The Complete Guide to Planning Your Estate in Ontario

When estate professionals discuss estate planning, they’re not simply describing the process of writing a valid will and keeping it up to date. Estate planning is difficult for many to think about—people understandably don’t like thinking of a time when we may no longer be around. Estate planning may potentially feel morbid to some.

While it may be uncomfortable, carefully planning your estate is one of the greatest gifts you can give your loved ones. Once you’re gone, they’ll have to sort through your belongings, your assets, and your debt, and possibly go through probate, which is a court process that can involve high fees and bureaucratic obstacles. Leaving behind a thoughtful estate plan that you’ve discussed beforehand with your loved ones will ensure that they won’t be burdened with unnecessary stress during an already difficult time.

An estate plan is a dynamic and ongoing process designed to ensure that your assets are transferred seamlessly to your chosen beneficiaries, minimizing fees, taxes, and delays caused by bureaucratic obstacles. A good estate plan is always highly personalized to you and your family and loved ones, and everyone’s ideal estate plan is going to look a little bit different.

Though everyone’s specific estate plans are bespoke for their situation, most share the same goals:

• Reducing the need for probate or even aiming to avoid it entirely

• Strategies to reduce probate fees and taxes so more of the estate is left for beneficiaries, and

• Ensuring that beneficiaries have access to their share of the estate as soon as possible

Estate plans will often also include precise instructions for funeral arrangements, or perhaps even have some sort of arrangement made with a specific funeral home to secure services at a predetermined cost.

Creating a comprehensive estate plan may seem daunting, but it all begins with an honest conversation with your loved ones. By maintaining transparency and patience throughout the process, you ensure that your wishes will be executed confidently when the time comes. Let's walk through the essential steps to create your tailored estate plan in Ontario.

Step 1: Identify Key Participants

To begin the estate planning process, decide on who will perform key roles in the administration and management of your estate and other matters. These roles include:

• Executor: Choose someone trustworthy and capable of administering your estate and discuss this responsibility with them.

• Beneficiaries: Decide who will inherit your assets.

• Power of Attorney: Choose trusted individuals to manage your personal care and financial affairs if you become unable to do so.

• Witnesses: Ensure all legal documents are properly witnessed as required by law.

Step 2: Create an Inventory of Assets and Liabilities

You can't create a solid estate plan without knowing the size of your estate.

Create an inventory and estimate the value of all your assets, including:

• Real estate

• Vehicles

• Financial accounts

• Retirement accounts

• Life insurance policies

• Personal effects and valuable (e.g. jewelry, antiques, rare collectibles, artwork)

• Digital assets (cryptocurrency, NFTs, intellectual property)

• Any liabilities or debts that may need to be paid off by your estate

Additionally, make a list of your digital assets and online accounts, and leave clear instructions on how you want them managed. Consider recording your usernames and passwords in a secure location for your executor’s reference.

Step 3: Outline Additional Wishes

Holistic estate planning means taking stock of all your wishes and desires, not just managing assets. Here are some other additional wishes that may be referenced in your last will or other estate documentation.

• Funeral Arrangements: If you have specific wishes for your funeral service, include them in your will. Consider making pre-arrangements with a funeral home to secure services at a predetermined cost and reduce stress for your loved ones.

• Managing Property Outside Your Jurisdiction: If you own property outside your jurisdiction, be aware that it will be governed by the laws and probate procedures of the jurisdiction where it is located. For instance, property situated in another province or country may have unique probate requirements or tax implications.

Step 4: Create the Necessary Legal Documents for Your Estate Plan

Steps one through three had you describe your assets and wishes for the distribution of those assets in detail. The next step is to draft the proper legal documents to accomplish your goals with the help of a qualified estate professional.

• Last Will and Testament: Clearly specify the distribution of your assets, designate beneficiaries, outline funeral arrangements, and express any additional personal wishes.

• Living Will (Personal Directive): Specify your healthcare wishes in advance, in case you become incapable of communicating or making decisions yourself.

• Power of Attorney for Personal Care: Designate someone to make healthcare and personal care decisions on your behalf if needed.

• Power of Attorney for Property: Appoint someone to manage your financial assets and property if you become incapacitated.

• Trust Documents: If you decide to use trusts as part of your estate plan, work with an estate professional to draft the necessary trust documents. This might include family trusts, spousal trusts, or testamentary trusts established through your will.

No, an estate plan is not the same as a will in Ontario. A will is just one element of a comprehensive estate plan. Proper estate planning encompasses a broader scope, including several key documents and strategies designed to manage your assets and decisions effectively.

A will plays a crucial role within an estate plan, but it does not encompass the entirety of estate planning efforts needed to ensure comprehensive management and transfer of your assets.

Estate planning requires you to have a lot of important documents that are kept in a safe space, and are accessible to your loved ones when they need them. Here are some of the documents that form part of any solid estate plan.

Last Will and Testament

As mentioned above, a valid will is the cornerstone of any good estate plan. It outlines your instructions for asset distribution, names beneficiaries, and appoints an executor. Your loved ones will present the will to the probate court to carry out your wishes legally.

