jlumsden@assante.com
Estate Planning Wills and Powers of Attorney

Chapter 6: Estate Planning – Wills and Powers of Attorney

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Sandra and I had just finished the dishes on Friday night at the cottage while Sally was playing with Connor and Paige out on the screened-in porch. We were all waiting for David’s family to arrive, and Sandra was a bit nervous because it was already quite dark.

I tried to calm her fears. “Don’t worry. David’s been driving boats around in the dark up here since he was a kid. We’d go to parties and come home at all hours. Besides, you and I had some memorable moments cruising around in the moonlight ourselves when we were younger. Remember the time that …”

“I’d stop right now if I were you. I don’t remember any moonlight cruises, Jack.”

“I think I hear the boat,” I said, hoping to diffuse the tension.

“And I think I hear the sound of a desperate man,” she answered. “Let’s change the subject. After last week’s session on insurance, I’m wondering if we’ve taken the proper steps to make sure we’d be okay if something bad happened. For instance, you could easily fall off the deck this weekend and become horribly disfigured or disabled. And if that happens, accidentally or otherwise, I want to know if you’ve got enough insurance to fully protect me and the kids.”

“This isn’t something you’re planning, I hope.”

“We’ll see,” she said. “But seriously, have we got all the bases covered?”

“Well, if I were to fall or get pushed off the deck tonight, the extra term life insurance we applied for this past week would provide enough income to maintain our current standard of living for you and the kids. And we’re looking into getting enough life insurance on you to cover the money you make as a part-time teacher and to cover the cost of a nanny to look after the kids if you can’t.”

“That reminds me,” Sandra said, “I checked with our human resources manager at school this week, and I do have disability coverage through work. How about you?”

“I have a basic group policy, but it doesn’t provide coverage to 65% of my annual income. What I need is an individual policy to top it up so that a full 65% of what I really make in an average year is covered.”

“A sudden accident must make life really tough for people with no disability insurance,” Sandra remarked. “I would imagine the cost of caring for someone who is disabled, added to the loss of that person’s income, could destroy a family, and even some people might think they’d be better off dead.”

“Not me,” I said. “If I became disabled, I’d expect you to feed me, dress me, and take me to the Hamilton Tiger-Cats games.”

“And how would my life change?” she laughed. “I do those things now. Anyhow, let’s get back to the issues at hand. If we were both killed, we have enough insurance in place to make sure Connor and Paige are taken care of for the next twenty years, right?”

“Yup. They’d be well off, and their affairs would be well managed.”

“Since you insist on bringing up the subject of affairs, let’s revisit the topic of your moonlight cruises,” Sandra said. “Specifically, I’d like to know more about your companion. Or is that companions?”

“I’m sure I hear the boat,” I said as I flipped on the outside lights and headed toward the door. “I’d better help David land. You know how much trouble he has in the dark.”

THE NEXT DAY  

The rain was beating down when we woke up on Saturday morning, so Sandra and I decided there was no morning swim for us. As usual, we could hear Mark yell as he jumped into the water off his dock. He always does that when we don’t join him for an early morning dip. He’s either trying to make us feel like wimps for not going in, or trying to make sure that we’re awake, but Connor and Paige usually take care of that much earlier. 

After I got dressed, we all made our way down to the dock. We had to take two boats, since there were nine of us going over to Uncle Wayne’s for breakfast.

David, Scott, and I climbed into the small tin outboard. Even with equality between the sexes, there are some things that the men are still expected to do, and toughing it out in the open boat when it’s cold and rainy is one of them.

Aunt Jen’s muffins would be our reward, and we could detect their wonderful aroma, mingled with the scent of coffee brewing, as we made our way up the stairs. It would be a tight squeeze in their cottage today, since we usually ate outside on the deck.

Aunt Jen was awfully cheery for such a dismal day. “Tell me, is your old uncle making any sense so far, or are you just here for my blueberry muffins?”

