August 6, 2008, 6:00 am

Basics of Estate Planning Part5

by: The Financial Blogger    Category: Financial Planning
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After four posts on estate planning, we are getting deeper in the financial aspects of your death. Do you leave people behind that are financially dependent? Do you wish to make gifts to nephew and nieces or simply make a donation? After reading this article, you will be ready to assess if you have enough money to cover your last wishes. If you don’t I will also show you how to calculate your need in term of liquidity at the time of your death.

Before you assess your need, you need to go back in this series and calculate your estate net worth. Than, you need to know how much liquid asset will remain once the taxes are paid. Then, you can start calculating to know if you have enough money left for your heirs.

Financial dependents

If you have a family, you automatically have financial dependents. Financial dependants are people who need a part of your income to support their life style. This usually includes your children and your spouse as we usually need both salaries to run the household.

The best way to determine how much you need is to assess how much your financial dependants need per year and for how long if you would ever pass away. Once you determine how much you need, you will need a financial calculator or a friend that knows math 😉 You basically have to find the present value of these future cash flow.

The question is:” how much do I need today to create an annuity that will give 30K per year indexed at an inflation rate of 2% during the next 30 years?”. If you have a financial calculator you do the following operations:

PMT: -30,000 (payment)

I: 2% (interest rate)

N: 30 (amortization)

COMP PV: (that will give you the present value).

This amount is what you need as liquid asset in order to purchase the annuity. In order to find this amount, your heirs can use your life insurance, your non-registered funds or ultimately sell a property (if you have more than one, if not, your spouse would have to move to an apartment).

Children school fees

You can apply the same calculation for school fees if you want to make sure that your children will have enough money to pay their tuitions fees. If you leave more than 25K per kids, you are better off creating a holding so it can be manage according to your will.

Santa Claus

If you have no financial dependents, you would technically not need life insurance since nobody will need your money to live anyway. However, if you want to play Santa Claus with your nephews and nieces or with your friends or family, you can also plan to leave them a few bucks 😉


Related links:

Basic of Estate Planning Part 1

Basic of Estate Planning Part 2

Basic of Estate Planning Part 3

Basic of Estate Planning Part 4


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Another good read. Although I think inflation is around 3.5 maybe 4.0% right now.

Other things to consider is if they wish to pay off some or all debts and the house. If they wish that, add the debt and the house balance. Add the 15k for the funeral. Then figure how much income would be needed to pay the bills after all that is paid. Add schooling in as well.

If you have no dependents, I usually just recommend a small enough policy to cover final expenses and a funeral (i do state that it is not needed) … unless you want to play Santa of course.

Something else to add, if your estate is big enough to have estate taxes ($2 million minimal in US) add enough to cover them OR transfer assets away just before death to get 1 dollar below the limit.

by: The Financial Blogger | August 7th, 2008 (6:46 am)


it is true that inflation is higher right now but should remain around 2% over a long period. Several people prefer to put 2.5% or 3%, that is really according to your beliefs.

Thx for the additional info!

I am still going to have to disagree with the inflation numbers. Take the Avg inflation since ’73 (taken from…again, this is kinda US centric..sorry), inflation has actually averaged 4.726%.

However, if I take it back to 1914, it avgerages 3.423%.

Since I usually use 3% as inflation, I might need to think about stepping it up to 4.5%.

Damn I am a data junkie. I need to get out more. I’m married with a 3yr old and I spend more time on this thing than with my family…geesh.

by: The Financial Blogger | August 7th, 2008 (6:05 pm)


I would have to check for Canada but I am pretty sure it’s way lower… I am actually surprise to find out how high inflation is in the States!

No kidding. I thought all this time it was a low 3%. I’m going to have to update my office on this.

by: The Financial Blogger | August 7th, 2008 (8:16 pm)

Yeah but data from 1915 are old. In fact, banks are managing their inflation rate in a much better way since the 1990 (inflation rate of 2.19% since then).

Bretton Woods Collapse in 1973 or 74 I think. Before that time, I don’t think it is relevant to consider inflation rate as no mecanism were in place…

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