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Estate Planning - Everything You Want to Know About - How To Make A Good Estate Planning Guide
By Kyle J. Norton
Written By Kyle J. Norton
All rights reserved. Any reproduction in part or in whole of this e-book must have Written Permission of the writer. Disclaimer: The e-book is for information and education only, please consult with your financial planning specialists before applying. Special thanks to Mr. Leo Keith Lamb for contributing his time and financial support to make this E Book as free distribution for public download
A. What is Estate Planning? Estate planning is the process of accumulating and disposing of wealth before death of individual of group of owner known as estate owner including married couple. It aims is to maximize the wealth of the estate owner. The most important goal of estate planning is to make sure that the greatest amount of the estate passes to the estate owner's intended beneficiaries while paying the least amount of taxes. I. Why you need estate planning When you are young, you try to accumulate your wealth through various investment planning. At some points in your life, you get marry and have children. You need estate planning to ensure that your wealth is passed through your family while you are alive. You need to draw up a will and your family is named as beneficiaries because you don't want the court decide who will get your wealth. You also want to ensure that the wealth is passed your beneficiaries with least amount of taxes. Life insurance plays an important role in any estate planning, because life insurance is not taxable and it usually used to pay taxes for your beneficiaries. II. Estate planning purpose 1. Setting objective The main goals of setting objective is to maximize amount for your wealth accumulation through financial planning and distribute your wealth with least tax to the beneficiaries as you wish. 2. Collecting and analyzing your financial data The lists of liquidate asset is to ensure that your estate have enough cash on hand to meet its obligation. 3. Strategies for transferring assets to your estate while you are alive 4. Strategies for transferring assets to your estate at death
5. Implement your plan to ensure your will be carried according to your instruction, including choosing your executors, guardians as well as power of attorney for a living will. 6. Monitor your plan every year to ensure that will work upon your death. B. Life Insurance and Estate Planning I. Life insurance The most important goal of estate planning is to make sure that the greatest amount of the estate passes to the estate owner's intended beneficiaries while paying the least amount of taxes. Life insurance is one of the vehicle can ensure that because life insurance is tax free on hand of beneficiaries upon the death of the estate owner. Recommended Reading Long Term Care Insurance Consumer Buying Guide. Annuities: The Shocking Secrets Revealed. II. How it works 1. The proceeds from the insurance can be used to pay off any probate, taxes and fees and leaving the accumulated wealth of your estate for intended beneficiaries. 2. Under universal life policy, growth of assets in your life insurance policy is tax exempt. Proceed of life insurance plus fund values will be not be taxed on hand of your designated beneficiaries and it can be used to pay off the debts of your estate that accrue at your death. 3. While you are a live, the fund values that are not registered can be withdrawn anytime. Funds that are registered can provide additional income when you retired. Since the funds can be withdrawn anytime, it gives some security in case of emergency needs. 4. Life insurance in group plan not only can be used as enhancing employee benefit packages, providing coverage to protect against loss due to the death of a business partner, it also
can be used as a strategy to minimize corporate taxes. C. Universal Life Insurance and Estate Planning I. What is universal fife insurance Universal life insurance is one of most flexible life insurance that has been around since the early of 1980 and has been used in estate planning process. It contains 2 components: life insurance and investment funds. 1. Life insurance normally used to protect the policy insured's family or company in case of sudden death of the insured. It may be used in estate planning because of its tax exempt status. Since it is tax free, it can use to pay for tax and other expenses that might eat away the estate owner wealth upon his or her death. 2. Investment funds Investment funds are the most important figure in the universal life insurance policy. The maximum amount is predetermined every year according to state or provincial law. Any growth of the maximum amount deposited into the universal life insurance policy is tax free upon the death of the life insurance. 3. Registered investment funds It works like other registered pension plan but it is principle guaranteed by insurance company up to 100% upon the death of policy owner. Upon the death of policy insured, the assets held under his or her mane must be liquidated including any deferred investments, capital gain and tax must be paid before assets can be distributed to the estate. If universal life insurance is one of vehicle was used in estate planning, the life insurance and investment funds are paid to beneficiary tax free can be used to pay for any estate tax, leaving the much large portion of wealth to the estate. That is main reason, it has been used successfully in assisting estate planning. II. Other figures that benefit the estate owner 1. The investment fund can provide addition income for the estate owner while he or she is alive. Any withdrawal is taxable
in the same year 2. Funds can be withdrawn anytime Universal life investment funds can be withdrawn any time, if it is requested by the policy owner 3. Registered funds can be additional income when your retired D. What is A will ? I. Definition A will is a legal document that gives someone the power to act as your financial representative after your death and directs how your assets should be distributed. II. Development of a will 1. Legal capacity to draw a will a) To make a legal will, the testator must be over 18 years of age or the person must be married or in the military. b) Testator must be in sound mind. c) The will is not made under influence of other people. 2. Draw up a will Indicate all assets in the will and how do you want them to be distributed and have the lawyer to notarize it. You may also draw a will with your hand writing with no requirement of witnessing or notarizing. 3. Others include in the will a) Address of testator b) A statement that previous wills made by the testator are revoked c) The direction how assets are distributed after taxes and expenses are paid d) Name the testator's executor and guardian 4. Signing and witnessing a will must be signed at the end by the testator and is witnessed by 2 sound mind people simultaneously. In case of holographic will witness is not required. E. Legal Capacity of A Will I. Definition Legal capacity of a will is a law of the state and provincial
