COVER

Planning Your Estate

BARBARA WICKENS October 12 1998
COVER

Planning Your Estate

BARBARA WICKENS October 12 1998

No time like the present

Why estate planning has become a hot-button issue

COVER

SANDY FIFE

Financial guru Jerry White can always pack the house, even at noon in the middle of one of the worst heat waves to hit Toronto in recent years. On this particular occasion, about 120 trusting souls, mostly I seniors, have gathered in a suburban hotel to hear what the well-known author and broadcaster has to say about estate planning. "Jerry White explains and advises, but he doesn't press you to go into a particular investment," says Michael Pizzel, a retired real estate broker who is attending the event. "He's con-

cerned about seniors, and he appears to be honest.” Appearances notwithstanding, the free, two-hour program turns out to be little more than an infomercial for universal life insurance. White puts on a good show, to be sure. The audience nods, laughs and groans as he sprays it with his trademark mixture of facts and figures, corny jokes and potshots at greedy old Revenue Canada. But he begins and ends by plugging universal life and the estateplanning expertise of Tony Leask, an adviser with Fortune Financial Corp., a national chain of financial planning shops. Leask, it turns out, has sponsored the event to drum up business for himself and his two associates, char-

tered accountant Carmen DaSilva and lawyer Garry Cass. ‘"When you bring this team together, magic things will happen,”

White promises. As an added incentive,

White tells audience members that if they sign up on the spot for a free consultation, they will be eligible for a door prize.

Estate-planning seminars are as ubiquitous as diet doctors these days, and for good reason. Canada’s 9.9 million baby boomers are moving into their 50s, watching their parents age and die, and gradually coming to grips with their own mortality. In the 1970s and 1980s, when members of the same generation were entering the housing market in droves, real estate prices took a sudden upward turn. By the early 1990s, the mutual fund industry was experiencing rapid growth as boomers started saving in earnest for retirement.

Now, the focus appears to be shifting again, and the result is a surge in demand for information about wills, inheritances and executor services.

Financial services companies design their marketing campaigns around the life cycles of their customers. As the huge

postwar generation ages, the industry has started to look beyond retirement to a subject less dear to people’s hearts—dying. But some industry officials caution that buyers should beware: many firms are taking advantage of the confusion to aggressively push products and

services that are overpriced or simply unnecessary. “Estate planning is a hot button,” says David Christianson, a financial planner with Macdonald Shymko & Co., a fee-only financial planning and investment counselling firm with offices in Winnipeg and Vancouver.

Christianson himself runs between six and 10 seminars a year on estate planning, plus another 25 or 30 that deal with a broad range of financial topics. His sponsors include brokerage firms and a group of seniors’ centres. “I’m careful about the people to whom I’ll lend my name,” says Christianson. The key distinction in his case is that he charges clients an advisory fee and does not accept commissions on the products he sells. Adds Christianson: “I don’t want to be used as bait to attract people to product seminars.”

At its most basic, estate planning means arranging a will and finances to simplify the transfer of assets to heirs. For most people, it is not a do-it-yourself project, if only because that approach can produce disastrous results for those left behind. Yet a little advice goes a long way, Christianson and many other planners say. Most people’s affairs are fairly simple, and what they re-

quire more than anything is some straightforward advice on the options available to them. Only then can they decide whether it is worth spending money on more elaborate products and strategies such as additional insurance policies, specialized investment funds and professional executor services.

Nobody really knows how big the estate-planning pie is. But combine the enormous financial assets Canadians have amassed outside of pension plans in the past two decades with Canada’s rapidly greying population, and a bonanza appears to be in the making. Most estate-planning experts believe the amount of wealth passing from one generation to the next is growing every year. And they expect it to soar after 2006, when many boomers—presumably enriched by their own investment gains and inheritances from their parents—start moving into their 60s. “Our whole industry is investing heavily in processes and systems to make estate settlement more efficient,” says Rob Hain, senior vice-president of global private banking and trust services for the Canadian Imperial Bank of Commerce. “I expect the industry will double the volume of the trustee business it does in 10 years, and sustain that peak for 10 years after that.”

