Clients entering a second or third long-term relationship are likely going to have complex family trees with specific needs and dynamics, all of which will have to be carefully considered in an estate plan.
“Every situation is unique. [It] sounds like a cliché but you really have to tailor [the plan] to people’s feelings and circumstances and life and attitudes,” says Ian Lebane, will and estate planner, wealth advisory services, TD Wealth, in Toronto.
To get the planning process off to the right start, advisors should gather certain documents before the discovery meeting. “Too often the meetings end up being longer then they need to be because we have to ask the clients some pretty basic questions,” says Lebane.
Before that first meeting, advisors should have information on the client’s assets and liabilities and registered accounts and their designated beneficiaries. In addition, tax returns, wills, powers of attorney and life insurance policies should also be available.
In addition to covering the basics, that initial discovery meeting should also uncover the client’s specific wishes regarding his or her estate. Lebane gets clients talking about what is important to them by asking questions such as “What brings you here?”, “What keeps you up at night?” and “What are your concerns in terms of estate planning?”
The planning process should start from the same place regardless of whether or not the client has decided to marry his or her new partner. “As an estate planner, I would approach the common-law relationship as being virtually equivalent to marriage,” says Tom Junkin, senior vice president, personal trust services and operations, Fiduciary Trust Company of Canada, a division of Franklin Templeton Investments, in Calgary. “Most provinces nowadays recognize long-standing relationships.”
For example, just like married spouses, common-law partners have the right to make a claim on a will if they deem it unfair. An exception is that the will must be very clear in naming a common-law partner as terms such as “spouse” do not automatically apply to those relationships.
One of the first decisions a client needs to make with his or her new partner is how the couple’s assets will be held.
“Often their assets are not equal and so they have to decide — are they going to merge their assets or are they going to keep them separate?” says Junkin. “And there is a no one right answer but it is an important part of the estate planning consideration.”
Whatever the decision, the client’s intentions should be made clear in a marriage or cohabitation contract so as to avoid confusion or claims of wrongdoing by family members.
As well, the terms laid out in a divorce agreement from a previous marriage must be taken into consideration. For example, if a client is required to pay spousal support, or — more commonly — child support, that will have to be factored into the estate plan. “You don’t get out of it by dying,” says Junkin. “You still have an obligation under that agreement [unless otherwise stated in the document].”
Clients can account for such obligations in their estate plan through life insurance, a bequest or directing executors to purchase an annuity.
(Another important factor in the creation of an estate plan is children and/or stepchildren. That will be discussed in the next article in this series, on Wednesday.)
As the discovery meeting continues, it’s likely to turn to what could be a sensitive topic — age. In cases in which there is a large age difference between one spouse and another, it is highly probable that one spouse will later re-marry.
“That’s a very real concern,” says Junkin, “not necessarily out of jealousy but out of a fear that your assets may be depleted [or] go to somebody else.”
Such issues can be dealt with through the creation of a spousal trust, which means only the spouse can access the income or capital of that trust during his or her lifetime.
Ideally, both the client and new spouse would attend the initial estate planning meeting, however, the reality may be quite different.
“Sometimes that person coming into the relationship has their own people, has their own advisor,” says Terry Willis, vice president, with Toronto-based T.E. Wealth a subsidiary of Industrial Alliance Insurance and Financial Services Inc. “My primary focus is on my client and I’ll do my best if that other person comes to the table.”
This is the first article in a three-part series on estate planning.
Next: Considerations for clients with children and/or stepchildren.