We know how important it is to have an estate plan, including a will, but it’s also a good idea to have a thorough letter of guidance to your executor(s) regarding how they should go about finding your assets and dealing with them.
- Where do you do your day-to-day banking?
- What property do you hold?
- What other type of assets do you have and where are they held?
- Who are the beneficiaries of your life insurance policies? RRSPs? TFSAs?
- What are the addresses of your beneficiaries?
These are all questions that your executor will need to know the answers to but may not know where to look when the time comes – and you won’t be around to ask.
Knowing the answers to these questions can make the task of being an executor a lot less daunting.
The more you can do to prepare your executor ahead of time, the better.
How to prepare your executor
Privacy is an issue for some clients. They don’t want to let their executor know those personal details too far ahead of time. But when is “the time?”
When is it appropriate to give your executor all those vital details to assist them in a job that they have likely never done before? The executor is often a family member or good friend who feels obligated to take on this role when asked but has little or no experience whatsoever.
Here are five easy ways to prepare your executor for the role:
1. Letter of direction
A simple letter of direction or wishes attached to the will can greatly assist your executor to fulfill his or her role in the best and most efficient way. The more your executor knows about your estate, the more he/she/they can gather the information without a great deal of trouble or expense.
Related: Creating your estate plan
No private, personal information needs to be revealed. You don’t need account numbers or bank balances, but you do need to advise where these are held.
2. Organize your documents
Put important documents where your executor can find them. A typical executor spends a lot of time searching. Even if you think you’re organized consider putting together a binder or file cabinet drawer that contains the items your executor is likely to need.
Make sure your beneficiary designations are updated for retirement accounts, insurance, pension benefits, etc.
Where is your safe deposit box held? Give a brief description of what it contains and where the keys are kept.
Don’t forget about keys and codes to home alarm systems, mailboxes and gates, locked boxes, drawers and cabinets.
Decide on who gets items with sentimental value that may not be specifically included in the will. Write out a list. Family fights erupt over the smallest things.
Who are the main contacts – financial advisor, the lawyer who drafted the Will, tax preparer, etc? Executors spend a lot of time on the phone. If he or she knows whom to call at the bank or insurance company it will be a huge help.
Related: We who are about to die, etc.
Keep your estate plan files up to date. Review them at least once a year.
3. Make sure some cash is available
After death there are bills to pay and final expenses and fees to cover. Make sure the estate contains a cash account that will be easily accessible.
4. Leave your funeral plans or wishes
If you express your preferences in writing it will make things much easier and head off any family disputes.
Before my father-in-law died he told me he wanted to be cremated. When the arrangements were all but complete, his daughter insisted that he had wanted a full burial. This disagreement caused bad feelings that lasted for several years.
If you want to be an organ donor, put this in writing too.
5. Include your digital estate
You may no longer be physically here, but your digital self lives on.
Think about your social media sites, online accounts and download destinations such as Amazon and Netflix. Make a list including how to access them, and find a safe place to store it.
There are special online sites such as My Web Will and Online Safe that allow a trusted person to change on-line accounts after death.
Final thoughts to prepare your executor
You are handing your executor a lot of work. Wrapping up an estate is a time-consuming process that requires a lot of attention to detail. The best present you can give your executor is a set of documents that reflects your wishes.
Plan in advance by keeping your records organized and making sure the appropriate people know how to find and access them.
Remember – the key is to make life easy for your survivors.
You family will thank you for it.
It’s been two years since we’ve checked in on my freedom 45 goals. I’m happy to report that we’re still on track and financial independence is only six-and-a-half years away!
Financial freedom to me doesn’t necessarily mean retirement – more like the ability for me pursue other opportunities without the constraints of full-time employment.
The fact is my employment wages have stagnated for many years and so without additional revenue sources I wouldn’t have been able to save almost one-quarter of a million dollars before age 39.
Our net worth should reach $750,000 by the end of this year, and hit the one million mark by the end of 2020. From there I’ll have four years to achieve my goal of financial freedom 45.
On Target For Freedom 45
What will our finances look like by the end of 2024?
For starters I’ll have cash savings of about $55,000 on hand to cover approximately one year of expenses in today’s dollars. I’ll have twice that amount set aside in our business account. The cash savings will act as a cushion, giving me the freedom to leave my day job and work for myself if so desired.
Together my wife’s and my RRSP will have $350,000 invested – nearly double what they hold today. Our TFSAs will hold approximately $235,000 with the assumption that we can contribute $25,000 per year for the next six years (at which time we’ll have caught up on our considerable unused contribution room).
We’ll have managed to sock away $110,000 in our kids’ RESP account. Our children will be 15 and 12 by then and we’ll have to dial down the risk inside this portfolio and start preparing for withdrawals in a few years.
A big portion of retirement savings comes from my defined benefit pension plan, which should be valued at about $342,000 by the end of 2024. This is the assumed commuted value of the pension if I were to leave the plan by that date.
Our principal residence should be worth roughly $527,000. This pricing assumption takes today’s market value of our home and increases it by two percent a year.
Finally, that big anchor, also known as our mortgage, will be fully paid off by the end of 2024, leaving us completely debt-free going into 2025.
Financial Freedom Crossover Point
So why do I consider this the financial freedom crossover point?
A paid-off home reduces our annual expenses down closer to $42,000 per year – an amount easily covered by withdrawals from our small business. We typically withdraw $4,000 per month from our business via dividend sprinkling to my wife.
We could get by on those withdrawals alone if I stopped working full-time, however I’m keenly aware that doesn’t leave much room in the budget to continue hitting our savings goals.
That means taking out another $1,000 per month from the business – for a total of $60,000 annually – to ensure we can still max out our TFSA and RESP contributions.
Now I can’t just conjure an extra $12,000 per year out of thin air. I’d need to increase revenues to support our new withdrawal strategy. But I’m confident that I could make that work through extra freelance assignments and financial planning – especially when you consider the extra 40 hours a week I’ll free up by leaving my day job.
Our safety net is that we’ll have one year’s worth of expenses in our personal chequing account, plus another two year’s worth of expenses stashed in the business account. A nice cushion in case things go awry.
Besides, even if I didn’t save another dime after age 45, the power of compounding would grow our RRSPs to $745,000 and our TFSAs to $455,000 by age 55. Not to mention my $342,000 employer pension, plus CPP and OAS. Plenty of resources to last us a lifetime.
I’ve carefully tracked our net worth for years and also projected out what our finances will look like many years from now as we continue along this trajectory.
It’s exciting to see that financial freedom 45 is not just a pipe dream; it’s well within reach.
At the same time I know it’ll take a lot more work to see this vision through. Six years is a long time and even the best-laid plans can go sideways without warning.
Even though I’m still fuzzy on what exactly financial freedom will look like at 45 I’m almost single-mindedly focused on making sure I reach that milestone so that when I get there I can decide what I want to do and how I want to spend my time.
That, to me, is freedom.