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What Is Estate Planning? A Simple Guide to Everything You Need to Know

Delwin Graham & Eric Brown - Nov 27, 2020
Planning an estate involves setting directives on your assets once you are gone. This includes a will, trust, life insurance policies, and establishing beneficiaries to your investments.

According to an Angus Reid Institute poll, 51% of Canadians do not have a will and testament in place, and only 35% have one that is up to date. Many do not have these important documents because they feel they are too young or do not have sufficient assets.

Combine that with the fact that more than one-third of all Canadian citizens do not have a retirement savings plan. This shows that increasing your financial knowledge (including the answer to “what is estate planning?”) will help you establish financial security for yourself and your family.

Disposition Tax

In Canada, there is a “deemed disposition tax.” Your investments are deemed to be sold upon your death. If their sale results in capital gains, your executor must list those proceeds on your final income tax return of the year you die.

That final tax return also includes the value of your retirement accounts, plus any real estate investments, life insurance proceeds, stocks, and bonds. When your assets are in a spousal trust, the tax is deferred.

By creating a trust, you are able to transfer assets while still alive, avoiding probate. If you do not have a will when you die, decisions regarding the distribution of your assets will be decided by the Canadian province where you live.

Canadian federal income tax in 2020 is 15% on the first $48,535, up to 33% for income over $214,368, so the amount of this tax can be substantial. Provincial taxes and probate are also costly, so proper planning is essential.

What Is Estate Planning?

When you have wealth of any size, you want to prevent your heirs from going through probate. Planning an estate involves setting directives on your assets once you are gone. This includes a will, trust, life insurance policies, and establishing beneficiaries to your investments.

The benefit of estate planning is that the majority of your estate will avoid probate. Probate is the legal process for handling the transfer of your assets to your heirs.

An estate planning checklist includes the following:

-  a will

-  a trust

-  appointing a power of attorney to manage your financial affairs if you become incapable

-  a living will to establish a healthcare/mental power of attorney to implement medical treatment if you are unable to express your wishes

Living wills fall into a gray area, as Canada’s Criminal Code, section 215, deems euthanasia illegal, and a living will has no legal status. The constitutionality of this section is thrown out by Canada’s Charter of Rights, bringing the criminal code into question. The Charter of Rights provides everyone with the right to “security of the person and the right not to be deprived thereof.”


Everyone needs a will to make sure that the distribution of their assets is according to their wishes. The province where you reside will decide how to distribute your assets if you die intestate (without a will).

According to law, your spouse will receive the first $50,000 of value, and then the distribution of any remaining assets will be split between your spouse and children. In addition to the distribution of your assets being in accordance with the rule of law when you die intestate, the court also appoints a bonded administrator whose position is the executor of your estate.

Drawing up legal documents is even more important if you have a large estate, family business, or have other complications such as remarriages, children from different relationships, etc. If you do not provide for minors in your will or trust, your minor beneficiaries will receive all the capital of your estate upon reaching age 18. Many people are not financially responsible at this age when receiving a significant amount of cash.

Once you have a will and trust, it is important to let your heirs know you have one and its location. That is the only way to make sure your wishes are followed.


The difference between a will and trust is when they become active. A will provides your directives on making sure your heirs receive the possessions and assets you want them to after you die. A trust allows you to transfer your assets to beneficiaries while you are alive.

Your trust is a legal entity that owns the assets you place into it. This can be anything of value, such as mutual fund units, private businesses, stocks, bonds, real estate, and bank accounts. A trust is more legally binding than a will and allows you to avoid probate.

Revocable Living Trust

The revocable living trust allows you to change or “revoke” the terms at any time while you are alive. Instructions within the trust advise your trustee on how to distribute assets to your beneficiaries during your lifetime if you become incapable of handling it on your own, or upon your death. The downfall of this trust is that income from assets held in the trust is taxable at the Canadian trust tax rate.

Testamentary Trust

This type of trust becomes operational only upon death, and taxes are at the personal provincial tax rate. Assets that you transfer into or out of the trust are subject to tax as if sold. Determination of tax is on the appreciation amount from time of purchase to time of sale.

Selecting an Executor

Your executor is legally responsible for making sure your wishes are carried out. They must also comply with all laws regarding the execution of a will and trust. Their financial duties to your estate include the transfer or sale of your property, distribution of assets in accordance with your wishes, and payment of your debts and taxes.

You must name your executor in your will. If you do not have an executor listed, the court will make the selection. If you do not have a family member that meets the qualifications of this task, you may appoint a professional executor.

Banks, trust companies, attorneys, and some financial planners provide executor services. They will generally charge a small percentage of the estate for their fee.

At What Age and Income Level Do I Need an Estate Plan?

Estate planning is not just for the wealthy and the elderly. Estate planning is essential for the distribution of your assets whether you are single or married, young or old. It distributes your assets and designates who will care for your minor children in the event of your untimely death.

There is no guarantee that someone young will not die in an unforeseen accident. If single and living on your own, you will likely have a debt to be paid and assets to distribute. Having an estate plan provides a directive for those left behind.

Hire a Pro

One of the key factors in any financial strategy is working with an investment advisor to create a personalized plan for you. Your financial professional will provide you with information on options to build your wealth at a level you are comfortable with. Working with a financial advisor, who builds your wealth now and helps your family manage your investments after you are gone, is a sound decision.

The Best Time to Plan Your Estate Is Now

Let Graham Wealth Partners help you establish financial growth to secure your future. We provide wealth management, estate planning, financial planning, and retirement planning services to our clients.

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