Estate Planning

Estate Planning: Proper Documentation Is Critical

Proper documentation can help protect your intent of beneficiary designations

In early 2020, the Ontario Superior Court made a decision that has increasingly been a focus of attention: Calmusky v. Calmusky.

In that case, the entitlement of a named beneficiary to receive the proceeds of a Registered Income Fund (RIF) was challenged. The designation had been made in favour of an adult child, one of the sons of the deceased RIF owner. There was no obvious “price paid” by the son for his father’s having designated him as the beneficiary. The court decided, in those circumstances, there was a legal presumption that the beneficiary received the death benefit on the basis of a “resulting trust” — that is, in trust for the estate. In other words, it was not money for the son to keep personally but rather it was to be handed over to the estate, unless he could prove to the court that his father intended for him to have the money as his own. He was unable to do so. And so, the court ruled that the death benefit was estate property.

The court’s holding, in the Calmusky decision, that a presumption of a “resulting trust” should be applied on the facts of that case, for the benefit of the estate, runs against what is generally accepted by estate planning lawyers and those practicing in the area of insurance and pension law. For them, unless a designator specifies that the beneficiary is to hold the proceeds for an estate or for someone else, the proceeds are for the beneficiary to keep. Note that in Calmusky the beneficiary was an adult, and it was key to the decision that the designation was made for no consideration (e.g., the beneficiary did not in any way ”pay” to become the beneficiary, or was not somehow ”owed”). The presumption of a resulting trust will not be made if the beneficiary is a minor.

The approach taken by the court in Calmusky applies, in principle, to more than just RIF designations, and so would include traditional life insurance. The court’s approach would also apply to more than just so-called ”two-party” contracts, where the product owner is also the life insured. In the case of a ”three-party” contract, where the life insured is someone other than the owner, the beneficiary would hold the proceeds payable on death in trust for the owner. Again, we are considering an adult beneficiary who had not ”paid for” or somehow had “earned” the beneficiary designation.

In response to Calmusky, industry and professional associations have made their concerns known to Ontario, calling for a legislative fix. To date and to our knowledge, no other court in Ontario has followed the Calmusky approach. But for the time being, the prospect that another court might cite Calmusky and rule accordingly does remain a possibility. That court could be outside of Ontario, in some other common-law province or territory (not including Quebec). Already, in certain provinces, there is “Calmusky thinking”.

Preventative measures you should take:

• Properly document your intentions to make a gift, if such is the case, when designating a beneficiary (especially when designating an adult beneficiary, ”for free”, even if that beneficiary is your spouse; the rules around gifts to spouses and whether any presumptions apply can be complex, and can vary by jurisdiction — it is safer to treat a spouse like any other adult beneficiary).
• This documentation would provide evidence to overcome any presumption the beneficiary was intended to hold the death benefit for an estate, or for someone other than the beneficiary personally.
• Keep a copy of the documentation with your policy and/or your will.
• Make your family members aware of your estate plans and how you intend to distribute your assets.
• When designating a beneficiary for your assets, be aware of possible tax implications for your estate and obtain appropriate professional advice as part of your tax and estate planning.
• Otherwise, if tax liability issues have not been addressed, a court in any particular case might find it equitable to draw back at least a portion of the registered assets into the estate, to cover any associated tax liability.
• Review your designations, make any necessary changes, properly document and provide explanatory notes.

Implementing the above measures can help ensure that your wishes are carried out as intended. Need help? Please contact me.

A well-designed Estate Plan, in conjunction with an RTO plan, will reduce your tax obligations throughout the rest of your life — and beyond — keeping more available for you to utilize during your lifetime and reducing the estate’s losses to taxes and fees upon your death.

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For a no-cost preliminary consultation to determine what would be involved with reducing or eliminating your estate’s exposure to litigation, probate, the Estate Administration Tax, and other probate fees, contact me. I specialize in Estate Planning and Retirement Planning and offer financial planning services across Ontario. My office is in Kingston, Ontario, and I am happy to speak with anyone on the phone, or meet in person with anyone in the surrounding area.

For tips on how to Avoid Probate in Ontario, click here

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The information provided is based on current tax legislation and interpretations for Canadian residents and is accurate to the best of our knowledge as of January 2021. Future changes to tax legislation and interpretations may affect this information. This information is general in nature, and is not intended to be legal or tax advice. For specific situations, you should consult the appropriate professional advisor.

