Whether you see it as a core responsibility or a value-added proposition, reviewing a Client’s Will can be both a goldmine of information and a minefield of liability. This is not a matter of second guessing legal advice, but rather a due diligence exercise to ascertain whether your financial advice properly aligns with the client’s estate planning.
Effective financial advice requires a reasonable knowledge of a client’s intentions, and a comfort level that those intentions have been properly reflected in plans undertaken.
A client may state and believe that his or her Will and surrounding estate planning is in order, but that may not necessarily be the case. By digging a little further an advisor may uncover details that change the financial advice otherwise offered, or may discover information gaps that should be pursued with the client’s lawyer to assure that the combined advice achieves the intended results.
With one eye on providing useful and organized assistance to your clients, and the other firmly on your professional liability, take the time to advise the client in writing ahead of time what you are looking for in reviewing a Will and what you plan to do with it when you find it. This way you manage expectations by tightly framing the inquiry, and in the process limit the potential of inadvertently straying into legal advice territory or otherwise having some unfortunate miscommunication.
Here are some high points to consider:
1) Is there a Will at all?
Despite an advisor’s thorough financial planning, the Will remains an important safety net that needs to be in place to catch things that are not disclosed or otherwise not adequately managed through the features available in financial products.
Apart from this protective attribute, the Will can be a launching pad for more sophisticated tax and estate planning that complements and boosts the value of financial product choices. In particular, a Will can be used to create one or more testamentary trusts that can multiply future access to lower marginal tax brackets, which is the core of legally sanctioned income splitting.
Finally, a Will can be a great source of emotional comfort for the testator (the Will maker) now, and for the heirs in future at an otherwise bleak time. In turn, this can ease estate administration costs and delays, and assist the advisor in securing an ongoing central role counseling the next generation.
2) When was the last update?
Not surprisingly, most people are not clamouring to go back to their lawyer’s office to update their Wills any more often than they feel is necessary. What each person may feel merits a review or revision, however, may not match up with legal reality.
A Will update is usually warranted where
- There has been a material change in the value or make-up of a person’s assets
- Key people (or relationships with them) have changed, or
- There has been a significant passage of time
As well, significant matrimonial events – commencing or ceasing a common law relationship, marriage, separation and divorce – can affect a Will, sometimes causing its revocation and other times having little or no effect where one was expected and perhaps relied upon.
In the course of the financial advisor gathering a client’s information, one or more of these conditions may come to light. If the Will pre-dates these conditions then the advisor may wish to inquire if the client has subsequently spoken with his or her lawyer. Left unchecked, there is a risk not only that the client’s surrounding estate planning is uncertain, but further that the financial advisor’s own advice rests on a shaky foundation.
3) Are there trusts for minor children?
Every trust shares the characteristic of separating legal ownership from beneficial ownership, but the way each trust operates depends on how it is created. Simply put, all trusts are not created equal.
Never have truer words been spoken than when distinguishing trusts arising out of beneficiary designations on retirement plans and life insurance from those created under a Will.
A trust designation is often required in the forms used by a plan or policy issuer where a minor age beneficiary is intended to receive a benefit. Be careful not to assume though that fulfilling this administrative requirement will be sufficient to properly manage the funds once the trust comes into being. While the threshold creation of the trust may be achieved, the power to manage the trust property is often severely lacking.
A Will can be used to cater trust terms that expand or restrict trustee powers and beneficiary entitlements, all as best suits the particular client’s needs. Here are some fairly common provisions that can be used in a Will, but will not normally be available in a plan or policy trust designation:
- Allowing the trustee discretion for fuller access to and use of funds prior to the beneficiary’s age of majority without having to seek government or court permission
- Guarding against the uncontrolled distribution of all accumulated trust funds directly to the child at age of majority (or earlier for rolled over RRSP money)
- Providing for contingency plans where unforeseen circumstances may arise: Disabilities, creditor problems, matrimonial problems, tax opportunities, etc.
In uncomplicated situations, the plan or policy proceeds can simply be allowed to flow into the deceased parent’s estate as a conduit to arrive in the trust. Where probate tax or estate creditors may be significant, more detailed drafting may be required to re-direct the funds into a separate trust that lies outside of the formal estate for these purposes.
4) References to beneficiary designations
A common feature of many Will precedents is a blanket revocation of all past testamentary dispositions, sometimes including specific reference to beneficiary designations. These boilerplate type references are likely insufficient to displace a proper existing beneficiary designation unless specific mention is made of the particular plan involved.
Still, there is a danger that, upon a Will challenge, a solicitor’s notes indicate that the testator had indeed explicitly considered certain plans or policies in instructing the lawyer to draft the Will. That may bolster a disappointed beneficiary’s argument that the Will supersedes one or more past such designations.
Of course where a particular plan is mentioned, whether or not it is one managed through that financial advisor, that is a red flag. Clearly the client (with the lawyer’s assistance) is willing to use the Will as an active instrument affecting financial products. Without clear and direct communication between the financial advisor and the lawyer, there is a risk that distribution of that component of the person’s estate becomes an unintended ping pong game based on whether the client saw the advisor or lawyer last.
For a case where neither the Will nor the plan determined the ultimate recipient of life insurance proceeds, see the accompanying article on the Ogilvie case, entitled “Whither those life insurance proceeds.”
5) Re-confirming beneficiaries, spelling and locations
Sometimes people give conflicting instructions to their professional advisors. It could be:
- A considered uneven distribution
- An unintended double counting of assets
- A secret benefit for someone unknown to others
- A failure to account for tax liabilities, or
- Just a misunderstanding of how assets may devolve if there is a death out of order.
Clearly, where registered plans, insurance policies and Wills show different beneficiaries or significantly varied entitlements, it is worth inquiring whether this is intended or inadvertent.
For a case where the apparent initial beneficiary entitlements were redistributed based on a judge’s exercise of discretion, see the accompanying article on the Doucette case, entitled”Challenging joint accounts.”
As to spelling of names, well typos do occur. Whether the error is in the past information that made its way into the Will or in the current information provided to the advisor, a correction needs to be made. It may in fact turn out that multiple names have been used in the past by the client, beneficiaries or other key people. Either way, contradictory information can upset one or more elements of the financial and estate plan.
With respect to the location of various people, a Will may refer to the general residence of an executor, trustee or beneficiary. If these references are out of date with the advisor’s current information, particularly where provincial or national boundaries have been crossed, it may be that a Will revision (or at least a review) should occur.
In all cases this is not rocket science, just conscientious attention to detail.
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As stated off the top, inquiring about a client’s Will is a part of an advisor’s due diligence in providing the best – and best-suited – financial advice the advisor is capable of delivering. A respectful, organized and informed inquiry will go a long way in solidifying the advisor’s value to the client.
Beyond that, such inquiries can be a springboard for discussions with a client’s estate planning lawyer, trustees and adult beneficiaries in an effort to complete the circle of planning for this client, and open up planning opportunities on into the next generations.