government that helps to make a will valid. II. What makes a will valid a) Age Since most state and provincial government defines a certain age for people have the legal capacity to create a valid will. In most states and provinces, the age is set at 18, meaning anyone 18 or older has the legal capacity to create a will. However, a few states set the age lower, but in Canada most provinces have an age of majority at 19. b) Testamentary capacity Testamentary capacity is defined as a person's legal and mental ability to make a valid will. This means the person must have a sound mind and memory or disposing mind and memory. Since The requirements for testamentary capacity is minimum, it is up to the estate owner to make a will valid without being contested upon his or her death. c) Testamentary intend Testamentary intend means that the person who make the will have the intention to instruct what you want your estate to be distributed. You make sure that your have a clear intention of what you want your wealth to be distributed to avoid any unnecessary will contest up on your death. d) Will formalities The general formalities of wills include the following i) Attested will It is a witness will. It must be signed by the estate owner and witnessed and signed by those witnesses. ii) Holographic will It is hand written by estate owner. Holographic will is not required to be witness. iii) Nuncupative will Nuncupative will also known as oral will or verbal will, it must have two witnesses. Oral will usually uses when a person who is in terminal illness and unable to draw a proper written will. F. How to Draw Up A Will 1. Collect your assets You must talk to your accountant, financial adviser and any financial institution that you have investments with them, so you can collect all updated statements of your asset including
stock of assets, possessions, and any other money that would form part of your estate. 2. How you want your estate to distribute after knowing how much is worth in your estate, you can make an accurate distribution to your beneficiary, if you would like to have a straight assets distribution. It is advised to put the assets distribution in percentage instead of list of asset so you can avoid the fluctuation of certain assets and unfair to one of the beneficiaries after your death. 3. Have 2 persons to witness your signature Remember the person who you want to witness your signature must have a sound mind and at least at the age of majority. You may want to have a lawyer to notarize your will or you may write your will in long-hand, also known as a holographic will which does not require to be notarized by a lawyer or witness by any people. Remember that your will must include a) your present address. b)A statement that previous wills made by the you are revoked. c) Direction to pay funeral expenses, debts, and taxes before estate is distributed to your designate beneficiaries. d) The appointment of an executor G. What is an Executor In The Will I. Definition An executor in the will, normally is the lawyer or someone you trust who will carry your intention in the will. II. What is executor responsibility Since you have named someone as your will executor, in general, the executor will gather up all your assets and after paying all your debts, she or he will distribute the remaining assets to the beneficiaries. 1. Paying funeral expense The funeral expense usually paid out from the assets of the decreased, although sometimes the executor consider the wishes of the deceased's relatives. 2. Paying all other debts The executor is also responsible to pay off all the debts of the
decreased person including all credit cards and charge cards, personal loan and other debts through decreased assets. 3. Notifying all beneficiaries who are named in the will. 4. Submit the necessary probate documents to the court to get probate before an executor can handle the deceased’s estate. 5. Notifying the government pension office, if the decreased person is receiving pension payment before his or her death. 6. File the income tax for the decreased person and pay all income tax if owed by decreased estate and get a tax clearance. 7. Distributing the remaining assets to estate beneficiary. Remember certain assets do not need to probate such as RRSP and insurance paid out from life insurance policy. Please beware of 6 months deadline of variation act that allows decreased child or spouse to apply to the court for changing the terms of the will. H. What is The Estate Settlement in a Will I. Definition Estate settlement is also known as estate administration. It is the form of handling the decreased person assets by an appointed executor or executors. If the deceased did not leave any testamentary dispositions then the dispositions can be proceeded. II. How it works Estate settlement includes the following 1.Testamentary dispositions and will probated Written, holographic will have to apply to the court for probate before assets can be gathered by the executor and only most recent will has legal value. If the deceased did not leave any testamentary dispositions then the dispositions can be proceed. Any testamentary trust in a will must be closely examined and resolved. 2. Notifying public The purpose of this notice is to inform the heirs, creditors and debtors to the estate of the existence and identity of the liquidator. 3. Inform the federal and estate or provincial governments of the person's death. It is necessary if the decreased person is receiving pension incomes from the federal and estate or provincial government d) Identifying the beneficiaries. 4. Gather all decreased person documents All documents are
gathered including life insurance policy, birth certificate, decree of divorce and other related to decreased person documents. Only the death certificate and the copy of the act of death are legally recognized. 5. Create an estate account so all assets can be deposited into that account 6. Gather all deceased person assets All assets including stocks, bond , property, etc. will be calculated if necessary using arm's length to determine the asset values. 7. Notifying public after all assets of decreased person are gathered Identifying all debtors, such as credit card debts, personal loans, etc. 8. File income tax for decreased person Any taxes owed by the decrease should be paid 9. Pay off all debts 10. Other settlements if need Such as family patrimony and the matrimonial or civil union regime are there for married spouses or spouses in a civil union. 11. Pay out remaining decreased person assets to beneficiary. I. Who can be An Executor? 1. Definition of Executor As we mentioned in previous article, an Executor is the person named by decreased person before his or her death in the most recent will and he or she has the responsibility to administrate the deceased’s estate. 2. Who can be an executor There are many concerns when you decide to choose someone as an executor in your will, here are some examples. a) Your executor in a will should be someone is trustworthy and respectable to your family. He or she should know and agree to carry your wishes upon your death. b) Your executor must be able to read, write and speak English fluently and capable to perform the duties of an estate executor. Requesting other people to translate or interpret the will is costly and makes the matter more complex.