“Both,” David replied.

“I’ll second that,” added Sally. “Good food plus good ideas. You know, Aunt Jen, there are plenty of financial planning books on the market, but none of them tell you what to do if you get a relatively large sum of money all at once.”

Sandra nodded in agreement. “Uncle Wayne’s been great, and we really have been taking action based on his advice.”

“You’d better stop now,” laughed Aunt Jen. “If your uncle’s head gets any more swollen, we won’t be able to get him out through the door later!”

Throughout the remainder of our breakfast, we relived highlights of the infamous golf tournament and discussed our various schedules for the rest of the summer. After breakfast, Aunt Jen and Aunt Lorraine offered to take the kids up to the cabin to play for an hour or so while the rest of us concentrated on our strategy session. I started reminiscing aloud about the games I had played with David, Mark, and Sally on rainy days at the cottage when we were kids. Our favourites had been Monopoly and Memory.

“Speaking of memory,” Sandra interrupted, “who wants to tell me about the girl Jack used to take on moonlight cruises?”

I glanced warily at David and Sally. “Remember our code of silence, you two! And remember what happens if you break it.”

“Gee, Sandra, I don’t remember any girls before you,” David said, smiling sweetly.

“He’s right,” Sally added. “You were the first woman Jack brought to the cottage. Now let’s get started. I’ve got to get down to the harbour by noon to pick up a friend.”

“Is this the guy who likes to skinny dip at midnight?” asked Mark.

“No, it’s not. And I’d appreciate you not mentioning that particular incident, thank you.”

“I see. So is this a new boyfriend or one of the old standbys?” Mark countered. “I have so much trouble keeping up with your social life.”

“At least I have a social life,” she shot back.

Uncle Wayne called for a truce. “That’s enough, you two. Let’s look at your wills. Is everyone’s up to date?

David and Alice looked embarrassed and admitted that neither had ever made a will at all.

Sally’s eyes narrowed in bewilderment. “David, I can’t believe you don’t have a will. Despite all the cracks you make, you must think that the government will do a better job of dividing up your assets than you could. And apparently, you want your estate taxes to be as high as possible, and you don’t care if your family has difficulty gaining access to your assets. I’m sure the government would do a better job managing your estate than …”

“Okay, Sally, I get your point. It’s just something we’ve put off, mainly because we find it awkward to talk about dying.”

“Most people do,” Uncle Wayne said, “but you’ve got to talk about it, and you’ve got to have wills drawn up. Each province is different, but in Ontario, here’s what will happen if someone dies without a will and they have children. If someone has one child, the first $200,000 goes to the spouse, and the balance is split equally between the spouse and child. If you have more than one child, such as you do, Alice would be entitled to the first $200,000 of your estate plus the next one-third of your estate. The rest would be divided between your two children. If the children are under the age eighteen, the Children’s Law Office would get involved.

“That’s it, David,” Alice said in a resigned tone of voice. “We’re seeing our lawyer about wills this week. I suppose we should also name a trustee for Scott and Jan, in case we die at the same time.”

“Maybe Jack and Sandra’s experience would be helpful to you. What kind of instructions did you two outline in your wills?” Uncle Wayne asked.

“Well, first of all, we named one another as executors of our individual estates, and we also named Sandra’s parents as guardians. We decided to use a professional trustee and named a trust company as trustee. The trust could continue for a number of years; we didn’t want her parents to be burdened with that as they aged or potentially be put in conflict with their grandkids over money if they had to manage that for them.

“In addition, we left detailed instructions as to how we want the estate managed. We’ve left specific instructions with the trustees to use the income to care for Connor and Paige. We’ve asked that they not withdraw capital while the kids are growing up unless, in their discretion, they believe it is in their best interest, or they are required to. We also specified that both children receive 50% of their inheritance when they reach the age of twenty-five and the rest at age thirty.”

“Why did you do that?” asked Alice.

