July 28, 2008, 6:00 am

Basics of Estate Planning Part 3

by: The Financial Blogger    Category: Financial Planning
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The first two posts of this series were more oriented on the necessity of having a will and the different ways to have a will. So now that you read these two posts and that you updated (or wrote!) your will, you think you are done with estate planning. After all, you just made sure that everything will be distributed as you wish, right? Sorry to tell you that people but you still have some homework to do in order to have a complete estate planning.

The next step is to determine your estate balance sheet. The first purpose of this exercise is obviously to determine if you leave more debts than assets to your estate. One important thing to know is that you have the right to refuse a heritage even though you are the will. Who would like to inherit from their old uncle’s debt anyway?

Once you pass away, you are deemed to have disposed of all your assets a second before your death. I guess the government wanted somehow to be part on your will. Therefore, if you are deemed to sell all your assets before you pass away, this means potential taxes in the government pockets 😉 However, this topic will be treated in another post.

In order to write down your estate balance sheet, you must start from your existing net worth. Now, for the purpose of the calculation, let’s define the term “net worth”. You can argue on the definition as you want but in financial planning, the net worth is the sum of all your assets (bank account, registered and non-registered investments, all properties (including your personal residence) and cars) minus all you liabilities (credit cars, loans, lines of credit, mortgages, etc.).

So the first line of your estate net worth is your existing net worth. Then you will add some elements that are not part of your “living” net worth such as life insurances on debts, personal life insurance (individual or from work) along with government allocation (in Quebec, your estate receive $2,500 taxable 😉 ).

Once you are done with the insurances, you have to make some deductions. For example, you will have the cost of your death (church, reception, flowers, etc.). I would recommend using 10K to 15K as a rule of thumb. Funerals are like weddings; they start at 10K and there is no maximum! Then, you have to include the taxes to be paid by the estate. Remember at the beginning of this post I was saying that the government was putting his name on your will, this is where it comes to play. My next post on this series will be related to this topic.

So now you should have an estate balance sheet similar to the following:

Net worth: $300,000


Life insurance $100,000

Car life insurance: $15,000

Mortgage life insurance: $150,000

Government allocation: $2,500

Sub-total: $567,500

Funeral expenses: ($15,000)

Estate taxes: ($75,000)

Sub-total: ($90,000)

Total estate net worth: $477,500

Bravo! Now you have your estate net worth and you just realized that you worth more dead than alive… Beware of the person with the kitchen knife smiling in your back…


Basics of Estate Planning Part 1

Basics of Estate Planning Part 2

Basics of Estate Planning Part 3

Basics of Estate Planning Part 4



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