Advisor analysis – Mark Halpern

The first question I would ask Karen and Sam is, “Do you have a will?” With a will, they can name a guardian and structure their daughter’s income through a Henson Trust to protect her government benefits.

They also need powers of attorney to identify someone to manage their financial situation and personal healthcare.

I’d recommend they create an estate directory including a list of bank accounts, the location of safety deposit box keys, digital passwords, and other critical information and tell someone other than each other where it is. And in their case it would be a very good idea to create a written estate plan that expresses their wishes for Chloe’s care and their business continuation.

Now let’s talk about how to fund this whole situation. Do they have enough money, based on their current personal and business assets, to pay legal fees, accounting fees, trustee fees and taxes plus produce sufficient lifetime income for Chloe? If not, life insurance is the ideal way to fund these liabilities, and at their age they would probably be looking at a joint last-to-die policy. With, for example, $2 million in proceeds, they can instruct the executor to purchase an annuity after their death for Chloe that provides a guaranteed monthly cash flow for her life. It will also be important for them to structure their RRSPs so Chloe, as their disabled dependent, can receive the proceeds in a tax-deferred rollover.

Clearly, they need a retirement plan that includes a date when they want to stop working and a strategy to provide the income they require. They also need a plan in case they get sick. It sounds like their income of $225,000 depends on them working. If they can’t, all of a sudden, then you’ve got dependent parents and a dependent daughter. I would look at critical illness insurance for them for a 10-year period or longer, as well as long-term care insurance. They may want to consider setting up a health spending account (HSA).

Finally, everyone has three potential beneficiaries to their estate: their family, the government and charity. If you could only pick two, which ones would you choose? Most people would say family and charity. If that’s the case, they could arrange their estate to eliminate government taxes by providing a gift on death through life insurance or a bequest or beneficiary designation on their registered investments to the Saskatchewan Cerebral Palsy Association to help other Chloes in their province.

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