How to Estimate the Cost of Settling your Estate

Many Canadians fail to realize that death can trigger various taxes and other costs payable that may dramatically erode the value of their estate.

In retirement, you must first plan to meet your income needs for the rest of your lifetime and your spouse's lifetime. In addition to calculating income from company pension plans and government benefits, this involves taking an accurate inventory of your registered and nonregistered assets. With some strategic retirement planning, you should be able to maximize your after-tax income from these financial resources and support the retirement lifestyle you've always envisioned. Regardless of your relative wealth position, it is inevitable that you will begin to consider what will happen to your estate at your death.

This report concentrates on some of these major estate liabilities, such as income tax on registered plan assets, capital gains tax, U.S. estate tax, probate fees, estate administration fees, court fees, legal fees and funeral expenses. With proper planning, most of the "death taxes" may be delayed until the death of the surviving spouse. The terms spouse and common-law partner are used interchangeably throughout this report. Therefore, you should note that many of these estate liabilities primarily relate to either a single person or to a "second death" situation in the case of partners.
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Capital Gains Protection

When first introduced to the term "estate planning", many Canadians consider it a service suitable for only the elderly. In reality, estate planning encompasses a wide range of options and solutions to achieve common goals shared by most Canadians. These goals may include:

• Transfer of property prior to, or after death, in a manner consistent with your wishes
• Maximization of after-tax estate value
• Reduction of taxes at death and for future generations

Planning ahead can enhance your assets for your heirs, without affecting your current lifestyle.

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Critical Illness Insurance

Critical Illness Insurance can help ease the unanticipated burden by bridging the gap between Life Insurance, which pays out upon death, and Disability Insurance, which covers lost wages due to an accident or sickness. Critical Illness Insurance pays a benefit when the policyholder is diagnosed with an illness specifically covered by the policy.

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Long Term Care Insurance

Traditional Life Insurance is based on ensuring financial security in the event of death. However, as advances in health care have extended average life span, new concerns have arisen. Will you have the financial means to live comfortably for the rest of your life? Do you have sufficient financial protection to pay for ongoing medical expenses?

While traditional retirement planning strategies today usually account for the financial implications of longer average life spans, they may not take into consideration the costs of care for debilitating, but not necessarily fatal, medical problems. Medical conditions that were once fatal – for example, certain types of cancer, heart disease, stroke, Alzheimer's – are now increasingly being managed by new drug therapies and care strategies.

However, living with these types of conditions may also require significant expenses related to treatment and associated debilitating conditions, which, in a deficit conscious fiscal environment, may not be adequately covered through public funding.

Rather than risk passing the burden of these costs onto relatives, a financial strategy for long-term care should be considered as an integral component of any comprehensive financial plan.

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