DIY Investing

DIY investors less satisfied with their firms: J.D. Power

Is “Do-It-Yourself” really your best option?

By: Mark Burgess, May 28, 2020

Despite strong market conditions last year, do-it-yourself investors’ satisfaction with their firms declined, a report from J.D. Power says, as platforms missed opportunities to connect during client onboarding and improve their mobile experiences.

Investors’ satisfaction with self-directed firms declined to 717 from 726 the previous year, according to the J.D. Power 2020 Canada Self-Directed Investor Satisfaction Study, which ranks investor satisfaction on a 1,000-point scale. Questrade topped the rankings with a score of 736, followed by BMO InvestorLine (731) and Desjardins Online Brokerage (730).

Almost half (46%) of DIY investors experienced a problem with their firm’s website. Younger investors the were most put off by these disruptions, with 26% suggesting they would switch firms after not being able to access a website.

The survey found that when problems occur, satisfaction is much higher among investors who work with a human to solve it than among those who use firms’ self-service digital channels.

“The recent flurry of new account openings and increased trade volumes are obviously good for self-directed firms but have also exacerbated some client experience issues that existed before the pandemic, especially around the availability and navigation of digital platforms,” said Michael Foy, senior director of wealth and lending intelligence at J.D. Power, in a statement.

Self-directed firms facing more competition from low-cost robo-advisors will need to resolve website problems quickly if they want to keep new clients, Foy said.

The study said firms are missing an opportunity to improve satisfaction and brand loyalty with mobile apps and through the onboarding process. Platform tutorials contribute significantly to customer satisfaction, the report said, yet most new investors didn’t get an online tutorial or information about downloading the app.

Find the full survey results and study here:

For more information, or to discuss investment options, contact me.

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The perils of owning U.S. life insurance

Charmaine Ko, May 29, 2020

These tax-advantaged savings vehicles can result in a tremendous tax headache

Many Canadians with life insurance assume their policies will provide tax-free funds to support their beneficiaries. In the cross-border context, however, these generally tax-advantaged savings vehicles can result in a tremendous tax headache.

U.S. life insurance may appear attractive due to lower rates or greater potential returns in the policy’s cash value or death benefit.

In the worst-case scenario, however, estates are left to deal with additional taxes and penalties from years of unreported income over the life of an insurance product, and the beneficiaries end up with much less than what was intended.

For a life insurance product to be considered life insurance for Canadian and/or U.S. tax purposes, it must qualify under a series of complicated provisions and tests in their respective tax laws.

Tax problems can arise when a product that’s labelled as life insurance doesn’t meet the standards of the jurisdiction in which the owner is resident (when a Canadian resident purchases U.S. life insurance, for example, or when a U.S. citizen, green card holder or resident purchases Canadian life insurance).

This column discusses the potential tax problems when Canadians purchase U.S. life insurance; future columns will examine the potential tax problems when U.S. citizens who live in Canada purchase Canadian plans.

How to tell if a policy qualifies

The Canadian income tax rules set out a long, complex definition of what qualifies as a life insurance policy under Canadian income tax rules. The definition is so complicated that it requires an actuary to interpret.

The determination is made on a per-policy basis; therefore, the same person may own some policies that qualify and some that don’t.

In simplified terms, the determination is made by comparing each individual policy with the exempt test policy (ETP). The ETP is a hypothetical policy defined under the Canadian Income Tax Act that sets out the maximum accumulation of value allowable within a policy.

A policy has to be tested against the ETP at each policy anniversary. If the accumulation within a policy exceeds what is allowable, it is no longer an exempt policy for Canadian tax purposes and will become subject to tax.

In short, there’s no easy way to tell if a policy qualifies as life insurance in Canada. Canadians shouldn’t purchase a foreign life insurance policy unless the insurer can certify in writing that it qualifies. People who move to Canada and already own foreign life insurance should ask their insurer if it qualifies. Where a policy doesn’t qualify, they should consult a tax professional about their options.

Canadian tax on non-exempt policies
If a Canadian resident purchases a U.S. life insurance policy that doesn’t meet the Canadian definition, that policy won’t be tax exempt in Canada and the policyholder will have to pay Canadian tax annually on the income that accrues in the policy.

However, determining the amount of included income is not easy, as the amount is determined with respect to the policy’s premiums, cash surrender value and the present value of the death benefit. As a result, the policyholder may be subject to tax on an annual basis without any cash to pay the tax.