“If there’s no age specified, they would receive their entire inheritance at the age of eighteen, and both Sandra and I feel that’s just too young to handle the responsibility that comes with a huge chunk of money. Remember, we have more than a million dollars worth of insurance between us, and we worry that the kids might blow it if they get their hands on it too early in life. This way, they get a more than decent sum at age twenty-five, and even if they do blow it, they get a second chance when they’re thirty.”

“We did something else,” Sandra chimed in. “We’ve asked my mom and dad not to let the kids know while they’re growing up that they’ll eventually inherit a lot of money. We want them to be secure in the knowledge that their education will be paid for, but that’s all. We hope Connor and Paige will become self-sufficient, responsible adults, and we think they’ll have a better chance at doing it if they didn’t know about a future inheritance while they’re young.”

“Two great things Dad did was that he had a digital estate plan, which was basically a listing of all the passwords of his online accounts so that I could cancel them. He also introduced me to his certified financial planner, which made it easier as both power of attorney and executor,” I added.

“Very good,” commented Uncle Wayne. “Now, Mark, who’s the executor of your will?”

Mark started leafing through his binder to find the answer, and David used the lull to ask about the role and duties of an executor.

“The executor is responsible for the administration of the estate on behalf of the deceased in accordance with the terms of the will,” Sally said quickly.

“Show off!” Mark said. “This new friend of yours must be a lawyer. Okay, I’ve found my will.” As he glanced through the document, his face turned red, and his eyes got wider and wider. We all looked at him intently.

“You won’t believe this. My executor is still my ex-wife. And yes, Alice, before you ask, my will also leaves everything to her.”

Alice chuckled. “I guess everyone should review their wills periodically as their circumstances change.”

“Well, this sure isn’t what I want. I realize that under the Succession Law Reform Act that she’s entitled to 50% of all the assets we accumulated during the marriage, but that was all settled long ago. How do I go about changing my will?” asked Mark.

“I’m glad you brought up the Succession Law Reform Act,” Uncle Wayne answered, “because you should all know that it overrides any terms laid down in a will. It also revokes the appointment of power of attorney and appointment as executor if divorced. However, you can make a new will at any time, and one of the first clauses you include is that you are rescinding the terms of your old will. It also provides that if you divorce, your spouse is deemed to have predeceased you for the purposes of your will. So you see, Mark, the government may be smarter than you think. They also believe that an individual would not want to leave any portion of his or her inheritance to a spouse after a divorce unless it specifically provides otherwise, and figure that there are people like you who forget about changing their wills, so they, in a sense, do it for you. Also, marriage revokes an existing will, but you will want to review this all with your own lawyer, as it can get complicated!”

“Wow, maybe I’ve been too tough on the government. But who would you suggest I name as executor? I don’t have a wife anymore, and my kids are just in their early twenties and not particularly knowledgeable about finances. I guess Mom knows a lot about money, but she’s getting older, and she probably wouldn’t want the job.”

Uncle Wayne replied that there are several ways to go, but that the most common choices for executor include:

  • spouse
  • children, if capable
  • friend or business associates
  • trust company.

“What are the pros and cons of each?” Sally wondered.

“If you’re married, and your estate is fairly straightforward, then naming your spouse is usually the easiest and cheapest route, provided he or she is up to the job.”

“If one of your children is old enough and capable, then that could also be a good choice, but you have to be aware that it could create problems. Sometimes children who act as executors become very controlling regarding money that’s been left by one parent to the other, especially when it eventually will go to the kids. Also, family rivalries can crop up when one child has control over an asset that is owned by the entire family, such as a cottage.

“As an alternative, you can name a friend or business associate as your executor, as long as there’s no conflict of interest over any of the estate assets.

“Trust companies are always an option too. They’re certainly very knowledgeable where it comes to their duties and responsibility as an executor. They’ll have all the contacts and processes in place to handle the estate, and they’re completely independent, which some people will want. An added feature is that since they’re an institution, you don’t have to worry about your executor passing away before you do. However, they will almost certainly charge the maximum fees allowed by law for their work in settling the estate.”

