What is in your estate and what is not?

One of the issues that should be explored during the estate planning process is the question of which of your assets fall into your estate, and which do not. This is important because when you make a Will, the Will directs what will happen with the assets that are in the estate. Not everything your own is necessarily going to be part of the estate.

So what kind of asset would not fall into your estate? There are two general categories of assets that do not.

First, assets that are jointly held with another owner do not form part of your estate. Examples that are familiar to most people are jointly owned homes, and joint bank accounts. The fact that these assets are jointly owned means that when one of the owners dies, the other one still owns the asset by right of survivorship. Note that "jointly owned" is not the same thing as "half and half". When you own something jointly, you cannot give away "your half" in your Will because you don't actually have a half. The surviving joint owner owns the whole asset. Therefore, the jointly owned asset is not controlled by your Will.

Second, assets that name a beneficiary do not form part of your estate. Some familiar assets that are set up this way are RRSPs, RRIFs and life insurance. For example, if you buy a life insurance policy, you will be asked who will receive the money from the policy after you pass away. That person is the beneficiary, and the money will be paid by the insurance company right to that person without the money ever passing through your estate.

The second type of asset, those with named beneficiaries, can be paid to your estate if the beneficiary you name is your estate instead of a person. Some people name their estates as beneficiary of insurance policies or RRSPs to make sure there is cash in the estate for the payment of debts and expenses.

When you go through the estate planning process with your lawyer, make sure you tell the lawyer whether any of your assets are jointly held and tell him or her who is named as the beneficiary under insurance policies, pensions, ESOPs, LIRAs, RRSPs and RRIFs. This will help the lawyer make suggestions about how you should set up your Will.