Tags: Estate | Planning | Death | Taxes

Estate Planning: Along With Death Come the Taxes

Wednesday, 07 Jul 2010 05:53 PM

 

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"Death is not the end," Ambrose Bierce, the American journalist and short story writer, wrote a century ago. "There remains the litigation over the estate."

Almost no one wants to talk about their mortality and it can be a tough subject for financial advisers to broach with clients, but estate-planning can help avert future headaches as affluent baby boomers head into retirement.

Around 50 percent of people don't even have a will, which is just one of the legal documents needed to put an estate plan into place, said Kevin O'Brien, a certified financial planner who runs Kevin O'Brien & Associates in Ancaster, Ontario. Many of the wills that are out there are out of date, he added.

O'Brien pointed to the legal morass after billionaire Howard Hughes' death in 1976 as an overstated example of why wills are so important. Hughes didn't have a will and 400 "heirs" lined up to claim his riches. His estate wasn't settled until 1983, though more legal challenges ensued.

Speaking at the recent Canadian Institute of Financial Planners (CIFPs) annual convention in Niagara Falls, Ontario, O'Brien said it was the death of his father more than 20 years ago that opened his eyes to the importance of estate-planning.

O'Brien's father had never talked about finances. When he died, the whereabouts of his will and insurance papers was a mystery. No one knew about the 750,000 Canadian dollars ($715,608) in stock certificates stashed inside a safety deposit box, or the tax issues that came with them.

His mother had never banked and no cash had been set aside to pay for the funeral and other expenses. O'Brien, an engineer at the time, was forced to do some detective work, sorting through sock drawers, old boxes and stacks of papers.

Eventually, he found the safety deposit box keys and had access to the will, insurance, and the stock certificates his father had been paid with during the Great Depression and "didn't have any use for."

"I came home to my wife and I said to her, 'I can't believe that my old man made so many mistakes in his life,"' he said.

"'All of the bank accounts were in his name,' and she said, 'so are ours.' 'All the insurance policies were put way in a safety deposit box.' 'So are ours."'

"I had started setting up my own estate in the same way."

O'Brien started taking courses to fill his knowledge gap, found he liked the work, and became a financial planner.

His book, "Where There's a Will ... There's a Way," is aimed at helping people avoid the estate-planning mistakes he's come across in dealing with investments, insurance, wills, power of attorneys, bank accounts, deeds, loans and assets.

So should an adviser bring up the topic with clients?

Brad Hyde, director of individual insurance sales for the Prairies at Manulife Financial, in Calgary, said that once clients feel confident about their retirement income, they will then consider family legacies, estate preservation, estate maximization, and philanthropy — living and post mortem.

Hyde said that one good way to get clients engaged in the issue is to hit on hot-button issues, like taxes.

"For most of the clients I talk to, tax is a pain in the assets," he said at the CIFPs conference in Niagara Falls. "We are losing assets to tax all the time while we are living, but what people really don't understand is how much goes to Revenue Canada at death."

After sitting down with clients and getting all the facts, Hyde shows them how to get the best use out of the financial products available to maximize the value of their estates.

While that makes clients happy, the adviser benefits too, as additional business is coming from existing clients.

"It is one thing to be a trusted adviser on the investment portfolio, but it's another thing to be a trusted adviser on the complete portfolio ... the investments, the insurance and the estate-planning side of things."

One of Hyde's clients came to him a few years ago with a problem: he'd set aside C$100,000 to leave his children, but now he wanted to tap into that cash himself. He was racked with guilt because he still wanted to leave his kids something.

"I said, what if we used 25 percent of it and gave you the access to freely spend without any guilt for the rest of it," Hyde said. "He said, 'if you do that, you will be my best friend for ever."'

For about C$25,000, Hyde set up an insurance policy on a permanent basis with the children as the beneficiaries, freeing up the rest for the client to spend.

© 2014 Thomson/Reuters. All rights reserved.

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