The three legal documents of an estate plan
From a legal perspective, a proper estate plan is accomplished by drafting three essential documents: a Will, an Enduring Power of Attorney, and a Personal Directive. All other estate planning decisions, such as beneficiary designations and how you own certain assets, must work in concert with these three legal documents.
The most important of your estate planning documents is your Will. A Will says what happens with all your worldly goods after your death. A Will may include trusts for your loved ones. A Will is used to appoint guardians for your minor children. Be careful about the consequences of dying without a will.
In its most basic form, a Will is a document that defines four important groups of people in your estate plan.
- Beneficiaries. Not only does the Will say who will get your assets after your death, but also specifically which assets each beneficiary will get and how and when your beneficiaries should get those assets.
- Executor. Will must appoint someone who has the responsibility to settle your estate. Choosing the right executor is not as easy a task as you might think. This person has a lot of responsibility and should be someone who can handle a difficult task. Your executor should be someone who has some financial experience. Ultimately, your executor should be someone you trust.
- Trustee. If you are planning to have any trusts set up in your Will, then you will need to appoint a trustee to manage the trusts.
- Guardians. If you have minor children, it is crucial that you appoint guardians for those children. This, too, is a big responsibility. Obviously, you should ask permission before you appoint someone as a guardian in your Will.
You can write your own will or use a will kit but be careful as a Will must be written and signed according to very specific rules that are different in every province. While this may seem insignificant, there are many stories about people who did not follow these rules and thereby caused problems in the estate settlement process.
The enduring power of attorney
The second formal document in an estate plan is the Enduring Power of Attorney. The Enduring Power of Attorney appoints someone to manage your financial affairs if you are alive but not capable of making financial decisions for yourself. It also sets out that person’s powers. The person you appoint is called your attorney.
The third document essential to an estate plan is the Personal Directive which appoints someone to make health care decisions for you if you are alive but cannot do so yourself. It may also set out your wishes. The person you appoint is called your agent.
Other things to do
Although these documents are crucially important, there are other strategies for estate planning outside these formal documents. Other strategies include owning things jointly with other people or naming direct beneficiaries on certain assets like RRSPs, RRIFs, and life insurance policies. It may also mean giving away assets during your lifetime or creating trusts before you die.
As part of the estate planning process, start with these three documents and the rest of your plan will follow accordingly.