Estate Planning for Retirees

Continuing Education for Financial Service Professionals

Estate Planning for Retirees

Estate Planning for Retirees Copyright Š 2015 CLIFE Inc. All rights reserved. Any reproduction of parts or all of this book and its contents by any means electronic or mechanical is prohibited.

& The information in this course is provided for educational purposes only; it should not be construed or interpreted as providing advice. Agents and advisors should always seek guidance from their principals and compliance experts in regards to informing themselves and others about details of the products they sell and other considerations of their business.

& We welcome all feedback and suggestions for additions to the book. Please send your comments to info@clifece.ca.

CLIFE INC. 1595 Sixteenth Avenue Suite 301 Richmond Hill, ON L4B 3N9 www.clifece.ca Estate Planning for Retireesprovides continuing education credits upon satisfactory completion of an online test. Please see the website for details or email info@clifece.ca.

TABLE OF CONTENTS

When to Codicil 52

Introduction 4 Financial Advisor as POA or Executor 4

Revoking the Will 53 Special Situations 54

During Life 6 Power of Attorney (POA) 6 Power of Attorney for Property 7 Three Forms of POA 8 POA Requirements 9 POA for Property Equivalent-to-Intestacy 9

When Two Wills Are Better Than One 56 Payment of Insurance Proceeds 58 Settlement Options 59 Lost Policy 60 The Insurance Trust 61 Who Wants to be a Trustee? 62

Power of Attorney for Care 10 POA for Care Equivalent-to-Intestacy 11

Sooner and Later: Tax 64

Who Wants to be an Attorney? 11

Income Tax Returns 65

Abuse of Power 12

RRSP and Tax 66

POA: Review, Revise and Revoke 13

Charitable Donations 68

Life Insurance 13

The Charitable Insured Annuity Option 68

Beneficiaries 15

Philanthropic Giving 69

Death of a Beneficiary 16

Charitable Remainder Trust 69

Change of Beneficiary 17

Give It Away 70

The Insured Annuity Option 20

The U.S. Property Owner 71

On Death 21

When All is Said and Done 74

A Situation to Avoid 21 The Issue is Intestacy 23 The Making of a Will 26 Validity of the Will 30 Asset Inventory 30 Who Wants to Be an Executor? 35 When a Corporate Executor May be Appropriate 42 Carving Up the Kids’ Share 43 Don’t Confuse Amount Bequeathed with Residue 44 Hard Facts to Support Sales 45 Probate Schedule and Exemption Example 46 Will Storage 50 The Will: Review, Revise and Revoke 51

Introduction -

At its core, estate planning is about the distribution of an individual’s assets after death. o Distribution results from the instructions in the will. o Assets result from wealth accumulation and preservation, and tax minimization.

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This course focuses on estate planning for retirees. Therefore, we do not address estate-planning issues that arise typically younger in life, such as establishing guardians for children.

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We provide the information you need to share with your retired or retiring clients about their estates and how to organize their affairs so that: o

asset value is maximized

o death does not create a burden of responsibility for others.

Financial Advisor as POA or Executor -

It is not uncommon for financial advisors who have developed long-standing personal relationship with clients to be asked to act in the role of power of attorney1 or executor. Taking on either of these responsibilities is not recommended primarily due to conflict of interest charges that can arise.

However, to ensure continuity with the investment and financial strategy the financial advisor has established with the client, a clause may be included in an enduring power of attorney document specifying continuing use of the financial advisor.

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Power of attorney is used throughout this course in a generic sense; we recognize that there are differences between provinces. However, power of attorney or POA is well known and understood across the board.

o It cannot be a binding requirement on the actual power of attorney to continue to use the services of the advisor but the clause gives clients the comfort of knowing that the established strategy will continue. o A financial advisor who is a member of IIROC or the MFDA is prohibited from acting as an executor of a client’s will.

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There are many functions financial advisors can fulfill in the estate planning process. o They can provide an informed review of the plan. o They can point out shortfalls such as the use of a do-it-yourself will. o They can point out the need for accounting or legal expertise. o They can play the role of family referee and negotiate aspects of a plan so that everyone feels he or she is treated fairly. o They can provide investment and insurance products for use during life and at death to build and preserve wealth.

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Many demands are put upon the financial advisor who creates the estate plan: time, patience, and the need for tact, delicacy, and accuracy are just a few.

