Q: I am in my mid-40s and a self-employedprofessional engineer. My wife also has a degree in engineering, but is currently a stay-at-home mom. Soon, our teenage son and daughter will be attending university and we have set aside the finances for their education. However, I am concerned, in the event if I fall ill or worse, about what happens to my investments, etc. What can you suggest?
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A: Death is a very difficult subject to discuss. But it is more prudent to plan for the inevitable than wait for it.
Estate planning should be part of your ongoing long-term financial plan. This requires a professional financial planner, lawyer and accountant. Depending on the individual’s circumstances and stage of life, a lawyer may suffice for drawing up a will, but other professional input might be needed.
At death, an individual’s assets for tax purposes are deemed to be disposed at fair market value. Investments such as stocks, real estate and RRSPs can attract large tax liabilities. Why make Mr. Harper and Mr. McGuinty a beneficiary of all your fruits and labour? A sound plan can eliminate or defer taxes.
Assets of an individual can be distributed in the following manner:
- If you have no will (you’re “intestate”), your assets will be distributed according to the rules of the province (Ontario).
- Distribute assets according to your will. This ensures who gets what, when and how much. Make updates on a periodic basis.
- Name beneficiaries to your life insurance, RRSPs and pension plans. By naming your spouse as beneficiary, substantial taxes can be deferred until the passing of your partner.
- Joint ownership of assets, such as primary residence and joint bank accounts. Access to funds will be easier for spouse.
- According to a trust or shareholders agreement. Most business arrangements should have a form of succession planning.
- Give your assets away (should be prudent when doing this) or spend it all before your death (not great for beneficiaries).
Estate planning may not be the choice of topic at the cottage, but you will be relieved it was done.
Henry Choo Chong, CGA, provides accounting and tax services to individuals and businesses in the GTA. He can be reached at 416-590-1728, ext. 304.