Estate planning can present the greatest set of challenges for financial advisors. Doing it right means helping clients confront their mortality, employ an array of financial strategies and navigate potential tension among family members.

The stakes are high. What works best? And what should advisors avoid when it comes to estate planning?

Start with simply having the discussion. Clients can put off talking about their death. Advisors sometimes also put the topic on the backburner because they’re working toward shorter-term goals and handling more immediate issues.

“Many advisors are focused only on managing investments for their clients and neglect addressing estate-planning concerns,” says Tina Tehranchian, branch manager and senior wealth advisor at Assante Capital Management Ltd. in Richmond Hill, Ont.

So advisors need to get it on the agenda and be well prepared when discussing the topic, she says.

“Have a comprehensive estate-planning questionnaire and a checklist of all the things you need to discuss. Good information-gathering is crucial when it comes to estate planning. Probing questions can get your clients to think about difficult issues,” Ms. Tehranchian says.

Topics to consider include: What are each client’s estate distribution intentions? Who would clients like to appoint for various positions (i.e. executor, guardian, attorney for health, attorney for property, etc.)? Are there any material loans or advances to beneficiaries that the client intends to forgive or adjust on death?

In advance of a meeting, ask clients to collect and prepare critical estate documents. That can include a will, life-insurance policies, pension records and beneficiaries.

“Say to your clients, ‘Bring me the [documents]. We’ll review them together and make sure that this is still what you want to do,’” says Frank Wiginton, chief executive at A Better Quality of Life Financial Consulting in Toronto.

Clients often have an outdated will or none at all. Jason Abbott, president of Inc. in Toronto, says his own parents resisted his constant urging to draw up a will. They finally acted after hearing a radio program on estate planning.

“Sometimes, they have to hear it multiple times and from multiple sources before they take action,” he says.

Mr. Abbott points to one of the most famous cautionary tales of neglecting estate planning: the singer Prince. He died at 57 years of age in 2016 without a will (or a spouse or children). The massive estate remains unsettled.

“I have to imagine that three-quarters to 80 per cent of his estate will be eaten up by taxes and legal fees. How can you amass so much wealth and not do something so basic as a will? It happens all the time,” Mr. Abbott says.

Even if clients have a will, circumstances and assets can change, even in a short time frame. Thus, it’s important to revisit that document regularly.

“Every will should be reviewed thoroughly to ensure it is aligned with your client’s wishes and expectations,” Ms. Tehranchian says.

But estate planning goes far beyond just having a will and can have many moving parts. For example, there can be cross-border financial issues, businesses at play, or families in which beneficiaries have special needs. Because of all these complexities, advisors should have a team of specialists to rely on.

“Have a good network of estate-planning lawyers that you can refer your clients to. You need lawyers with different kinds of expertise,” Ms. Tehranchian says.

Estate planning is also emotional. Once the discussion gets going, clients may have all sorts of ideas of how finances, legacy and family matters should be handled.

“Your job as an advisor is to be non-judgmental,” Ms. Tehranchian says. “Point out the pros and cons of their decisions and the potential impact they could have on family harmony. Help your clients make an informed decision and achieve their estate-planning objectives in the most tax-effective manner.”

Charitable bequests could be an important part of the discussion, she adds. “Finding out about their philanthropic intentions helps strengthen an advisor’s bond with the client, by showing that you deeply care about their values.”

One common mistake to avoid is taking extreme measures in estate planning to avoid probate fees, Mr. Wiginton says. “Everybody feels that probate fees are a tax; they are not. They are an administrative fee on an estate.”

Probate fees vary across the country. The contortions some Canadians put their estates through to avoid them are legend, says Mr. Wiginton, author of How to Eat an Elephant: Achieving Financial Success One Bite at a Time.

“I have seen people spend tens of thousands of dollars to set up trusts and holding companies. It is costing them a lot of money, time and effort to do all that, just to try and avoid paying probate fees in the future,” he says.

Mr. Abbott also worries that various strategies to get around those fees can create family strife in the future among heirs.

For example, a child might feel that he or she was not treated fairly because another sibling was chosen as a joint owner for assets such as the family home.

“Sometimes, the $15,000 [probate fee] is a small price to pay to avoid litigation, legal fees and disharmony,” Mr. Abbott says.


Moshe Milevsky drew heat from readers two years ago after he wrote an article in the Wall Street Journal about buying a US$5,000 annuity at age 42. It would yield payouts of about US$2,180 a year that would start rolling in when he turned 80 years old.