As the accrued income within the non-exempt policy will be subject to annual Canadian taxation, this would increase the Canadian cost base of the non-exempt policy. At the death of the insured, the death benefit of the non-exempt policy will be subject to tax if it exceeds the policy’s cost base.

Because of the different definitions of life insurance in the two countries, Canadians buying foreign life insurance should ensure the product qualifies under the Canadian definition to avoid complicated and expensive tax problems.

Charmaine Ko, JD, LLM, is a cross-border tax lawyer at Polaris Tax Counsel in Vancouver.

Family conflict & estate planning

Family conflict, estate planning and the value of advice

Family conflict & Estate planning

Advisors’ influence on family unity is growing

Advisors play a critical role in the financial affairs of families. In recent years, the advisor’s place at the family’s kitchen table has gone beyond managing investments and into tasks such as estate planning and wealth transfer, which are at the core of family unity.

A Wealth survey of estate professionals found that family conflict is the leading threat to estate planning. What creates the threat? Respondents said the top cause of family conflict is beneficiary designations (30%), followed by the absence of communication (25%) and the dynamics of blended families (21%).

We are increasingly seeing the effects of family conflict on estates in Canada. Advisors need to pay attention in order to better service their clients and, by extension, their clients’ families.

Beneficiary designation

In Canada (except Quebec), the ability to designate beneficiaries on insurance policies, segregated funds, pension plans, TFSAs and RRSPs/RRIFs provides annuitants and policy holders a way to bypass probate tax. It also provides for a relatively seamless transition of the plan proceeds to their estate’s beneficiaries.

Two cases in Alberta and Ontario underscore beneficiary designations as a leading cause of family conflict.

Morrison Estate (Re), 2015, Alberta Court of Queen’s Bench:

John Morrison, predeceased by his wife, died in 2011, leaving a valid will that provided for his estate to be divided equally among his four children: Robert, Douglas, Cameron and Heather. He also provided for a bequest of $11,000 from Robert’s share of the estate to be divided among John’s grandchildren. Each child had also previously received $25,000 from the sale of John’s principal residence.

At the time of John’s death, the largest single asset of his estate was a RRIF with a date of death value of $72,683. Douglas was named the sole beneficiary of the RRIF. The estate’s assets, including the RRIF, totalled $77,000.

Since Douglas was not a “qualified beneficiary” (a spouse, common-law partner, infirm financially dependent child or grandchild), he could not receive the RRIF proceeds of $72,683 on a tax-deferred basis. The estate was responsible for income taxes payable on the RRIF, which amounted to $28,780.

With the payment of taxes on the RRIF, debts and funeral expenses, the residue of the estate for four-way distribution to the children was $21,733, ($5,433 each). Therefore, Robert’s share was not enough to pay the $11,000 bequest to John’s grandchildren.

Cameron brought an application for advice and direction seeking an order deeming the RRIF proceeds to form part of John’s estate, which would then be distributed equally among the four children and not as a “gift” to Douglas.

The court held that, among other things, the fact that John’s will provided for equal distribution among his children and treated each of them fairly did not negate John’s intent that the RRIF proceeds go to Douglas, to the exclusion of the other children. Therefore, the RRIF proceeds remained with Douglas. The court further found it was unfair for the estate to pay the tax liability on the RRIF, so Douglas was ordered to reimburse the estate the $28,780.

Finally, the court made clear that John “…was unaware of the tax consequences of designating his son as beneficiary [and that] beneficiary designations should be made with full knowledge as to the benefits and detriments and as to the consequences of making a designation or not making a designation…”.

McConomy-Wood v. McConomy, 2009, Ontario Superior Court of Justice:

Lillian McConomy, predeceased by her husband, died in the fall of 2015 leaving a valid will that provided for her estate to be divided equally among her three children: Lewis, Roland and Lisa. Lillian, among other estate assets, had a RRIF with an approximate date of death value of $392,190. Lisa was surprised to learn that she was named as the sole designated beneficiary of the RRIF. As sole beneficiary, Lisa ultimately received a cheque for the RRIF proceeds of $392,636.

Lisa’s brothers, Lewis and Roland, brought an action claiming, among other things, that Lisa held the RRIF in trust for each of the beneficiaries of Lillian’s estate and should not be the sole recipient of the proceeds. Their contention was that their mother always (and especially during the weeks preceding her final days) maintained that her children would be treated equally in the estate, with statements like “Don’t worry, all of my assets will be divided equally among the three of you.”