Trust and insurance companies once dominated the estateplanning market. Now, investment dealers, financial planning firms and even some mutual fund companies are fighting for a piece of it, too. The battle, says Therese Giroux, senior vice-president of retirement and estate services at Merrill Lynch Canada Inc., is partly a result of the blurring of distinctions between what used to be called the four pillars of the Canadian financial system—banks, trust and insurance companies, and investment firms. Today, banks, insurers and trust companies all sell investment products, while mutual fund companies are also beginning to offer segregated funds—a type of insured investment product that combines the potential gains of the stock market with some form of guaranteed protection of principal. Meanwhile, investment dealers are providing some banking services and many individual brokers and financial advisers are licensed to sell insurance.

GREAT EXPECTATIONS

Percentage of Canadians who expect to inherit money from their parents

Yes No

Don’t know/no answer

Value of anticipated inheritance

(among those expecting to inherit)

Less than $10,000

1S10’00010 $19’9"

$20,000 to $49,999

$50,000 to $99,999

$100,000 to $199,999

$200,000 or more

Don’t know

(Numbers do not add up to 100 because of rounding)

SOURCE: TRIMARK INVESTMENT MANAGEMENT INC., ENVIRONICS RESEARCH GROUP LTD.

Merrill Lynch (formerly Midland Walwyn Capital Inc.) was one of the first Canadian investment dealers to take aim at the estate-planning business when it recruited Giroux from the private banking field six years ago. Now, about 60 per cent of the firm’s 1,300 brokers—the preferred term today is “financial consultants”—are licensed to sell insurance. The company also has insurance specialists on staff and an informal “expert network” of lawyers and accountants a phone call away.

Like most of its competitors, Merrill Lynch is hoping that clients use its financial consultants as their entry point into estate planning. The idea is that the consultants will take care of the clients’ insurance and investment needs, then steer them to lawyers who can help them create a will and deal with such questions as whether to grant someone power of attorney over their affairs in the event of mental incompetence. Should the estate in question be large enough and the tax issues sufficiently complicated, the consultant might also call in an accountant who can advise the client on complicated tax-reduction manoeuvres such as estate freezing, which transfers any future appreciation in the value of selected assets to the eventual heir.

Giroux’s department spends a large part of its marketing budget on estate-planning brochures and seminars, hoping to attract consumers who have begun to think about estate planning, but have yet to take action. Giroux herself writes most of the literature and appears at as many as 75 seminars a year across the coun-

try. “The Victoria branch will call and say, We’ve got 500 people on such and such a night—can you come out?’ ” she says. “If you use the words ‘estate planning’ or ‘retirement planning,’ it’ll pack the room.” Little wonder. A recent survey by Environics Research Group Ltd. for Trimark Investment Management Inc. found that more than 50 per cent of Canadians expect to receive an inheritance from their parents; among those who volunteered a dollar amount, half expect to receive more than $50,000. In another survey, sponsored by the CIBC, almost 60 per cent of respondents said estate planning is an important concern to them. And last year in Ontario, the first Make-a-Will Week, sponsored by the Canadian Bar Association, the Law Society of Upper Canada, and several corporate and charitable organizations, proved so popular that it has now become Make-a-Will Month. This year’s version, which runs through October, is being marked with seminars in 29 communities across the province, up from 22 last year. Toronto estate lawyer Ed Olkovich, one of the founders of the program, says

other provincial law societies are hoping to launch similar events.

Of course, one reason estateplanning seminars are so popular is the pitch some firms use to promote them. Stripped to its essentials, it goes something like this: The government is out to grab what should rightfully go to your children and grandchildren, so don’t even think about dying unless you’ve got a comprehensive strategy for outwitting Revenue Canada, designed by a team of legal, tax andfinancial experts and overseen by your broker, trust officer, insurance agent or financial planner.