c) If you think your estate is complex enough or you suspect your will may cause some controversy among designate beneficiary, you may consider to name a professional executor, such as a trust company or lawyer to carry the duty upon your death. c) Your executor should be someone who you have known for many years so that they can carry his or her duties without causing any interfere or delay with your wish. d) Remember that person was named in a will as executor is under no obligation to serve. You make sure you have discussed your wishes with that person beforehand so he or she understands the duties as an executor and is comfortable with the performance of those duties to avoid any unnecessary delay of your estate administration. e) Make sure you also appoint an alternate executor in case the primary executor is unable or unwilling to perform those duties at the time of your death. f) Your executor should of course be someone healthy and likely to outlive you. g) You may wish to appoint professional to act as your executor if you anticipated controversy or conflict among beneficiaries. The duties of an executor is to carry our estate administration and to ensure the decreased person final wishes are respected and is allowed to charge a 2.5% fee on capital disbursements or on capital receipts. J. What Is Administering the Estate in Estate Trustee ? I. Definition Estate trustee is someone who appointed by the court to administrate the decreased assets after an application is made by one of the next of kins to the court in case of no
will. II. How it works 1) In case of no will, upon the death of decrease, one of the next of kin who is over 18 year of age and nominated by majority of other next of kins to the court for appointment of the applicant as a estate trustee. 2) It is time consuming, since the court needs 2 to 3 weeks for this appointment. 3) The applicant is approved by the court to administrate the asset of the decreased person is known as estate trustee without a will. 4) The applicant who will become estate trustee with out a will may need to be bonded by 2 persons. Normally, it may require to be handled by professional lawyer office. 5) The administration and distribution of decreased assets will have to follow the State or Provincial laws. 6) All assets in joint tenancy with the right of survivor will automatic go to the surviving person. 7) The administration of estate trustee with out a will may be costly because of inexperience and sometimes may request the help of professional lawyer. In case of no agreement between next of kins of the decreased person to nominate one of the next of kin to become estate trustee, it may increase complexity of decreased assets administration. The court in such case may appoint a public trustee to handle the asset distribution according to the State or Provincial law. K. Life Insurance and Estate Planning 1. Life insurance is a primary vehicle to protect your family and loved ones in case of sudden death and it provides a liquidity asset in estate planning. 2. Even though financial security is diminished as children grow older, the need to protect the estate's assets against any unnecessary tax paid is increased upon the death of the estate owner. 3. In most cases, life insurance is the cheapest way to protect your family's financial security and provides liquidity assets to cover the deceased person's administration cost and
income tax must be paid for any unpaid gains such as stocks and property appreciation. 4. Life insurance paid out is usually tax-free. 5. It is guaranteed by the insurance company by it's cash reserve and by insurance-guaranteed funds up to $300,000. 6. In Canada, life insurance is guaranteed by Assuris which is a non-profit organization with members from all major insurance companies up to 85% or $200, 000, which ever is less. 7. Since life insurance is a form of pooling risk, it pools from a number of small contributors to compensate for those who suffer a loss, therefore it minimizes the risk of bankruptcy. 8. Many insurance companies invest their reserve funds conservatively. 9. Finally, life insurance always serves its purpose of creating an estate or perverse estate assets. L. Type of Life Insurance In Estate Planning I. Term life insurance Term life insurance is a type of insurance that protects the insured. Most of the time the owner of the policy is guaranteed for a certain period of time such as 5, 10 and 20 years. Term insurance is best used in estate planning for people who are just marry or plan to start a family soon. It is cheap compared to other types of insurance. Most term life insurances are used to create an estate asset in case of sudden death of policy holder. Other term life insurance such as mortgage insurance is used to protect the homeowner's family. II. Whole life insurance Whole life insurance is a participate insurance with dividends accumulated in the policy each year. It is best used in estate planning for people who already know the asset of his or her estate or create an estate asset in case of sudden death of policy owner. III. Universal life insurance Universal life insurance is the best insurance for people who