“The comments posted online were pretty negative, mostly along the lines of, ‘Why would you give your money to a company that may not be around in 40 years?’ and ‘There are better ways to put your money to work,’” recalls Dr. Milevsky, a professor of finance at York University in Toronto. “A lot of people don’t really understand annuities – here in Canada, people are often scratching their heads and saying, ‘Yeah, I’ve heard of them.’”

Often described as reverse life insurance, annuities are contracts that pay policy owners a guaranteed monthly income either for life or for a prescribed term.

Beyond these two basic types, investors can also choose features such as guaranteed payments to a beneficiary for up to a certain period if the policyholder dies within a specified number of years of buying the annuity, or return of premium to a beneficiary, less payments already made, after the policyholder dies.

Unlike life insurance policies, which are paid for over a number of years, annuities are bought and paid in full upfront.

“If you buy a $100,000 life annuity at age 70 and you live to be 120 years old, you’ll continue to get your payments until you die,” says Paul Shelestowsky, senior wealth advisor at Meridian Credit Union in Niagara-on-the-Lake, Ont. “And if you have longevity on your side, at some point you’ll have used up your premium and you’ll be living on the insurance company’s dime.”

Once popular among Canadians, annuities – whose payouts are tied to interest rates – fell out of favour when rates plunged during the 2008-2009 financial crisis. Today, about 2.5 million Canadians own individual annuity policies, according to the Canadian Life and Health Insurance Association in Toronto. An additional 5.5 million annuity policies exist within group pension plans.

With interest rates on the rise – nudged, in large part, by rate hikes south of the border – should more Canadians consider adding annuities to their retirement plan?

Ronald Sanderson, the association’s director of policyholder taxation and pensions, says interest rates shouldn’t be the deciding factor behind an annuity purchase.

“If you think of annuities as investments, then they’ll seem expensive when interest rates are low and they’ll look cheaper when interest rates start to rise,” he says. “But it’s not right to look at annuities as investments – what you’re buying is insurance that you don’t run out of money.”

A number of trends could be renewing investor interest in annuities, such as fewer company pensions, lower savings account balances and more years spent in retirement as Canadians live longer, says Lowell Aronoff, chief executive officer of Toronto-based CANNEX Financial Exchanges Ltd., which collects and analyzes information on retirement products.

Outliving one’s retirement nest egg is a serious concern for many Canadians, according to survey results released this week by CANNEX and the Washington, D.C.-based market research firm Greenwald & Associates.

Close to 45 per cent of Canadians aged 55 to 75 years old are worried about outliving their savings, the survey found. Not surprisingly, 80 per cent said they considered guaranteed lifetime income to be a highly valuable supplement to government-sponsored retirement plans.

Annuities may be the answer for Canadians who haven’t saved enough to fund all of their retirement years, says Jason Abbott, a certified financial planner and principal at Inc. But purchasers face a trade-off for the financial certainty afforded by annuities: With plain-vanilla life policies – which come with no add-on features – when the annuitant dies the insurer keeps any unused portions of the premium.

“Know that you are trading your capital for guaranteed income, and if leaving money for your heirs is important to you, then an annuity may not be the best way to create a base of steady retirement income,” says Mr. Abbott. “There is no residual value for your heirs.”

Annuity buyers should also remember that they’re locking in their money for good; that cash won’t be available for emergencies down the road.

“Another thing to keep in mind is that an annuity may not bring in the same level of income as a portfolio of investments,” says Mr. Abbott. “But it will kick off a stream of income you can bank on.”

An annuity should work in balance with the rest of an investment portfolio, adds Mr. Abbott. Because it’s a fixed-income product, an annuity could replace a portfolio’s bond component.

How much can investors expect to receive from an annuity? John Beaton, an annuity broker at Canadian Annuity Services in White Rock, B.C., says the payout rates vary among insurers and are based on factors such as the annuitant’s gender and age when payouts start.

On the CANNEX website, a recent comparison of annuities – with a 10-year guarantee to a beneficiary in case the policy holder dies within the first 10 years of the policy and a $100,000 premium – shows payouts ranging from about $390 a month for a 55-year-old male to more than $770 for an 80-year-old male.

Mr. Aronoff shares a good rule of thumb for figuring out how much annuity to buy: Make sure that, when combined with CPP and other income sources, the annuity payouts are enough to cover essential expenses such as housing, food and utilities.

“Some people will consider golf essential, in which case golf expenses should also be taken into account,” says Mr. Aronoff. “You need to ensure there’s enough money so you have what you feel is a reasonable quality of life.”

Mr. Milevsky says annuities are not for everyone. Someone with a company-sponsored defined-benefit pension already has a form of annuity and doesn’t need another, he says. Wealthy individuals unlikely to outlive their money won’t have much use for an annuity, either.

