As hard as it might be to talk about, estate planning is important if you want the satisfaction of knowing that your future and that of your family are taken care of.

Estate planning is when you create legal documents that lay out your instructions so your friends and family can follow your wishes in the event you’re unable to make decisions for yourself or upon your death. It can prevent family conflict from brewing and ensure your property, money, and treasured items are distributed exactly how you wish.

Your estate is one of your greatest legacies to your loved ones, after all. Estate planning allows you to protect the wealth you’ve accumulated over your lifetime while helping you better secure your family’s financial future.

Key Takeaways:

• Everyone should consider will and estate planning, whether they’re a young adult just starting their career or a retiree.

• Creating an estate plan can help preserve your hard-earned wealth and ensure your wishes will be carried out after you’ve died.

• Estate planning could help your beneficiaries avoid taxes, delays, and out-of-pocket costs.

• By defining how you want your assets to be distributed, you can prevent future disputes or conflicts among your loved ones.

• Enlist a team of qualified professionals to support you in navigating the complexities of planning your estate.

Who should consider estate planning?

No matter how old you are or how much money you have, you should consider estate planning. Talking about your financial assets and future wishes can feel awkward, but addressing these issues now can help you feel more confident about your future and ultimately the legacy you’ll leave to your loved ones.

Why is estate planning important?

First, estate planning makes sure your hard-earned money goes to the people and causes you care about. Second, having a plan can also ensure the taxes on your estate are properly managed so your family or named beneficiaries get their assets faster and via a less stressful process. Third, it ensures your wishes—from the plan for a dependant to your funeral arrangements—are followed.

Who can help you plan your estate?

Estate planning involves details specific to your financial situation, so you’ll want to meet with the right professionals to help you figure it all out. You can enlist a will and estate planner, a lawyer, and an accountant to help you create the suite of documents you need.

3 benefits of estate planning?

You’ve probably heard nightmarish stories about estates getting held up in court for years or family dramas that ensued after the funeral. That’s the last thing you want your loved ones to deal with when you pass away. By planning your estate, you’re helping to:

1. Preserve your capital

If you’re able to protect your estate from additional taxes, more of your assets can end up where you want them—with your named beneficiaries or donated to causes you care about. Estate planning can help make sure your assets are not held up in the settlement process or affected by fees that your family may have to pay out-of-pocket to settle once you’re gone.

2. Bypass probate

You don’t want your estate to get stuck in limbo in the court system during the probate process. You can work with your estate-planning team to structure your assets in a tax-efficient way. Certain assets in your estate, such as segregated funds, may be able to bypass probate (the process by which a court formally approves a will as the valid and last testament of the deceased person) so your beneficiaries can get their payout faster and decrease or avoid the cost of probate fees and taxes.

3. Protect relationships

Nobody wants the settlement of their estate to cause fighting among their loved ones or their family’s financial matters to be made public. By having segregated funds as part of your portfolio, you may be able to keep your named beneficiaries and your estate information more of a private matter and make sure the proceeds are paid quickly and directly to your chosen beneficiaries. Structuring your wealth distribution—by, for example, putting some money in a trust, delaying the transfer of wealth, or providing a gradual payout over time—can also help ensure that beneficiaries receive a more enduring inheritance.

What you should consider when planning your estate

People typically think estate planning only involves creating or updating their will. While a will— the guiding legal document in the administration of an estate—is critical, there are lots of other components to consider.

First, you need to decide which professionals you want to work with to create your estate plan, and then you have to create a list of your assets before you decide how you’d like them to be distributed when you’re gone. Here are a few things you’ll want to do first.

Gather important documents and information and keep them in a centralized file

Begin organizing your documents to make assessing your wealth, assets, and debt easier and faster. You’ll need the following to get started:

• Birth certificate

• Marriage certificate(s)

• Social insurance number

• Real estate deeds

• Will and powers of attorney for property and personal care

• Safety deposit box information

• Contact information for your executors and named beneficiaries (called an estate trustee in Ontario and a liquidator in Quebec), advisors, lawyers, and accountants

Prepare or re-evaluate your wills

There are many reasons to write or update your will, but for most people it usually involves some kind of life change. If you have a child or dependants, get married, buy property, or experience a health scare, it might be time to think about what you want for the future.

Take the time to prepare, review, or update your will(s) to ensure it reflects your current wishes. When you update your will, you should also consider appointing powers of attorney (both for personal care and property). A power of attorney is someone you choose to take over your personal affairs if you become unable to manage your estate or personal care. You will also need to consider who will manage and settle your estate after you pass away.

What should you consider when choosing an executor(s)?

Choosing an executor is a big decision and the role is a huge responsibility to put on a loved one. Your executor is in charge of settling your estate according to your wishes once you’re deceased, and the sheer volume of legal, tax, and administrative tasks can be overwhelming. Consider that some complex estates can take years to settle and there can be more than 70 individual tasks involved.

Before you choose an executor, there are a few things to think about:

• Consider your family dynamic when choosing a spouse, child, or sibling. Many of the tasks will have to take place while the executor is still grieving.

• Consider the age and health of your executor and whether they’re likely to survive you.

• Choose someone who is able to handle complex tax, legal, and administrative tasks and has the time to put in the work over what could be a few months or longer.

• Ask your executor before naming them in your will to ensure they are willing and able to help you manage your estate.

• Keep in mind that you can also choose a trust company, a lawyer, or an accountant to be your executor if you don’t want to burden your loved ones with a complex task.

Make an inventory of your family’s assets and liabilities

Before you can decide where your assets (and liabilities, like debts) will go when you die, you need to know what you have.

Create a thorough list of your assets:

• List your physical assets, like real estate, personal property (like jewelry and art), insurance policies, bank accounts, investments, and pensions.

