Death is an inescapable destination, but we all have a degree of control during our lifetimes over what happens to our assets after we perish – if we make the effort to have a will in place. And if we’re alive and unable to make decisions independently with respect to our property and personal care, we can plan to grant substitute decision-making authority with a power of attorney (POA).
Financial advisors are in a unique position to remind clients of the importance of having these estate and incapacity planning documents in place. POAs and wills function together to plan for incapacity and death, respectively. Both documents must be in writing, (typically) witnessed and allow for third parties whom clients have chosen to make decisions on their behalf. But there are key differences between these documents with which advisors should be familiar.
POAs are effective only during a person’s, otherwise known as the “grantor’s,” lifetime. The grantor appoints one or more individuals to make decisions on his or her behalf. Typically, a continuing POA for property and a POA for personal care are executed at the same time to delegate decision-making authority to attorneys who are appointed to act while the grantor lacks the mental capacity to make decisions on his or her own. The authority granted under a POA may be limited in duration and/or scope or could be broad. Appointments of attorneys for property and personal care terminate at death.
A will only comes into effect after the death of the person, known as the “testator,” and directs the distribution of the testator’s assets to the beneficiaries of his or her choosing. The document itself can be simple or complex in nature. Many testators choose to use a multiple wills planning strategy to limit the estate administration taxes that may become payable if the first of multiple wills is probated – a process in which a court confirms the trustee’s authority to administer the estate for the purpose of dealing with third parties, such as land registry offices.
A will may be one part of an estate plan that incorporates other planning mechanisms, such as life insurance or other assets for which a beneficiary is designated, jointly held assets and trusts. Advisors may wish to review with their clients how the different components of an estate plan fit together to avoid any discrepancy between the terms of a will and the manner in which assets are held or designated.
Wills and POAs matter a great deal
An Angus Reid Institute poll, the results of which were published in early 2018, found that more than that half of Canadians (51 per cent) don’t have a will in place.
Having one prepared makes the process of dealing with assets after death much easier for those surviving the testator. A will also provides an opportunity to give effect to the testator’s wishes, if inconsistent with the laws of the relevant province or territory, which favour married spouses and lineal descendants. Meanwhile, without POAs, court proceedings may be necessary to give the client’s family the authority to make certain types of decisions during incapacity. In either case, the absence of planning documents can add significant expense and delay or frustrate the client’s intentions entirely.
The risks of dying without a will – also known as “intestate” – are exemplified in two recent celebrity cases, which suggest that even the families of clients who are wealthy can become victims of inadequate estate planning.
Prince Rogers Nelson died intestate in 2016. According to his sister, Prince’s only surviving relatives were herself and their half-siblings. Although the value of Prince’s estate, including unreleased recordings and videos, has yet to be confirmed, it is estimated to be worth between US$100 million and US$300 million before taxes and will be distributed in accordance with applicable state legislation.
When Michael Jackson died in 2009, it was initially believed that he died intestate. Jackson left behind three children and two ex-spouses. Even though a will has since been found, the estate is still tied up in court. Jackson’s estate has become more valuable since his death, having topped US$1 billion and continuing to grow.
The important role advisors play
Advisors need to ask their clients if they have a will and/or POAs – and encourage them to take steps to put these important planning documents in place if they have not already done so.
Clients may turn their attention to estate and/or incapacity planning if they’re cognizant of the complications that may arise if the terms of planning documents are inconsistent with aspects of their financial planning, or if they die or become incapable without a plan in place.
Clients can also be encouraged to obtain professional legal assistance to prepare POAs and a will properly to ensure that the documents are in accordance with their wishes and to minimize any complications either while they’re incapable or following death.