“Are executor’s fees high enough to really matter?” Mark asked.

“It depends on the size of the estate,” replied Uncle Wayne. “They can be up to 5% of the assets passing through the will, and then there may also be ongoing costs if the inheritance is not distributed to the beneficiaries right away. In a later session, we’ll review more about this, but assets that have a named beneficiary, such as life insurance, RRSPs/RRIFs, and TFSAs, do not pass through the will, and the same goes for joint assets.” 

“Okay,” Alice said. “Going back to Mark’s situation … how about a compromise? Would it make sense for him to name his kids as co-executors along with one of his own friends or business colleagues who know more about financial matters?”

“I like it,” Mark said. “As much as I hate to admit it, you’re getting pretty good at this stuff.”

“Yes, I think it’s a good solution for Mark’s situation,” Uncle Wayne added. “Now, tell me what you’ve done about signing a power of attorney.”

“I know I signed them, but I’m not really sure what it means,” Mark admitted. 

I tried to give him some answers. “A power of attorney allows someone to look after another person’s affairs if that person becomes either unable or incapable of doing it himself. Remember when Dad was in the hospital? He was certainly capable of making decisions, his mind was fine, but he wasn’t able to physically go to the bank and make deposits, withdrawals, or transfers, as he wasn’t online for all his accounts. He signed over his power of attorney to me, which meant I had access to his various accounts so that I could pay bills and move money around for investment purposes. Also, when we had to make medical decisions when he couldn’t, a power of attorney allowed me to do that as well. So there are two types of powers of attorney—one for property and one for personal care decisions.

“A power of attorney is really important. For example, if David went into a coma, Alice wouldn’t be able to get at bank accounts or investments that were not jointly held unless she had David’s power of attorney.”

“One thing you must remember about powers of attorney,” Uncle Wayne explained, “is that a power of attorney for property is valid as soon as it’s signed, so you may want to leave the document with a trusted third party, such as your lawyer, with written instructions that it is only to be released under certain circumstances. That would alleviate any concern that the person you’ve named might go behind your back and dip into your assets. However, most people shouldn’t be too worried about that because anyone who has your designated power of attorney also has a fiduciary responsibility to you, which means that they must act in good faith. Plus, the Office of the Public Guardian and Trustee will hold attorneys and guardians accountable for their actions and can remove them if abuse or mismanagement occurs.”

“My boyfriend has mentioned cases where the power of attorney was with the kids, and they turned around and used the power to try to stop their parents from spending their own money because it was the kids’ potential inheritance,” Sally stated.

“Aha! So this lawyer friend of yours is your boyfriend,” commented Mark. “What does he say about the importance of powers of attorney for property and personal care?”

“He says that people with limited intelligence like you shouldn’t be allowed to make their own decisions and, therefore, a power of attorney is crucial,” Sally joked. “Actually, what he did say is that powers of attorney are fairly complicated, and even though they may look quite simple, you should probably get professional advice.”

“And is he visiting you this weekend to drum up business?” Mark asked snidely.

“Even if he is,” Uncle Wayne remarked, “he’s right about seeking professional advice. I know one of you mentioned those free do-it-yourself kits earlier, but you’re dealing with sizeable estates now, and if I were you, I’d see a lawyer to make sure your wills and powers of attorney are properly drawn up. A mistake you make today doing it yourself could cost your family a fortune in the future.

“I would recommend that you pay a ballpark figure of about $800 to $1,200 for a thorough job. I know it sounds like a lot of money, but remember, like everything else in life, you get what you pay for. Also, the more complicated the planning, the more it may cost to have a proper job done.

