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Talking to your parents about their estate plans

We all know that we will die someday, but that doesn't always make writing a will high on our to-do lists. Nor does it make talking to our parents about their estate plans any easier. But what's worse -- having a difficult conversation now or dealing with resentment, regret and even litigation because of a parent's poorly executed estate plan?

According to a recent Investors Group poll, only 27 percent of Canadians under age 45 have talked with their aging parents about their estate plans. Almost half (43 percent) haven't discussed funeral plans either.

This reticence is hardly surprising. "Canadians are somewhat reluctant to talk with their parents about finances," says Duane Snow, an estate planning consultant with Assante Estate & Insurance Services. "Most people would say, 'I'm going to get something from my parents and for me to say, if you structure your estate this way, I'll get $400,000 more, it looks like I'm being greedy.'"

Fear of seeming greedy isn't the only inhibition. "Sometimes adult children are hesitant to bring up the topic because they aren't sure if it will upset the parent," says Debbie Ammeter, vice-president of advanced financial planning at Investors Group in Winnipeg. "But discussing these issues can give your parents some peace of mind when they realize there are ways to set-out instructions and take care of things in advance."

Consequences of keeping quiet
There's more at stake than preserving family harmony. Sixty percent of Canadians believe they will inherit some money from their parents, and 41 percent believe it will form some part of their retirement savings. But sadly, too many families are hit with unpleasant surprises because a parent died without a comprehensive estate plan.

Here are just four examples of what can happen:

  • After the death of a parent, you discover he died intestate (without a will) or, equally damaging, with an outdated will. If your parent dies without a will, the estate gets divvied up according to provincial succession legislation, with no regard for the family's wishes or any tax-deferral strategies.

    Dying with an outdated will has its own share of problems. Perhaps the deceased referenced specific gifts, personal property or real estate that no longer exists. Or maybe she provided for beneficiaries that died while omitting ones that had been born. "In all likelihood, the distribution of the parent's estate is not going to reflect their intentions," says Melanie Yach, an estate lawyer at Blake, Cassels & Graydon, in Toronto.

  • Your parent's estate is hit with a big tax bill because of missed tax planning or deferral opportunities. Efficient tax plans can be complicated, but without such simple provisions as up-to-date beneficiaries on assets such as RRSPs or joint ownership designations on non-registered investment accounts, the taxman will pocket large portions of your legacy.

    "It's very disappointing when you're doing the [final] tax return and you see that some steps could have been taken to improve the tax situation," says Ammeter.

  • A substantial asset, such as a cottage, is willed to two surviving children who have conflicting opinions of what to do with it. Estate planning becomes particularly tricky with assets that can't be physically divided among beneficiaries. "Many clients I meet struggle with equality," says Snow. "Equality to them sometimes means sameness. It's not about that -- it's about being fair."

  • A parent who was recently hospitalized with a serious illness has no valid Power of Attorney (POA) in place. Without a valid POA, family members won't be able to manage the finances or make health care decisions for a parent who is mentally or physically incapacitated. Instead, they will have to defer to a publicly appointed guardian until they successfully petition the court to assume the role.

"As Canadians live longer, the chance of them becoming incapable before their death is greater," says Yach. "It's critically important that the POA be up to date so that someone is able to manage your property and/or make personal care decisions for you if you become incapacitated."

Talking the talk
These situations can easily be avoided by talking openly with your parents before disaster strikes. "It's better to have the conversation now rather than later," says Yach. She suggests three ways to broach the topic:

1. With respect
"You have to respect the fact that your parents are capable adults and that decisions about how their estate is to be distributed are theirs to make," she says. "You can't purport to make decisions for them. All you can do is alert them to the risks of not doing it." If you don't treat your parents with the respect they deserve, they can misconstrue your intentions.

2. With care
It's important to ensure your parents speak to the right professional, be it a lawyer, accountant or financial planner. Going to the local office supply store and buying a do-it-yourself kit might put a will in place, but badly worded intentions or missing provisions can result in heated family feuds and complicated legal battles over who gets the family silver or what to do with the family business.

Unless you're a financial planner, resist the urge to counsel your parents on their affairs. "You've got to have some kind of a skill set," says Snow. "Most people are going to approach their parents and say what? Do they really understand the probate process? What the executor does? The tax consequences of the parents' historical investment strategies? It's like me advising my neighbour on his plumbing."

3. With distance
Yach advises her clients and friends to help put their parents in touch with the appropriate professionals and then stay out of the process. Don't give instructions to the lawyer, don't accompany your parents to meetings and don't attend the execution of the will. "Respect your parents' privacy and maintain a measure of distance," she says.

There's always a risk of litigation when surviving siblings or beneficiaries don't feel they are being treated equally or fairly. "You don't want there to be any suggestion after your parents' death that you somehow influenced them unduly into benefiting you."

Fiona Wagner is a freelance writer in Georgetown, Ontario.

-- Posted: Dec. 19, 2005
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