Key takeaways:
- A will is mostly concerned with who will receive your assets after your death.
- An estate plan is focused on protecting your wealth during your lifetime and beyond.
- An estate plan contains many elements, including powers of attorney, assets outside of your will, trusts and family considerations.
- An estate plan also provides tax-saving strategies for your estate and your beneficiaries.
Given that, along with taxes, death is one of very few guarantees in life, it’s surprising how few people are prepared for it. Only 48% of Canadians have a will, and only 15% have an estate plan. And many people don’t know the difference between the two.
A common misconception is that you need to own an “estate” to have an estate plan; that it’s only for very wealthy people. If you don’t own a mansion or a private company, then a simple will should be sufficient.
In reality, an estate plan is essential for most people, regardless of age, income and assets. Whether you’re a young professional building your portfolio, a parent with young children or a business owner approaching retirement, having a clear strategy that protects your assets now and after you pass away, will ensure your wishes are followed and your loved ones are protected.
Let’s take a look at the differences between a will and an estate plan, what goes into each, why these differences are important, and how you can start building your own comprehensive estate plan.
What is a will?
A will is a legal document that specifies who will receive your money, assets and belongings after your death. It serves as a snapshot of your intentions and comes into effect after your death. Key areas covered in a will typically include:
- The distribution of money, assets, real estate, belongings, etc.: you outline how much or what portion of your estate each beneficiary receives.
- The executor: you appoint someone to manage your estate, pay debts and distribute assets according to your wishes. This role requires trustworthiness and organizational skills.
- Guardianship: crucial for parents, a will lets you name guardians for your children under 18, if both parents pass away.
A will can cover a variety of property types, such as:
- Real estate: your home, vacation properties, rental units or vacant land.
- Financial assets: bank accounts, cash and any non-registered investments (these could be stocks, bonds, mutual funds and exchange-traded funds or ETFs).
- Personal property: these include vehicles, jewellery, artwork and collectibles.
- Digital assets: for example, cryptocurrencies, online intellectual property and access to social media or loyalty programs.
- Business interests: if you own a business, your will directs how this will be passed on.
What is estate planning?
While a will addresses the distribution of your estate’s assets after death, an estate plan is a comprehensive approach focused on protecting your wealth both during your lifetime and beyond.
It takes into account tax consequences, disability, health care decisions, beneficiaries for non-estate accounts (such as investments held in registered accounts like RRSPs, RRIFs and TFSAs, and life insurance) and the long-term financial well-being of your heirs.
Here are some of the most common components of a thorough estate plan.
Tax-saving strategies
Many Canadians underestimate the tax obligations in their will. In Canada, certain property is treated as if it were sold at fair market value on your death, which can lead to substantial capital gains taxes (especially on second properties or large non-registered investment portfolios).
Effective estate planning uses tools like the principal residence exemption, charitable donations and strategic timing of asset sales to help reduce taxes, so more of your wealth gets passed on to your family.
Ensuring the desired distribution of your assets
Fairness isn’t always about equal shares. For example, if one child has served as their parent’s caregiver while another has not been present, or if a child has special needs, a simple equal split might not be appropriate. An estate plan can help you determine how to distribute your wealth and assets.
Using life insurance as an estate planning strategy can help even out inheritances. For example, if one child inherits a family cottage, life insurance can provide another child with a comparable cash gift. Find out more about how life insurance can be used as an estate planning strategy
Addressing blended family considerations
Blended families often face complex challenges. Without a clear estate plan, children from a previous marriage might be left out of the will unintentionally, if assets were to go directly to a new spouse. For example, a life interest arrangement can allow a surviving spouse to live in the family home until their death, but the home would then be passed to the beneficiary named in the original owner’s will (for example, a child from their first marriage).
Similarly, a spousal trust could allow the surviving spouse to benefit from income earned from a specific asset, but that asset would be passed on to another beneficiary named in the will upon the surviving spouse’s death. These arrangements can ensure that the surviving spouse receives the necessary support, while protecting the assets for the final beneficiaries (who are typically the deceased’s children).
Learn more about estate planning for blended families.
Powers of attorney
An extensive estate plan will also protect you during your lifetime by including powers of attorney for both property (financial matters) and personal care (health decisions).
These documents provide your named trusted person with the power to manage your finances and health care decisions if you become incapacitated. Learn about how important it is to choose the right person for your power of attorney.