have a lot of unpaid taxes, because it contains life insurance and investment values. At the death of the policy owner the life insurance and the funds accumulated are paid to the designated beneficiary or beneficiaries tax-free and it is normally used to paid for unpaid income taxes owed by the deceased person. M. Estate Assets Not Distributed by A Will I. Estate assets not distributed by a will 1. Life insurance Life insurance is one of many family protection plans that are paid by the owner of the policy after tax dollars and is considered a tax free pay out to designated beneficiaries and not by distribution by a will if the insured died while the policy is in place. 2. Segregate fund Segregate funds are investment funds that offer the guarantees to the fund purchase if he or she died during the fund is with the insurance company. The insurance will pay up to 100% or the amount of investment, which ever is larger. Your insurance requires you to name a beneficiary or beneficiaries. In case there is no beneficiary named, your spouse automatically became the designated beneficiary. 3. Registered pension funds including IRA account, 401K account, RRSP, and registered pension fund, registered annuity and registered retirement income funds. All funds under the name of "registered" is not distributed by a will, since all of them are required to name a beneficiary at the time of purchase with the intention to give the spouse some kind of protection in case of sudden death of the owner. 4. Tenant by entirety Tenant is a type of concurrent estate formerly available only to married couples, where ownership of property is treated as though the couple were a single legal person. If one of the couple dies, the asset automatically transfers to the remain couple.
5. Joint tenant with the right of survivor Joint tenant with the right of survivor is a type of concurrent estate in which co-owners have right of survivorship. If one owner dies, the deceased owner's interest in the property will pass to the surviving owner or owners Others include any account registered as transfer of death and certain trust documents II. Required documents 1. Life insurance a) Death certificate of life insured b) Doctor Certificate for reason of death c) Proof of age of insurance d) Proof of beneficiary's identity e) Application to claim amount of life insurance f) Policy number 2. Others a) Copy of death certificate b) Letter of instruction c) Social insurance number or social security number d) Tax waiver e) Account number f) Trust documents N. Tax and Testamentary Trust I.Definition Unlike living trust, a testamentary trust is a will in which it indicates that certain assets will be held in trust for the deceased person. It creates a legal relationship between the testator of the trust, the trustee, and the beneficiaries of the trust. The main purpose of a testamentary trust is to provide income or capital, or both to the beneficiaries. Since the trustee is the owner of the trust, he/she has the duty to allocate the income and capital payment to the beneficiaries according to the will. II. Tax and testamentary trust a) Testamentary trust established initially from original testator estate, after all taxes have been paid during probate.
b) Testamentary trust under income tax law is treated like other tax payer's with its own identity. Even though the calendar year may be vary, it has to report all its income including interest income, capital gain, and dividends to the tax department. Income distributed to the beneficiaries is deducted from the trust incomes. Any income retaining in the trust will be taxed according to the graduated rates in the Income Tax Act c) Assets in the testamentary trust must complied with The "21 year deemed disposition rule" in the Income Tax Act, that means all assets in the trust must be disposed of after 21 years since first establishment. d) "Attribution rules" in the Income Tax Act is not applied to the testamentary trust. O. Life Insurance and the Estate Planning Cycle 1. Creating wealth Before one can build their wealth through investment vehicles, he or she must know how to save. In this stage, life insurance is always the first stage of estate planning cycle so it can guarantee there are funds around for the beneficiaries in case of sudden death. Most of the time, this stage applies to people just starting a family and have little savings. The type of life insurance used generally is term life insurance because it provides larger amounts of insurance with affordable premiums. 2. Wealth protection a) In the later stages of a person's life, when debt is diminished and wealth has been created, protection and conservation of the asset becomes more important. In this stage of the estate planning cycle, term life insurance is no longer provides enough protection. Therefore universal life insurance may be considered, since all investment funds up to maximum amount allowed each year that have been deposited in the universal life policy is tax exempt upon the death of policy insured. b) Universal life insurance now becomes more important because all unrealized capital gains from stock accumulation, and the appreciation of rental property will have to pay upon