“I have one further comment on the personal care aspect of all this. If you don’t have a valid personal care power of attorney, it can leave your family in a precarious situation. Also, with your power of attorney, you normally name a backup or alternate, which is very important. The appointment of a guardian can be made by the court, but this is a last step. It’s simple and easy to have a power of attorney done, and you can leave very specific instructions, but married couples often give personal care power to the spouse. It makes sense for Jack and Sandra and for Alice and David, especially since both couples are giving power of attorney for property to the spouse. Just make sure you have a frank discussion soon, before anything happens, about the kind of care you would want.”

“Gee, Mark, you mentioned earlier that you’d signed over power of attorney, but you didn’t say to whom,” Alice said pointedly.

“Yes, Alice,” he replied tersely, “it’s my ex-wife. And yes, I will be changing it this week.”

Sally had been looking pensive through all this. “You know, Uncle Wayne, you’ve got great advice for the old married fogies, but it’s a bit trickier in my case. Not only am I single, but I’m also the only one in the family who doesn’t live within easy commuting distance. I was thinking about who I can really trust, and I’m thinking about naming Jack as my power of attorney currently.”

“Sounds good, Sally,” Uncle Wayne said. “What do you think, Jack?”

“I think if I’m going to be the executor for so many people, I had better bone up on exactly what the job entails. I’m doing it now for Dad’s estate, but I’ve been learning as I go along, and I’m not exactly sure what my precise responsibilities are.”

“I’d like to know too,” Mark added, “because someday, although I hope it’s a long way away, I’ll have to handle Mom’s estate.”

“I have a related question,” Sally said. “How can you tell if an executor is doing an honest job and a good one? I mean, we all trust Jack, but how do we know?”

“Good questions,” replied Uncle Wayne, “and here’s what I think we should do. Since all three of you are on holidays this week, let’s schedule an extra session, say on Wednesday? Over cocktails, perhaps? We can discuss the responsibilities of an executor, as long as Alice and David don’t mind us going ahead without them.”

“Fine by me,” David answered. “I hate talking about anything to do with death anyway. Alice can catch up the following weekend for both of us.”

“Then we’re on,” said Uncle Wayne. “And next weekend, we continue with estate planning, specifically the use of trusts and ways to minimize estate costs.”

“Perfect,” Sally said with a smile. “Well, I hate to eat, take advice, and run, but I have to go and pick up my lawyer friend at the marina.”

It was still raining, and as we men rode staunchly back home in the tin boat, getting drenched, I summarized the key points from today’s meeting in my mind:

  1. Everyone should have a will drawn up, as well as a power of attorney for property and personal care.
  2. You should consider factors of trust, ability, financial knowledge, and sometimes even geographical proximity when choosing your executor and designating your power of attorney.
  3. A power of attorney for property comes into effect as soon as it is signed.
  4. A power of attorney for personal care will not come into effect until or unless you become incapable of making your own decisions.
  5. You should review the contents of your will and power of attorney on an annual basis and every time your circumstances change significantly, such as a divorce or the birth of a child.
  6. Create a digital estate plan.
  7. Consult a lawyer and be prepared to spend enough money to ensure the job is done properly and thoroughly.
  8. It’s important to name trustees and guardians for your children in your will.
  • Consider a professional trustee for your trusts. 
  1. Spouses might give one another power of attorney for property and personal care to ensure that the spouse has access to all financial assets and can implement your expressed wishes for personal care.
  2. It’s important to have a frank discussion now with the person who holds your power of attorney for personal care about your specific wishes should you become incapacitated.
  3. Introduce your power of attorney for property and your executor to your certified financial planner. 

For more information, you can refer to Preserving Wealth: The Next Generation – The definitive guide to protecting, investing, and transferring wealth by Jack Lumsden, MBA, CFP®

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This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources; however, no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please make sure to see me for individual financial advice based on your personal circumstances. The information provided is for illustrative purposes only. Commissions, trailing commissions, management fees and expenses may all be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. Please read the Fund Facts and consult your Assante Advisor before investing.

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