More of your clients are near retirement, so they’re busy building wealth and paying off debts. Both are important, but this year’s IAFP case study showed advisors also have to tackle estate planning before clients stop working……
HIDDEN ESTATE-PLANNING CHALLENGES
If Jim and Sarah die in Canada, probate fees are 1.5% in Ottawa and they already work with advisors who are familiar with estate laws. In Texas, however, tax and estate rules could be more complex.
Also, independent administration is most often used to settle estates in Texas, which means “executors and administrators are allowed to serve largely independent of court supervision,” according to an article by Houston-based Ford and Bergner LLP.
The article adds this kind of administration isn’t preferable when executors are trying to settle estates with liabilities or when heirs are fighting. Further, Texas estate laws are being altered as of January 2014.
Another challenge is they have to make sure Jonathan, Sarah’s son from her previous marriage, gets an inheritance. Stepchildren aren’t recognized as family unless they’re specifically mentioned in wills, says Christine Van Cauwenberghe, director of tax and estate planning at Investors Group in Winnipeg, Man.
If Jim were to die first, Jonathan’s share would be protected since he’s Sarah’s son—she’d be the surviving spouse and likely beneficiary of most accounts. But if Sarah were to die first, Jonathan’s share isn’t guaranteed, since Jim could gift his estate prior to his death or put everything in joint ownership with a new spouse, says Van Cauwenberghe.
To avoid problems, Jim should make sure his will explicitly leaves something to Jonathan.
Van Cauwenberghe also recommends an insurance trust for Jonathan. These trusts are helpful for people who find “there isn’t enough in the estate to leave a portion of the assets to the new spouse and also leave some directly to [their] children,” she adds.
She says Sarah should purchase a policy in her name (her son is a minor) and put it in a trust that names Jonathan as the beneficiary. She could make her brother the trustee to keep control on her side of the family.
If her brother dies, the trust could then be administered by a contingent manager or by the executor of her brother’s estate. Sarah should list alternative managers when creating the trust, says Van Cauwenberghe.
Jim and Sarah are still in their 40s, so they don’t have to decide on final strategies now, she adds. But Sarah would need to create that insurance trust before she becomes uninsurable.
If they move to Texas, they need to understand its family laws and re-do their wills
Don’t delay planning | Advisor.ca.