The court was convinced that, based on Lillian’s history of fair and equal treatment of her children during her lifetime, it was her intention for all three children to receive the RRIF proceeds equally. Lillian was ordered to share the proceeds with her siblings.

Blended families

According to the 2016 Canadian census, 9.7% of children 14 and under (a total of 567,270) live in a blended family situation—either with or without half- or step-siblings. Advisors must pay attention to the unique challenges of estate planning for blended families.

In many instances, each spouse or common-law partner brings independently created wealth to the relationship, but they also create wealth within a new family unit. The question becomes how the estate should be dealt with upon death.

A couple of options are available, depending on the family’s composition and circumstances. They may wish to consider a spousal trust, where certain assets are placed in trust for the benefit of the surviving spouse, with the children from a previous relationship as the contingent beneficiaries. This provides continuing financial support to the surviving spouse or partner while protecting the capital/inheritance for the deceased’s children. Usually, this does not include the children of the surviving partner. Insurance could also be utilized to provide an inheritance for children from a previous relationship.


In the beneficiary designation cases discussed above, the court decided in the first case (Morrison) that it was the father’s intent for one child to receive the RRIF proceeds. In the second case (McConomy-Wood), the court found it was the mother’s intent for all three children to receive the RRIF proceeds. Obviously, the resolutions were not to everyone’s satisfaction. Better communication would have decreased the need for the courts to intervene.

Since communication is the foundation of effective wealth transfer and estate planning, advisors should encourage family meetings to discuss some or all the following topics:

  • last will and beneficiaries
  • enduring power of attorney (for property/personal care)
  • personal/heath care directive, representation agreement
  • charitable giving
  • candidates for executorship or alternate executorship
  • the merits and rationale for beneficiary designations
    disability planning
  • the use of the family cottage/cabin
  • tax planning
  • business succession planning
  • memorandum of personal effects
  • trust planning
  • investments

As advisors become aware of the increasingly significant role they play in their clients’ lives, they should encourage clients to have timely and meaningful conversations around the very serious subject of wealth transfer, which will help to prevent family conflict. The benefits are incalculable, as is the value of advice.

July 31, 2019, by: Tim Brisibe, TEP, Director, Tax & Estate Planning at Mackenzie Investments

Multiple taxation on death: the taxpayer’s nightmare

Steps to limit tax in other jurisdictions

When clients and their assets become more globalized, they may face the possibility of multiple taxation on death.

Most jurisdictions impose some type of death, succession or estate tax. While some countries tax the deceased or the estate, others tax the beneficiary. There are also different bases for charging tax, such as citizenship, domicile, residency and asset location.

Canada and a few other jurisdictions (including Australia, New Zealand and Denmark) tax capital gains on death.

The U.S. has an estate tax but the exemption is now so large (US$11.4 million in 2019) that few pay it. Capital gains are exempted from taxation on death.

While estate tax is charged on the value of a deceased person’s assets when they die, inheritance tax or succession duty—which exists in Japan, Chile, Venezuela and many European countries—is charged on lifetime gifts and bequests that a beneficiary receives. Accession tax is a form of inheritance tax; there’s often an exemption up to a certain amount, above which a beneficiary is taxed on the gifts and bequests they have received during their lifetime.

When tax laws collide, the same assets can be taxed several times. For example, a Canadian resident with a beneficiary living in Japan could have assets taxed twice: Canadian capital gains tax on the Canadian resident’s death and inheritance tax payable on the same assets by the beneficiary who resides in Japan.

It is important to address multiple taxation as part of the will planning process when there are beneficiaries living in countries with an inheritance tax. The client will have to consider whether the beneficiary bears the burden, or whether it is borne by the estate, impacting all beneficiaries—including those who do not live in a jurisdiction with an inheritance tax.

Most Canadian wills contain a “debts and death taxes” provision that provides for all death taxes to be paid by the estate, so the beneficiaries receive the same net amount notwithstanding inheritance tax and other taxes levied outside Canada.

However, if the inheritance tax or other tax is disproportionately high, beneficiaries living in Canada could be disgruntled if they end up bearing part of the burden. Inheritance tax can be more than 55% in some jurisdictions.

Planning for multiple taxation

There aren’t many treaties that provide relief for Canadians against double taxation on death. Treaties with the U.S. and France allow certain taxes paid in one country to be credited against tax paid in the other, including U.S. estate tax and French inheritance tax, which can be credited against Canadian capital gains tax paid on the same assets.

