Industry experts share their tips in wake of investigation into local funeral home
By Dan Healing
THE CANADIAN PRESS
CALGARY _ Estate planning expert Lynne Butler loves to tell the cautionary tale of a widow in her 80s who had six children and six real estate properties.
When it came time for her to make her final wishes known, she sat at her desk and hand-wrote a will that bequeathed her home to the child who lived with her and cared for her, and carefully doled out the other parcels of mainly rural land to each of her other five grown children.
What she didn’t account for was something called capital gains tax all of the properties had gained in value over the decades and all except her principal residence (which is exempt) owed thousands of dollars in taxes. There wasn’t nearly enough cash in the estate to pay the tax bill.
“Normally, (the heirs) can’t inherit the property until the tax is paid, so what actually ends up happening is that one or more of the properties gets sold to pay the tax. So someone ends up not getting their property,” said Butler.
“And that’s where the fight begins, right? Whose property are you going to sell?”
The widow’s dilemma is all too typical of the drama that can split families apart when poorly written or out-of-date wills legally bind the hands of an executor who has to figure out how to make the deceased’s final wishes a reality.
Butler said the widow was lucky to have sought advice from an expert before it was too late.
Everyone should review their will every five to seven years or after every substantial life event, says Henry Villanueva, counsel for MacMillan Estate Planning in Calgary.
Those life events include birth or adoption of a child or grandchild, marriage, recovery of an inheritance, children moving out of the home and loans to relatives to buy a house or pay for education, as well as death, divorce and remarriage.
“When we pass and we will pass all of our assets are deemed to be disposed upon death, and along with this deemed disposition is an assessment for tax on the gain on assets at the point of death, to the exclusion of assets that are rolled over from spouse to spouse … or assets that automatically flow over, as when spouses jointly own property,” Villanueva said.
Butler said many people draft wills when they get married and have children because they want to ensure their spouse inherits their goods and that their children, if both parents die, are sent to a chosen guardian. Many people use do-it-yourself will kits because their wishes and assets are simple.
Decades later, however, the kids are out on their own and the family fortune has grown to include a home, retirement funds, bank accounts, part ownership of a vacation condo, stocks and bonds and multiple vehicles.
“A lot of people make their wills when they’re married and start having kids. Then one day they realize, ‘Well, now I’ve got grandkids.’ So it’s time to update. All their kids are over 18, they don’t need guardianships any more,” Butler said.
In all Canadian provinces except B.C., Alberta, Quebec and Saskatchewan, getting married revokes previous wills, which means a new will must be signed.
New wills should contain a clause revoking all previous wills. Minor adjustments to a will can be made via a “codicil” or addition, although Butler said that isn’t done very often anymore.
Changed circumstances could also mean changing your executor, noted Villanueva.
A close relative who was able 20 or 30 years ago to handle the crucial executor duties of listing assets and liabilities, then paying the bills and distributing the remaining assets to heirs, may not have the financial acumen to do the same now with a more complicated portfolio.
The original executor may now be elderly or infirm or may have moved out of province.
Butler said she’s a big fan of hiring a trust company to act as executor, especially if the estate is complicated. She said a professional executor has the knowledge to shepherd the process through efficiently without any emotional baggage.
The trust company’s fees will be extracted from the estate, she said, but are usually set at the same rate or lower than what a court might authorize to be paid for any executor, including a close relative, in recognition of the work involved.
The Financial World
1) Not Changing Lifestyle After Retirement
Among the biggest mistakes retirees make is not adjusting their expenses to their new budget dependent life. Those who have worked for many years usually find it hard to reconcile with the fact that food, clothing and entertainment expenses should be adjusted because they are no longer earning the same amount of money as they were while in the work force. For example, you might need to do a little less dining out and learn to enjoy more home cooked meals.
Many retirees also tend to forget to take into account healthcare and long term care costs that usually come into play as a person ages. If you have never considered this before, it’s time to talk to a trusted financial planner to iron out your retirement planning. With some appropriate adjustments to your budgeting and proper planning, you’ll make sure you are set for any eventuality.
2) Failing to Move to More Conservative Investments
Once you have retired, you can’t afford large negative swings in your savings. You regularly hear financial advisors recommending a long term strategy and touting the strategy of leaving money in the market regardless of the ups and downs. That’s because over time, the market, while very volatile at times, has historically ended up rising in the long term. When you retire however, you have to think more short term as you will need to access the cash. It’s still probably smart to keep some money in more aggressive growth investments, but not nearly at the level you did when you were younger. A financial advisor can offer advice on how your investments should be diversified. You might not make as huge gains in net worth, but you will be protected.
3) Applying for Social Security Too Early
Just because you are already eligible to apply for Social Security at 62 does not mean you should. If you start taking benefits at age 62 will get you about 25% less than what you would get on your full retirement age of 66. You will also get 32% less than if you wait until age 70.
If you have the means to pay your bills, try to delay your application for retirement benefits for a few years more. The benefit increase is maxed out by 70 years old and will not increase any further, so that’s the target age you should shoot for.
4) Spending Too Much Money Too Soon
Before finalizing your retirement, you must take into consideration that you will only be living on a fixed amount of money. Oftentimes the amount of retirement savings looks pretty large, but retirees must keep in mind that money will have to last a very long time – hopefully a very, very long time! Avoid the temptation to spend large chunks of that nest egg early in retirement. The temptation to spend your money can be almost iresistable, but discipline is vital. Depleting your money beyond the interest that it earns will hurt the principal and would leave you with nothing after just a few years.
5) Failure To Be Aware Of Frauds and Scams
Retirees unfortunately are among the most targeted for scams. Be sure to consult an advisor prior to making any investment or laying out a large amount of cash on anything. Scammers will prey upon your desire to grow your savings.
