High net worth individuals typically have more than enough money to live their desired lifestyle. But there’s an important element that even the wealthiest amongst us may be lacking – protection. According to recent research by Chubb, more than 50% of high net worth individuals worry that they are underinsured, and less than 30% look for insurers who are specialists in providing coverage for the affluent: https://www.canadianunderwriter.ca/personal-lines/insurance-providers-need-go-understand-needs-high-net-worth-individuals-chubb-1004110295/.
The simple fact is that those who have more, have more to lose. And they have assets and protection needs that go far beyond what an off-the-shelf property and liability policy can provide. Uncovered losses not only have day-to-day lifestyle implications, they could also impact estate values down the road.
Here are some of the coverages available in the Canadian market that high net worth individuals should consider.
- Coverage for high-end homes – As technology advances, home systems have become more sophisticated, and higher-end homes even more so. Assets and equipment that need protection can include state-of-the-art electrical and mechanical systems. back-up generators, pools, home theatres, climate-controlled wine systems, walk-in humidors, and showcase garages. These homes may also have unique architectural detailing that requires special protection.
- Personal security breach protection – Wealth and a higher public profile comes with its own risks – home invasions, stalking, violent threats, even kidnapping. Specialty insurance packages cover expenses related to these events, from loss of income to professional counselling, to additional security services.
- Protection for collectibles and leisure vehicles – An affluent lifestyle often includes vehicles that go beyond basic transportation needs. These can include antique, classic and collector cars, airplanes, speed boats, houseboats and yachts, and other recreational vehicles.
- Increased liability protection – The higher your public or professional profile, the greater the risk of liability claims, with libel, slander or defamation claims being an obvious example. Higher-end insurance policies often include worldwide umbrella liability coverage that extends the range of liability protection available.
This recent Globe and Mail article highlights some other protections that those with an affluent lifestyle might consider: https://beta.theglobeandmail.com/globe-investor/globe-wealth/high-net-worth-lifestyle-brings-liability-tripwires/article34019994/?ref=http://www.theglobeandmail.com&.
Many insurance companies in Canada – such as Aviva and Chubb – offer exclusive protections and services for the high net worth market. An insurance broker can be invaluable in helping you find the right solution.
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Have you seen the recent Home Hardware ads, where an adorable young couple tackles a complete home renovation on their own? It’s hard not to root for them. But while the do-it-yourself attitude is admirable, there are some things in life where professional help is needed, and estate planning is one of them. Estate planning mistakes aren’t easily fixed, especially since they might not be discovered until you’re gone. Here are a few reasons why professional help is important.
An objective voice on family dynamics
The influence of family relationships on your plan is greater than any other factor. Who gets along with whom? Who has special needs? Should estate assets be owned jointly by all beneficiaries, or sold? Who do you trust to manage your estate?
That’s where a professional can help. You’re caught up in family dynamics, whether you like it or not. And an objective voice can do wonders for quieting the family voices you hear and providing some clear advice to help you arrange your estate in a manner that reflects the unique dynamics of your situation.
They can also help you communicate your plan to your family during your lifetime, to minimize estate conflicts later. Trust me, we’ve seen it all. If there are issues within your family now, you can be certain they won’t be any better once you’re gone. The more you can do to communicate your estate plan and listen to family members and address concerns during your lifetime, the smoother the estate settlement process will be.
They see things you haven’t thought of
An estate plan doesn’t have to be complicated, but all good plans have one thing in common – they cover all the angles. The mistakes in estate planning often relate to what isn’t in the plan rather than what is.
One of the key benefits of planning with a professional is the use of a methodical approach to cover off the key elements that pertain to your estate, whether related to business, your children from a previous marriage, beneficiaries, or assets in other jurisdictions.
The coordination of beneficiary designations for insurance policies and registered plans is a great example, because it’s a commonly missed item. These policies and plans may have been put in place over many years, with designations that no longer reflect your desired division of assets.
You have a role too
While professional advice is an essential element of a solid estate plan, your input is obviously an important part of it. And the more you know about the estate planning process, the more value you bring to the table. This recent Globe and Mail article highlights three estate planning books you might want to read to learn more about the process and the elements of your estate plan that you may not have considered:https://www.theglobeandmail.com/globe-investor/globe-advisor/beyond-the-beach-read-estate-planning-books-for-canadians/article35981401/.