There are opportunities in some cases to minimize exposure to multiple taxation by restructuring assets and other planning options. For example, Canadians may be able to shelter assets from U.S. estate tax by using a trust with appropriate terms or a “blocker” corporation, or they may purchase insurance to cover the additional tax.

In France, certain life insurance vehicles can be used to hold investments that are not subject to inheritance tax. In the U.K., trusts can be used to shelter against inheritance tax in some cases for persons not yet domiciled in the U.K.

Without such planning, an estate can be severely diminished. Identifying the issue of potential inheritance tax to be paid by a beneficiary and determining whether the burden should fall on the estate or the beneficiary is a good start.

Each client will have their own philosophy on this issue. Some clients value complete equality, wishing their children to receive the same amount after all taxes and believing that a child should not be penalized for living in a jurisdiction with an inheritance tax. Other clients may take the view that the beneficiary subject to the tax should bear the burden.

With increasingly global families, it will only become more important to understand the perils of multiple taxation on death and to obtain appropriate professional advice to deal with it.

Margaret O’Sullivan is founder of O’Sullivan Estate Lawyers LLP.

Tax issues when Canadians have U.S. executors

Tips to avoid cross-border complications

A common and problematic occurrence in cross-border families is for a Canadian to select a close relative in the U.S. as an executor. Clients considering this option should weigh the potential consequences.

To illustrate the problems, let’s use an example. Fictional couple Noah and Shayna live in Edmonton but their son, Ari, lives in Cleveland. They are currently writing their wills and, as is standard, they select the surviving spouse as executor. At the death of the second spouse, they want Ari to be the executor. That can cause problems on both sides of the border.

Canadian tax problems with non-resident executors

An executor living outside of Canada can cause the estate to depart Canada for tax purposes, making estate administration more complex.

For Canadian tax purposes, an estate is classified as a trust; therefore, the same rules that determine the residency of a trust apply to an estate. This means that the factual residency of an estate is determined based on where the estate is managed or controlled.

With Ari as executor, the estate might become a non-resident of Canada, presenting the following problems:

  • Withholding tax would apply on income earned by the estate.
  • If the estate owns real property that it would like to sell, then the buyer may be obligated to withhold funds on the sale. The withholding is generally 25%.
  • The departure of the estate from Canada might trigger more tax and make it more difficult to wind up corporations.

To put it simply, a non-resident estate makes administration of the estate more complicated and may increase the overall tax burden.

The risk of paying U.S. taxes

If Ari manages the estate from the U.S., there is a risk that not only would it be considered foreign from a Canadian tax perspective, but it might also have to file and pay U.S. taxes.

There are no clear-cut rules to determine when an estate is a U.S. resident and has to file U.S. taxes. In fact, there is frustratingly little guidance on this. The Internal Revenue Code does not define a foreign estate. It merely provides that a foreign estate is not subject to U.S. tax unless it has U.S.-source income or income from a U.S. trade or business.

To establish whether the estate is foreign or a resident of the U.S., we must refer to old U.S. case law, which demonstrates that the IRS and the courts have focused on the location of trust corpus, the nationality and residency of the trustee, and the location of the trust administration as the relevant factors to determine the trust or estate’s residency. The residency of the beneficiaries and the grantor of the trust does not factor into the determination of residency for U.S. tax purposes. No single factor is determinative; however, in later rulings, the principal focus has been placed on the location of the trustee and the situs of trustee administration.

In the example above with Ari as the executor, there is a risk that the IRS would consider the estate a U.S. taxpayer. That would mean the estate has to file a Form 1041 and report its worldwide income to the IRS.


With proper planning and advice, these problems can be avoided. The easiest method is for Noah and Shayna to name a Canadian resident as executor instead of Ari. If that is not possible, Ari should commit to managing the estate from Canada and document this so that the estate does not leave Canada, thereby minimizing the risk that the estate becomes a U.S. tax resident.

Max Reed, LLB, BCL, is a cross-border tax lawyer at SKL Tax in Vancouver.

Canadians concerned about aging parents becoming financial burdens

Survey respondents worried about postponing retirement, being unable to pay off debt

Many Canadians are worried about the financial strain of supporting their elderly parents, according to a survey commissioned by FP Canada and Chartwell Retirement Residences.