the death of the owner. Since life insurance is tax free and is considered as a liquidate asset, it can be used for various purposes such as funeral expense, and paying income tax without selling estate asset at a cheap price if the person dies in the economic down turn. c) Life insurance also helps to pay off liabilities of estate testator and acts as an emergency fund in case there are no other liquidate assets around. P. The 3 Phases of Estate Planning I. Creation Most people misunderstand that wealth creation is only for people already have financial stability or are married. In fact wealth creation is for anyone who is over the age of 18 and has a permanent job. If you work, no matter what income levels you are, you can start to save some money through financial planning. Some people who I know created their wealth by investing only $100 per month at first. Remember the rule that you have to pay yourself 10% from your income first then spend only for what you need and limit spending on what you want. II. Preservation After You have created your wealth through years of following your financial plan, you now have reached the age or time that you would like to preserve your wealth. Here are some things that you can do: 1. Buy universal life insurance Universal life insurance policies give you the privilege to defer your income accumulated up to maximum amount allowed every year. If you die, the investment amount together with the life insurance will be paid to your designated beneficiaries tax-free. This is helpful to preserve your wealth. 2. Invest prudently Through careful financial planning without any emotional buying or selling caused by fluctuation of stock market(such
as stock crash, stock down turn), and if you monitor your plan annually, you should be able to build a sizable wealth for your estate. 3. Maximize your IRA or RRSP contribution IRA and RRSP contribution allows you to defer you income tax until they are withdrawn. The more IRA and RRSP contribution up to maximum amount, the more taxes are deferred that give you more income to plan for your wealth accumulation. III. Wealth transferring By writing your will, your wealth will be distributed according to your wish to the beneficiaries. It is the time to choose a knowledgeable and trustful person as your executor who will help to distribute your asset after you dies. You may want to form a testamentary trust if you have a disable beneficiary. * By forming testamentary trust you can provide period of income for your disable beneficiaries. Since testamentary trust has it's own tax status, it pays less tax if there is income retained every year. * Use universal life insurance to pay for all deferred tax investment such as capital gain, so you can leave more wealth to your beneficiaries. * Transfer some assets to join tenancy with the right of survivor, so your estate will not need to pay tax after you die. The 3 phrases of state planning only provides you with a general idea of the subject, please consult with your financial planner for your specific needs. Q. What is the Creation Phase in Estate Planning? I. Definition Creation phase is defined as a length of time that you start to follow your personal financial planning to save and invest. II. Wealth creation a) When to start Most people think wealth creation is only for people who have a sizable income or just started a family. In fact, wealth
creation can start as young as you want. Some parents try to educate their children on how to invest by giving them a few shares of some blue chip companies. Some people may start as soon as they have a job. There a lot of different stories about how wealth was created. In fact wealth creation has to be followed carefully on financial planning that you have worked through them with your financial planner. b) Purchase term life insurance The phase of wealth creation also includes how to protect your loved one in case of sudden death. Since most people in this phase have little to invest or just to save, it is prudent to purchase a term life insurance. Term life insurance is the most affordable life insurance for people who would like to protect their family because the premium is the lowest amongst all life insurance. c) Pay yourself first One of the financial planning is to pay yourself 10% first then plan for the rest later. d) Buy what you need and only some what you want Many people can not see the difference of things that you need and things that you want. In fact, things that you need are thing you can not live without it, while things that you want are things you CAN live without. Planning a vacations are things you want. You can delay it or cancel it without effecting your daily living. Buying food are thing you need, don't tell me that you live without eating. e) Avoid unnecessary bank charges and use your credit card wisely Find a bank that allows you to write your check and make your payment free and pay up your credit card payment every month. Your credit card has a nannual interest rate from 10% to 24.99%. f) Invest wisely without getting in emotional buying and selling by following your personal planning closely and have your financial planner review them every year.
