While we don't know what tomorrow may bring, planning ahead can help you maximize the assets you want to pass on to your beneficiaries and ensure that your estate is distributed to your loved ones the way you choose.
Effective estate planning requires careful consideration of many factors, depending on the objectives you're hoping to achieve.
Following the steps outlined below and understanding the reasons behind each step will help you develop a plan that accurately addresses your estate concerns:
1. Prepare an inventory of your assets and liabilities
A family inventory is a comprehensive list of information pertaining to your family's current financial status, such as:
- Financial accounts
- Investment-related debt
- Digital assets
- Insurance and annuity
- Non-registered investments
Completing an inventory is a key step in developing your estate plan. An inventory will help ensure that all of your assets are accounted for and considered, and that beneficiaries are taken care of.
“It helps to have an overview right at the beginning, to better plan ahead," says Michelle Lau, a wealth planner at RBC Wealth Management in Asia based in Singapore.
Regarding what you need to include on this list, Octavia Liu, a wealth planner at RBC Wealth Management in Asia based in Hong Kong, says, “Asset types can be very diversified. While bankable assets such as life insurance and property tend to be focused on, there might be items that are valuable to you, like antiques, jewelry or perhaps a book collection."
The inventory should also identify the ownership structure (for example, sole or joint ownership) of these assets, as well as any beneficiary designations applicable to the assets.
“It is also important to be cognizant of where the assets are located," adds Lau.
She explains that estate and inheritance taxes may vary across jurisdictions. “That might potentially complicate the probate process, because there will be legal processes that need to be completed in each jurisdiction where the assets are located," she says.
2. Draft a list of your estate-planning objectives
Estate objectives can act as a guide and help to ensure your estate plan accurately addresses both your personal and financial goals.
The following questions can help you establish your objectives:
- Who are the beneficiaries of the estate?
- When do you want your beneficiaries to receive their inheritance – immediately or at some future date?
- How do you want to pass your assets to your beneficiaries? There are a variety of options to consider: an inter vivos trust, also known as a living trust, is created by the grantor during his or her lifetime; a testamentary trust, which is formed after the death of the grantor; and simpler approaches, including outright gifts and inheritances.
- Do you want to leave a portion for your own retirement plan and/or to charities?
3. Determine the actions needed to achieve your objectives
After identifying and evaluating your estate objectives, the next step is to determine the components of your estate plan that will address these goals.
Having a will prepared is one of the most important steps to take in estate planning. It outlines who will oversee your estate, and how your assets will be distributed after you're gone.
Lau points out that a will is important because asset-holding structures may not cover every type of asset that you want to pass on.
While a will is a good start in crafting an estate plan, Liu notes that it does not cover every objective.
Other potential elements of your action plan may include changes in the legal ownership of assets (for example, placing the assets into an inter vivos trust, which is created while a person is still alive in order to name the beneficiaries of property and assets upon death), a full review of beneficiary designations for your registered plans and life insurance policies and possibly the gifting of assets prior to death.
4. Consult with advisors to support and help implement components of your plan
To ensure your estate plan is properly executed, you may require the assistance of professionals such as an accountant, a lawyer and possibly a trust officer.
"Speaking with a wealth planner may provide a helpful overview of the options available for estate planning," Lau says. "Your wealth planner or advisor might also share their experiences based on what they've seen in other cases – whether it's planning or asset distribution – to provide different perspectives."
Lau adds that a wealth planner will also be able to highlight certain legal and tax issues – and, from there, can guide you toward the professionals you should consult with to form a comprehensive estate plan.
5. Conduct periodic reviews
You should always be vigilant and mindful that changes in laws or in your financial and personal situations may require revisions to your overall estate plan.
Periodic reviews are a must to ensure that your estate plan is still achieving your objectives.
“People may change; their thoughts may change, too. Family situations may also be different, so it is useful to continue to review your plan from time to time," Liu advises.
Lau agrees, adding that family events such as a birth or a child getting married could be triggers for an estate plan review.
While a periodic review is important, Liu stresses that ensuring the revisions are valid in the presence of witnesses such as tax advisors or lawyers is equally important.
Don't leave your legacy to chance
It may seem logical to assume your assets will automatically pass to your family when you die, but it's not always that simple. Take control over who manages your estate and create a plan outlining who will be responsible for carrying out your wishes and how you want your assets to be distributed.
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