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Take a minute to think about how much of “you” exists online. Financial records, photographs, music, social media content, automatic bill payment instructions – the list goes on. And with Bitcoin and other digital assets that have a market value, you could have a lot more than funny posts and pictures in electronic form.
For your estate, we’re so used to thinking of physical assets when it comes to planning, it’s easy to overlook your digital assets when preparing or reviewing estate plans.
There is no right of survivorship for digital assets, so your surviving loved ones are often faced with challenges when trying to access or delete online accounts. Legislation hasn’t kept up, and very few jurisdictions have rules about the release of information required to access accounts to family members or friends, absent a court order. As a result, different providers have different policies about what they allow for access to, or removal of, digital information stored.
If you have digital assets or an online presence, here are three estate planning tips that can help ensure a smoother estate settlement process:
- Appoint an estate trustee who is technologically savvy, can handle the responsibility of being an executor, and is a person you trust to handle your affairs. Make sure this person knows what you would like done with your digital assets (such as through a letter attached to your will), and ensure you give your estate trustee express authority in your will to deal with your electronic assets.
- Make use of existing tools that let you make choices now for online accounts after your death. Examples include Facebook Legacy Contact https://www.facebook.com/help/1568013990080948 and Google’s Interactive Account Manager https://publicpolicy.googleblog.com/2013/04/plan-your-digital-afterlife-with.html.
- Provide a detailed list of any virtual accounts, and related usernames and passwords, to your family and estate trustee. Better yet, consider using a password manager service that stores all usernames and passwords to all virtual accounts in a safe and secure format which can be accessed by one master password (there are many of these services available). In this way, your list can be updated easily and an executor only needs to be provided with one password to access all of the necessary information.
Review your plans
The issue of digital assets and estate planning is not just for Millennials. For both young and old, technology has changed the way we live. Think through what you have online, and revisit your current estate documents to ensure you’ve covered your bases in relation to your digital assets and presence.
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We know there are many estate planning situations that are enormously complex. Corporate ownership, assets in multiple jurisdictions, multiple family beneficiaries, family dysfunction issues – all of these can complicate an estate plan significantly.
But there are few estate planning issues as urgent as planning for the future care of someone with a physical, mental or emotional disability, especially when it’s a child with a long life ahead but who lacks the capacity to look after their own needs.
I use the word “urgent” because the great fear of loving parents planning ahead for the care of their special needs child is “getting it wrong” and leaving an estate that doesn’t adequately address their child’s needs. The good news is that a combination of good advice and careful planning will go a long way to ensuring you “get it right.” Here are a few high-level suggestions that can help you get there:
- Start as early as possible: When you have a young child with a significant disability, time, energy and the ability to think beyond the needs of the day are often limited. So it’s tough to think about the future – especially when it concerns death. But it’s worth your thinking time. While the risk of you and a spouse passing away at an early age is low, the risk isn’t zero. All new parents should be addressing issues such as life insurance and their will when they have a child. But it’s even more critical if your child is unlikely to be able to care for themselves as an adult. And by starting your planning at an early stage, you may be able to maximize the benefits of certain planning tools, like the Registered Disability Savings Plan (RDSP).
- Get advice – and understand the tools available to you: There is no “one size fits all” when it comes to estate planning for someone with special needs. There are government benefits that an individual may be eligible for, like the Ontario Disability Support Program, savings arrangements available, like the RDSP, and trust arrangements to consider, like a “Henson Trust” https://hullandhull.com/2015/12/henson-trust-advantages-and-disadvantages/ that can provide ongoing income to a beneficiary without jeopardizing eligibility for government benefits. A lawyer or financial professional with expertise in this area can be an invaluable resource.
- Put a plan in place: Act on the good advice you get and put your plan in place. That means moving the drafting and execution of your will up your priority list, because it’s a process that few enjoy and often falls into the “I’ll get to it eventually” category. There’s a lot at stake, so do it sooner rather than later.
