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I could hardly believe it was already the Labour Day weekend. We had all arrived at the cottage on Friday night, and this would likely be the last time we’d all be together until Thanksgiving. It was easy to tell that summer was almost over. These days, the temperature went down when the sun did, and we were huddled around the fireplace in our sweaters and sweatpants. We’d all chipped in to get a gift for Uncle Wayne to thank him for his advice and guidance this summer. We’d put Alice in charge, and now we couldn’t get her to tell us what she’d bought.
“All summer, you wouldn’t keep quiet,” I teased, “and when we finally want you to talk, you refuse!”
“I’d watch my step if I were you,” she countered. “If you’re mean to me, I’ll make you the executor of my estate now that I know what a difficult job it can be. I kind of like the idea of you sitting in a stuffy office with a calculator for hours on end with my kids constantly nagging you for money.”
“Well, Alice, even if you did that to Jack,” Sandra said, “I’m sure your instructions would be so clear and well organized that even he could do a good job.”
“Oh great,” I muttered. “Even when Alice is gone, she’ll still be telling me what to do.”
“But Jack,” said David, defending his wife, “Alice is the one who told you it would be a mistake to let Sandra getaway. Remember when you two started dating, and one of your old girlfriends called? You asked Alice for advice, and …”
“So much for our code of silence!” I said. “Thanks a lot, David. By the way, did you ever tell Alice about that weekend up here with your university pals when you met those girls who were working at the Delawana Inn? I seem to recall that …”
“David, I would like to speak with you outside, please,” Alice said in a frosty tone.
“Jack, I’m glad it’s too cold outside for bugs tonight,” said Sandra, shaking her head.
“Why? Do you think Alice will keep him out there a long time?”
“No. I’m glad for your sake. It means you won’t get eaten alive tonight when you’re sleeping out there in the boat!”
“You guys sure make marriage look mighty attractive,” Sally grumbled. “I’m going to bed.”
Mark woke us up when he jumped into the water for his usual morning dip before breakfast. It’s a good thing, too, because we had a full house coming for breakfast, and it was time to get rolling. We sort of ate in shifts, with plates on our laps, because there were thirteen of us: Sally, David, Alice, Scott and Jan, Sandra, Connor and Paige, Mark, Aunt Lorraine, Uncle Wayne, Aunt Jen, and me.
True to their word, Alice and Sandra had prepared a virtual feast, including blueberry pancakes, fresh sticky buns, sausages, back bacon, and scrambled eggs with smoked salmon. I don’t know about everyone else, but I had sure gained a few pounds from our breakfast meetings all summer.
Aunt Lorraine and Aunt Jen were just about to leave with all the kids for their usual Saturday trek down to the harbour when Sally asked them to hang around for a few minutes.
“We have a special presentation for Uncle Wayne,” she explained as she gestured toward Alice, who was holding an oblong package and wearing a grin from ear to ear.
She handed the box to Uncle Wayne, saying, “We hope you’ll enjoy this small token of our appreciation for your patience, good advice, and hard work this summer. You were really terrific, Uncle Wayne. Thank you.”
“Hear, hear,” we all chimed in as Uncle Wayne opened his present. It was one of the newer state-of-the-art putters, along with a framed picture of all of us taken at the golf tournament. The inscription on the picture read, “Thanks for looking after our interests. With love from the Saturday Strategy Club.”
“What a great picture!” beamed Uncle Wayne. “Look at this, Jen. They’re all smiling, even Mark, and right after I had cleaned his clock, too. Good stuff. We’ll put this right over the mantle at our cottage. And tell you what, Mark, you can have my old putter. Thanks, everyone. To tell you the truth, spending that time with you was almost as much fun as golfing.”
The Last Session
“And if everyone but the Saturday Strategy Club will kindly clear out, we can get down to business,” he continued with a wink.
“We know,” we said in unison. “You have a golf game.”
I started the conversation and asked Uncle Wayne, “Do you think it’s important to have a family meeting with our beneficiaries like Dad did with us?”
“Alice has some good insight into this. I know she has had several conversations with her parents. Can you let us know what you spoke about?”
“Well,” Alice started, “after our planning sessions with Uncle Wayne this summer, I thought I should bring up the subject with my parents, and we had some great discussions.
The three conversations we ended up having were:
- an estate document conversation,
- an eldercare conversation, and
- a family legacy conversation.”
“So, Alice, was the estate document conversations basically what you had talked about previously, when you had a conversation with your parents to find out who their executor and power of attorney were, the location of all their documents, and an introduction to their financial advisor?” I asked.