The survey, conducted by Leger, polled more than 1,500 Canadians. Fourteen percent of respondents who had a living parent said they expect to postpone their retirement to financially care for them. Twelve percent said supporting their parents would prevent them from paying off debt. In contrast, only 5% and 8%, respectively, confirmed that financially being there for their parents has resulted in those scenarios.

Still, 13% of respondents said they have taken time off work to care for their parents, and 5% said they have had to quit their jobs. A press release notes that women were more likely than men to have taken time off work (15%, compared to 10%).

Canadians aged 18 to 34 are the most concerned about the financial implications of caring for elderly parents, with 18% expecting to postpone their retirement, the release adds.

The survey also found that many Canadians are unaware of various forms of financial assistance available to them to help them care for aging parents.

Only 28% said they’re familiar with tax credits associated with dependent parents—the press release says men were more likely than women to be aware of these credits (31%, compared to 24%). Only 22% of all respondents knew about grants, loans and rebates that are associated with renovating homes to accommodate elderly parents.

Read the full survey here.

Discuss final expenses before it’s too late

If clients plan for final expenses, it’ll make things easier on their children.

When she reflects on a messy estate battle involving one of her clients, one Alberta lawyer says the family fight became so petty, that there was almost a sense of gallows humour about the situation.

The conflict began over the will, and ultimately resulted in decisions about the late client’s funeral being made hastily.

After the service, one relative went so far as to gripe about the way the deceased’s face had been made up. A gruesome thought, perhaps, but she says these types of showdowns offer a takeaway for people currently working on their estate plans: don’t foist funeral arrangements, and the expenses that accompany them, on your children and executors. “In this case,” she says, “some funeral instructions would really have been helpful.”

Many clients, especially younger ones, can be resistant to discussing some of the most basic tools of estate planning—life insurance policies, wills, personal directives and powers of attorney.

But it’s even harder to get people to talk about final expenses, even in situations where family members have agreed to come together to discuss the details of inheritances. “The burial question, cremation, and whether you want a headstone, what kind of funeral service you want—the first time it’s raised, it’s like throwing ice water into the conversation. It freezes; it stops,” the lawyer says.

But at some point it has to be discussed. And the majority of people actually do have a good sense for what they want. If you probe, she says, people will eventually offer the detailed instructions their heirs will need.


Many clients can be resistent to discussing final expenses.

Broaching the subject

“It’s always difficult to broach the topic of death with clients,” says Maureen Glenn, manager of tax and estate planning for Richardson GMP in Toronto.

To counter that unease, she asks clients to think about recent funerals they attended for family members or friends.

The majority of people are initially uncomfortable with any kind of discussion about their own funerals. Younger people, in particular, still think they’re going to live forever and avoid the subject. You can remind them an accidental death can occur at any time, but don’t expect too much uptake.

Not surprisingly, the conversation is easier with older and more financially secure clients. People in their late 40s and early 50s are more accepting of the fact that no one gets out of here alive. For this group, the subject can be broached during routine will reviews.

And while they’re unlikely to want to get into too much detail, an advisor can re-orient the client’s thinking by confronting them about the consequences to their heirs if they fail to plan.

By encouraging her clients to mentally itemize the components of those services, Glenn creates a new frame of reference and uses it to ease into a more personal discussion. This includes questions about the choice of service, the mode of interment (cremation or burial) and cultural considerations.

Those conversations also allow Glenn to go into detail about the emotional burden family members encounter if they have to make decisions after someone dies. Leaving them to guess is a burden, she notes, and it really is better for them if they have input from the person whose affairs they’re responsible for settling.

Payment options

Next, get clients to focus on the range of final expense options now available in the marketplace.

Pre-paid funerals are among the most common choices, and advisors say clients should expect to spend between $10,000 and $20,000—although the ultimate price will vary, depending on details like the size of the reception and cost of the cemetery plot.

“There’s a very strong sense of satisfaction [among clients when they pre-pay],” says Dan Burjoski, a Kitchener, Ont.-based insurance consultant with HollisWealth Insurance Agency. “[They say], ‘That’s done. I can check it off the list.’ ”

But clients still need to focus on the details of those pre-paid funerals. With providers asking for 25% to 50% of the cost up front, and most cemeteries demanding full payment prior to the service, the pre-pay option can cause cash-flow issues.

For example, some funeral homes, like Jennett Chapel in Barrie, Ont., offer plans that absorb inflation-driven price increases by investing the payments (which are often rendered years before the client dies) and using the asset growth as an offset.

