Advisors can be the quarterback for a client’s estate plan

No one is more clued into what’s going on with their clients, says Manulife Investment Management tax expert

This article was featured in Wealth Professional.

Regardless of the markets, the value of estate planning and tax efficiency remains according to one tax expert. 

“Some people will say, ‘I don’t have an estate’, but most people do. Even if their assets may not be that significant, they may have personal possessions that have sentimental value, if nothing else,” John Natale, Head of Tax, Retirement & Estate Planning Service at Manulife Investment Management, told Wealth Professional, noting that anyone that owns their home probably has a significant estate.

“Advisors should help them look at all their assets and make sure that they’ve developed a plan as to who those assets are to go to, when they want them to be transferred, and it’s done in a timely and tax-efficient manner”

In addition, having a proper estate plan can significantly reduce the chance of litigation which can be a destroyer of family wealth and harmony. Having a will is foundational, even though only about half of Canadians have one – and not all of those are updated to reflect the client’s life events, such as marriage, divorce, children’s births, and changing relationships.

“A lot of people don’t realize that, in some provinces, marriage revokes your will,” said Natale. “Furthermore, in many provinces, when you get divorced, any gifts that you give to your spouse in your will are automatically revoked. But, that same rule usually doesn’t apply to beneficiary designations in most provinces. How many times have people gotten divorced and forgotten to remove the exes as a beneficiary?”

Not having a will also means that your clients will die intestate, and then each province has its own rules for who gets what and those may not reflect your client’s wishes in addition to resulting in extra costs and delays. Minor children who are entitled to a portion of their parent’s estate can be particularly problematic.

Therefore, it’s important for clients to name a beneficiary for their RRSPs, RRIFs, TFSAs, insurance contracts, segregated fund contracts, and guaranteed interest accounts (GIAs – a GIC type investments offered by insurance companies), and ensure those names are up to date, too.

Advisors can also help clients find tax efficient ways to provide retirement income. Payments received from pensions, RRSPs or RRIFs are fully taxable, but that income can be supplemented with other more tax-efficient sources such as non-registered investments and TFSAs. For non-registered investments, consider using Series T mutual funds which are expected to predominantly pay return of capital which is generally not taxable1. Using systematic withdrawal plans for non-registered mutual funds and segregated funds is another tax-efficient way to provide retirement income.

Manulife Investment Management has several resources to help advisors with clients’ estate planning. It has just launched an estate planning toolkit to help advisors have estate planning conversations with their clients, which includes articles, videos, and web resources.

Manulife also has an  estate cost comparison calculator that demonstrates the potential value of segregated fund or GIA solutions and naming a beneficiary. This easy-to-use calculator generates a report designed to help understand the costs and challenges associated with estate planning. It can also help evaluate the impact of triggering a capital gains tax bill now in order to avoid probate, where applicable, and other estate costs such as executor, legal and accounting fees later by using a segregated fund contract or GIA.

Using such resources will help advisors assist their clients with the huge wealth transfer, which is already under way, especially as some people are already gifting while they are still alive.  

“Advisors should be overseeing their clients’ entire financial situation,” said Natale. “No one is more clued into what’s going on with their clients. So, they are in an ideal position to be the quarterback of their clients’ estate plans.

“Often, people say, ‘what about the lawyer or accountant?’ They’re very important, but often they’re transactional and don’t see the whole picture. They’re not as involved with the client’s day to day dealings. No one is more tapped into the client’s finances and personal life than the advisor, so they can look at everything – the will, beneficiary designations, bank/investment accounts, businesses, or real estate.

“In these volatile times, estate planning remains incredibly important. The demand and need is there and I think advisors are in a great position to help people with this.”

1 Distributions of return of capital (ROC) will reduce the investor's adjusted cost base (ACB). The receipt of ROC is tax free until the ACB reaches zero, at which point additional distributions that are reported as ROC are taxed as capital gains.

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Manulife Investment Management

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