Andrew Pyle
June 15, 2023
The ultimate legacy gift is preparedness
This past week, our Financial Planning Specialist Andrew Duncan, attended an “estate planning 101” session, put on by our local Alzheimer's Society group, where Andrew co-presented on topics ranging from probate to taxation. There is not a week that goes by where we are directly or indirectly touched by someone dealing with Alzheimer’s or other forms of dementia and, given the urgent need for resources in this area, we have been more than happy to lend support.
Attendees at the seminar brought some very important and close to the heart questions. Some related to things they had heard or experiences they had and it was extremely useful to have local estate lawyer, Bill Lockington, in attendance to go through the litany of myths relating to powers of attorney and probate. For example, there is no death tax anymore in Canada and probate fees are most likely not going to be a significant share of one’s estate.
Having the benefit of sitting with the audience, I could see firsthand that our efforts at improving financial literacy (a massive work in progress) needs to be extended to financial issues pertaining to end of life. There have been a number of surveys and statistical analyses on Canada’s aging population and the degree to which this segment is prepared for situations where mental or physical capacity is diminished or, indeed, when one passes. The latest Statistics Canada data reported that 18.8% of the population was 65 or older as of July 2022 and that the increase from 2016 to 2021 (18.3%) was the largest pace of growth in 75 years.
In 2012 CIBC conducted a poll that found that about a third of Canadians between the ages of 45 and 64 didn’t have a will. Extrapolating out and this would suggest a similarly large percentage of those above 64 also are without a will. Considering that the preparation of Powers of Attorney (either for property or care) are typically created or reviewed at the same time as a will, then it is safe to say that there is a significant proportion of the 65 and over group without them as well. Our Managing Director of Tax and Estate Planning, Jamie Golombek, covered some of the issues stemming from not having a will in an article in 2021 and I have provided the link at the end of the commentary.
While we spent most of the session dealing with questions about probate and why there is a disproportionate amount of time spent on this issue compared to income tax liabilities at death, the lion in the room was this overwhelming fact that a large contingent of this 20% segment of Canadians that were at retirement age or older hadn’t even dealt with final wishes. How could they have even realistically given any thought to tax or even probate minimization strategies?
We have discussed these strategies in previous commentaries, including placing contingent beneficiaries (children or grandchildren in addition to spouse) on our registered investment accounts (RRSPs, LIRAs, RRIFs, LIFs, TFSAs, etc), such that the values of these accounts bypass the estate. This is a relatively simple planning tool, provided that the will is not complicated with more than say three main beneficiaries. But there is also the problem of coordination. For example, one institution may recommend placing one or two contingent beneficiaries on accounts without discovering that there are other beneficiaries in the will.
Another way to reduce probate and maybe the level of taxation at death is to gift away capital or to make our assets joint. The last one is easiest to deal with. When we take our individual assets and make them joint with another person (say, a child), then two risks arise. First, if there is an unrealized capital gain on this asset (or account), then moving half of the asset into the name of the other person will be a deemed disposition and could trigger a capital gain. In the case of a primary house, this can also present a possible tax problem in excess of probate savings. Even where there is no tax consequence of creating joint ownership of an asset joint, we are now exposing this asset to the risk of capture in the event that the person we have created joint title with has a credit claim against them, either from being successfully sued, a matrimonial break-up or from a crime. Half of that asset is then up for grabs to make payment.
These issues only scratch the surface of later-life financial and estate planning. The real problem is simply that there are too many older Canadians becoming incapacitated without well thought out powers of attorney documents and too many passing away without a will, or what we call dying intestate. These realities go hand in hand with the fact that there are still too many Canadians that don’t put together comprehensive financial and estate plans to begin with.
As many of you know, Ally has been conducting financial literacy seminars with teens in the local community and these have been hugely valuable. We have also paralleled this with our involvement in Junior Achievement, but the need for improved literacy runs the entire age spectrum. Planting the seeds of effective planning in those under the age of 20 will bear fruit 45 years from now. In the meantime, the baby boomers need to be engaged in effective estate planning for them, their children and their parents. If we can turn the group without wills, POAs and plans into a smaller minority, then we will have greatly improved the efficiency and tax-effectiveness of the massive inter-generational wealth transfer we find ourselves in.
On behalf of the Pyle Group, have a wonderful weekend.
Andrew Pyle
Jamie Golombek’s April 2021 article “Your estate matters! Common traps and how to avoid them”
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These are the personal opinions of Andrew Pyle and the Pyle Group and may not necessarily reflect those of CIBC World Markets Inc.
Details about the CIBC poll, which was conducted in 2012 when the report was first published, are available at https://www.newswire.ca/news-releases/cibc-poll-nearly-one-third-of-baby-boomers-dont-have-a-will-510205.