Educating heirs on your estate plan

Among the Canadian population, there are some interesting statistics that serve to highlight the knowledge and information sharing commonly lacking from one generation to the next when it comes to estate plans.

For many, the disconnect centres on what heirs expect to receive and what intentions are actually in place.

For example, 35 percent of individuals are counting on money left behind in a Will to help fund their futures, but, on average, Canadians overestimate how much they’ll inherit by about 50 percent. Additionally, 86 percent of seniors surveyed in a recent Ipsos Reid poll noted that they have no plans to give up their own needs and desires in order to provide a large inheritance for their children. Furthermore, 62 percent of those surveyed noted they are unconcerned about the inheritance that will remain for their children after they have supported their own needs.¹⁵

Throughout this report thus far, a central theme has been the importance of communication as part of effective estate planning. Specifically, the previous sections have focused on why open lines of communication are so valuable as part of the process, the potential pitfalls of avoiding these crucial discussions, and who in your family and close network should be involved in the ongoing discussions. To round out all aspects of communication, it is important to also examine the “what” aspect:

1. What elements of planning are critical for family members and other involved individuals to be aware?
2. What amount of information should they be privy to?

Key individuals in estate plans

From an informational and administrative standpoint, one area some individuals may overlook is ensuring family members and heirs know who the professionals are that have been involved in the estate planning process and how to reach them. This may include, but is not limited to, the executor(s), accountants, wealth advisors, lawyers and tax advisors. As part of compiling an inventory of information for family members, as discussed in the previous section, a good rule of thumb is to include the names and contact information of any individual that family members or heirs need to talk to when you pass away. Unfortunately, if these details aren’t recorded somewhere — and the necessary people don’t know how to find this information — the end result may be an increased amount of time and complexity in sorting out various aspects of the estate. In addition, when family members are in a position where they are scrambling to track down information or key details, this may create a heightened sense of stress and potential conflict during an already emotionally challenging time.

To avoid these difficulties, it may prove beneficial to introduce your family members and heirs to all relevant professionals during your lifetime as a means to establish the relationship among the next generation. If you and your spouse have different professional advisors for your banking, investments, taxes and legal matters, for example, the first step should be ensuring each spouse has been introduced to these respective individuals to help streamline the process of knowing who to contact after a spouse’s death. Once this occurs, or if both spouses share the same advisors, the next step is to consider introducing them to other family members. These introductions will provide that initial connection for your heirs and will help promote the continuing relationship. The benefit here is that the next generation will hopefully develop a level of comfort with those professionals and then be able to work with advisors who already know your history and who are familiar with your planning. Additionally, these relationships may help facilitate a smooth estate administration and can ensure any planning you carried out during your lifetime is continued or completed after your death.

Accounts, information and documents

Regardless of individual viewpoints on transparency about estate plan details, there are some logistical aspects that shouldn’t be overlooked in any circumstances.

There are a variety of administrative aspects related to an individual’s estate that should be appropriately accounted for and logged, including banking and investment accounts, assets, insurance policies, and pension information, as well as any relevant supplementary details and information relating to these accounts and documents. Beyond an awareness of the information itself, family members and heirs should be informed about where and how to access it after your death or in a situation of incapacity. The RBC Wealth Management Family Inventory may be a useful guidebook in this regard, providing direction on key details to log and helping individuals gather all pertinent information.

Further to having this comprehensive list and making its whereabouts known to the appropriate individuals, it’s equally as important to keep it updated and  ensure family members and your executor(s) remain in the loop regarding any large-scale changes or modifications. The following are some of the main situations that would trigger the need for an update to your inventory list  or a communication update among family members and your executor.

Digital legacy

In today’s technology and cyber-driven world, it’s also important to consider your digital legacy and how a surviving spouse and/or children will be able to deal with it. An individual’s existence in the digital realm includes components such as your electronic documents, online currency and accounts, email and social media accounts, and domain names. As such, details regarding your digital assets and how to access them should likewise be included as part of your overall list, as this may reduce the administrative burden of dealing with this aspect of your estate. What it comes down to here is realizing that with the ever-expanding digital space and the rising need to protect online information, properly accounting for the entire spectrum of your digital presence is valuable from both a personal and financial perspective. Potential issues for those who don’t consider their digital legacy include:

• Potential fraud or identity theft
• Inability of family members to access or close accounts
• Emotional difficulties for family members based on lingering digital presence after a parent’s or other family member’s death
• Inability to access key contacts or information stored in email accounts
• Delayed administration process
• Lack of full personal closure
• Loss of access to family photos, videos or other personal files stored in digital spaces

Finding a balance with information sharing

A common concern among many in putting together their estate plans is sharing too much information to the next generation too early. For some, there may be a great deal of uncertainty and debate around whether to disclose the specific amounts of inheritances or other forms of wealth or assets being passed down in advance and what impact that may have on intended heirs. In weighing out this decision, it is important to factor in both the potential benefits and possible risks, as well as how they relate to your individual goals and situation, as well as family dynamics and circumstances.

