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Sunday, October 24, 2010

Estate planning belongs in your financial plan

Today I participated in a day-long seminar about planning for retirement. Most of the seminar focused on financial planning. The speakers talked about portfolios and RRSPs and funding retirement. The people attending the seminar were there to discover how to maximize their income and investment portfolios.

Individuals and couples who are making plans for retirement should have a comprehensive financial plan that is hammered out with a good financial planner. It includes building an estate through home ownership, employment income, inheritance and investments. It co-ordinates various strategies such as beneficiary designations, income splitting and setting up the right portfolio. It includes budgeting and an insurance review. If you own a business, your financial plan will include plans for the sale or transfer of that business.

So what does estate planning - which is about someone dying and/or becoming mentally incapable - have to do with all of this?

There are two basic ways in which estate planning fit into the financial plan. The first is to protect what you've set up. This might include putting a power of attorney in place and finding ways to make that attorney accountable for his or her actions. Your planning should include a Will which help you reduce taxes, and an insurance component that will pay for taxes when they cannot be avoided. It may include charitable giving as a strategy for reducing taxes.

The second way in which estate planning fits into a financial plan is that it provides for the smoothest transition of assets possible on your death. Joint property,  beneficiary designations and sole ownership should all be reviewed to make sure that everything works together with the Will. Having a strong Will means reducing the chances that your Will is going to be contested by someone, which causes tremendous delays and added expenses, not to mention upsetting family members.

One of the seminar attendees remarked to me that it seemed as if it took a lot of people to set up someone's estate planning. That isn't always the case, by any means. But the more complications that exist in your life (and by that I mean owing a business, owning property in other countries, entering into a second marriage, etc), the more it's going to take to set up a good financial and estate plan. More complicated estate planning is usually a collaboration between you and your team - that is your lawyer, your accountant and your financial planner.

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