Annually with clients, we review how their estate will be distributed to their beneficiaries. We determine if there are any changes in their desires, or opportunities to save taxes and/or fees.
In a recent webinar by Michael Kitces, Mathew Jarvis, a US Financial Advisor, shared a concept he uses with clients called the Estate Buckets. I thought it was a great way to conceptualize how assets are distributed. He reviewed the concepts of the Documents and Beneficiary Bucket, and I’ve added the Joint Ownership bucket.
The Three Estate Buckets:
- The Beneficiary Bucket
- The Joint Ownership Bucket
- The Documents Bucket
These will be reviewed below. To help with your planning process, you may wish to review your assets and place them in the appropriate bucket using the following descriptions:
The Beneficiary Bucket
These assets will be distributed according to the named beneficiary on the account or policy. Investment assets can include:
- Registered Retirement Income Plans (RRIF)
- Registered Retirement Savings Plans (RRSP)
- Tax Free Savings Accounts (TFSA)
- Life Income Funds (LIF)
- Locked in Retirement Accounts (LIRA)
- Company Savings Plans
- Life Insurance Policies
- Non-Registered Segregated Fund policies.
When using named beneficiaries:
- you can avoid the Estate and Administration Tax (avoid probate)
- there can be some tax savings with some named beneficiaries depending on the plan type and beneficiary type
The Joint Ownership Bucket
Items in the joint ownership bucket are assets that you own with someone else, more formally known as joint tenancy or “joint tenants with right of survivorship”. With this type of ownership, the assets ownership remains with the other when one joint owner passes away. Normally these are items you jointly own with your spouse or common-law partner (CLP). Items can include:
- home when owned with your spouse or CLP
- joint bank accounts
- jointly owned non-registered investments
The Document Bucket
These are assets that will be distributed based on your estate documents, which could be your Will and/or a Trust Document. Assets can include:
- personal belongings
- bank accounts
- non-registered investments
- real estate
- art, collectables
- normally, anything you own that doesn’t have a named beneficiary or is in joint tenancy ownership.
For assets that are distributed via your Will, typically you must have your will probated, and you will have to pay the Estate and Administration fees to do so.
Place your assets into the Estate Buckets
You may wish to review all your assets and place them in the appropriate bucket. By using the estate buckets as a framework, it will be easier to review your estate plan for any changes.
Over time some assets can also move from one bucket to another. For example, a joint investment account that passes to the first spouse or CLP as joint tenancy, and then it is distributed from the Documents Bucket on the last spouse’s or CLP’s death via their Will.
Another part of the estate puzzle is each of the buckets can have a different tax and estate fee, so this will have to be taken into consideration as well.
Your accountant, lawyer, and CFP® professional should be able to assist you with this process over time.
For more information, you can refer to Preserving Wealth: The Next Generation – The definitive guide to protecting, investing, and transferring wealth by Jack Lumsden, MBA, CFP®
For your FREE Copy CLICK HERE
For your free retirement readiness assessment CLICK HERE
Buy Preserving Wealth CLICK HERE
Jack Lumsden, MBA, CFP® Financial Advisor, Assante Financial Management Ltd.
This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please make sure to see me for individual financial advice based on your personal circumstances. The information provided is for illustrative purposes only. Commissions, trailing commissions, management fees and expenses, may all be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. Please read the Fund Facts and consult your Assante Advisor before investing.
Insurance products are services provided through Assante Estate and Insurance Services Inc.