Understanding wealth transfer structures

A key component to the education process as it relates to estate planning is helping heirs and the younger generation in general develop a greater awareness and knowledge as to the structures and methods that exist for intergenerational wealth transfer and how and why they are used. Again here, it’s not about disclosing amounts or specifics, but rather helping the next generation understand the process, structures being used, and reasons for those decisions.

To better illustrate the potential shortcomings when even a basic explanation about a wealth transfer method isn’t provided, let’s consider the example of a trust. Without any previous education about it, many heirs may not know what a trust is, how it works and/or why it is used. Viewed without any background knowledge, for someone whose intended wealth has been set up in a trust structure, it may come across like a complex and limiting strategy that prevents the heir from accessing the wealth. This in turn may create feelings of frustration and resentment, all rooted in the lack of understanding about the structure itself. Therefore, heirs may greatly benefit from being informed about the methods used, why you have structured it that way and the purpose behind the strategy.

Importance of financial literacy

An overarching theme that is closely connected to information sharing when it comes to estate planning (and wealth planning in general) is building a stronger sense of financial literacy among heirs and younger generations. The basic concepts of saving, spending and sharing learned at a young age contribute to establishing a foundation of financial literacy skills. And while some may be in a situation where the next generation are already teens or young adults or already in adulthood, while perhaps not the most ideal, it’s never too late to start either. In fact, regardless of the age of your heirs, estate planning may present an ideal opportunity to make financial literacy a priority within your family.

Financial literacy in Canada

Financial awareness and literacy is a topic that’s increasingly coming to the forefront in Canada, but according to the Rand Youth Poll, a market research company, only 35 percent of parents talk to their kids about money.¹⁶ This is an unfortunate reality given the fact that helping younger family members develop financial literacy skills is one of the best methods to increase confidence and abilities in managing wealth. A focus on financial literacy within the family also helps specifically in relation to estate planning, providing the next generation with a better understanding of both the processes and elements of intergenerational wealth transfer. This in turn enables those who are planning to pass wealth down with an improved comfort level that intentions will be met and understood and that their wealth will be managed successfully into the future.

The importance of this form of education takes on an even greater relevance given that findings from the 2014 Canadian Financial Capability Survey found that eight out of 10 young Canadians are not confident in their financial knowledge, and that 60 percent of adults rate their financial knowledge as “fair” or “poor.”¹⁷

With significant shifts taking place among the Canadian population, both in age demographics and in the types and complexities of family structures, turning a focus on effective estate and wealth transfer planning is becoming increasingly relevant. Add to this the fact that the coming decades will mark the largest wealth transfer in history, and it is clear that passing down wealth should be a topic that is top of mind for many. Despite these population and wealth realities, however, the fact remains that fewer than half of Canadians have firm retirement plans in place and even fewer have developed any sort of estate plans.¹⁹

The main purpose behind this report has been to address some of the common and most relevant questions and topics Canadians face in estate and  wealth transfer planning. Through these discussions,  the hope is to help individuals build a greater sense of awareness of the specific details and considerations within this area of planning. Additionally, by improving overall knowledge and recognizing the central role communication plays in successful wealth transfer, individuals may be better equipped to move beyond any feelings of discomfort and uncertainty that often derails this type of planning, and instead   recognize the vast benefits that exist when decisions are properly approached and in a way that promotes improved financial literacy among all family  members.

While one of the key takeaway messages of this report is that there are strategies and options to help effectively meet every type of personal situation or need, the uniqueness of each individual’s and family’s circumstances emphasize why it is so imperative to work with qualified tax, legal and wealth professionals throughout the entire planning process. In doing so, there is greater assurance that comprehensive plans are developed, that they accurately reflect specific circumstances, and that timely and customized decisions are made based on the latest information available.

Whether you are a young adult, middle-aged or an older adult, it is never too early or too late to think about and focus on estate planning. And though it is a fact of life that no one can ever precisely predict what the months, years and decades ahead may hold, making estate planning a priority is one of the best ways to protect both your own and your loved ones’ futures and financial security.