- Revisit your plan regularly: Your situation may change, your child’s needs may change, and laws may change. Sit down with a professional every few years to review your plan and determine if a change could be beneficial.
This advisory has a good overview of the main planning tools that may be available to you:
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They love football, we love hockey. Their zee is our zed – and their Trump is our Trudeau. While we share a common border with the U.S., there are many differences between our two nations – and the reasons for setting up a trust can differ significantly by country as well.
The U.S. has a high estate tax for wealthy individuals – up to 40% on assets, with the first $5.5 million or so exempt. Not surprisingly, trusts are used aggressively in many situations to reduce estate values and minimize this estate tax as much as possible.
In Canada, there is no estate tax per se – although there is an estate administration tax (probate fee) in some provinces and there are often taxes payable on capital gains. But with no capital gains taxes on principal residences, the need for trusts as part of U.S.-style estate planning simply isn’t there.
This doesn’t mean that trusts aren’t a valuable planning tool in Canada. They can still be used to shift income from higher-taxed family members to those in lower tax brackets, or to provide dedicated funding for dependants, such as a disabled spouse or child, or as means of creditor protection amongst many other reasons. But there’s a kinder, gentler push behind trust planning in Canada, owing to the less punitive (in most cases) taxation of estates here.
This Globe and Mail article provides a good overview of the many potential uses of trusts in Canada today, and why a more aggressive approach isn’t needed here: https://www.theglobeandmail.com/globe-investor/personal-finance/a-tax-tool-thats-not-just-for-trust-fund-babies/article22996097/
The complexities of cross-border beneficiaries
Trust issues can be clean and tidy in Canada and the U.S. when everything about a trust stays fully north or south of the border. But what happens when trust worlds collide?
In short, it can get complicated, and specialized planning is often needed to avoid additional taxation. While avoiding a cross-border trust arrangement is one way around these issues, avoidance isn’t always possible, such as when a Canadian trust is settled with a Canadian beneficiary, but that individual moves permanently to the U.S. and becomes subject to U.S. tax laws.
This Collins Barrow advisory offers a more detailed discussion of some of the cross-border issues relating to Canadian/U.S. trusts: http://www.collinsbarrow.com/en/cbn/publications/u.s.-citizens-and-canadian-trusts.
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Estate planning can be tricky enough without some of the other issues often associated with aging – the need for care, moving homes, declining mental capacity, or the death of a spouse. Elder mediation – a specialized form of mediation that goes beyond mediation training and experience to include issues specifically related to the elderly – now has a presence in Canada after gaining a strong foothold in the United States.
The elder mediation specialty recognizes that conflicts often come to the surface as parents age and key decisions – such as those relating to ongoing health care, estate planning, and the upkeep and use of assets like cottages and vacation homes – need to be made.
How would you and your family cope when an elder member of your family enters a transition stage? Two U.S. elder mediators have identified four categories of families in how they handle a major elder transition:
- Graceful transitions – the family successfully manages old age and its transitions through targeted planning and effective communication, along with good legal and financial advice. Even as elders experience their inevitable physical decline, family members manage this process with dignity and respect.
- Successful struggles – the family has one or two major issues to work through but manages to come to a positive outcome with the support of friends, family and advisors.
- Quietly bruised – the family may be unable to move forward with important decisions and are living with situations that leave an aging parent in peril and increase emotional, financial and safety risks. There is often a sense of discomfort with choices made, and there may be disagreements festering under the surface about care giving, housing or inheritance decisions.
- Litigious – things have gone from bad to worse, and there is either the threat of litigation or actual litigation required to get decisions made. Wounds abound, and relationships are often destroyed forever between some family members.
You can find the full article here: http://www.mediationinstitute.net/training/wp-content/uploads/2011/12/MediationinEstatePlanningandElderCare.pdf
Elder mediation isn’t required in most family situations, but if either of the last two categories of family seem familiar, it’s a process well worth considering. Family Mediation Canada has more information on elder mediation in this country: http://www.fmc.ca/elder-mediation
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You’re the newly appointed executor of a deceased person’s estate. There’s a lot on your plate – securing assets, finding beneficiaries, arranging a memorial service and much else. While your attention quite rightly is on looking after the needs of living family members, the needs of another person should also be top of mind: the deceased.