“Yes, exactly,” she answered. “My brother and I sat down with our parents to review their documents, and we met with their financial advisor and had a frank discussion on what they wished to happen and how they wanted to have their finances handled if they were unable to make decisions for themselves. We found this very helpful, and we’re going to set another meeting to see if she may be a good fit as our advisor as well.
“The next conversation this led to was an ‘eldercare’ conversation based on the advice Uncle Wayne had given me. In this conversation, we discussed and made plans with our parents about what they wanted us to do if a potential medical or physical setback occurred as they aged.
For example, what would the plan be if:
- they needed some extra help to continue to live at home,
- they decided they had to or simply wanted to move into a retirement home,
- they wished to downsize their current home at some point,
- only one of them needed care in a retirement home and
- both or only one had to go into a long-term care facility.
“It was good to review this with them ahead of time so that we could discuss some scenarios. Since we’ve also met with their financial advisor, we know where to go to if we need to model out some of the options.”
“That’s a great idea,” Sandra added. “I don’t even know who has my parents’ power of attorney; I assume it’s my brother and I, but I’m not sure.”
Alice took a sip of coffee and continued. “We also had a legacy conversation with my parents, and this is something that I think we should also have with our kids. What do you think, Uncle Wayne?”
“Absolutely a great idea,” Uncle Wayne chimed in. “I know you all found it valuable to discuss what your dad’s wishes were, especially regarding how the cottage was to be dealt with. I’d recommend it for everyone as soon as you think the kids are old enough.
“There’s one other thing I think all of you may want to do, and that’s to write a letter to your future self about eldercare so that you can put your thoughts in place while you’re able to. This would be for you to read, and your children as well, when required.
We are just drafting our own, and some of the key items are:
- where we want to live
- our desire to not put the obligation on our children to act as our primary caregivers,
- the need to spend our money so that our kids don’t have to do stuff for us if we can’t live safely at home,
- if we’re in a retirement home, and our kids don’t recognize us, our desire is that they not waste their time visiting us each day.”
“I think that would be very helpful,” I added.
Uncle Wayne then continued. Some of the reasons I think that you should all have these conversations with your kids and parents is that it will allow you to:
- share your values with your children;
- let them know what you wish to happen as you age and your parent’s age;
- reduce confusion, discord, and potential family conflict;
- talk about any concerns you may have, and
- help you to feel in control and let them know that you have a plan.
Some of the potential topics to review could be:
- the values you wish to pass on, and why you are legacy planning;
- who will have a leading role in your planning;
- health care issues, such as the eldercare plan;
- what’s important to you in the legacy and wealth transfer;
- why you may be using trusts versus an outright distribution;
- potential controversial issues such as unequal distributions;
- special considerations;
- any charitable giving in your plan;
- your gifting goals while alive;
- your plans for your business, such as Mark has; and
- who your advisors are.”
“I’d recommend that you have these discussions with your kids and your parents if possible. It has put my brother and me at ease, as we know where to go to and what to do if something happens to them,” Alice said as she started to tear up slightly. “Something that we found out, which we had no idea of prior, was our parents’ financial commitment to a few charities that meant a lot to them. It was interesting to see the strategies they used. Our mom had decided to leave her RRIF to her favourite charity, a women’s shelter in Hamilton. She did that by naming them as the beneficiary of the plan. Our dad last year had donated some stock he’d owned for a while to his favourite food shelter. Not only was this great for them to do, but it created some tax savings as well. For example, the stock my dad donated had appreciated in value over the years and had a huge taxable capital gain. By donating the stock, he didn’t have to pay the tax on the capital gain, and he received a charitable tax credit today.
“By my mom designating the women’s shelter as the beneficiary of her RRIF, her estate will then receive a charitable tax credit for her final tax return, which will help offset taxes. Their financial advisor, Joan, helped them with this strategy. She also recommended that when leaving money in your will to a charity, be sure to leave a specific amount rather than a percentage of the estate, as this will help to avoid confusion and potential litigation.”
“That’s awesome advice,” Sandra congratulated her. “Thanks for letting us know.”
Alice continued. “There is one other very important conversation that we want to have, and that’s a “next-gen financial education conversation” with our kids. From our meetings this summer with Uncle Wayne, we realized that there are many basic financial concepts that we should have known, but we didn’t. We didn’t learn the concepts in high school, and we didn’t learn them in university. In thinking about it, Uncle Wayne, this winter, you should write a book about financial planning for millennials!”