Meanwhile, Elaine Wilson, a lawyer and TEP with Fiduciary Trust Company of Canada in Toronto, encourages clients to get price lists from funeral homes to help generate a more precise estimate of the costs of various elements, such as the casket, service and reception.

Lower-priced options may be available, even if they’re not on display. (Again, inflation will change these prices over time, but it’s easier to estimate the financial requirements by starting with a budget based on specific outlays.)

It is important, however, to remind clients the pre-paid solution is not entirely risk-free.

These types of deals can tie a client to a particular funeral home, so Wilson advises they find out if the funeral home is an independent business or part of a chain. Firms with franchises around the country often provide transfer clauses, which can be useful.

That’s because, as Burjorski notes, people’s circumstances may change. Hopefully, many years elapse between the purchase of a funeral plan and a client’s death. During that period the client may re-marry, move out of province, or even leave the country.

And, if a person’s certain he wants to be buried in a specific place, many pre-paid plans offer the option to buy additional protection covering unexpected travel costs if the person dies overseas, or within the country but far from home.

Insurance can provide more options

To make things more flexible, some advisors recommend clients use insurance policies to cover funeral costs.

While final-expenses policies exist—typically available to healthy people under 85, and covering up to $20,000 in expenses—some advisors say their clients prefer general whole life policies, since it can be cheaper to bump up a $500,000 whole life policy by $15,000 than to establish a whole new insurance plan.

Doing this sets the coverage at a level sufficient to cover the funeral costs, as well as other obligations, such as taxes and outstanding debts. Since whole-life policies typically offer hundreds of thousands of dollars in coverage, final expenses represents a small fraction of the outlay.

The important thing, though, is to make sure this funeral-funding scheme is outlined in an addendum to the will or some other document that’s passed to family members and executors. When people are grieving, it’s important to ensure they’re not worried about the source of funds for something as expensive as a funeral.

Another potential option is term insurance. It’s not an advisable solution for most clients because it gets expensive once a person is older than 60 or winds up with a rated premium after a health issue is discovered.

“We want to make sure the insurance coverage doesn’t expire before you do,” says Glenn.

Term can, however, be a good option for younger, healthy people who want to ensure their spouses or partners aren’t battered by funeral costs should they die unexpectedly.

Regardless of type, a key advantage for insurance products is that policies typically pay out within a week of death. So the cash to cover those costs will be readily accessible, and not subject to the probate process.

And there are other options beyond insurance. Burjoski notes some clients establish joint bank accounts with their adult children, and make it understood the funds in the accounts have been earmarked for funeral expenses.

While these funds do count as an inheritance, they are immediately liquid since the child is a named account holder. Again, an addendum to the will or other document encouraging the heir to spend the cash only for the funeral will be useful.

Without that reminder, the heir may use some of the funds to for other purposes—such as paying estate bills during the period prior to probate, when there’s no access to the deceased’s primary bank accounts.

Segmented funds, which are creditor protected and controlled by parents, are another way of rapidly accessing cash outside the probate process.

And, finally, you can always borrow if you have to. Banks are accommodating when it comes to quickly advancing funds to funeral homes to cover expenses.

The issue of organ donation

While funeral costs and arrangements can be difficult topics for grieving relatives to deal with, there’s an even more challenging issue that comes up when a client dies: organ donation.

Even if the person indicated during his lifetime that he’d like to donate organs after death, his family may not be able to come to a decision when he’s critically ill.

When discussing funeral plans, one estate lawyer in Alberta says she also gets clients to focus on personal directives that contain explicit instructions on end-of-life care and organ donation. She adds the most detailed instructions—which generally emerge only after difficult and awkward conversations—will deliver the least contentious aftermath.

John Lorinc is a Toronto-based financial writer.

How to handle rental properties in estates

Executors must balance responsibilities to tenants and beneficiaries

Rental properties can be significant assets in estates, but they also present a challenge for executors. What obligations and responsibilities does an executor have to tenants, and how should those be balanced with responsibilities to beneficiaries?

Connie den Hollander, partner at Knott den Hollander in Saskatoon, Sask., says rental properties make estates more complex.

“It’s not like most other assets that you just take control of and decide whether to distribute to a beneficiary or sell in some way,” she says. “The decisions you make have to be governed under the umbrella of the residential tenancy legislation.”

By law, the terms of a lease still apply after an owner dies; tenants have a right to continue their tenancy. “If you have tenants, the executor steps into the shoes of the landlord,” den Hollander says, and must assume the landlord’s rights and obligations.

