Estate Planning: Three Considerations You Can't Afford to Ignore

Estate planning is a critical aspect of personal finance that gets name-checked a lot but rarely explored. The legislation governing estate planning varies from province to province (and territory) in Canada, which makes it difficult to exhaustively outline all the relevant issues and considerations for an individual. This post is not intended to achieve the impossible, but merely to canvass some of the important aspects of a comprehensive estate plan.?For actual advice on your particular situation, always consult a professional. Do not rely on the contents of this article.

Generally,?there are three components to an estate plan: a will, a power of attorney for financial matters, and a power of attorney for health and other personal matters?(in some provinces called a personal directive). Strictly speaking, if you are only concerned about dealing with the consequences of your death, then a will is all you need. Do not, however, discount the possibility that a health crisis (or the consequences of aging ? it happens to all of us) may leave you incapable of looking after yourself, and thereby place additional burdens on your family. Much like a will in the event of death, a power of attorney makes it easier for your loved (and trusted) ones to ensure that your intentions ? with respect to both your financial assets and your own person ? are carried out.

Estate Planning Component #1: The Will

Having a will in place is particularly important for people who have kids, and those who feel strongly about the distribution of their estate after their death. I put the kids first because people tend to forget that?one of the most important things a will can do is address the guardianship of any minor children. If you have strong opinions about whom you trust (and, potentially more importantly, don?t trust) with your kids? upbringing, you can stipulate one or more guardians (and alternate guardians) for them, should you and your spouse die before the kids reach the age of majority. Your kids will not end up in some Dickensian orphanage if you don?t, but the court process for appointing a guardian is likely a needless complication and expense. Don?t saddle your family with it. Plus, there is no certainty that the person you would have picked would be the same person appointed by the court.

The same goes for your financial assets. In most provinces, legislation dictates what happens to your estate if you die without a will (intestate). If you trust provincial legislation as little as Joe seems to then?don?t risk dying intestate. Your assets may not be divided in the manner you might otherwise choose, and non-family members (including any charities you might wish to support), will be left out. There are also additional expenses, not least of them being another court process for appointing an executor for your estate. (A will also provides a handy map to your assets for your executor, which makes his or her job a lot easier.)

Additionally, if you?re a curmudgeonly sort at odds with your nearest and dearest, and strongly inclined to cut off your spouse, kid(s), or other dependents from your estate, it is very important to ensure that you have a will and that it?s drafted by a professional. In some jurisdictions, legislation allows for people who meet certain criteria for dependency to make claims against your estate despite any existing will.?It is important that you discuss your intentions with a lawyer to ensure that your will is going to have the legal effect you desire in general?and especially if you want to protect your estate as much as possible from these types of claims.

A couple of things you will want to keep in mind, particularly if you are tempted to foolishly forego legal advice and draft your own will. (Editor Joe?s Note: as Abraham Lincoln said, a person who represents himself has a fool for a client.)

• Find out the impact of any changes in marital status on your will. In some (but not all) jurisdictions, marriage operates to revoke any prior will you might have made. Separation, on the other hand, may not have any effect on an existing will, depending again on the jurisdiction; this could result in a windfall for your estranged spouse, if you happen to die before a divorce decree is issued. Lastly, divorce will also likely have an impact on your will; in most provinces, your ex-spouse will be deemed to have predeceased you, for purposes of the division of assets under the will, even if they actually out-live you. They may also be disqualified from acting as an executor. Depending on how your will is drafted, this could create needless complications. It?s best to always review your will following any change in status.
• Make sure that your beneficiary designations are consistent with your will, and vice versa. A lot of financial assets, including insurance policies, RRSPs, and other investment vehicles, will have beneficiary designations which, if you?re like most people, were filled out once, long ago, and then forgotten. Again depending on your jurisdiction, those designations may overrule any provisions regarding the distribution of those assets in your will.

Estate Planning Component #2: Financial Power of Attorney

A power of attorney for property and financial matters allows you to appoint a person who will make financial decisions on your behalf once you have been medically deemed incompetent to make them on your own. Additionally, it allows you to impose certain parameters on your attorney?s exercise of powers.The usefulness of having a power of attorney in place long before it becomes a necessity is two-fold:

• You avoid potential squabbles amongst your relatives about who will control the dough, and the expense of having to go to court to get an attorney appointed.
• You void complications relating to your ability to grant a power of attorney. Specifically, if you execute the power of attorney while you?re (relatively) young and healthy, there will likely be no question as to your mental capacity to sign it. If you wait until it looks like you?ll imminently need the power of attorney, due to a drastic decline in health, etc., then you may have to go an extra mile or two to properly establish that you still have the capacity to execute it.

As with a will, it is important to review any existing powers of attorney following any marital changes, to ensure that attorney designations are up-to-date. This also applies with equal force to?

Estate Planning Component #3: Personal Power of Attorney

A power of attorney for personal matters (also known as a personal directive) is similar in nature to a power of attorney for financial matters, save that it deals with (what else?) personal matters such as your care and medical decision-making.?A key perk of having these matters dealt with separately from your finances is that it allows you to have different people deal with each aspect of your life. Thus, if you trust your spouse to not pull the plug on life-support wily-nilly, but not to deal responsibly with your finances, then you can appoint him/her as your attorney for personal matters only, and leave the finances to someone else. (Editor Joe?s Note: I can imagine situations where the inverse would be desirable, too!)

As I alluded, this power of attorney allows you to direct your representative to make medical decisions on your behalf, for concerns as small as day-to-day care or as huge as life-support. It is important to pick someone who will be capable of following your stated wishes, rather than their own emotional impulses in a moment of crisis, because?there is generally no way to legally enforce the directions stated in a document such as a living will ? they merely serve as guidelines to your attorney, to ensure that they are aware of your preferences.

And there you have it, folks. Three easy steps to everlasting control over your money. Just kidding. You?ll have to settle for a solid financial plan.?Memento mori!

Related posts:

1. Risk-Averse Financial Planning: The Meek Shall Inherit Stability

Source: http://www.timelessfinance.com/2012/11/21/estate-planning-components/

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