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Comprehensive estate planning goes far beyond setting up wills and powers of attorney. It considers all the assets clients own, the taxes payable upon death and what’s left for the beneficiaries, says Kevin Wark, managing partner of Integrated Estate Solutions in Toronto and the author of The Essential Canadian Guide to Estate Planning – 2nd Edition.
“My view would be to help the client not only figure out where their assets go, but how to do that in the most tax-efficient manner,” he says.
Mr. Wark likes to look at a client’s estate plan based on their demographics. Someone in their 40s might need assistance in structuring investments in a more tax-efficient manner, while someone in their 50s and closer to retirement may be concerned about if they have enough to retire and what will be left in their estate for heirs based on their current situation.
He says clients who own corporations or small family businesses need to think about personal and business assets and their associated tax consequences on death. Another issue is figuring out how to treat family members who don’t get an interest in the business fairly via estate bequests or life insurance.
Some clients desire a charitable bequest made by the estate which can also save on taxes. Others, notably seniors, want to review their insurance plans, possibly converting term to permanent insurance for estate or charitable purposes.
Laroux Peoples, a Toronto-based wills and estates lawyer, says the deceased’s personal tax liability is often the biggest surprise for clients. In the case of couples, if an estate plan is set up correctly, assets will transfer to the surviving spouse on a tax deferred basis with few complications. But when the surviving spouse passes away, the remaining heirs can be taken aback with the size of the estate tax bill.
“Life insurance can be great for dealing with estate tax liabilities,” she says.
Projections for different scenarios
Aaron Hector, certified financial planner and private wealth advisor at CWB Wealth Management Ltd. in Calgary, says his role is to create clarity so clients truly understand their current investment and pension statements, as well as their insurance policies, and what the effect will be upon their death.
“We’ll prepare a summary through the key points of each of their documents,” he says. “That creates a talking point. A lot of times people don’t realize a lot of assets aren’t going to be directed by their will but by joint tenancy and beneficiary appointments.”
Mr. Hector says a financial planner’s ability to run different types of assumptions comes in handy with estate planning. In the case of couples, Mr. Hector likes to analyze three scenarios using flow charts – when the first spouse dies, when the surviving spouse dies and what occurs if both spouses die together.
For all the assets, it shows whether assets transfer tax-free, or the specific tax liability and probate owed.
“For every single asset they have, we want to be able to show if the person passed away, how and to whom would they transfer,” he says. “We show them how their assets are currently structured, how things are going to flow and what the result will be if they were to pass away.”
Using these flowcharts, Mr. Hector can show the difference, for example, between one child inheriting $100,000 in cash from the estate residue and another inheriting $100,000 in a registered retirement savings plan.
“One could be very short-changed because of where the taxes are paid,” he says.
Seeing the data also helps the clients to see how to streamline their estate or identify any shortfalls to income flowing to heirs and whether adjustments need to be made, he adds.
Joint accounts can also be an acrimonious issue if, say, one heir has an account with a now deceased parent. Having documentation of intent goes a long way to explain to all heirs whether that money was intended for the one heir or to form part of the estate, Mr. Hector says.
Not just taking their word for it
Mr. Hector doesn’t put much credence into a client’s verbal discussions of workplace or other entitlements and insists on reviewing their actual statements. He recalls a client who believed he was getting a six-digit sum as a retiree benefit from an old employer. But when the client passed away and it came time to collect the funds, the money didn’t materialize.
“The memory of his choice for the workplace benefit was different than what he actually selected,” Mr. Hector explains. “So, now we emphasize seeing a copy of all statements that verifies what you think you have.”
Mr. Hector also provides a guide for clients that contains contact information of all the people named in the will and power of attorney. He also identifies the relevant relationship of these people to the testator since it’s not always clear in the will.
Finally, Mr. Hector encourages clients to make funeral or celebration of life arrangements in advance, as doing so helps to alleviate stress at a difficult time for the family.
“Just pay for it and get it all set up,” he says. “If your relatives are in a very emotional state of mind, they might not be thinking rationally and they’re trying to do the right thing.”
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