Those obligations can conflict with the executor’s duty to maximize value for beneficiaries. An executor may wish to renovate a property to make it more sellable, she notes, but that can’t interfere with “the tenant’s quiet enjoyment of the premise. You can’t just kick out a tenant and say, ‘We need you to leave so we can clean things up.’”

Ryan Scorgie, partner at Forward Law LLP in Kamloops, B.C., says executors need to thoroughly review tenants’ rights before making decisions about rental property. That’s especially important in tenant-friendly jurisdictions such as B.C.

“All of those rules fall on the executor,” he says. “And if there are any issues, it’s the executor who has to sort those out and be responsible for solving them.”

Such rules are particularly relevant when giving tenants appropriate notice of an eviction arising from a property sale. Even if the executor determines that liquidating a rented property makes most sense for the estate, they can’t simply evict a tenant to sell without giving appropriate legal notice. In B.C. that’s two months, plus one month of rent as compensation. It’s two months’ notice in Ontario and Saskatchewan, as well.

Failure to respect the rules could expose the estate to financial penalty. “Normally the estate overall will be the ‘person’ who’s liable,” Scorgie says. “But if there are actions that the executor should have taken but didn’t, they can be found responsible for that.”

Tyler Hortie, partner at Cohen Highley LLP in Kitchener, Ont., says it may not make sense for the executor to sell a rental property right away.

“Before you start terminating tenancies and getting the place ready for sale, canvassing the beneficiaries and understanding their interests is a really good idea,” he says.

A beneficiary who would rather receive the rental property in kind can save the executor considerable hassle, and potentially save the estate money. Receiving rental property as an inheritance is a cost-effective way to get into the rental market, he says.

The beneficiary must weigh this against the carrying costs of owning a rental property, the taxation of rental income and the eventual taxation of capital gains on a property that is likely not the beneficiary’s principal residence.

Even if the beneficiary decides to sell, it may not be necessary to rush the process.

“If you know it’s going to take you a year and a half to get the final clearance certificate from the CRA, and you’ve got three or four months left on the lease, and if you’re cash-flow positive or you’re net break-even, I think the better option is to wait until you have a full market to sell to—both investors and those who purchase for their own use—as opposed to taking it to market tenanted,” he says.

Taking on the role of landlord can mean extra work for the executor, but outsourcing the job to a property manager is a legitimate expense, Hortie says.

“The executor can download a lot of responsibility for the day-to-day to a property manager, and then simply be worried about the money coming in and the expenses going out,” he says.

More than one-third of mass market households don’t receive financial advice

A new poll reveals why that’s a problem

As the industry continues to examine whether an advice gap exists in Canada among mass market households, a new poll finds that a significant proportion of middle-income households aren’t working with financial advisors, with negative results.

A poll conducted for Primerica found that more than one-third (37%) of middle-income Canadians don’t have access to a financial professional they feel comfortable with. (The poll defines middle income as having a household income between $20,000 and $100,000.)

No insight is offered, however, on why the lack of access exists. (Trust isn’t the issue: in line with other research, the poll revealed overwhelming trust in the information provided by financial professionals.)

What is clear is that the lack of access to professional advice is a problem. The poll found that 61% have made at least one costly financial decision, with an average loss of $29,000. Also, about half (47%) fear they aren’t saving enough for retirement.

Most of those surveyed who haven’t seen a financial professional believe they would benefit from seeing one (75%), and they’re likely right. The poll found that client outcomes are better for those who receive financial advice.

For example, 56% of middle-income Canadians who hadn’t met with financial professionals had also never invested their savings. Of those who had met with a financial professional, only 22% had failed to invest.

Further, a greater proportion of those who met with a financial professional scored a C or higher on various financial behaviours, such as saving and investing, relative to those who didn’t (82% versus 54%).

Working with a financial professional might be particularly important considering Canadians’ low rates of financial literacy. The survey found that only one-third of middle-income Canadians feel confident with general concepts such as saving and budgeting, and fewer than two in 10 could explain the concept of compound interest or how to invest in a financial product.

For more details, read the Primerica report.

About the poll: Conducted by Golfdale Consulting in February 2019, the online survey polled a representative sample of 1,000 Canadians aged 18 and older with household incomes between $20,000 and $100,000. All data was weighted to Canada Census (2016) based on age, gender and region. The margin of error is about 3%.