I feel it is important to share a story with you that I experienced this year that unfortunately I believe is far too common in professional service industries including wealth management, health care and estate planning. This story illustrates why it is a good idea to continually make an effort to have a complete understanding of our clients' situation that go beyond regulatory Know Your Client (KYC) obligations. During your information-gathering process you may hear responses such as; “What does my tax return have to do with my mutual fund investments?” or “What does my mobility have to do with my hearing?” or “What does my Will have to do with my life insurance?” Don't give up, tell my story or one of your own.
My client review meeting with Mary (not her real name) followed this common reluctance to divulge too much personal information when I brought up concerns I had about not having a complete picture of her investment holdings, details of her Will, Powers of Attorney, Executor and beneficiaries. Even though Mary was a client for a long time, she liked to feel in control of her financial affairs and did not want any one advisor to know all of her investment, tax, or estate details. She liked to do things on her own and seemed to have some understanding of basic issues and what she needed to do financially. So, when I asked her a simple question about her Will, she replied, “It's fine. Everything has been looked after.”
So, she thought.
Mary called late one Friday saying that she was diagnosed with a terminal illness and realized that she needed help with her financial affairs. She wanted to consolidate her investments, minimize estate and probate taxes, and arrange for a smooth estate execution since her children are only in their 30s and have busy career and family schedules. Mary passed away that weekend.
Mary's husband passed 20 years’ prior and she saw how big a role life insurance played in giving her access to liquid cash so that she could continue raising their young family. Now that Mary has passed, the first thing I expected was for her children, who were named beneficiaries, to claim the life insurance proceeds as well as investments not subject to probate tax. But this was not the case. “Everything is fine,” was not fine.
The Will Mary had drafted was not reviewed or updated in 20 years and created issues that lead to delays in settling her estate. Unfortunately, for her family this delay led to increased financial stress, increased legal fees, and other complexities. This was the last thing Mary or anyone else would want for their children and grandchildren to go through.
Not having investment, tax, and estate plans reviewed to expose any weak links can become a costly mistake. In Mary's situation, having a comprehensive review of these areas would have exposed issues that needed fixing. Her estate execution would have been a smooth and simplified process without the stressors that her family has endured.
Going one step further, if Mary confidentially provided a complete picture of her financial situation and estate intentions, a comprehensive Tax and Estate Report could have been prepared. This Report would have given Mary a blueprint with strategies to implement over time to reduce tax, to maximize her children's inheritance, to create a smooth administration of her estate, and her Will would have been reviewed with recommendations to have it redone. And most importantly Mary would have included herself as one of her favorite beneficiaries with a plan on how to spend money, travel, and have fun.
Going through the information-gathering process required to prepare a Tax and Estate Report means that your information, mindset and intentions are current as of that date. And this can help your loved ones clarify issues without having to retain additional legal and accounting expenses. What a great starting point for your Executor. Having the information required to perform their duties summarized in one convenient document. Some of the information included are:
Mary was a great person and it was a pleasure knowing her. As her primary financial advisor, she let me into most of her financial world and led a life most of us would envy. She was not going to run out of money. Yet she continued to spend time comparing notes with strangers on the Internet and trying to understand every detail on her investment statements. She should have focused more on reviewing family wealth transfer issues, options, and solutions. If she only opened up more and took advantage of experienced sets of eyes to review and advise her then her estate would not be tied up by the courts. And her family would not be saddled with extra burdens to deal with.
Before implementing any tax, investment, life insurance, or estate planning solutions it is best to seek professional advice. Have an experienced team of professionals work together to uncover the weak links in your plans and implement the correct solutions. Don't just leave your plans to chance because without structuring your family's wealth and estate plans properly, often, bad outcomes occur.
Secure the dog house and invest wisely, then you can enjoy life & have fun.
About the Author
John Niekraszewicz (Nick-ra-shev-itch) BMath, FCSI, CFP, FMA is the Certified Financial Planner responsible for the AHIP Association Health & Dental Plan provided by JVK Life & Wealth Insurance Group. John is also the Principal of JVK Life & Wealth Advisory Group, specializing in Wealth & Estate Planning. John welcomes your questions and can be reached at 1-800-767-5933 or firstname.lastname@example.org
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