Did you know – the inheritances left behind by today’s Baby Boomers will equal an estimated $1 trillion over the next two decades? That’s a lot of dough – and is the biggest generational transfer of wealth in Canadian history.
However, there are only two certainties in life – death and taxes. If you’re a Boomer passing on such a huge windfall, protecting your estate from the taxation and ensuring your loved ones are cared for becomes a critical issue.
Passing Down Debt Woes
In addition to the challenges posed by the taxman, Boomers are also carrying large amounts of debt, due to the perfect storm of record low interest rates, skyrocketing housing prices and shrinking defined benefit pension plans. While Boomers’ net worth may be high, the average household debt-to-income ratio was 164.0 per cent in the fourth quarter of 2013. That means for every dollar of income, the average Canadian had $1.64 dollars of debt – yikes! This means carrying debt into retirement is no longer taboo, but a fact of life.
The Impact on Generation Y
When the Baby Boomers eventually pass away, Generation Y could be in for a rude awakening. There may be very little left in estates for Millennials after debt repayment, taxes and probate fees. That’s why time is of the essence when planning your estate protection.
Here’s what you need to know to effectively protect your estate.
Do Due Diligence on Your Will
At the heart of your estate is your will. Your will spells out how your assets are to be divided and to whom. “A will can let you decide who you would like to inherit and exactly how much of your estate they will get and in the case of minors – when you would like them to receive the funds,” says Nadezhda Gaskin, Barrister & Solicitor at Gaskin Law Office.
“I would say the best way to protect your estate is to ensure you have a will properly drafted by a lawyer. The will allows you to appoint an executor of your choosing to oversee the administration of your estate.”
And high-net worth individuals aren’t the only ones who need to worry about protecting their estate from the taxman. There are many basic things you can to while you’re still alive to ensure your loved ones will have something left to enjoy.
Choose an Executor
Choosing your executor isn’t a decision to take lightly. Your executor plays a key role in the distribution of your estate. “The choice of executor or Estate Trustee is key as this person will be taxed with distributing all of your assets and paying all of your debts and filing for probate,” says Gaskin.
Leave Complicated Details to the Pros
Not only is drafting a will smart estate planning, it’s a must, especially if you have a complicated estate. “A lawyer can set up your estate so that any money left to a married child will not form part of family equity should that child subsequently divorce,” says Gaskin. “A will can ensure a grandchild doesn’t receive a windfall at 18 years old when perhaps they don’t have the maturity to deal with significant sums of money.”
The DIY Approach to Estate Planning
Drafting a will doesn’t have to be a complex ordeal. If your will is plain vanilla, there are inexpensive DIY will kits you can pick up for under $20 from Chapters. If you don’t feel comfortable writing your own will there are lawyers specializing in estate planning that can help you out.
Remember, if you don’t have a will, decisions on how your estate will be divided go to the province… and won’t necessarily be according to your wishes.
Most importantly, a will allows you to fulfill your wishes and bring smiles to the faces of loved ones when you aren’t around. “More than anything, a will gives loved ones guidance to your wishes when you aren’t here and makes the process of probate much easier,” says Gaskin.
*The above does not constitute legal advice and does not create a lawyer-client relationship and is only provided as general information.