More than half of Canadians do not have a will and even those who do either don’t keep it up-to-date or have concerns that the will won’t live up to their wishes. But financial advisors have a role to play in helping their clients make thoughtful choices about this important financial decision.According to a recent survey by Lawyers’ Professional Indemnity Co. (LawPRO), the majority of Canadian adults (56%) do not have a signed will. And a June 2014 survey by TD indicates that many Canadian seniors want to leave as much of their estate as possible to their family or charitable causes – but only four in 10 feel “very well prepared” for that to happen. The TD survey also suggests that more than one-third of Canadians don’t take regular steps to update their wills and one-quarter have concerns their estate will either not be tax efficient or their heirs will disagree about the decisions outlined in the will.
Jeet Dhillon, a senior portfolio manager in Private Investment Counsel with TD Wealth, isn’t in the least bit startled by the results, noting she sees many clients who have, for one reason or another, not yet thought about what will happen to their estates when they die.
Dhillon says estate planning is definitely part of her discussion with clients. “But you would be surprised at the number of people who don’t know what they want to do with their estate once they die,” she says. “I think a lot of it is procrastination: they think they’ll get to it and one day they maybe will. But very few people actively do proper estate planning and make sure it stays up to date. So they will say, ‘Yes, I did a will maybe 15 or 20 years ago and maybe it should be looked at again’ but it’s not something that is top of mind.”
Not only does a will include how people want to divvy up their estates, it also ensures there are powers of attorney in place (one for personal needs and the other for property) in case clients can’t look after themselves, as well as naming an executor who will follow the instructions outlined in the will.
As well, a properly designed estate plan will help minimize estate costs and taxes, which can take a large bite of an estate, especially after the second spouse dies, says Gordon Berger of Yourwealthcare Limited.
On top of that, Dhillon says she talks to clients about what will happen if they don’t leave a will. Laws differ from province to province, but without leaving a will, there can be delays and the judgment of the court may not mesh with how the client wanted assets divided. “Without a will, your client is at the mercy of whatever the local laws are,” says Dhillon.
Business owners must also take care that they have a will in place, says Berger.
Berger, who has his Tax and Estate Planning (TEP) designation, says many of his high net worth clients say they have a succession plan and a will. “But then I say, you can leave your shares [of your business] to your family, but who will run the company the day after you die? People often think their children will be their succession plan … but what happens if the child doesn’t want it? If the child feels forced to take it and fails with that business, they might suffer for years.”
Berger says the main concerns people should have when putting together their wills are: how to maximize their estate, minimize their costs and minimize taxes, adding the best way to do that is to get good advice and ensure that an estates lawyer writes up the will.
Chris Ireland, the volunteer treasurer for STEP Canada, which administers the TEP, says there are about 2,085 lawyers, accountants, trust officers and financial advisors in Canada with their TEP designations.
Ireland, who is also vice president of planning services and a chartered accountant with PPI Advisory in Vancouver, says the TEP concentrates on specialized topics and areas of practice.
“The CLU and the CFP provide a good education, but I think that from the estate and trust area, the TEP is much more focused on those areas of practice.”
Ireland acknowledged that the designation is probably one of the biggest secrets in financial planning, but added it is starting to get brand recognition around the country. “We have been in Canada now for just over 16 years and it’s finally starting to make some penetration in terms of what a TEP means and what the expectation level is for someone who has their TEP.”
Berger says STEP provides continuing education classes as well as an annual conference that provides TEPs with up-to-date tax and estate planning information, including new rules and legislation.
“If we didn’t have that, it would be difficult to keep up,” says Berger, who believes the TEP provides him with both great credibility and business.
While having a will has always been important, it’s taken on broader significance with the large cohort of Baby Boomers, many of whom have seen their parents’ bank accounts dwindle with elder care. “That is definitely giving them more insight into what to expect later,” says Dhillon.
As well, family dynamics can be complicated and may require some time to sort out who will get what. Dhillon says her number one concern is her client, but understands that when it comes to estates, parents must sort out any problems, perhaps with the help of an estate planner.
For some, leaving behind a legacy through a charitable donation or to children and other heirs is crucial, while others may not be at all concerned, she says.
These factors are taken into consideration when considering how much risk a client should take on to meet their objectives, says Dhillon.
“So if a client says they need the portfolio to live on, I want to make sure they have enough growth that will support their lifestyle, but they also want to leave something for the kids – so they don’t want their assets to deplete. So given that those are both equal objectives we need to make sure that the portfolio needs to be designed to fulfil both of those. That puts them under a little more pressure because they want the money to last [and give to the children]. This is vs somebody who doesn’t want to leave a legacy and says that even if they use the last penny, they’re not concerned. So in that case, there would be more flexibility in how their money is to be managed.”