R. What Is Preservation In Estate Planning I. Definition The preservation phase is the length of time that you try to minimize the risk of your wealth by monitoring your plan closely in response to the changes in economy and your life style. II. How it works 1. Change your investment strategies a) Re-assess your risk If you want to preserve wealth, you have to reduce the risk in your investment by placing most of your assets into longterm sustainable increases in the real value investment or guaranteed investment. The likelihood of your return would be low single digits, sometimes it is below 5%. Unidentified risks are a far greater threat to your wealth than tax. While tax may threaten a proportion of your wealth, poorly-identified risks can destroy it all. b) Inflation Since inflation is always a threat to your wealth, buying real return bonds that index to inflation may be a good choice. Others may suggest to invest money in blue chip companies that have been around for a long time and have steadily increased pay-out of dividend year after year. But no matter how you choose, stock investment always carries an economic risk and unidentified risks that can destroy a big chunk of your wealth. c) Adjust for unexpected events In order to prevent for unexpected events, such as your employer suddenly going bankrupt, or inadequate property insurance cover, you may want to put some money into liquidate assets such as money market funds or some cashable CD or term certificate. 2. Buy universal life insurance to protect your wealth for your love one Universal life insurance is always one of the top choices in the preservation phrase of estate planning because it not only can
provide tax defers when you are alive and tax-free when you die, but it also helps to maximize your wealth by paying tax as a resulting of liquidation of other investments' gains after your death 3. Tax implications You should always plan not to tax more than your share through careful planning. By putting most interest return into your IRA or RRSP accounts, you save some taxes because interest always has the highest tax rate, unless you need income to subsidize your life style. S. What is "Transferring" In Estate Planning I. Definition Transferring your wealth to your estate is a final phase in estate planning. At this phase, careful planning will minimize the tax paid and avoid any unnecessary conflict among designated beneficiaries. II. Estate transferring Many people misunderstand that transferring your asset in estate planning is for older people only. In fact, transferring assets are for anyone who have some wealth building up and some people may die young, while everyone will die sometime in future. 1. Writing a will A will is a legal document that the testator signs and is witnessed by 2 people that he or she indicates how you want your wealth to be distributed upon your death to his or her designated beneficiaries. 2. Maximize your wealth and avoid unnecessary taxes As this point, you might have an estimation about your estate. You may already have sizable insurance and investment accumulated in your universal life insurance which will be used to pay off any tax resulting in capital gains from other investments which have to be liquidated upon your death. You may already transfer some of the asset to the joint tenancy with the right of survivor to ensure that someone who you love may have the asset upon your death.
3. You may already have hired a professional lawyer to ensure that your asset will be distributed without causing conflict among your designated beneficiaries. 4. You may want to distribute some of your assets to charity organizations after your death. 5. You may want to dispose some of your assets through gift or trust during your life time. 6. You may want to establish a testamentary trust to ensure that your disabled beneficiary will have income for at least 21 years. 7. You may want to establish a spouse testamentary trust to ensure your spouse can receive income in the future years. Your executor whom you appointed in the will distribute the rest of your assets after paying taxes, fees, funeral expenses and debts to your designate beneficiaries. T. 5 Steps of Estate Planning I. Setting objective Setting objective is defined as what you want your beneficiaries to have after your death. In estate planning most people would like to distribute their assets evenly to all beneficiaries because most assets that the estate owner would like the living spouse to have to be already signed into joint tenancy with the right of survivor. Since everybody is different, please make sure you set your objective clearly so your executor can ensure to distribute your asset according to your wish. II. Collecting all financial data The list of assets compiled for estate planning needs to specify the liquidity of the assets to ensure the estate will have sufficient resources to meet it's immediate obligations. III. Strategies for transferring your assets 1. Transfer your assets to the estate while you are alive By signing over your asset to the estate, such as sale properties at the arm's length, or converting your assets to a living trust. 2. Transfer of property at death a) Assets that are not distributed according to the will include: i) Life insurance
ii) All registered plans such as RRSP and company pension plan iii) Joint tenancy with the right of survivor iv) Tenancy in Common After your death, your share of the properties is passed to your heirs. b) Assets that are distributed according to the will c) The last step in the strategies for transferring your assets to the estate is to make sure that all previous wills have been revoked IV. Implement your plan a) Choosing an executor Your appointed executor will carry out your instructions according to your will, settle outstanding debts, and distribute your assets. If you have children younger than 18, choosing a guardian looks after them. b) Power of attorney Power of attorney is a legal document where you appoint another person to manage your financial affairs under certain conditions, such as physical or mental incapacitation. c) Living wills Living wills are another form of power of attorney that grants a person the authority to make decisions about your personal care, in the event that you are unable to do so. V. Monitor the plan Monitor your plan annually. You want to make sure that everything in the will is what you want to leave to whomever upon your death. U. The importance of Setting Objectives In Estate Planning 1. It helps to ensure your properties are distributed according to your wishes By making you will objective clear to the executor, it will guarantee that your estate will be distributed according to your will, after you die. 2. It minimizes tax implication to your estate. Since the objection is minimize the tax implication, the best method is to purchase enough insurance to cover the tax needed as resulting of unrealized capitals gain of stocks, properties upon your death. 3. Helping you to accumulate as large an amount of assets as possible Since tax implication has been taking care of, putting maximum allowed into the investment funds of universal life