Even if you are not retired or about to retire, always keep a certain level of skepticism when it comes to the investments being presented to you. Do your research first: ask about it and search for it online. You might just find out that this whole system is just an elaborate way for people to get money out of you.
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Creating a will can be an emotional experience, however not having one can cause greater emotional turmoil for those left behind. Surprisingly, according to a new TD survey, half of Canadians (50 per cent) do not have a will, a crucial step in allocating assets after death. The survey also found that more than one quarter (28 per cent) of Canadians without a will are between the ages of 53 and 71, and complicating matters even more, 39 per cent of them have not discussed estate planning wishes with their children.
“Estate planning is an essential step in making sure your assets are managed as you wish after your death,” said Rowena Chan, Senior Vice President of TD Wealth Financial Planning. “If you do not have a will, it can create a lot of conflict and unnecessary animosity amongst family members during an already difficult time – regardless of how much or how little you plan to leave behind.”
With most Canadians (88 per cent) having at least one sibling, family conflict over inheritance is common. The TD survey also found that one in five (19 per cent) Canadians who received a family inheritance say they experienced conflict with their siblings and other relatives over the division of those assets, with two in five (41 per cent) saying they considered taking a smaller share of the inheritance to maintain family harmony. Inheriting family property (45 per cent) and cash investments (39 per cent) were the top two causes for conflict.
“In Canada, if you die without a will, your assets are distributed according to the laws of the province in which you lived, using a set formula to allocate your estate to your spouse, children or other relatives, which could be different from what you really wanted,” said Chan. “Even if you do have a will, you need to keep it up-to-date so that it accurately reflects your existing assets and any changes that may have occurred in your family or financial situation.”
Of Canadians who have experienced conflict over family inheritance, 13 per cent said it was over a family business. Nearly half of these Canadians (46 per cent) say it was because of differences on whether to keep or sell the business, and about one in four (27 per cent) say it was over whether to make significant changes to how the business was run.
While one may think estate planning is necessary only for those with significant financial assets, the reality is that estate planning is essential for everyone, regardless of the value of property or other assets. TD offers the following tips to help plan your estate, manage potential tax implications and avoid possible family conflict:
Personal property: Items like the family home, summer cottage or jewelry are all considered property assets, regardless of what they’re worth. A professional appraisal is an important starting point for valuing these assets. Once you understand the dollar value, you can get a sense of how to distribute them among your loved ones. Check online to find a listing of local appraisers or ask your lawyer for a referral. Keep in mind some items may mean more to some family members than to others. Something that you may have strong feelings over, like the family cottage, may not have the same sentimental value for your children. It is important to discuss property with your family members to understand their sentiment and get a sense of whether anyone has strong feelings associated with any property. You can then factor these sentiments along with overall value into your estate planning decisions.
Cash and Investments: Since these assets are measured by monetary value, it can be relatively straight forward to divide them among loved ones. In Canada, money received from an inheritance is not considered taxable, but a deceased person’s estate has to pay taxes on any income, including investment income, before money can be distributed to beneficiaries. It is important to review these assets to understand their value and tax implications.
Family Business: Succession planning should be a priority for anyone who owns a family business. Having a plan that outlines what should happen with the business can help to ensure a smooth transition, whether that means transferring ownership to the next generation, selling the business altogether or something else. If you intend for specific family members to inherit or to run the business, the designated successors should be involved during the succession planning and implementation process to ensure they are comfortable taking over and the family business to help ensure its continue success.
Regardless of the type of assets you hold, Chan recommends that you review your estate plan at least every three to five years or when a significant life event occurs. There could also be changes in marital status for you or your children, the birth or death of a family member, or a change in your employment status or financial situation that may require you to update your plan.
“The value of your assets is measured by more than the dollar amount,” said Chan. “Family members may have memories associated with certain items that make them more valuable than any dollar figure. It is important to consider these emotions when distributing your assets among loved ones. A financial planner can help you navigate these considerations to ensure you have a plan that works for you and your family.”
For more information, tools and resources, visit https://www.td.com/ca/products-services/td-wealth/financial-planning.jsp
About the TD Survey
TD Bank Group commissioned Environics Research Group to conduct a custom survey of 6,020 Canadians aged 18 and older. Responses were collected between February 9 and 16, 2017. All fieldwork was performed by Environics’ wholly-owned subsidiary, maintaining strict quality control procedures in accordance with guidelines established by the Marketing Research and Intelligence Association (MRIA).
About TD Bank Group
The Toronto-Dominion Bank and its subsidiaries are collectively known as TD Bank Group (“TD” or the “Bank”). TD is the sixth largest bank in North America by branches and serves 25 million customers in three key businesses operating in a number of locations in financial centres around the globe: Canadian Retail, including TD Canada Trust, TD Auto Finance Canada, TD Wealth (Canada), TD Direct Investing, and TD Insurance; U.S. Retail, including TD Bank, America’s Most Convenient Bank, TD Auto Finance U.S., TD Wealth (U.S.), and an investment in TD Ameritrade; and Wholesale Banking, including TD Securities. TD also ranks among the world’s leading online financial services firms, with over 11 million active online and mobile customers. TD had CDN$1.2 trillion in assets on January 31, 2017. The Toronto-Dominion Bank trades under the symbol “TD” on the Toronto and New York Stock Exchanges.
About TD Wealth
TD Wealth represents the products and services of TD Waterhouse Canada Inc., TD Waterhouse Private Investment Counsel Inc., TD Wealth Private Banking (offered by The Toronto-Dominion Bank) and TD Wealth Private Trust (offered by The Canada Trust Company).
SOURCE TD Wealth