Assets that sit outside the will
Certain assets are never included in a will (and therefore not subject to the probate process that accompanies it), such as life insurance policies and registered accounts (like TFSAs, RRSPs and RRIFs). It’s important to include these in your estate plan and ensure their designations (the names of the people who will be the beneficiaries of these accounts) are current and aligned with your overall wishes.
Naming contingent beneficiaries is also essential; this involves including a “back-up” beneficiary in the event that the first beneficiary dies before you do.
The use of trusts
Trusts are legal arrangements where a trustee holds assets for the benefit of others. They are especially useful for managing inheritances for minors, young adults or adult beneficiaries with special needs. These trusts can help maintain the beneficiary’s eligibility for government benefits, if applicable. Find out more about Henson Trusts here.
Selecting an appropriate trustee — whether this is a family member or a professional — can be a key part of your estate plan.
Funeral and end-of-life planning
Including funeral wishes in your estate plan can relieve your family from making tough decisions during emotional times. These could include either a burial or cremation, religious or secular service and even the pieces of music you want played.
Minimizing family disputes
A clear, well-documented estate plan with transparent reasons behind decisions can greatly reduce the risk of legal challenges. There is also a range of strategies to help prevent anyone from successfully contesting your will, including working with an estate lawyer, confirming your mental capacity and creating a revocable living trust.
Read more about how to prevent your will from being contested
Estate planning for business owners
For business owners, estate planning involves particular challenges, centred on three main goals:
- Reducing final tax liabilities: use tools like the lifetime capital gains exemption to reduce capital gains tax or estate freezes to lock in your business’s tax value while passing on future growth to your beneficiaries.
- Succession planning: deciding who will run the company after you (whether this is a family member, employee or management team, or external buyer) and preparing accordingly in good time.
- Non-probated asset transfers: structuring your business so shares transfer without probate, saving the estate substantial provincial fees.
Find out more about estate planning priorities for business owners.
Wills versus estate plans FAQs
Is a will the same as an estate plan?
No. A will deals with asset distribution after death. An estate plan is a comprehensive strategy that includes the will, powers of attorney, tax strategies, insurance and incapacity planning.
Do I need an estate plan if I already have a will?
Yes, in most cases. A will alone doesn’t cover instances where you might no longer be able to make your own financial or health decisions. Neither does it include strategies for saving tax, protecting your wealth after a relationship breakdown, or naming beneficiaries for life insurance benefits and registered accounts. An estate plan fills these gaps and provides more complete protection.
Can an estate plan help reduce taxes?
Yes. A comprehensive estate plan should include tax-saving strategies related to estate taxes, capital gains and other costs, helping your estate keep more money that can be passed on to your loved ones.
Who should have an estate plan?
Anyone with assets, dependents or specific wishes regarding their health care or finances should have an estate plan. It’s not just for the wealthy; estate planning is important for people at many income levels.
Can I create a will or estate plan on my own?
There are tools that can help you, but working with a qualified professional, such as your IG Advisor, can help ensure every aspect of your estate plan is covered, including every potential tax-saving measure.
How often should I update my estate plan and will?
You should review your plan every three to five years or whenever major life events occur, such as marriage, divorce, childbirth, death (for example, of your named executor) or receiving a windfall.
How to get started with your estate plan
Estate planning can seem daunting, but you don’t have to do it alone. Begin by taking stock of your assets and liabilities. Reflect on your goals: who do you want to protect? What legacy do you want to leave behind?
This is where your IG Advisor can become a vital partner. They can help you assess your whole financial picture, uncover tax-saving opportunities and identify gaps in your insurance coverage. Working with legal and accounting professionals, your IG Advisor can help ensure your estate plan is both legally robust and financially effective.
Your IG Advisor can help you by:
- Calculating your anticipated tax liability at death.
- Determining the appropriate amount of life insurance to safeguard your family or cover taxes.
- Coordinating family discussions to share your wishes and reduce future conflicts.
- Verifying that your current beneficiaries are still correct and aligned across all accounts.
By going beyond having a simple will and embracing comprehensive estate planning, you’ll have greater confidence and peace of mind that your future — and your loved ones’ futures — are secure. Reach out to your IG Advisor today to start crafting an estate plan that works for you. If you don’t have an IG Advisor, you can find one here.
Written and published by IG Wealth Management as a general source of information only. Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice. Seek advice on your specific circumstances from an IG Advisor.
