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.
Related: So you’ve been asked to be an executor
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.
Related: How to secure your social media and online presence
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.
I’m fortunate that I’ve been able to use my online endeavours to create multiple income streams and fast track my financial goals over the last eight years.
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.
Final thoughts
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.
How much should you have saved for retirement by age 30 or 35? This MarketWatch article drove Millennials wild last week (read the comments) when it suggested 30-year-olds should have one year’s salary put away for their future, while those aged 35 should already have twice their salary saved for retirement.
I’ve written before about money milestones and age-based savings benchmarks. While they can be fun to look at to see how you stack up, you should take these recommendations with a big grain of salt.
Remember that we all start out at different times and at different speeds and with different opportunities. If you stayed in school to earn a graduate degree you might be years behind your peers and deep in debt as you begin your career. But, with increased earning potential, you may quickly catch and surpass those in your age group. In this case it’s not about how you start but how you finish.
“Comparison is the thief of joy.” – Theodore Roosevelt
Ben Carlson at A Wealth of Common Sense dug into the numbers to see just how plausible it is to save twice your salary by age 35. Start at age 22 and you only need to save 11 percent of your salary each year. Wait until age 30 to start saving for retirement and you’ll need to sock away 30 percent of your income to double up your salary by age 35.
The key is to start the habit of saving, whether that’s $50 every paycheque or a certain percentage of your salary, and then make an effort to increase that amount each year – hopefully as your salary increases along with it.
I started saving small amounts in my early twenties. It wasn’t easy. Heck, my first real job paid just $26,000/year. But I stuck with it and made sure to take advantage of the odd bonus, promotion, and of the few years when my employer offered matching RRSP contributions.
The first $25,000 felt like an eternity. But then that quickly turned into $50,000, then $100,000, and now, at age 38, I have just over twice my salary tucked away inside my RRSP. It’s doable.
My advice is to forget about arbitrary age-based money milestones and instead set individual goals that focus on growing your savings rate and net worth each year. Do that, and you’ll be well on your way to a healthy retirement.
This Week’s Recap:
On Monday I offered some advice to members of Generation X on how to fix their finances.
On Wednesday Marie wrote about retirement planning for late starters.
And on Friday Marie offered some advice to those who have been asked to be an executor.
Many thanks to Rob Carrick for including Marie’s post on renting vs. owning in retirement in his latest Carrick on Money newsletter.
Finally, I had the pleasure of contributing to Tim Kiladze’s excellent piece in the Globe and Mail about why Air Canada is abandoning Aeroplan (Globe subscribers only, unfortunately).
American Express deal for business owners
I recently signed-up for the American Express Business Gold Rewards Card – which has a screaming deal on right now that gives you 40,000 Membership Rewards points when you spend $5,000 in the first three months, plus waives the $250 annual fee in the first year.
You can transfer Membership Rewards points 1:1 to Aeroplan. One Aeroplan mile is conservatively valued at 1.5 cents, which means you can earn $600 in travel rewards value with this deal.
If you’re a business owner you’ll want to take advantage of this offer today.
Weekend Reading:
The well-managed Canada Pension Plan increased its total assets by nearly $40B last year and earned 11.6 percent on its investments (after fees).
A Wealth of Common Sense blogger Ben Carlson explains how half a percent can change your retirement.
Here’s Morgan Housel on why the majority of forecasts either turn out wrong or can be ignored to begin with.
This former Winnipeg investment adviser was fined $485K for ‘misappropriating’ his wife’s RRSP money, which is a fancy way of saying he forged her signature 57 times over four years to withdraw more than $271,000.
A nice update from Regina, SK blogger Tim Stobbs who retired before his 40th birthday and has made the difficult transition from saver to spender.
“The first few weeks were great because you think, I can do whatever the heck I want today, and it feels like summer as a kid all over again or like a string of Saturdays.”
Up-and-coming blogger Nick Maggiulli, Of Dollars and Data, shares a cool story on why focusing on the long term is more important than ever.
Have you ever received bad financial advice from someone that truly thought they were helping you? Ben Felix latest video answers the question, do most advisors really know what they’re talking about?
Jonathan Chevreau says guaranteed income is a no-brainer in retirement. Just don’t call it an annuity.
Half Banked blogger Des Odjick’s take on mortgage insurance is music to my ears: Why most people really, truly, shouldn’t buy it.
Debt expert Scott Terrio explains why it isn’t wise to carry a savings balance alongside of high interest debt:
“In almost all cases it makes more sense financially to pay down credit card debt than it does to leave money in a savings account. Once your debt is paid off, you can always start saving again. Yes, we’d ALL like to have savings now, but when you are in a debt situation, your realistic options are limited. Back to prioritization.”
Use this life expectancy calculator to find the life expectancy for people of your age, country and gender, as well as the proportion of your life you can on average expect to be healthy.
“I just want a job.” Why some older workers feel they’re being passed over as Alberta’s economy starts to pick up steam.
Previous understanding of the new mortgage rules inferred that borrowers who switch lenders at renewal had to re-qualify at the bank’s posted rate. Not so fast, Mortgage expert Rob McLIster reports that new interpretation suggests borrowers can now switch from one lender to another provided there is no increase in risk. Read all about how to switch for a better deal here.
Ellen Roseman explains why you may have to fight to get repairs covered, even under warranty.
Finally, is the $900 Roomba vacuum cleaner worth the hype? MoneySense put it to the test:
Have a great weekend, everyone!