The estate planning process raises a host of issues that often go beyond the skill set of one financial advisor. So, seasoned advisors will assemble a team of professionals to assist with the development and implementation of clients’ estate plans. And an important member of that team is the professional trustee or trust company.

Integrating trustees into estate planning teams has many benefits, say advisors. Professional trustees ensure that funds are properly managed on behalf of beneficiaries; they add a level of professionalism that includes living up to the time commitment, catching omissions in the estate plan and providing specialized knowledge.

And one of the biggest advantages, says Robert Wilson, president of Legacy Private Trust in Toronto, is neutrality. “Many families are dysfunctional,” he says. “A corporate trustee helps to keep things under control.”

The bottom line: you improve your service to your clients and grow your business. “It enables you to deliver solutions that earn your clients’ trust,” says Sandra Recine, senior vice president with TD Waterhouse Private Trust in Toronto.

So, if you add a trustee to your network of professionals, what can you expect? How does that change your role as financial advi-sor? And are client assets at risk as they pass from your management to that of the trustee?

According to Tom Junkin, senior vice president with Fiduciary Trust Co. in Calgary, your role as advisor is central to the process. “Estate planning is like football,” he says. “The financial advisor is the quarterback, running the show and pulling in other players as needed.”

The process raises many sensitive issues, he adds, and clients will open up only to someone they trust. “Advisors are usually best positioned for that role because they have an ongoing relationship with their clients,” Junkin says, “while other professionals come and go.”

Robert-Yves Mazerolle, a senior financial planning advisor with Assante Capital Management Ltd. in Halifax, agrees. Advisors have a big-picture view of clients, he says: “We understand their family situation and financial goals better than other professionals. And when we prepare the estate plan, we identify strategies that are most likely to help the clients achieve their objectives.”

When Mazerolle, who has his certified financial planner and Canadian investment manager designations, starts the estate planing process, he first makes a detailed list of the client’s assets and categorizes them as real estate, registered and non-registered investments, insurance proceeds and personal property. He and the client then discuss various scenarios: what happens if the client dies before his or her partner; what if the partner dies first; or what if they die together?

The client must decide whether all assets should be distributed on his or her death; if some of the assets are to be held in a testamentary trust, the terms must be specified.

“We also discuss the choice of an executor,” Mazerolle says, “and whether the situation calls for appointing a corporate executor or trustee directly, or on a contingent basis, in case the first trustee is unable to fulfil his or her responsibilities.”

Once the terms of the will have been decided, Mazerolle contacts a lawyer and sends instructions for the drafting of the will. The lawyer and client then review the draft and, if a corporate trustee is involved, it is at that point that the individual or company is brought into the loop.

> What A Professional Brings

The terms “trustee” and “executor” are often treated as being interchangeable, but that is not the case; they have distinct functions. A trustee is responsible for looking after funds held in trust on behalf of a beneficiary, whereas an executor is a special type of trustee who is appointed by a will to execute the will. The executor’s job usually entails gathering the assets, clearing the liabilities and distributing what remains as directed by the client’s will (or as otherwise directed by the law).

“If the will directs that the assets should be held for a period of time,” says Geoff White, a lawyer who specializes in estate law in Kelowna, B.C., “the executor’s role converts into being a trustee, at the point at which the net value was ready to be distributed but is now being held according to the instructions.”

A trustee has legal title to property, adds Junkin, subject to a legally enforceable obligation to use it for someone else’s benefit.

@page_break@Anyone can serve as trustee or executor, and most often these jobs fall to family members or friends. While non-professionals can discharge these responsibilities successfully, there are compelling reasons for appointing a professional — be it an individual or a trust company — either outright or in the role of co-executor or co-trustee.

“Too often, these vital roles are assigned to rookies — non-professional family members who have never played the game before,” says Junkin. “Furthermore, the rookie trustee or executor is often thrust into the limelight when he or she is grieving the recent loss of a family member.”

Adds Wilson: “Sometimes everything is fine until the client dies — and then the claws come out. That’s particularly true when second marriages and blended families are involved. In those cases, it’s often better to remove family members from the equation and appoint a professional to handle things.”