• Assess the ownership structure of your assets and what the taxable or legal impact may be of joint versus individually owned.

Make a list of your liabilities:

• This includes debts such as mortgages, credit card debt, personal loans, and unpaid taxes.

Assess your financial preparations

Now that you’ve looked through your assets and liabilities, it’s time to consider where you’re at.

• Review your pension(s) and investments to ensure they meet your financial goals.

• Consider your insurance coverage (from life to property) to ensure the amount and type of insurance will cover final expenses and any ongoing needs of your family.

• You can even arrange a prepaid funeral—if you can wrap your head around it. Not only does it alleviate some immediate stress after your death, it can also reduce the financial burden of funeral costs.

Review your beneficiary designations

You can choose to name your beneficiaries either as revocable or irrevocable. Revocable means you can change the named beneficiary at any time. Most insurance policies use revocable beneficiaries.

Irrevocable means you need the consent of the named beneficiaries to make the change after they’ve been written into your will or designated on an insurance or segregated fund policy. An irrevocable beneficiary is more ironclad.

Estate planning doesn’t have to be a big, scary undertaking. The process can actually help you feel more secure about the future and give you comfort that you’re continuing to help support your family and loved ones after you’re gone.

Speak with an advisor today to learn more about how RBC Insurance can help be a part of your estate planning to protect your financial future and those of your loved ones.

Surprisingly, there’s an option that you may not have heard about: segregated funds. Discover the differences between segregated funds and mutual funds and why the former might make a great addition to your investment portfolio.

Key takeaways

• Segregated funds and mutual funds both involve pooling investments with other investors to create more options and reduce risk, but they also have some key differences.
• Segregated funds are an insurance product with unique benefits, such as guarantees on your original investment, estate-planning perks, and potential protection against creditors.
• Before choosing your investment route, speak with a certified professional about considerations that include your retirement timeline, tax planning, and risk tolerance.

What are segregated funds?

Segregated funds, also known as guaranteed investment funds (GIFs), are similar to mutual funds in that they involve the pooling of money by multiple investors. In both cases, a professional fund manager will take that pooled money and invest it in various stocks, bonds, and/or other securities (known as a “portfolio”), based on the fund’s investment mandate. This strategy allows investors to put their eggs in a variety of different baskets, which may limit the risk of market fluctuations.

The major way that segregated funds are unique is that they include insurance guarantees, which means you may be able to protect part or all of the money you originally invested. At their most basic, segregated funds are mutual funds combined with an insurance policy.

How do segregated funds and mutual funds differ?

Mutual funds and segregated funds are similar in many ways: they have professional portfolio managers, they allow you to diversify risk, and they offer potential creditor protection on registered accounts.

But, there are some unique benefits of segregated funds.

Principal protection

When investing in mutual funds, there’s always the risk that the market could be experiencing a downturn when you’re hoping to access your savings for retirement. With segregated funds, the amount you invest (known as your “principal”) is protected by two guarantees.

• Maturity guarantee: At the maturity date (the date the term is up for your investment—typically, 10 years or longer), you’re guaranteed to receive either the current market value of your investment or a minimum guaranteed amount, whichever is greater (the difference paid is often called a “top up”). The minimum guaranteed amount is typically 75 to 100 per cent of your principal, minus management fees and other costs.
• Death benefit guarantee: Should you pass away, the person or people you name as your beneficiary or beneficiaries will receive either the current market value or a minimum guaranteed amount (75 to 100 per cent), whichever is greater.

Estate-planning benefits

Normally, the settlement of an estate takes time and involves a public probate process (where the courts formally recognize and review an individual’s will) with fees and taxes. With a segregated fund, the death benefit may be paid out faster to your named beneficiary or beneficiaries, bypassing a lengthy, public, and expensive estate settlement and probate.

If you have a blended family, a segregated fund may reduce potential conflict by allowing you to set aside assets from your overall estate to go directly, and privately, to a specific beneficiary.

The quicker process with the segregated fund could also help your beneficiary or beneficiaries when its proceeds are intended to provide ongoing financial support.

Resets

With segregated funds, you may be able to “reset” the guaranteed amount of your principal investment. Say you invested $10,000 in a segregated fund, and the market rises over the next year, so your investment is now worth $11,000. With a reset, you can lock in your principal guarantee at $11,000 to protect your gains. Just note that your maturity date will likely reset as well.

Potential creditor protection

Segregated funds are an insurance product. That means, unlike mutual funds, segregated funds can potentially protect both registered and non-registered assets from creditors. If you’re a business owner or are self-employed, this perk might be particularly attractive.

Liquidity

Both segregated funds and mutual funds can be cashed in at any time at their current market value. However, you’d need to hold the segregated funds until their maturity date in order to access the maturity guarantee amount.

Fees

Sometimes, the fees for segregated funds may be higher than for mutual funds, due to their additional benefits.

Factors to consider when choosing between segregated funds and mutual funds

When deciding between various mutual fund and segregated fund portfolios (or choosing a mix), you’ll want to consider several factors.

• Investment goals and timelines: Segregated funds are a long-term investment and will match best with your long-term goals, such as planning for retirement or planning a financial legacy for your family.
• Risk tolerance: Mutual funds and segregated funds have investment options for all risk tolerances, but segregated funds are generally considered safer, because of the principal guarantees.
• Liquidity needs: Do you need to be able to liquidate your assets at a moment’s notice? Both segregated funds and mutual funds allow you to access your invested capital at any time; although, cashing in early means you lose your guarantee.
• Estate-planning considerations: Segregated funds can be a smart idea if you’re planning a financial legacy for your beneficiary or beneficiaries or you want privacy for your estate plans.