That kind of message, while useful for whipping up fear among prospective clients, is highly misleading, according to many experts. For one thing, there are no estate or inheritance taxes in Canada, merely capital gains and income taxes that are payable on the deceased person’s final tax return. “If your estate consists of the family home, some non-RRSP investments and maybe some money in a RRIF, like the vast majority [of estates], there will be very little tax owing,” says Paul Bourbonniere, a financial planner with Poison Bourbonniere Financial in Toronto. He adds: “People should take these estate-planning seminars and sales pitches with a gigantic grain of salt. You may learn something useful from them, but they aren’t done as a public service. Somebody’s got an axe to grind.”

Often, the goal is to push people into signing up for corporate executor or trustee services, or a life insurance policy to cover taxes after death. But those products and services are expensive and most people do not require them, says Warren Baldwin, a fee-only financial planner with T. E. Financial Consultants Ltd. in Toronto. In most provinces, for instance, corporate executors are entitled to charge as much as five per cent of the total value of estates they settle. According to Baldwin, it is usually cheaper and just as effective to appoint as executor a friend or family member, then empower that person to hire a financial planner or lawyer by the hour when needed.

Another expense that can be of questionable benefit is whole and universal life insurance to cover taxes after death. The premiums are often several thousand dollars a year, a poor investment if the estate is small or the client needs the cash now. ‘We’re not here just to help people leave the biggest possible pile of money when they die,” Baldwin says. “The priority should be to make sure the client has enough to enjoy what’s left of his or her life.” Adds Bourbonniere: “There’s a danger in so-called package selling, where a firm advises all its clients to do something like buy enough insurance to cover the tax on their RRIFs. It may solve one problem but cause another.”

In fact, there are many ways to minimize taxes and provide the cash to pay them, and a good adviser should be able to explain the alternatives. But finding someone who fits that description is sometimes easier said than done. “I think consumers are massively confused about who they should turn to for advice, and the reason is there is no such thing as an ‘estate planner in this country,” says Jim Rogers, president of The Rogers Group Financial Advisors Ltd. in Vancouver. “It’s not like being a doctor. An estate planner, like a financial planner, is anyone who chooses to call himself or herself that.”

Jerome Grady, a financial planner with Equion Securities Canada Ltd. in Dartmouth, N.S., says he often sees ads in the newspaper for

estate-planning sessions by people who are merely sales representatives. “They have no professional qualifications at all. They’ll get a lawyer in to give the talk, but that’s not who you end up dealing with,” says Grady, who is president of the Halifax Estate Planning Council.

Because the field is unregulated, Rogers tells people who are looking for an estate-planning adviser to ask candidates for references, along with a written account of their qualifications, services and prices. Another option is to pick up an estate-planning kit at a bookstore. But that approach entails other risks, such as overlooking important tax or legal consequences. For instance, says Baldwin, people may feel they are being fair by naming one of their two children the direct beneficiary of a $200,000 retirement income fund, and willing the other the balance of the estate—a principal residence also worth $200,000. But while the house would not be subject to capital gains tax, the estate will

‘People should take these sales pitches with a gigantic grain of salt,’ says one veteran planner

be responsible for paying income tax on the RRIF As a result, the house may have to be sold—shortchanging one of the heirs.

Perhaps the worst thing a person can do is to leave behind a mess. Toronto writer Wayne Lilley spent the better part of a year trying to wind up his father’s estate, of which he is executor. His father’s will, dated in 1992, was handwritten and unwitnessed. Lilley had to find someone to testify in court that the handwriting was his father’s. He also spent many weeks tracing old stock certificates to see whether they still had value, and trying to determine how much his father paid for the shares in order to calculate the capital gains.

Stories like those are a strong incentive to seek at least some assistance when putting an estate in order. At a minimum, experts say, people should have their lawyers look over their wills and power-of-attorney papers. If the estate consists of significant assets beyond the family home—or if there are complications such as a second marriage—they advise consulting a lawyer, accountant or financial planner who is knowledgeable about estate planning issues. Still, it need not be an expensive or time-consuming project. “Most estates are relatively simple, and the planning required is not terribly complex,” says Baldwin. Aging baby boomers, and their parents, can be thankful for that. □