“That’s a great idea. Perhaps I can do that in my spare time down south this winter!” Uncle Wayne then suggested, “I know that most kids will ignore their parents, and I would be happy next summer to arrange a weekly get-together for all your kids, plus some of the friends if they want. Since some will be going to university, and some are starting their first full-time jobs, some critical topics could be:
- how to budget for post-secondary school;
- your first job and setting a lifestyle you can afford;
- simple budgeting and cash flow planning;
- understanding how taxes work;
- leasing versus buying a car;
- understanding your employer’s benefit package;
- setting up a savings program;
- understanding the impact of interest charged on credit cards;
- the difference between good debt and bad debt;
- types of investments, such as high-interest savings accounts, mutual funds, stocks, ETFs, etc.;
- types of savings vehicles, such as TFSAs and RRSPs, and
- the financial impact of life’s transitions, such as:
- getting married,
- buying a home,
- having children,
- changing jobs or careers,
- getting divorced,
- caring for an elderly parent,
- safeguarding any inheritance they may receive.
“Also, I think it would be a great idea to have your kids start to work with your financial advisor’s company once you find one. The earlier they start, the better.
“Speaking about financial advisors and advice, who feels confident enough after our summer sessions to handle their own finances without any outside help? Hmm. No one? Not even Alice? Good! Because we’re talking about your future here, and as the old saying goes, a little bit of knowledge can be a dangerous thing.”
David nodded. “Even though your advice has got us thinking in the right directions, there’s a lot of detailed work when it comes to developing, implementing and then monitoring financial plans. The more I learn, the more convinced I am that Alice and I should hire professional help.”
“I agree,” said Mark. “After a busy day at work, the last thing I want to do is come home and spend all night reviewing my investments and other personal affairs. It’s one thing to make overall decisions based on sound financial strategies, but it’s quite another to have to monitor movement within your portfolio daily. Phooey on that.”
“I’m with you, cousin,” Sally said. “To do a proper job, we’d have to keep up with every change in the rules regarding trusts and taxation, as well as track all the trends in both the domestic and international markets.”
“We shouldn’t even try to do those things on our own,” Sandra reasoned. “I look at it this way—we’ve all had some degree of success in our own jobs, and at least part of that success is due to training and hands-on experience, which fosters an understanding of how our various professions work. It makes perfect sense to me to hire someone who’s been trained and successful in the field of financial management to help us with our money plans. I guess it’s possible that we could do a good job, but it’s just too important to leave to chance.”
“You’ve been quiet, Jack,” said Uncle Wayne.
“I think we’re all together on this one,” I commented. “Your advice has helped us set goals and objectives, and we’ve even taken some of your recommended actions, such as signing powers of attorney. But now, we’re going to need some ongoing guidance. Who do you think we ought to see?”
“Lets’ first review how financial advisors typically work in Canada. In preparation, I read a report from July 2014 called “Sound Advice Insights into Canada’s Financial Advisor Industry,” prepared by PWC for Advocis, the Financial Advisors Association of Canada. The report explains that financial advisors generally work in four broad advisor segments:
- full-service brokerage
- branch advice
- financial advisor dealer.”
“What does this all mean?” I asked Uncle Wayne.
“Well, it basically describes how they work. Advisors who work at full-service brokerages basically work for one of the big banks, although there are some non-bank-owned companies.
“Branch advice advisors are those who work at a deposit-taking institution, such as a bank or credit union.
“An insurance-based advisor is contracted with a life insurance company directly or with a larger group called an MGA, which means Managing General Agent.
“The last main channel, financial advisor dealers, are advisors working outside of a depositing-taking institution.”
“What about ROBO advisors?” Sally chimed in. “Some of my friends are using them.”
Mark commented, “I’ve looked into them, and currently, it appears they are more about ROBO investments versus financial advice, as they only provide investments, with little or no advice outside of that.
“So if we want to work with a full-service advisor, does it really matter which type of firm they work for?” Mark asked.
“The specific channel is not the most important factor; however, you will want to deal with a firm that is financially strong. I’d suggest that the most important factor would be the specific advisor you decide to work with. You’ll want an advisor who provides holistic plan-driven advice and who puts your interest first.
“There are numerous designations in the financial advisor business, but based on what we’ve talked about and your need for ongoing support, I’d recommend that you opt for a financial advisor who has obtained the CFP® or CERTIFIED FINANCIAL PLANNER® professional designation, as they are trained in of the following key areas:
- financial management,
- retirement and cash-flow strategies,
- investment management,
- tax planning,
- insurance and risk management, and
- estate planning.
“CERTIFIED FINANCIAL PLANNERS are generalists who can help you develop a full plan and will call on the specialists for help when necessary. Also, in the 2019 spring budget in Ontario, it was proposed to introduce legislation that those who wish to use the financial planner or financial advisor titles have the appropriate credentials.”
