How to future-proof your savings from health costs and taxes

Anyone thinking about preparing an estate plan should keep two things in mind before getting started, says Golombek. Firstly, estate planning doesn’t have to be difficult — you can get a good plan together by taking a few easy steps. Secondly, you don’t have to do all the prep work by yourself. “You don’t have to go it alone.”

If your estate is simple, expert advice from an advisor and a lawyer may be sufficient. Or, if you have a more complicated estate, “You can put a team of financial, insurance and tax advisors and a lawyer together to come up with a plan that may reduce your taxes and make it a more seamless process,” he says. Banks and other financial institutions can help you put together a team. Contacting them is a good place to start.

The next step is to draw up your own household balance sheet that includes all assets, debts, expenses and investments, including pensions, assets in registered plans — such as RRSPs — and any life insurance proceeds.

“People often put this off, because it’s a bit of work. But it’s helpful, and it means you know what assets you’re dealing with,” Golombek says.

An estate plan goes beyond just having a will, says Golombek. A will is where you state how your financial assets will be distributed among beneficiaries, but an estate plan includes other documents and instructions. “It’s really about all the big picture decisions you need to think about before a death.”

For example, an estate plan may include guardianship documents for any minor children. It should also include power of attorney documents specifying who can handle your financial and personal care decisions if you become incapacitated. These documents can differ slightly from province to province, so it’s a good idea to get some legal help, he adds.

If you’re concerned about having sufficient funds available for potential health care expenses or long-term care needs that may arise, your advisor can help you set up health savings accounts to supplement the pension income you’ll receive in your later years. Products such as TFSAs and GICs can provide easy liquidity, Golombek notes. In the same way you might save for long-term goals like retirement, vacations or education, planning now for potential health needs provides peace of mind that the money will be there when you need it.

Purchasing life insurance can be a good strategy to consider for an estate plan, because life insurance proceeds are not part of a will and can go to a beneficiary right away, says Golombek. “The proceeds can help the beneficiary take care of immediate expenses, such as taxes.”

A tax specialist can advise on the benefits of leaving certain types of assets to certain people, he says. For example, if you want to leave a portion of your estate to charity, you may want to bequeath shares instead of cash to avoid capital gains. You may choose to leave assets such as RRSPs or RRIFs to a spouse or partner to defer taxes.

Golombek says that people often neglect simple, yet critical, estate planning steps.

“Keep track of your accounts — who your advisors are, where your documents are, your passwords and so on,” he says. “And review your plan from time to time — your situation can change, your kids grow up and elements of your plan will need to be revisited.”

While it might not be the easiest topic to bring up at the dinner table, Golombek says you should talk to your family — at least in general terms — about your estate plan.

Again, an advisor can be a good source of guidance when it comes to initiating these conversations with loved ones.

“This is not always easy, but it’s important,” he says. “It can lessen disputes after you’re gone and makes it easier for everyone.”

Originally published in The Globe and Mail, September 2024.