The first piece of the puzzle

Planning for the day a client passes away is one of an advisor’s more difficult tasks. It’s not just an emotional experience, it’s complex too. Although the practical tasks that accompany a death range from assisting with the will to finding an executor and working with powers of attorney, end of life issues often involve a lot more than deciding which family member gets the silverware.

The will The will is the first piece of the estate-planning puzzle for advisors. Jeremy Racicot, a CFP with Burlington-based The Bay West Group, asks his clients for a copy of the will to make sure it’s in sync with the beneficiaries on their various accounts and policies. “A client could have the beneficiary designation on the RRSP as one person and the will says leave everything to someone else,” he points out.

Enlisting an estate lawyer is also one of the first steps. Racicot notes that an estate lawyer can help with any will updates, since an advisor can’t change it on their own. “The planner is equipped to look for red flags and say this is something we need to talk about,” he says.

Among the initial tasks: ensuring that a will actually exists. If a client doesn’t have a will, Raciot will make sure one gets drafted. That step might seem obvious, but the absence of a will can wreak havoc on a financial plan. Without a clear will, the deceased client’s money will be divided up according to statute, according to Edward Olkovich, a Toronto-based lawyer and author of Estate Planning in Six Simple Steps.

In such cases, the spouse would inherit the first $200,000 of an estate, then the rest would be split between the living parents and any children. You also want to avoid having children under 18 owning part of the estate. “Imagine having a six-year-old inherit part of a house,” he says. “Try mortgaging that.”

The advisor’s role in making a will is limited to developing a list of assets. That’s no small job—you’ll need to review their investments, real estate purchases, tax liabilities and create a document that the lawyer and client can use.

“Usually it’s up to the advisor to determine the value of the investment portfolio, or where the tax liabilities are in an RRSP,” says Olkovich. “Clients need to know that if they sell their restaurant for $1 million, there may be capital gains to pay.”

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Where’s the will? Even though the legal team will sign off on a will, the advisor should still know where it is, in case something happens to their client. Generally wills are kept either by the client, in a safety deposit box or by the lawyer. Only an original will —not a photocopy —can be shown in court.

Paul Trudelle, a partner with the Toronto-based law firm Hull and Hull, says that he once had to deal with a case where someone died and no one could find the will. The court assumed she destroyed it, so they revoked her wishes. “That wasn’t the intention,” he says.

Keeping it in a safety deposit box might seem like the safest place to stash the document, but Trudelle says that option can present problems. The executor must convince the bank that they’re allowed access to the box, but only the original will can prove that person’s really the executor. Often, clients let their lawyers hang on to the will.

The executor In other areas, an advisor remains on the sidelines. For example, choosing an executor is between the client and the lawyers, says Michael Berton, a CFP with Vancouver-based Integrated Planning Group. If the advisor gets involved, it could be a conflict of interest. “I might be doing something to aggrandize myself,” he says. “It’s not a good idea for anyone with an investment license to be an executor where they’ll be managing assets.”

However, the planner will likely have to work with the executor to review a deceased client’s investments. Usually, the executor is a child or spouse—and often, it can be more than one person.

Ideally, the executor will be someone the client trusts, but even so, it can be trying to work with a family member whose grief is compounded by the added burden of handling an estate. “It’s not a fun job,” says Berton, who was the executor of his aunt’s estate. “It’s thankless and no one appreciates you.”

Power of attorney Like deciding on an executor, choosing a power of attorney is best left to the legal pros. But it’s another estate planning detail that advisors should know.

There are two types of powers of attorney; one for personal care and the other for financial issues. A power of attorney works the same way as an executor—the person named is in control. The only difference is that POA comes into play when the client is incapacitated.

Most people have different powers of attorney for care and finances, says Olkovich. “You don’t necessarily want to express in the financial documents what the end of life wishes are,” he says. “Keep them in separate documents.”

Usually, advisors only have to concern themselves with the financial POA. The person in charge of health care decides, based on the incapacitated person’s wishes, whether a feeding tube should be used or a plug should be pulled. The financial POA will work with the advisor to get the client’s estate in order.

Trudelle has seen advisors take on the role of financial power of attorney, usually in conjunction with a family member. “The child should still have input,” he says. “It can bring a more personal approach to the financial planning.”

A lot more goes into end-of-life planning than just the will—like minimizing probate or picking a beneficiary—but if you don’t get this document right, the rest of the estate plan could be in jeopardy.

Bryan Borzykowski is a Toronto-based freelance journalist.

(11/16/10)