“I suppose that our financial team should include an accountant, lawyer, and insurance expert in addition to our planner,” Sally speculated.
“Yes,” Uncle Wayne answered, “and here’s an analogy that Jack will like. The financial planner or advisor is sort of like the head coach of a football team; he calls the plays and coordinates the actions of the other coaches and players on the team who have the expertise necessary to make the big play.”
When developing financial, estate, and tax plans, you’ll want to make sure that your accountant and lawyer agree with what should be done and that all the appropriate documents are created. For example, will and estate planning has to take into consideration the beneficiary designations on your RRSPs and RRIFs. The CERTIFIED FINANCIAL PLANNER may help you to develop an overall plan, but it has to be implemented and reviewed by your accountant and lawyer.”
“I know what makes a coach good, Uncle Wayne,” I remarked, “but how do I know whether a financial planner is good? Are there any checklists or criteria available?”
Alice mentioned, “I’m on the FP Canada website, the organization that looks after the CFP designation in Canada, and they have a bunch of good information about this. I’ll send you all the links to their website, www.fpcanada.ca.”
“Why don’t we develop our own in addition?” Uncle Wayne asked. “Mark, what would you look for?”
“I think education is important,” Mark replied. “I’d want my financial planner or advisor to have a university degree, and preferably a graduate degree, such as a Master of Economics or Business, as well as be a CERTIFIED FINANCIAL PLANNER professional. With so many people advertising their services, why not select someone who’s well educated with a demonstrated ability to keep on learning as things change.”
“Experience is another important factor,” said Alice. “And not just in the financial services industry, but also in the area of wealth management. I’d want someone who’s familiar with all the things Uncle Wayne has talked about and who’s worked with people like us before.”
“Anything else?” asked Uncle Wayne.
Sandra spoke up. “I want someone who’s relatively independent and isn’t allied with one particular company, so she would have access to a wide variety of products on the market without harbouring a vested interest.”
I told Sandra that I agreed with her and added, “I think we’d also select someone who has a network of contacts, access to accountants and lawyers who specialize in trusts, and all the executor stuff.”
“What have we missed?” Alice asked.
“A couple of points,” he answered. “First of all, I would use a financial advisor that specializes with clients who are similar to you. Also, try to get references from the financial advisor’s other clients, as well as any accountants or lawyers who may have recommended the financial advisor to their own clients.
“A last point is that it’s probably best to choose someone tied to the local area, such as a long-time resident. Reputation is very important to people like that, and they’ll probably take great care with your money.”
“How do you suggest we find a financial advisor?” asked Sally.
“We’ve been trying to find one,” I mentioned. “First, I asked my friends if they would recommend anyone. I then spoke to my accountant and asked her for some recommendations. From the recommendations, I did some online research about them, looked at their website, reviewed if they had written any articles about financial planning, and to see if they worked with a specific type of client, and finally confirmed if they had a CFP designation. From this, I made appointments with three of them and asked them the following questions I found on the FP Canada website:
- What are your qualifications?
- What experience do you have?
- What services do you offer?
- What’s your approach to financial planning?
- Will you be the only person working with me?
- How will I pay for your services?
- How much do you typically charge?
- Who besides me benefits from your recommendations?
- Are you regulated by any organization?
- Can I have it in writing?
“That’s a good list. So how do financial advisors get paid?” asked Sandra.
“Some advisors still earn commissions on the products they recommend and sell, such as mutual funds or insurance. Some charge a flat fee for planning work, and many charge an asset-based fee based on the amount of money you have invested. This fee could either be paid from within the specific investments you own, or deducted from your investment account, or paid from your bank account. Regardless of which way they charge, it’s up to you to make sure you fully understand what you’re paying and to understand what you’re receiving for the fees you pay!”
“So once we hire a financial advisor, what is the process?” asked Sally
Uncle Wayne took a sip of his coffee and continued. “Normally, the ongoing process they would follow would be to:
- find out what your family’s dreams, hopes, goals, and desires are;
- benchmark your current financial reality;
- co-create the required strategies and plan that will enable you and your family to achieve your dreams, hopes, and desires in the time frame you have selected;
- execute your specific strategy in the following five key areas:
- retirement and cash-flow strategies,
- investment management,
- tax planning,
- insurance and risk management, and
- estate planning;
- use a detailed checklist-driven, step-by-step process to ensure nothing is missed in the execution of your plan and
- provide an ongoing annual review of all aspects of your strategy and plan to make sure they remain aligned with what your family wishes to accomplish over time.”
“That’s our Uncle Wayne,” I said. “A veritable fountain of knowledge.”