“But if, for example, you’re an entrepreneur running a small business and neither you nor your spouse has a pension,” he says, “and all you have to retire on is the $10,000 a year you’ll be collecting from CPP [the Canada Pension Plan], then you should go out and buy an annuity.”


Special to The Globe and Mail
Published Thursday, Apr. 06, 2017 5:10PM EDT
Last updated Thursday, Apr. 06, 2017 5:10PM EDT

Business owners are a unique breed. They take financial risks to launch companies that, statistically, have little chance of success. Their creations become more than investments – they’re almost like family members. Hence the saying “my business is my baby.”

But even the most successful owners often have a blind spot – personal financial diversification. They hold most of their wealth in one or two assets, such as their business or personal real estate holdings. And they can be stubborn about mitigating that risk.

“Depending on what stage they consider themselves at, you can talk to [business owners] about diversifying risk until you’re blue in the face, but they won’t listen,” says Jason Abbott, a financial advisor with the retirement planning consultancy in Toronto. “If they’ve been at their business for a while and have seen progress, they’ll always have a sound argument as to why they’d rather assume the risks they know well, as opposed to the ones they don’t.”

Another common argument he hears: “I can produce a better return on investment from my own business than in the markets, or any other form of investment, for that matter.”

While that may, at times, be true, a non-diversified asset mix invites major personal financial risk. Why? Businesses are cyclical, and recessions, structural changes in an economic sector and technological upheaval can shrink market share virtually overnight.

Consider autonomous vehicles, which are poised to transform transportation logistics in the next decade (or sooner). Or the ongoing automation of the manufacturing sector. While many business owners will seize opportunities to build greater wealth with these tech-driven seismic shifts, others will be left behind, possibly to their personal financial detriment.

As any investment advisor will stress, putting all of one’s financial eggs in one asset basket is a recipe for disaster. Business owners can reduce risk by holding a variety of investments unrelated to their field of expertise.

Business owners face risk when it comes time to sell their “baby,” too.

While stories abound of Silicon Valley entrepreneurs selling their tech startups and riding off into a gloriously wealthy sunset, those cashouts are rare, particularly among service businesses that lack proprietary technologies.

According to Statistics Canada, more than three-quarters of the 1.17 million small and medium-sized businesses in this country operate in the service sector.

Because service businesses in which the proprietor plays a key role are difficult to sell, most Canadian business owners cannot expect a major windfall from a sale.

“If you own a service-based business and you are the brand, you might be able to sell a book of clients, but it may not be for that much money,” says Shannon Lee Simmons, founder of the New School of Finance, a Toronto-based financial planning firm. “We’re not talking about million-dollar buyouts. You need to know, in your industry, what the average price would be if you were able to sell [your business] down the road.”

Ms. Simmons regularly advises entrepreneurs to explore financial diversification through registered retirement savings plans (RRSPs) and tax-free savings accounts (TFSAs). She says many CEOs work with their accountants to develop tax-friendly strategies such as paying themselves dividends from their corporations – at low corporate tax rates – into their personal registered accounts, which helps to shelter them from higher personal income-tax rates.

Non-registered investments such as stocks and mutual funds also can play a role in creating a balanced portfolio that delivers long-term financial security.

“If you’re going to make use of personal finance accounts, use them as would a [non-entrepreneur] investing for the long run,” Ms. Simmons says. “If the business goes to pieces, what do I have outside the business that will make sure I’m OK?”

Mr. Abbott helps entrepreneurs skeptical about diversification understand their risk exposure by what he calls “crash testing” their financial situation.

What would happen if their business ran into a major financial hurdle such as an economic downturn or an illness that took them away from the business for a protracted period of time? Would they be able to keep things afloat?

Ultimately, a comprehensive financial diversification strategy should be dictated by an entrepreneur’s personal and professional goals.

Business owners should assess everything from their spending habits and family commitments to retirement plans before developing a diversification plan, says Graham Bodel, director of the Vancouver-based investment management firm Chalten Fee-Only Advisors Ltd.

Whatever the circumstances, Mr. Bodel urges entrepreneurs to take a counterintuitive approach by investing outside of their core industry.

“The number one thing if you’re thinking about diversification with investments, whether you’re using mutual funds or single stocks or whatever, recognize that a huge amount of your invested and human capital is already focused on a particular sector or subsector,” Mr. Bodel says.

“The starting point is to not invest in what you know about. Move specifically away from that. Because when that sector is not doing well, hopefully the rest of your investment portfolio will make up the difference.”