insurance not only can defer the growth but also can become tax upon you death. Remember, investment and life insurance will pay directly to your estate tax free resulting of larger amount of wealth for your estate. You may want to invest income return instrument in your RRSP, IRA, because interest income always carry the high tax rate, while leaving non registered investment for capital and dividend gains. 4. It ensures the estate is large enough to provide financial security By making prudent financial planning and monitor them every year with your financial planning regardless fluctuation of stock market and unforeseen risk, you can ensure that your estate is big enough to provide income security to your beneficiaries. 5. It ensures your estate pays outstanding taxes and final expenses With enough life insurance and moving some properties to joint tenancy with the right of survivor or establishing a living trust before your death, you ensure that estate not only can pay for any outstanding tax and expenses, but also provide enough financial security to some you love V. The Important of Collecting and Analyzing Data In Estate Planning Most people invest their saving according to their risks of tolerance. 1. Conservative people usually stay clear of stock market and putting their saving in to kind of guarantee investment. this cause some risk for your estate, because beside inflation, the return of this kind of investment always pay a highest tax rate. The estate of these people may not be large enough to provide financial security for estate's beneficiaries upon the death of the estate owner. In this case, you financial planner might suggest that some of your income security will be transfer to some higher risk investment such as blue chips stock or income trust. He or she may also ask to maximize you income return in registered plan while some of the non registered money will invest for capital and dividend gain stocks. 2. Some other people with a high risk tolerance may do the
opposite. Since leaving all your money in the equity may give these a higher return, it also increase risk for their saving. If any unforeseen risk happened during the wealth creation phrase, these people may lose all their saving. 3 Depending to your financial statements, your financial planner will analyze your present situation depending to your objective, he or she may provide you with the complete plan in which a) A investment plan that will help you with an asset allocation, that not only can help to maximize your return but also decrease your market and economic risks. b) A Plan will provide larger enough wealth for your estate. c) A Plan that can help to minimize the tax which your estate has to pay upon your death. X. How to Transfer Your Asset While You Alive In Estate Planning 1. Sale Includes the transfer of ownership for "consideration" (the exchange of values by parties to the contract). The sale must take place between persons dealing at arm's length (independent of one other). 2. Gifts Includes transferring ownership or part of to another person for no consideration. You may have to pay tax for any gain of the property that you transfer your asset to your love one as gift, but you can avoid paying tax for that property future gain, it take some burden of tax away from your estate after you die. 3. Inter vivos trust It is created while the granter (you) of the trust is still living and the assets are placed in hands of a trustee a) the opportunity to take advantage of income spitting. b) The ability to continue to control assets that have been set aside for your children or other dependents c) The ability to keep your affairs confidential since trusts have few reporting requirements d) The ability to remove assets from your estate and therefore,
from the calculation of probate fees Y. What is Transfer of property at Death In Estate Planning 1. Designated Beneficiary a) Here are the most common contracts bearing designated beneficiaries (life insurance policies, pension plan interests, deferred profit-sharing plans, and RRSPs). b) This kinds of payment do not become part of the estate, avoiding the costs and delays of probate; and the amounts designated are not subject to creditors' claims, because they aren't considered part of the estate. 2. Tenancy in Common Upon death of one of the tenants in common, that tenant's share of property passes to the heirs. 3. Joint tenancy Upon the death of one of the tenant's, full title in the property passes to the survival owner. 4. All other assets to your estate After all necessary transferring of your other asset by using above methods, you can ensure that you estate now only minimum amount of tax and your estate is larger enough to pay for all debts and expenses and provide your beneficiaries with financial security. Z. Types of Wills 1. Written will Normally, a written will with signature of 2 witness and notarized by your lawyer is the best approach, because a) Your executor already agree to carry his or her responsibility to distribute tour assets according to your wish. b) Your clean intention has been warranted c) The formality of your will is also warranted, what is the chance that your lawyer will not inform you that your will is not followed the format while he is the one to notarized it. It is a case that a will is overturned by the court because it is not legally validated because the estate owner has not followed the guideline. 2. Holographic will Holographic will is a type of will written by the estate owner
hand writing. This type of will do not need to be witness. This type if will may be legal but sometime it may cause problem for the distribution of wealth because a) The executor may not be aware of estate owner intention or b) The executor may refuse to carry it duty as the estate executor, because he or she was not informed before hand. c) The will ma not follow the guideline or format to make a will legal. 3. Notorial will It is made by a lawyer and require a signature of a witness. Nortorial will made by a lawyer is only valid in Quebec, Canada. 4. International will International will is a will that is valid in any country that has been ratified by the Convention Providing a Uniform Law on the Form of an international will. It is useful for persons with out-of-country assets and requires the signatures of witnesses and a lawyer to be valid. 5. English-form will English form will is one the written will The most common form of will in US and Canada, it can be written or typed, or a combination and it must be signed at the foot of the document by the testator and by 2 witnesses who are not beneficiaries of the will or spouse of the beneficiary. Supplementary Articles A. What Is Intestacy Laws I. Definition Intestacy law is a law that govern the estate of a person who dies owning property greater than the sum of his or her enforceable debts and funeral expenses without having made a valid will. II. How it works Since there are no will after his or her death, the deceased's property, including personal belongings, will be administered by a personal representative appointed by the Probate Registry according to strict rules of priority and the rules of succession of the person's place of habitual residence of the State or