Unfortunately, death is no barrier to unscrupulous people who steal the personal information of a deceased individual or adopt their identity for personal gain. In the U.S., an estimated 800,000 fraudulent accounts are created by identity theft of a deceased individual each year. And Canadians are not immune – it happens here too.
By assuming the identity of a deceased individual, a thief can transfer assets, open accounts, receive tax refunds, purchase goods and more. While there are many sophisticated methods of obtaining identity information, a lot of identity theft is of the “low tech” variety, using techniques as simple as gleaning information from obituaries and opening mail in the deceased individual’s mailbox.
As an executor, there are some simple steps that can help protect against post-mortem identity theft. Here are some examples:
- Forward mail: One of the first things you should do as a newly appointed executor is ask the post office to forward the deceased person’s mail to your address. This ensures you have control of all information addressed to the individual.
- Avoid too much personal information in the obituary: There are many details in obituaries that can be used to forge an identity. These include addresses, maiden names, ancestries, occupations, and birth and death dates. You want to provide a heartfelt tribute for sure, but less is more when it comes to revealing personal information specifics.
- Notify credit bureaus: This ensures that inquiries will be flagged if someone is seeking credit information, and can prevent fraudulent transactions from taking place. You can view sample letters to credit bureaus here: http://www.smithsfh.com/Credit_Bureau_Canada_Notification_2012.pdf
- Be alert to theft by family members. It’s not just strangers who commit post-mortem identity theft. In many cases, it’s a family member who commits the crime. It could be a relative in financial difficulty, or one who feels they were wronged in the will or estate plan. So, to the extent possible, keep the circle of those privy to the personal information of the deceased as small as possible.
And for those who are currently planning their estates, they can help protect their identity after death by ensuring that their loved ones know about memberships that might otherwise be overlooked, from fitness clubs, to Costco, to loyalty programs. This allows the executor to notify these institutions immediately to close their files.
This American news article provides some additional tips, most of which apply equally in Canada:
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In December 2016, Ontario repealed the old Escheats Act, replacing it with two separate pieces of legislation, the Escheats Act, 2015 (the “EA”), which pertains to property of individuals who die without heirs, and the Forfeited Corporate Property Act, 2015 (the “FCPA”), which deals with the undisposed-of property of dissolved corporations. In so doing, the legislators appear to have increased the record-keeping burden on Ontario corporations and further expanded the Crown’s power to seize forfeited property via escheat.
Several related amendments to separate acts were introduced along with the FCPA. Specifically, a new section (140(1)(e)) incorporated into the Ontario Business Corporations Act (the “OCBA”) requires corporations to maintain a current register of their interests in land, as well as copies of deeds, transfers and other related documents. In his paper, “Ontario Corporations Beware: Changes to the Law Regarding Record Keeping and Forfeiture of Corporate Property,” Jeffrey Alpert points out that corporations with extensive real estate holdings stand to absorb a substantial administrative burden. As this section stipulates that the register of ownership interests in land must be located at the corporation’s registered office, it would also inconveniently obligate any corporations who outsource their “registered office” to their lawyer or accountant to constantly communicate the relevant, up-to-date information to those individuals.
The legislative changes further boost the Crown’s right to control escheated property. Firstly, upon seizing such property, the Crown can unilaterally terminate any encumbrances. The Crown is required to notify the sheriff and execution creditors of its intention to cancel. Whether such notice will serve as a practical deterrent, however, is unclear. Furthermore, the Crown now boasts near absolute power to seize and put to use forfeited corporate property. While not explicitly stated as such, the legislation essentially allows the Crown, post dissolution, to negate the claims of relief seeking parties and any secured creditors with interests in the forfeited corporate property. If the Crown gives notice for such action as required, those with interests in the pertinent property would have to act immediately to maintain those interests. Lawyers with clients in this position should therefore be clear and prompt in communicating the consequences of the Crown’s actions.
Although we don’t often come across these kinds of situations in our practice, when we do, it’s important to be aware of these recent changes. For an excellent article summarizing the changes, I refer you to this blogpost: Ontario dusts off the escheats rulebook – time to dust off your advice?
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