Estate planning involves more than just writing a will and assigning a power of attorney; it’s also not just for the wealthy. When you complete your will, you are simply dictating what you’d like to see happen to your assets after you’ve passed away. A true estate plan should begin with a conversation with your financial security advisor who can act as your quarterback for the process and can direct you to the appropriate professionals when you need them. If you have already completed your will before meeting with a financial security advisor he or she can make sure the beneficiaries named on your investments are aligned with what your will says. A financial security advisor can also help by calculating the total fees your estate will pay, including any income tax your estate may incur, and recommend appropriate plans to minimize the impact of those taxes on your estate.
Fees your estate may be subject to paying:
When you pass away, your will may need to go through probate before the assets can be transferred to the named beneficiaries. The probate process is intended to insure that the will is the most current one and to verify the identity of the beneficiaries and the deceased. Fees vary by province but, in Ontario, probate fees are approximately 1.5% of the total value of the estate. So, for an estate of $500,000, the probate fees could be as much as $3,000.
Once a will has passed the probate process, the executor must “settle” your estate. They will work closely with your financial institutions and lawyer to help distribute your estate according to your will. Although an executor can waive their fee, most executors will charge 3-5% to do this work. For an estate of $500,000, a 5% executor fee would be $25,000.
When your executor settles your estate, the will has to be read and legally settled by a lawyer. Typical legal fees charged to do this range depending on the complexity of your estate but are typically 3-5% of the total value of the estate. For an estate of $500,000, a 5% legal fee could be as much as $25,000.
Although often a surprise, taxes payable on the “Terminal Tax Return” are often the most significant cost. All RRSP or RRIF money is deemed as income in the year the last surviving spouse passes away. Undeclared capital gains are also deemed as income on death. In a scenario where a surviving spouse had $200,000 in his or her RRSP or RRIF, pension income of $35,000 and undeclared capital gains of $25,000 (net), the person’s income for that year would be $260,000. The total amount of taxes payable on this would be about $110,000 to $120,000.
The Right Way To Rethink Your Wealth
Allow us the opportunity to show you how proper Estate Planning can minimize or, in some cases, eliminate the above fees. By properly managing your assets your estate can be settled faster, easier and more tax effectively. Let us show you how.