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However, an estate plan that is properly prepared to achieve the desired results will yield a great deal of satisfaction for the advisor. He or she can be confident that during later stages of life, the client need not worry about the future of his “goods” and property. It will all go “according to plan.”

During Life -

Estate planning ensures that one’s affairs are in order, to protect and control the estate, both during life and after death.

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During one’s lifetime, careful estate planning must encompass: o Preparation of a power of attorney for property; o Preparation of a power of attorney for care, also called a living will, or an advance health care directive; o Life insurance with sufficient coverage and appropriately named beneficiaries to protect estate value and fulfill the wishes of the estate owner.

Power of Attorney (POA) -

A person who acts with the authority for “power of attorney” does so during the lifetime of the estate owner (the grantor). His role ends when the grantor dies and he is replaced at that time by the executor of the will.

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A power of attorney may be used in an extended absence of the grantor, for instance during a period of travel or living abroad, but the document is more closely associated with substitute decision making when the grantor is physically ill or mentally incapable of handling his own affairs.

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The directions given in a power of attorney cannot override the provisions of a will.

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There are provincial differences in power of attorney documents; always check in your province to ensure whatever information you impart or rely upon is correct.

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Like a will, a POA is best prepared by a lawyer. This helps to ensure its validity will not be questioned.

Power of Attorney for Property -

A power of attorney for property is a legal document that gives one person (the attorney) the authority to act for another (the grantor). However, the attorney has limitations on his power.

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A person acting with power of attorney cannot: o Make, change, or revoke the grantor’s will; o Make, change, or revoke a codicil to the grantor’s will; o Make, change, or revoke a beneficiary designation in a life insurance policy;

An attorney may be able to make a designation if an insurance policy is transferred from one insurer to another and the beneficiary designation is unchanged.

B.C. is an exception and provides limited power for an attorney to make a designation.

o Profit secretly from his position; o Assign or delegate his authority or decision making to another person unless the POA specifically permits; o Have any conflicts of interest with the grantor.

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Although there are some provincial variations, it also appears that an attorney may not make an RRSP beneficiary or pension plan beneficiary designation on behalf of the grantor.

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A POA may be temporary in nature or permanent.

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Its preparation requires mental capacity of the grantor to understand:

o The property over which the attorney will have control and its approximate value; o The obligations of the grantor to his dependents; o That the attorney can do anything in respect of the grantor’s financial affairs except the prohibitions described above; o That the value of property may decline under the attorney’s control; o That the attorney may abuse his authority; o That the grantor can revoke the power of attorney document.

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A power of attorney is valid in the presence of mental incapacity of the grantor when it is structured as an enduring or continuing power of attorney.

This requires a statement in the document that specifically says that the power of attorney is intended to continue after the grantor becomes mentally incompetent. o Without a clause to this effect, the power of attorney must be terminated when the grantor becomes mentally incompetent.

Three Forms of POA -

Powers of attorney are created as: o General in which the attorney has the authority to make all financial and legal decisions and undertake all financial and legal actions that the grantor could do; o Limited or Specific in which the attorney has the power only to carry out the specific transaction mentioned in the power of attorney document, or the document applies for a certain period of time. For instance, it could apply to the sale of a property in the grantor’s absence; o Banking power of attorney used just for banking matters in a form created by the bank. It may be necessary to obtain a legal opinion on whether the banking document cancels a general power of attorney.

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In B.C., Representation Agreements take the place of the POA. There are two types: o A standard agreement that can be made by an adult with diminished capacity; o An enhanced or non-standard agreement in which the adult must have the capacity to understand the nature and consequences of the proposed agreement.

POA Requirements -

An attorney must keep comprehensive and accurate records of all financial transactions.

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To exercise his powers, he must show the original POA document, and identification if requested. An original POA should never be surrendered. An attorney should have copies or notarized copies on hand to use and hand over as needed.

POA for Property Equivalent-to-Intestacy -

Intestacy is death without a valid will. When it becomes too late to execute a POA because the intended grantor has become mentally incapable, the court will appoint a property guardian or committee to make decisions for, and manage the affairs of the intended grantor.

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If no one steps forward to be the guardian, the grantor’s affairs will be taken over by the public trustee or public guardian and trustee (names differ between provinces). o The trustee becomes guardian of the individual’s property. It:

Receives the income of the individual;

Pays his expenses;

Holds additional funds in trust for future use.

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