Estate planning is one of those topics that many people prefer not to talk about, perhaps because it confronts us with the inevitability of our own demise. However, trying to steer clear of the difficulty and discomfort of the task is not a good reason to avoid doing it entirely. Estate planning is a critical and necessary undertaking to ensure a seamless transition of wealth to one’s heirs. It also provides a roadmap for your intentions and values to live on.

So it is best to just “get on with it” and do the difficult work of ensuring your affairs are in order as best you can. Working with key professionals in a variety of areas – accountants, financial planners, insurance advisors, lawyers – will help ease the burden. Professional advice and assistance are also essential to ensure that everything is done properly from the get-go, and in the most tax-efficient manner.

Determine your net worth

The first step in estate planning is determining your net worth. This requires taking inventory of your entire assets, including investments, real estate, insurance policies, cash, commodities, art, jewellery, boats, and the like. Then, subtract your debts from your assets to ascertain your net worth. This initial step of taking inventory helps to clarify what needs to be addressed in the will; in other words, what will be disbursed to the heirs.

Draw up a will

Once you have taken inventory and given some thought as to how you want the assets distributed amongst your heirs, it is time to draw up a will. Retaining the services of a lawyer is highly recommended in fulfilling this task. If you don’t have a will, the distribution of your assets will be decided by a court rather than by you.

You must name an executor who will be responsible for distributing assets according to your wishes as laid out in the will. Your executor can be anyone you choose; it is not necessary to automatically name one of your children. However, this person should be someone responsible, organized, and knowledgeable in financial matters. Have a conversation ahead of time to ensure the person you intend to name is able and willing to take on that role.

Note that your executor will also be responsible for taking care of funeral arrang­ements, filing your last tax return, selling your home(s), communicating with your financial advisor to transition the portfolio, dealing with your insurance company regarding the policy in place, and filing all forms required.

Provide for dependents

If you have children who are minors or who have special needs, name a guardian in the will. You would also want to ensure that they are adequately taken care of in the event of an untimely passing. Consult an insurance professional to ensure you have adequate coverage to protect them.

Decide on sentimental items and funeral arrangements

If you own items of sentimental value but not necessarily monetary value, make a list for your heirs outside of the will, and clarify which items you want to go to whom. If you would like a say in your funeral arrangements, discuss it ahead of time with your executor; include in the discussion your wishes regarding cremation or burial, as uncomfortable as it may be.  Also write down your wishes, covering anything from flowers and songs to speakers and location. Knowing how to respect your intentions in these matters will provide comfort to the bereaved and can go a long way to preserve harmony.

Review your beneficiaries

After completing the will, the next step is to review the beneficiaries named on your investment accounts to ensure they reflect your current wishes, especially if there have been life changes since you last addressed this, such as marriage, births, or divorce.

Consider giving gifts now

In some situations, it would make sense to gift some of your assets to your heirs while you are still alive. This could yield some tax benefits, so consult a tax professional to see whether this is an applicable strategy for you. However, be aware that once you gift the asset, you can’t get it back. There have been stories of people gifting cottages or vacation properties to their kids. Later on, an unfortunate rift occurred in the family, and the original owner no longer had access to these properties.

Also consult professionals regarding legacy gifts and charitable donations from the estate. Some families of significant wealth establish foundations and endowments. These might also provide tax advantages while perpetuating your values.

Establish a power of attorney

Establishing a power of attorney must be done while you are still of sound mind. A power of attorney is the person that will take over decision-making in the unfortunate event that you become sick or incapacitated and are unable to make decisions on your own. It does not have to be an immediate family member, but it does need to be someone capable and that you can fully trust implicitly, since he or she will have entire control over your financial affairs at that point.

At the same time that you are working with your lawyer to create a power of attorney, also create a healthcare directive or “living will’. This document lays out in detail which medical procedures you do and do not want.

Organize all your documents

The last step is to try to make things as clear and convenient as possible for your executor and heirs by organizing all your papers, files and records. Store them in a safe place that is accessible. Include things like the deed to your burial plot, insurance policies, investment account statements, bank statements, a list of your assets and contact information for key people (investment advisor, attorney, accountant, banker).

These preparations may seem like a daunting task, but the peace of mind gained from knowing that all your affairs are in order is priceless. Then you can forget all about it, and return to living life to the fullest.

Exponent Investment Management