Living Will (Personal Directive)

A living will is also known as a personal directive, and this is a legal document that outlines your instructions for your healthcare and personal care in the case that you’re incapacitated and can no longer advocate for yourself.

Power of Attorney for Personal Care

While it’s easy to confuse a living will with a POA for personal care, there is a key difference. While a living will establishes specific directions for your care when you’re no longer able to express them, a POA for personal care gives someone else the authority to make healthcare and personal care decisions on your behalf when you’re no longer able to.

This means that instructions don’t need to have been written down ahead of time by you; a POA means you’ve given a person of trust the authority to make decisions for you, whatever those may be (as they’re related to healthcare and personal matters).

Power of Attorney for Property

A POA for property gives someone you’ve designated as your “attorney” the authority to manage your financial affairs if you become incapacitated. They can handle tasks such as paying bills, managing bank accounts and investments, and buying or selling real estate or other assets.

Not sure you entirely understand how Power of Attorneys work in Ontario? Read our blog post discussing their function, how to properly use them as part of your estate plan, and our expert answers to commonly-asked questions.

Trust Documents

While not necessary for everyone, trusts can be valuable estate planning tools. If you decide to include a trust in your plan, you'll need to create the appropriate trust documents. These might include:

• Inter vivos (living) trust agreements for trusts created and activated during your lifetime

• Testamentary trust established through provisions in your will, taking effect only after your death

• Specialized trust documents for specific purposes, such as Henson trusts designed for beneficiaries with disabilities

Trust documents specify the trustee(s), beneficiaries, assets included, and rules for managing and distributing the trust's assets. They can help with tax planning, asset protection, and ensuring your wishes are carried out as intended.

Key Trust Reporting Changes:

Under previous rules, trusts were not necessarily required to file a T3 income tax return if no income was earned, distributed, or allocated. However, effective for the 2023 tax year onwards, most trusts are required to file a T3 tax return annually, regardless of trust type and even if no income or distributions occurred during the year. Bare trusts are exempt from filing for the 2023-2024 years unless requested by the CRA, but they must file in 2025. Exceptions to these new filing requirements include trusts with assets under $50,000 (limited to certain asset types), trusts less than three months old, and certain registered plans.

When we talk about estate planning, it's crucial to consider the impact of capital gains tax. In Ontario, as in the rest of Canada, your estate may face significant tax implications due to capital gains.

Here's What You Need to Know:

Deemed Disposition: When you pass away, the Canada Revenue Agency considers all your capital property to be sold at fair market value immediately before death. This can result in capital gains tax that your estate will need to pay.

Strategies to Minimize Impact: There are several ways to reduce the capital gains tax burden on your estate:

• Principal Residence Exemption: Applied to your primary home to exclude it from capital gains.

• Spousal Rollovers: Transferring assets to your spouse to defer capital gains tax.

• Trust Structures: Using trusts strategically to manage and potentially minimize tax exposure.

• Charitable Giving: Incorporating charitable donations into your estate plan to offset or reduce taxable capital gains.

Recent Changes: Similar to recent trust reporting changes, the Canadian tax capital gains rate has been the subject of a number of potential amendments. Changes to increase the capital gains inclusion rate to 66.67% were proposed in June 2024 and the CRA had planned to move ahead with them in January 2025. However, the Canadian government recently cancelled the increase, keeping the capital gains inclusion rate at 50% for the time being.

If you're a business owner, your estate plan needs some extra attention. Your business is likely one of your most valuable assets, making its smooth transition essential for preserving your legacy and your family’s financial stability.

Here are some key points to consider:

• Business Succession: Clearly identify who will succeed you in managing your business, whether family members, key employees, or an external buyer, and understand how each option impacts your estate plan.

• Valuation: An accurate and professional valuation of your business is crucial for fair asset distribution and effective tax planning.

• Tax Strategies: Business owners have access to specific tax strategies, like the Lifetime Capital Gains Exemption (LCGE), which can significantly impact your estate planning. The LCGE was recently increased to a maximum exemption amount of $1.25 million for any qualified dispositions occurring after June 25, 2024, giving business owners more tax flexibility.

• Insurance: As mentioned earlier, consider how life insurance can play a role in providing liquidity for your estate or funding buy-sell agreements.

As a business owner, your estate plan will likely be more complex. It's important to work with professionals who understand the unique challenges you face. Remember, like all aspects of estate planning, your business succession plan should be reviewed regularly to ensure it still aligns with your goals and the current business environment.

ClearEstate Can Provide Tailored Feedback for Ontario Estate Plans

Creating a comprehensive estate plan can feel overwhelming, but it doesn’t have to be. Our dedicated professionals can assist you at every step of the way and ensure you leave no stone uncovered. That way, you can rest easy in knowing that you’ve given your loved ones a wonderful gift: The gift of planning for the future.
Get in touch with our professionals today for a free consultation and find out how we can help you create the best estate plan for you and your family.