Province Act will apply. Normally in this case, the spouse will not receive the entire estate. I. The estate generally is distributed as follow if the other spouse dies with no will 1. All property that have been registered to a survivor ship will pass to the survivor, such as the deceased's share in the jointly owned family home. 2. All property passing to them under the terms of a registered plan such as IRA, 401K, RRSP, registered annuity, etc. 3. Life insurance that spouse is the designated beneficiary. 4. Non registered segregated funds that are purchased from a life insurance policy and the survivor spouse is the designated beneficiary. 5. A statutory legacy of a fixed sum under the Administration of Estate Art which may difference in the States or Provinces 6. A life time interests in half of the remaining estate. II) What the children get The children of the deceased and the survivor spouse will be entitled to half of the estate remaining after paying all the debts, fee and funeral expenses. III. If the decreased dies and with no children If there are no children to share half of the remained estate then the more distant relatives of the deceased will be entitled to half of the estate automatically. B. 6 Reasons to Revoke or Change Your Will I. Change in your financial situation a) Lost of your job If you lose jobs, you may need to withdraw some living expenses from the estate to subsidize to life style. If the situation has been prolong for a period of time, it may be affected enough to change the value of your estate significantly then you will need to write a new will. b) Inheritance If you suddenly inherit a large amount money leading for the increasing of the value of your estate significantly, you will need to write a new will. c) Investment risks If your estate has lost a lot money because
of crash of the market, such as one of your major holding company suddenly went bankrupt, you may want to re write a new will. II. Out of province or State or out of country move Because laws vary from state to state and from province to province, as well as country to country, please make sure that you know their laws and adjust your will accordingly to ensure your beneficiaries still receive the property or gifts you intend for them. III) Death of witness Death of a witness may affect your will, if one of your witness die, you must replace your will with a new witness to protect your estate in case your will is contested after you die. Most of the time if your will is contested a judge may, ask for sworn, notarized statements or affidavits from your witnesses. IV)) Death of executor If your executive dies before your death, it is necessary to name someone else to look after your estate to make sure that your wishes are carried out or for what ever reason you want to name a new executor, you can amend your will by using a codicil. V) Death of beneficiaries or change of beneficiaries your beneficiaries are people that you intend to pass your estate to, if one of your beneficiaries dies, you can amend your will by codicil by naming the new beneficiary to take the place of the previously named one or delete his or her name, from the will to void any unnecessary that your will be contested from the kin of the pass away beneficiary after your death. In case you would like to change beneficiaries for what ever reason, you can also amend your will with a codicil. VI) Death of guardian or change of guardian is someone that you nominate to look after your minor children after you dies. If the guardian passes away before you or in case you have found a better person than the one you originally chose, you can amend your will with a codicil.
C. How to Implement Your Estate Planning 1. Naming executors for your will An executor is the person who will carry out your instructions according to your will, settle outstanding debts, and distribute the remaining assets to your beneficiaries when you die. Your estate can include all kinds of property such as rental properties, equities, bonds, houses, mutual funds cottage, land, furniture. 2. Naming guardian for your will A guardian is the person who will carry out your instructions according to your will to look after to minor children when you die. It is for your children benefits to name only one guardian to avoid any disagreement with guardians Naming a guardian to look after your children is not easy, but with a simple arrangement of a guardian in your will, you can feel sure that, in the extremely unlikely event you can't raise your kids, they will be well cared for. There are some priorities you may want to consider before naming someone to take care your children when you die a) He must love and enjoy working with children. b) He or she must have genuine concern for your children well fare. c) Must have certain knowledge about how to deal with children psychology. d) He or she must be physical strong to handle the job? 3. Letter of power of attorney It is a written legal document that you signed with 2 witnesses when you appoint another person to manage your financial affairs under certain conditions, such as physical or mental incapacitation. There are 2 types of power attorney document a) Power of Attorney for Property A types of document that you appoint some to deal with only your personal possessions and finances. b) A Power of Attorney for Personal Care It deals only with your personal health care decisions such as hygiene, shelter and consenting to medical treatment. 4. Living wills It is a form of power of attorney that grants a person the authority to make decisions about your personal care that you
have chosen when you are capable to do so. A living will only takes effect when you can no longer understand and appreciate treatment choice. Most people complete a living will is to ensure the qualities of their future personal and health care. Recommend Reading Long Term Care Insurance Consumer Buying Guide. Annuities: The Shocking Secrets Revealed. I hope this information will help. If you need more information or insurance advices, please follow my article series of the above subject at my home page at http://medicaladvisorjournals.blogspot.com For Daily and weekly health articles and http://lifeanddisabitityinsuranceunderwriter.blogspot.com/ http://all-about-insurances-info.blogspot.com/ For Daily and weekly Insurance articles