Estate planning is far more complex than many clients fully appreciate. Even in fairly straightforward estates, there may be a host of overlooked issues that clients may not have anticipated. As their advisor, you can help fill the gaps in their understanding.
“When you identify issues and speak to clients about their estate plan, it shows the value of having a professional money manager point out things they wouldn’t be aware of,” says Kelly Rivard, vice president and will and estate consultant at RBC Wealth Management Services in Toronto.
Here are some of the issues you need to make clients aware of when developing or updating an estate plan:
1. Executor appointment
Many people appoint a child to serve as executor, says Noel D’Souza, financial planner with Money Coaches Canada in Toronto. While being the executor is often viewed as a sign of favour, it comes with enormous responsibility — and potential liability — that many people fail to appreciate. Once they do, they may not be prepared to take on the burden.
You can help clients understand the importance of selecting the right executor. And make sure that clients have a backup executor in place, says Susan Stefura, principal at Bespoke Financial Consulting in Toronto.
Ideally, the person should not only be aware that he or she will assume this role, D’Souza says, but the executor should live nearby and have some financial knowledge.
2. Change in marital status
A second marriage or divorce can cause significant complications for estates. If your client goes through either of these life events, make a point to ask if they have updated their will since the particular event.
For example, if a client hasn’t drafted a new will upon remarriage, any existing will is automatically invalid, Stefura says. If a client then dies without a new will, the estate will be treated as an intestacy and distribution of the assets is governed by statutory rules.
With a divorce, Stefura says, some clients wrongly assume that the previous will is rendered null. If your client neglects to write up a new will, his or her assets may wind up with the ex-spouse, leaving heirs having to contest it in court.
3. Powers of attorney
People’s children are often the default pick for powers of attorney. But they may not necessarily be the most appropriate choice, Rivard says.
“I need people to reframe their thinking process to do what’s right for them, rather than thinking about how the children will react,” Rivard adds.
4. Over-planning for probate
Efforts to minimize the probate tax can inadvertently leave heirs on the hook for taxes upon the individual’s death, Stefura says. She often sees people “going to great lengths” to avoid probate by stashing most of their assets in joint ownership.
Inform clients of the unintended consequences. For example, if they don’t leave enough assets in their estate to cover taxes, the beneficiary could be exposed to creditors and pursued by the CRA, Stefura says.
This is the second part in a two-part series on estate planning. Click here for part one.
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