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Cleaning Up Our Mess

The Financialist • Issue 109 • April 2011

BY ALAIN QUENNEC BComm CFP FMA CIM

Like most children, when I was growing up, my mother was always after me to clean up after myself, saying, “You don’t expect me to do everything for you, do you?” (Except it was in French…).

I apply that same principle in my financial planning advice today, asking clients to ensure they have properly taken care of themselves in the event of death or incapacity. Basically, make sure you have a Will, Power of Attorney, and possibly a Representation Agreement.

THE WILL

The Will is a set of instructions you leave behind after death, asking the executor to deal with your earthly possessions in a particular fashion.

Without this document, those you leave behind will have to clean up your mess by figuring out on their own what to do, and this may cause disagreements, precisely when you don’t want them – at a time of stress (hopefully your death causes stress and not relief).

The executor’s job is to follow through on the deceased’s wishes, as written out in the Will. Choose this person wisely, and be nice to them so they’ll care about doing a good job!

Typically, we advise that the executor be the same age or younger, as we want them to have a high likelihood of living longer than you. We also advise that you choose contingent executors – someone willing to take the job if your first or second choice is unwilling or unable to take up the task.

The executor may have to take the Will through probate, which is the process of determining the validity of the Will with a provincial court.

The executor may look at all the things needing to be done and decide to retain the services of a lawyer – not as a replacement executor but as someone to navigate the estate process, asking for authorization and signatures from the executor along the way. The executor makes funeral arrangements, confirms the Will is indeed the Last Will (no other versions are more recent), and notifies potential beneficiaries.

Income tax returns and outstanding tax balances must be settled, after which other debts can be paid – the Tax Man comes first, of course! It’s wise to obtain a Tax Clearance Certificate before proceeding to other disbursements. An executor’s fee of up to 5% of the assets in the estate can be charged to compensate for the work and responsibility involved.

An executor can be held personally liable for improper distribution or handling of estate assets, which can be a considerable risk.

Finally, the remainder of the estate can be distributed as per the deceased’s wishes. Oh, wait – someone (a long lost child) has filed an action in court under the Wills Variation Act, seeking to amend the terms of the Will. Now the executor is in court trying to figure out what to do. A lawyer might be handy….

THE POWER OF ATTORNEY

This document serves to designate power to someone in case you don’t die but you are simply incapacitated. Let’s say for the sake of this case, you are in a coma – who is going to make investment decisions, pay your bills, file your tax returns?
A PoA document can be put in place with any lawyer or notary. Often it is simply a one-page document, noting that in case of incapacity, you name your PoA to take over for you all decisions relating to property (not your body or health decisions – that’s a different document, the Representation Agreement).

Your PoA can be “triggering” (comes into effect at the moment of incapacity) or “enduring” (in effect at the moment of signing and also after incapacity).

Naming a contingent PoA is a good idea, in case the primary person is unwilling or unable (they may be lying next to you in the hospital…).

Without a PoA in place, hopefully someone will show up at the office of the public trustee and request to be your Committee (pronounced “ko-meh-TEE”). The downside is they may be asked to report periodically to the public trustee all their activities on your behalf, provide proof, and there may be a fee involved, to boot. Wouldn’t it be better to just spend 30 minutes with a lawyer or notary to put this simple document in place?

I recognize these are not cheery things to talk about, but are they really going to be easier for someone else to handle when you aren’t able to help them out? If you’re having trouble deciding what to do or how to handle these issues, please talk to us – we can help guide you in making good decisions that are right for you.

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