If you ask advisors, “Which of your clients will be an executor for a friend or family member?” you’ll likely get a blank stare in return. But with $1.5 trillion expected to change hands over the next 20 years, according to STEP Canada, this heralds a massive problem.
Further, only 2% of heirs plan on keeping assets with their parents’ advisors, according to Investor Economics. This means you’ll likely lose assets to other advisors. And lack of loyalty is just the tip of the iceberg.
Consider Jim and Marg, who lost their spouses around the same time, fell in love after meeting at a bereavement group and got married. Like many who remarry later in life, they decided to keep their assets separate. Their wills left everything to their spouses on first death, and equally split among children on second, so they didn’t bother updating them. Jim’s executor is his daughter, Kathleen, and her advisor is unaware of this.
Fast-forward five years. Jim dies and the family learns his second marriage nullified his will because he didn’t update it. This means he died intestate. He had $1.4 million in assets at death.
Since Jim lived in Ontario, under family succession legislation, Marg inherits the first $200,000. The remaining balance is divided amongst Marg, Kathleen, and Jim’s other child. This means Marg unintentionally received $600,000. Since Jim’s kids only visited on special occasions and didn’t like her, Marg certainly won’t argue with the provincial court.
Not only will Kathleen’s advisor have $300,000 less to manage for her, he missed the chance to warn that this could happen. In fact, advisors who engage their clients who will one day serve as executors have an opportunity to grow AUA and increase life insurance, critical illness and long term care sales.
Kathleen’s advisor could’ve also told her that if Marg and Jim were to keep everything separate, they’d give up the spousal rollover provision. If Jim had left his registered assets to Marg, and vice versa, the survivor would receive the funds tax-free. They could’ve both taken out RRIF insurance for half of the projected RRIF capital. This way, the kids would’ve received the same amount as if the RRIF had been left to them. For Marg and Jim, it would’ve been like buying life insurance for half price, with the payout tax-sheltered for the survivor’s lifetime.
Failing to have a discussion with Kathleen about her impending role as executor was costly for everyone. But many advisors won’t raise the issue because they don’t know how to help executors.
Still, it’s important. According to a BMO poll, 26% of executors face legal issues, 31% have emotional issues and almost half face administrative complications. Further, Leave-A-Legacy estimates 70% of Canadians don’t have an updated will, meaning their intended executors will end up in the same boat as Kathleen.
So advisors should consider the following:
1. Update your skills and knowledge regarding executor’s roles, risks and responsibilities. The executor secures, protects, gathers and liquidates estate assets, pays the decedent’s taxes and debts, and divides what remains of the estate amongst the beneficiaries in accordance with the will.
2. Raise executor issues in meetings with clients and ensure they’ve given careful thought to naming the right executor. Offer to meet with your client and her executor together. Creating this open dialogue adds value for both parties and uncovers potential problems in time to improve the estate plan.
3. Ask clients if they might be named executor of an estate, and explain you’re there to help. This ensures you’re the first resource they contact when the time comes.
With our aging demographic, an increasing number of your clients will need to name an executor or will be named executor. Ask yourself, “Will you be willing and capable to help them?”