What Is Estate Planning?

Adequate life insurance coverage can provide you and your family with a guarantee that your current lifestyle and family goals will be provided for should something happen to you. While life insurance is considered a key component of most financial plans, the first step is to assess your personal situation and establish your needs.

Do you have an up-to-date financial plan based on your family's requirements? By making a thorough assessment of your circumstances, a life licensed Investment Advisor can work with you to define your goals and assist you in determining both the proper amount of life insurance and which type of insurance is right for you.

There are two types of life insurance: term and permanent. Generally, term insurance covers temporary or short-term needs, whereas permanent insurance is purchased for long-term or lifetime needs. A comprehensive personal financial review, which includes an insurance needs analysis, will help you evaluate your situation. Let's review what your needs and goals might be.

If something were to happen to you today, which meant that you were no longer contributing financially to your family's income, would their financial security be in jeopardy because of debt? The goal is to assess all the immediate expenses that would need to be paid if you were to pass away. The key objective is to leave your family and loved ones without any financial worries.

Immediate expenses include any current debts. Under this category, you would need to consider any outstanding balances on your credit cards or a line of credit. An outstanding mortgage would also fall into this category, under the umbrella of current debts to retire.

In addition to eliminating any current debts, you may also want to provide enough insurance coverage to create a children's education fund. Other basic goals, like providing for future income needs, also need to be assessed. A thorough insurance-needs analysis will assist you in reviewing your requirements.

If your death triggers tax liabilities, these would be considered long-term debt. Your Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs) as well as your stock portfolio, possibly some business interests, and real estate may all be sources of potential tax liabilities.

As an example, let's consider what happens at your death to your RRIF. If you do not have a surviving spouse, then the total fair market value of your plan must be taken into income, and taxed in your final return. However, by designating your spouse as beneficiary of your plan, he or she would be eligible for a spousal rollover of your RRIF assets. On the death of your spouse, the total fair market value of the plan becomes taxable as income to him or her in the year of death.

Let's assume at death your RRIF is worth $300,000. If you are in a 50% tax bracket, then half of the plan's assets, or $150,000, would be owed as tax.

Assets that may trigger capital gains at death include property such as a family cottage. If you have held property or assets over a long period of time and have had even a moderate growth rate, you may be surprised at what you owe.

Let's illustrate the impact using a cottage, which is considered a second property and not a principal residence. Let's assume it was originally purchased at $20,000 and today's market value is $200,000. Of your $180,000 growth, which is a capital gain, 50% is taxable. Therefore, only $90,000 would be taxable. In a 50% tax bracket, you would owe $45,000 in tax. If you want your family to continue to own and enjoy the cottage you'll need to plan its transfer to the next generation in the most tax-efficient manner possible.

Life insurance can often provide the solution to many financial needs and objectives. Whether you have a temporary or permanent need to offset a financial risk, life insurance may be the answer you're looking for.

A needs analysis will assist you in analyzing all your requirements. A life licensed Investment Advisor can work with you to evaluate your personal situation and help you to design a plan that meets your goals.

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Estate planning is the process of developing and maintaining a plan that will preserve your accumulated wealth and ensure an effective and beneficial distribution of your assets to your heirs. Whether your goals are to ensure your dependents are financially secure or to implement effective tax-planning strategies, every estate plan is unique. Throughout the process of developing an estate plan, you should be working with a team of professional advisors, specialized in the areas specific to your needs.

When it comes to estate planning, strategies to achieve your goals range from simple to complex. Overall, estate planning objectives may be grouped under four key headings: financial objectives; provision for family; plans for disposition of an estate; and philanthropy.

Before you begin, you need to decide what you wish to accomplish. Some strategies that you may wish to consider include: designating beneficiaries; registering property jointly, and establishing trusts. While estate planning is a significant commitment, you can rest assured that you have a plan in place. A CIBC Wood Gundy Investment Advisor can assist you in developing strategies that will properly reflect your situation.

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Part of an Estate Plan You Can't Do Without

You've taken the time to build your wealth by carefully planning and selecting investments that have helped you prosper. This type of attention doesn't end during your own lifetime. The same time and care should go into protecting the legacy you leave for your loved ones in the future. Estate planning is a strategy that enables you to plan for tomorrow.

No matter what stage of life you're in, an estate plan can help you simplify the transfer of assets to the next generation and protect your beneficiaries. An effective estate plan that incorporates life insurance can make passing along your assets easier, while minimizing the tax impact on your heirs.

Although it's something no one wants to think about, failing to put your estate in order could cause unnecessary economic hardship to your loved ones. If you don't prepare a proper estate plan, your family could potentially be faced with expenses that could deplete your estate. By incorporating life insurance into your estate plan, you can protect your family from these consequences and preserve the maximum value of your estate for them.

Life Insurance as Part of Your Estate Plan

Life insurance is often overlooked as an investment tool for estate planning. By integrating life insurance into your estate plan, you can choose a customized policy that offers income growth opportunities, insurance coverage and attractive tax advantages. All of these benefits can be passed on to your beneficiaries.

If the policy you select includes an investment portion, it can be tailored to the asset mix and risk tolerance level you are comfortable with. Most appropriate are whole life and universal policies that can permit tax-sheltered growth of capital in certain situations. This may be used any way you see fit: To fund your retirement, pay for a child's education, finance a vacation or to meet any other needs you may have. An Estate Planning Specialist (Financial Security Advisor in Quebec) can help you determine the policy that works best for you.

Insurance Policies

A variety of insurance policies are available to meet your estate planning needs.

• Term Insurance
• Annuities
• Disability Insurance
• Critical Illness
• Universal Life
• Whole Life Insurance

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When it comes to settling estates, horror stories abound - siblings now estranged because one received a coveted heirloom, children from a first marriage being completely left out in favour of the new partner's offspring, the much-loved family cottage sold to pay taxes. These horror stories can affect wealthy and average Canadians alike.

Many people are uncomfortable talking about money. When the topic of money is combined with the possible death of a loved one, the discussion is bound to be emotionally charged. And it's emotion that often stands in the way of effective estate planning.

Adult children may be afraid to look like "gold-diggers," interested only in their parents' wealth. Parents may be reluctant to make decisions or explain their intentions to their children. But the benefits of openly discussing estate planning far outweigh any temporary discomfiture.

An ideal time to discuss your estate plan with your adult children is while you are preparing your will. This provides an opportunity to find out what your children's expectations are regarding the estate, and whether these match your intentions. It will also give you a chance to explain the rationale behind your decisions - especially important if the estate is to be distributed unequally.

Encourage your adult children to establish their own estate plans. When they purchase their first home or have children, you might want to ask what provisions have been made for the new family's security.

On the other side of the coin, as a potential beneficiary, your challenge is to discuss your parents' estate without appearing overly eager to inherit it. One effective approach is to take the first step yourself. Talk over your own estate plan with your parents and ask their opinion. This may naturally lead to a discussion of your parents' plan. If your parents seem to have no formal estate plan, explain why it is so important and walk them through the steps you took to arrive at your estate plan.

Discussing death is never easy. It helps to remember that having these discussions now will make it easier to settle the estate in the long run.

Use our Find An AdvisorOpens a new window in your browser. tool to locate a CIBC Wood Gundy Investment Advisor near you and take the first step to achieving the financial future you want.