As a financial advisor, you can urge your client to use a professional trustee and a professional such as a lawyer as executor. Cathie Hurlburt, a senior financial planner with Integrated Planning Group, which operates under the Assante banner in Vancouver, once recommended the use of a professional trustee to a family whose youngest son was addicted to drugs. “The parents planned to appoint their eldest daughter,” says Hurlburt, “but I convinced them that was a mistake. The addicted son’s share of the estate was $200,000, which was to be held in a life trust. I asked them, ‘Do you really want to put your daughter between an addict and his fix?’ They saw my point and hired a professional.”

People often don’t understand what they’re getting into when they agree to act as an executor or trustee, Hurlburt adds, and subsequently find that they’re in over their heads. “Estate administration may take a year or more, even if it’s straightforward,” she says. “It’s a lot of work and it can be a very thankless task.”

In cases involving a trust for a minor or a beneficiary with special needs, administering the estate could go on for years. The trustee must be available for a period long enough to see the job through to conclusion.

Complex estates involving rental properties, private businesses and properties held in trust are other situations that often call for the services of a professional. “Following a person’s death, there’s a delay while the estate administration documents are finalized by the courts,” says Warren Baldwin, regional vice president with T.E. Financial Consultants Ltd. in Toronto. “A corporate trustee can immediately open an account to handle the deceased person’s affairs so that rental properties and other businesses can be maintained. But when a private individual acts as trustee, it can be difficult to access money for ongoing upkeep.”

“We sometimes recommend establishing a trust for someone whose profession makes them more vulnerable to litigation, such as a plastic surgeon,” says Wilson. “If an inheritance is left in trust, the money is protected from a judgment against the beneficiary. The same holds true for a beneficiary who has a business. If he or she should go bankrupt, an inheritance held in trust cannot be seized by their creditors.”

There are also liability issues: most non-professionals don’t realize they can be sued if they make a mistake. “Executors and trustees can be held liable if the deceased’s taxes are done incorrectly or filed late,” says John Hamilton, president of Royal Trust Co., part of Royal Bank of Canada, in Toronto. “Or if they overlook capital gains or forget about capital losses.”

And a professional trustee can spot common omissions in wills that could lead to problems down the road, Junkin notes.

“In one case, a client planned to leave a substantial, fully invested estate to his children in trust,” he says. “The beneficiaries were all students and the father had forgotten to include a fairly standard provision allowing the trustee to borrow money for them, if necessary. We suggested that change, which the client really appreciated.”

Fiduciary Trust recommends changes to estate plans 60% to 70% of the time. “Usually, it’s a tweak. But sometimes there’s a significant omission, such as forgetting to dispose of all the property in an estate,” Junkin says, “That can create serious difficulties and lead to costly delays.”

Another problem arises when a trust beneficiary dies prematurely. “Suppose someone leaves money in trust to a grandchild until the age of 30,” says Junkin. “If that person dies early and leaves no children, their inheritance can be left in limbo. Issues like that must be addressed in the will.”



> Growing — Not Losing — Assets

Working with a professional trustee can also help you grow your advisory business.

In one case, Legacy Trust suggested that three unmarried sisters create a charitable foundation rather than leaving money individually to their favourite charities.

“They were delighted with the idea,” Wilson says, “and the advisor got to manage the assets of the foundation, which will continue in perpetuity.”

Many children with disabilities are living longer, and advisors who work with corporate trustees have an opportunity to continue managing the trusts set up by the parents of those children indefinitely. The same is true for the trusts of minor children until those children come of age.

Indeed, you have a greater likelihood of retaining an investment-management relationship with your client’s family after your client’s death if a professional trustee is part of the estate planning process.

“In our experience, when advisors partner with a trustee,” says Recine, “the assets of the deceased are twice as likely to remain under the advisor’s management.”

The estate planning process gives you an opportunity to meet your client’s beneficiaries, earn their trust and propose your services to them. You can also engage the family by addressing their concerns. In fact, you may win the beneficiaries’ business even before they inherit.

“The biggest threat to an advisor’s book of business is the death of existing clients,” says Junkin. “That’s why it’s important to lay the groundwork for retaining the beneficiaries before the current clients pass away.”



