouse if they pass away or to their children.
Read more about dividing an estate between siblings →
3. Outline other wishes
This includes any other wishes or requests you may have after you die. Some common requests that can be easily accommodated in your will include:
- The age for which you’d like your children to receive their inheritance
- Your funeral/burial wishes
- How you'd like your business to be carried on
When it comes to other estate planning documents, such as your power of attorney (or living will), you’ll want to outline your wishes regarding:
- Life support
- Pain relief
- Palliative care
Did you know? You can can also make a plan for your pets in your will. Read more about estate planning for pets here.
4. Formalize your wishes
While thinking through your wishes is a great first step, the most important thing is to finalize your plan in a legal will. You also want to make sure you’ve discussed your wishes with your loved ones. Without a formal plan that is legally binding, your estate will be distributed according to the default legislation in your province. In most situations, this won’t be what you have wanted.
For most Canadians, a simple estate planning platform like Willful is a quick and affordable way to create a comprehensive estate plan. However, depending on the complexity of your estate, you may want to visit a lawyer or financial advisor if you need advice.
What Documents Do I Need For Estate Planning?
A comprehensive estate plan should include the following legal documents and designations:
A will
Your last will and testament is a critical component of the estate planning process because it outlines all your wishes to be carried out after death, including asset distribution, naming your children’s guardian, beneficiary designation, and more. It also includes your appointed executor, who will be in charge of distributing your assets as outlined.
Power of attorney
A power of attorney document grants someone the right to make decisions about your legal, financial affairs, personal, health, and property affairs, while you’re living (and incapacitated) and after death.
Living will
You may also choose to include a “living will” in your estate planning, which includes your healthcare decisions, should you be incapacitated. This frees your loved ones from the burden of making these decisions themselves.
While living will is a commonly used it’s not technically a legal term in Canada. The name of a document to outline your medical wishes for end of life varies by province. But it's actually a power of attorney for healthcare, or sometimes called an advance care or personal directive.
Business Planning and Succession
In the event you own a business, you need to decide how you'll pass on business assets to beneficiaries, as well as what will become of it after your death. If your business is family-owned, you’ve probably already considered who will take over when you pass away (which should be included in your will to avoid any uncertainty when the time comes).
If your entity is not family-owned, you need to consider how this asset should be passed on, including:
- Who will control the business?
- Should profits be invested or divided amongst beneficiaries?
- What do you do if your death affects business partnerships?
- Does your executor have experience selling a business?
Trusts
A trust is another way of transferring your estate, however, it tends to be expensive to create and manage. There are many types of trusts, and they can provide alternatives to direct inheritance of your estate and assets. Trusts can streamline the process of transferring your estate after death, as they bypass probate court.
While everyone should have a will, not everyone requires a trust. Consider visiting a lawyer if you think your situation is more complex and may require setting up a trust.
For more information about estate planning, check out our helpful guide to Wills and Estate Planning which includes a FREE checklist covering everything you need to begin estate planning.
When Should I Start Estate Planning?
The ideal answer is that everyone should create an estate plan the moment they reach the age of majority. Unfortunately, we never know when we might face the unexpected, so it’s never too early to get a grasp on your estate plan.
That being said, there are some key life events when you should make estate planning a priority.
- You recently got married or remarried, or are contemplating marriage – in many provinces, marriage revokes a will unless it was made in contemplation of marriage
- You are currently in a common-law marriage
- You recently went through a common-law separation or divorce – in many provinces, divorce revokes gifts made to an ex, but in other provinces divorce doesn’t affect the provisions of your will
- You have assets such as a home or multiple properties
- You have a child(ren) and/or other dependants, or recently had a child
- You own valuable heirlooms such as art or jewelry
- You have assets that as a result of your death may cause tension among surviving family
- You have a pet or multiple pets that need taking care of
- You own a business, investments, or other assets (including digital assets)
- You have a cause that you’d like to donate to upon your passing
Estate Planning Tips From Experts
Shawn Patenaude, an estate lawyer based in Saskatchewan, says estate planning is "all about hoping for the best and planning for the worst". Creating your estate plan helps make sure that when the time comes, your loved ones will have access to your wishes.
And don't underestimate the importance of both a will and power of attorney! Ashley-Rose Gillespie, HBA, JD, GPLLM, who practices in Ontario, says that getting a will and power of attorney documents now makes all the difference, saving you time, effort, and stress if you should ever need them in the future.
Another key aspect of your estate plan is your choice of executor. While appointing an executor is one of the most important parts of your will, choosing the right executor is also important! Kevin Kelly, an estate planning lawyer in Alberta, adds that “it's important to choose an executor you trust, someone who is digitally savvy and capable of handling your digital assets after you pass away.”
Frequently Asked Questions
What are Common Estate Planning Mistakes?
Common estate planning mistakes include not discussing the plan with your loved ones, not letting family members know where your estate plan is located, naming only one beneficiary without any backup or alternatives, and failing to update your estate plan and will every few years.
How Much Does Estate Planning Cost?
A simple lawyer-drafted will can cost between $300-$400 with more complex situations requiring wills that can cost upwards of $1000.
With an online platform like Willful, you can start creating your will and estate plan for as little as $99 with options to establish power of attorney documents, list your physical, financial and digital assets, and record your funeral and burial wishes.
Is Estate Planning Only for the Wealthy?
No, estate planning is not only for wealthy individuals although this is a common misconception. Estate planning is beneficial for anyone who has any financial assets, debts, end-of-life and funeral wishes, and minor children. It is important for everyone to have a plan that can guide their loved ones after they have passed.
Does Estate Planning Vary By Province?
Some aspects of estate planning can vary by province, so it's important to review the estate planning information that's specific to where you live. Learn more about estate planning in Ontario and estate planning in BC to ensure you have up-to-date information about estate planning in these provinces.
Prepare Your Estate Plan with Willful
Discussing your death with family members and loved ones is hard, but it's something that needs to be done. You don't want to leave your loved ones organizing the aftermath.
Estate planning makes the process easier and guarantees that your dying wishes are met, your family is well taken care of, and your life’s legacy is not forgotten.
Estate planning doesn’t have to be complicated. Take the first step and start creating your online will with Willful in as little as 20 minutes.