“And that, my dear young friends, signals the end of our final meeting of the Saturday Strategy Club. We’ve covered the basics, and now it’s up to each of you to plot your own path and goals based on what’s important to you. But remember … to stay on track, an annual review of your goals, strategies, estate plans, and Double Os must be done.”
“Thanks again for all of your hard work,” I said.
“And thank you all for yours,” Uncle Wayne replied. “Sally, David, Jack, I know your dad would be proud of the responsibility you’re showing by handling your inheritance in a way that safeguards it for the next generation. Just remember that he had a lot of fun in life, and he’d want you to have some fun with the money too.
“Now, I hope I can count on all of you to help pull my dock out of the water on Thanksgiving. I’ve got a few other chores lined up, too. Sally, why don’t you forget the musician and get yourself a handyman for a boyfriend?”
And with that, Uncle Wayne gave us a wink and headed down to the dock. Sandra, Sally, and I saw him off and then joined the others inside, where Alice reviewed Uncle Wayne’s approach to handling our sudden wealth. He had talked with us about:
- what to do first;
- how to maximize returns and protect our assets in the short term, which debts to pay off, and in what order;
- investment strategies to allow for both growth and protection of capital;
- tax strategies to maximize the growth of the inheritance;
- how to develop an effective estate plan;
- how to select an executor, and whether you should trust an executor;
- who legally owns an inheritance or gift, and when the assets come to be regarded as family property;
- strategies to safeguard an inheritance or gift for the next generation;
- how to use trusts to our best advantage;
- The four critical conversations everyone should have with their kids and parents:
- the estate document conversation
- an eldercare conversation
- the family legacy conversation
- the “next-gen financial education conversation” with your children;
- how to assemble a financial team, and
- an annual review of goals, strategies, estate plans, and Double Os.
The change from Labour Day to Thanksgiving was like the difference between day and night. The leaves had long since peaked, and everything that had once been shiny and green was now dreary and brown. At five degrees, even the water looked darker than usual.
Getting Uncle Wayne’s dock out of the water was no picnic, and Sally and Mark made it even worse by starting a splash fight that soaked everyone.
Later, when we were gathered around the fireplace with a bottle of red wine after dinner, Sally wanted to know what we’d all done with our inheritance.
“I thought we covered that last summer,” Mark snorted. “Earth to Sally, what planet have you been on?”
“Yeah, yeah. You know what I mean. What specific steps have you taken to implement the strategies Uncle Wayne talked about?”
“Jack and I have been really conscientious,” Sandra said with pride. “We’ve put together a financial team with a planner, an accountant, and a lawyer. In fact, right now, our lawyer are in the process of setting up a couple of trusts for the kids. Of course, we told you last summer that we had taken out extra term insurance for income protection, and now Jack’s shopping for an additional permanent life policy to guarantee that Connor and Paige receive the full value of the money left behind by their granddad.”
“David and I have taken some of those same steps,” Alice said, “but we’re not rushing into anything. We’re still toying with the idea of buying this place, but it looks less likely as time goes on. How about you, Mark?”
“Mom had the proper documents drawn up to ensure that the gift and any income earned on the money she gave me wouldn’t become part of the family property if I ever marry again. No cracks, please!”
Sally took her turn. “I’ve topped up my RRSPs and named a beneficiary for my group policy at work, so the insurance proceeds won’t have to go through probate if I die. And I’m still paying the full balance on my credit cards every month. No more interest payments for me.”
We all listened to the crackling of the fire in silence for a few moments. I was looking at Dad’s old navy bell from the ship he was captain of during WWII, thinking about how much I’d miss this place when Sally asked if the family who’d been up to see it twice seemed anxious to buy.
“Not really,” I answered. “It could be a year or two before we get a good offer, and until we do, I can’t make a final distribution of Dad’s estate.”
“I think we could stand another summer like the one we just had,” David remarked. “Alice and I have enjoyed spending time with all of you. Uncle Wayne was right; the real value of this cottage is wrapped up in the memories we all share. It’s emotional, not financial.”
“You’re right,” Sally said, adding that the memories will always belong to us, even if the cottage doesn’t.
“Boy, I thought it was tough opening up this place without Dad last spring,” I admitted, “but it’s going to be even spookier closing it up for the winter.”
“I know what you mean,” agreed David. “By the way, what’s on tap for tomorrow?”
“General clean up,” I answered. “And I believe it’s your turn to straighten out the work shed.”
“My turn? No way. Don’t you remember last fall? Dad and I were clearing it out when we found that dead mouse. Remember how hard he was laughing when he chased Alice and Sandra around the deck with that thing!”
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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