Estate planning expert shares advice on potential pitfalls, points for review, and key developments
As the COVID-19 pandemic takes an unprecedented toll on people’s health and wealth, lawyers and financial professionals are reporting an increased number of Canadians seeking to draw up or update their wills. One estate-planning expert agrees that people should prepare for the worst, and offers some practical advice.
“If you have a will but haven’t reviewed it in at least five years, now’s a good time to do that,” said Lydia Potocnik, vice-president, Estate Planning and Philanthropic Advisory Services at BMO Private Wealth.
As a lawyer by profession who used to focus strictly on estate and trust planning for clients, Potocnik has a keen sense of which crucial questions people should be asking.
Review documents and key players
“For example, if you have minor children, who have you named as their guardians?” she said. “Are those guardians still willing and able to care for your children, particularly if they’ve been affected by the pandemic or at risk of not being well? And do they even know they’ve been named?”
The same concerns should be addressed when it comes to the executor of an estate. If they are vulnerable or getting to an advanced age, clients should revisit their willingness or ability to handle the complexities of an estate administration.
“Equally important in both cases is to determine whether your executor is an essential service provider and therefore more at risk of getting COVID-19,” Potocnik said. “If so, it may be time to look at alternatives such as another family member or a trust company.”
Those with concerns about a family member’s ability to serve as executor, especially if there’s a possibility of them getting sick or becoming deceased, may also appoint a trust company as a co-executor. With a team of trust professionals who are experts in estate administration, such companies can provide much-needed peace of mind.
“It’s important to also review your power of attorney documents,” Potocnik said. “Ask the same questions: are the individuals you designated aware, at risk, or still willing? Is it time to name new people?
“Trust companies can also carry out power of attorney functions, but only with respect to property,” she added. “They can administer people’s financial affairs if those people were to lose mental capacity, but they cannot step in as a power of attorney for personal care or medical attention. That is why I often advise clients to appoint at least two people.”
Business owners have to think about even more contingencies, particularly with respect to their succession plan. Potocnik encouraged owners to review their business’s governing documents. Some provinces allow the use of a secondary will to deal with privately held corporate shares, which she said should be put in place and revisited as needed.
“You should also ensure your business partners, if any, understand the succession plan, and that their own estate plan is also up-to-date,” Potocnik added.
Splitting the estate
Another important piece of the estate-planning puzzle involves the division of assets. While many people already have plans to split their estate equally among their named beneficiaries, the math behind those decisions has probably changed significantly thanks to the coronavirus.
“Some older adult children are perhaps moving back in with their parents as a result of job loss,” Potocnik said. “Those parents extending financial support to some, not all, of their children will have to decide whether they want to count that as a gift or a loan and if they want that taken into account when their children receive their respective inheritances.”
And for many households, investment accounts represent a significant portion of estate assets. As the recent market volatility has dealt considerable damage to people’s portfolios, the balance in valuations across the assets to be bequeathed may have been upset.
“Individuals, particularly those with a large portfolio that they intend to leave to one beneficiary, may want to review their will and look at other ways to distribute their assets if their goal is to divide up their estate equally among their beneficiaries,” Potocnik said. One approach is to divide the residue of the estate equally among beneficiaries, which is what is left over after taxes and probate fees have been subtracted.
She also stressed that beneficiary designations made with respect to RRSPs, TFSAs, and life insurance policies must be consistent with overall wishes expressed in wills and estate plans. If assets are to be divided among several beneficiaries, and one passes on, the designations have to be updated across all the documents.
“Many people don’t realize that when someone is designated as a beneficiary of assets outside the will, the assets will flow directly to that person when the original owner of the assets dies,” Potocnik said.
Online wills: caveat emptor
Much of the recent interest in estate planning has translated into an uptick in the use of online wills. Potocnik acknowledged that such documents have a purpose; for instance, they can be useful for someone who can’t afford or get to a lawyer, or single people whose estates aren’t complex.
“However, for anybody with any amount of wealth, online wills aren’t recommended,” she said.
She pointed out that digital wills may not have the proper clauses to deal with complex assets, such as a family business or a vacation property outside Canada. They may also not have the appropriate verbiage for unique family situations such as blended families.
“An online will could also be subject to greater scrutiny if a beneficiary feels that the testator lacked mental capacity at the time the will was created or if someone unduly influenced the testator into making a new will,” Potocnik said.
The broader set of rules governing wills and estates must also be considered. Online wills that were crafted with U.S. rules in mind will obviously not conform with rules and legislation in Ontario, for example. And those who do their own wills in Ontario run the risk of violating strict rules around how the will must be executed and witnessed in order to be considered valid in court.
“Until recently, the Ontario government required at least two witnesses to be physically present to see a testator sign a non-handwritten will,” Potocnik said. “But with social distancing, the province is now allowing virtual witnessing of wills or powers of attorney for the duration of the pandemic.”
Under the province’s Emergency Management and Civil Protection Act, remote witnessing is allowed as long as the technology used allows participants to communicate with each other visually and verbally in real time. The new law also requires that at least one witness be a lawyer or a paralegal.
“It’s important for people to know that lawyers are an essential service during this pandemic and can take instructions from clients for purposes of drafting wills and power of attorney documents,” Potocnik said. “Aside from helping minimize tax implications for their estate, lawyers play an important role during this pandemic and can help clients ensure that their estate documents are properly executed.”