> Your Estate Planning Team

Trustees should be a part of your estate planning team. White recommends engaging a professional trustee (or both trustee and executor) for estates valued at more than $1 million: “At that level, you should have someone with special expertise because the rules change frequently. A non-specialist might miss something important.”

So, talk to your clients about how to choose a trustee. “You want someone who’s competent,” says Hamilton, “who will make decisions in a timely fashion and ensure that everything is taken care of properly.”

If your client is thinking of appointing someone who lives in a foreign jurisdiction, he adds, point out that it may be impractical. In some provinces, when an estate goes to probate, a trustee who lives elsewhere may be required to post a bond to cover the estate’s assets — and that can be onerous.

And while your clients may balk at the idea of paying a professional, White points out that non-professional executors and trustees are entitled to the same compensation as professionals: up to 5% for settling an estate and about 1% annually for managing a trust.

So, who are the other professionals on your team? They should include:

> Lawyer. Lawyers provide advice on legal issues that may arise from the estate plan, and draft the necessary documents and agreements, including the will.

“My role is to understand the client’s estate goals within the context of their financial and family circumstances,” says White, “and to propose the best methods to accomplish those goals, given the variety of tax, probate, estate and trust laws that will apply. I want to know about their personal background, family situation and assets. What accounts do they hold and whose names are they in? Who is designated the beneficiary or beneficiaries?”

Once the will has been prepared, White relies on the financial advisor to watch out for “triggering events,” such as marriage, divorce, a death or the birth of a child, which would make it necessary to revisit the will.

> Accountant. Accountants can develop strategies to reduce the taxes payable during the client’s lifetime and at the time of their death, says White. They also provide advice on the tax implications of the various components of the estate plan.

Hurlburt calls on an accountant when she doesn’t understand a client’s capital gains situation, or when the estate involves a substantial non-registered portfolio, business interests or rental properties.

Accountants can add credibility to an advisor’s recommendation. “I may also ask an accountant to explain to the client that unless they make significant changes to their estate plan, a substantial tax penalty will be due when they die,” Hurlburt says. “They may not believe me, but they will believe the accountant.”

> Insurance Specialist. Insurance can be a versatile tool in sophisticated estate plans. Baldwin notes that a client may be advised to buy insurance to cover large estate tax liabilities in the U.S. if the client owns property in the U.S.

Business owners may also need insurance to help pay taxes. “If your primary source of wealth is a business worth $8 million,” adds Hurlburt, “your estate may owe as much as $2 million in taxes on your death. Unless you have insurance money to cover it, the business might have to be sold to pay the taxes.”

Younger clients with substantial debt and dependents need life insurance, says Anthony Maorino, vice president with RBC Wealth Management in Toronto.

“Ask the client what will replace their income when they die,” he says. “Do they have enough insurance coverage, and is it the right kind? And make sure that the beneficiary designations are appropriate.”

> Family Counsellor. Family dynamics are often more challenging than financial issues, says Hurlburt. And depending on the complexity of the situation, it might be wise to involve a counsellor in the estate planning process. “Situations involving second marriages can be very charged,” she notes, “especially when the two parties have unequal assets.”

Hurlburt recalls one client whose adult children from his first marriage considered his second wife a gold digger. “He decided to leave his money to his wife as well as his kids,” she recalls. “So, he called a family meeting that included a moderator, his lawyer and his accountant to present his estate plan and explain his rationale for it. He wanted to make sure everything was clear and that his kids didn’t blame their stepmother for his decisions.”

Finally, it is up to you, as the advisor, to revisit the estate plan periodically to respond to changes in laws and tax regulations, as well as to changes in the circumstances of your client and his or her family. And, as the estate planning “conductor,” you must ensure that there is role clarity among all the professionals involved.

“It’s vital to establish who is responsible for what at all times,” Junkin says. “Otherwise, the process will break down.”

The most effective way to do that is to convene a meeting of the professionals. If that is difficult to arrange or too expensive, write a letter to the client outlining each professional’s responsibilities, and send copies to the other professionals. IE