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Slip into something more comfortable and delve into personal finance with Josh Sheluk and Colin White, experienced portfolio managers at Verecan Capital Management. Each episode demystifies complex financial topics, stripping them to their bare essentials. From investment strategies and financial planning to economic headlines and philanthropic giving, delivered with a blend of insight, transparency, and a touch of humour. Perfect for anyone looking to understand and navigate their financial future with confidence. Subscribe now to stay informed, empowered, and entertained.
Verecan Capital Management Inc. is registered as a Portfolio Manager in all provinces in Canada except Manitoba.
Welcome to Barenaked Money, the podcast where we strip down the complex world of finance to its bare essentials with your hosts, Colin White and Matthew Kempton, portfolio managers with Verecan Capital Management Inc, and special guest, Jonathan Hooper, estate lawyer and partner with Tupman and Bloom.
Colin White:Welcome to the next episode of Barenaked Money. We're about to get bare naked with a stranger, which is always a little bit more fun and interesting. Very happy to, welcome mister Jonathan Hooper to our midst. He's a real lawyer and everything. And, Jonathan, maybe I'll pass it over to you, and you can, let our listeners and viewers know who who you are and who you're with, and and then we can get into what we're talking about today.
Colin White:How's that?
Jonathan Hooper:Sounds good, Colin. I am an estate lawyer here in Halifax. I work with Tupman and Bloom. We're a national state services law firm, and I do everything from estate planning, probate and and administration work, and estate litigation when it all goes wrong.
Colin White:Oh, all goes wrong there. Well done to make it exciting right at the end. That'll keep everybody riveted to the to the whole podcast. And I should also point out, the the esteemed Matt Kempton is also with us today, to to help make sure we flush out all of the stories we're about to get into. So we're gonna be talking about mistakes that we've seen in the estate planning world, and we brought an expert who litigates mistakes in the estate planning world, which is very useful.
Colin White:But I wanted to start off with maybe a more detailed disclaimer at the start, because this is for entertainment and information only. There's nothing that you're gonna hear today that you should, take as any kind of advice or act on without approaching the appropriate professionals because the devil is in the detail and there are lots of devils. And in the Canadian marketplace where you have different rules potentially by province and all kinds of nuances and important details that need to be considered before you take action. Doing so without professional advice would be a little foolhardy. Then please don't use this podcast as a reason to do something other than have a conversation with one of your advisors.
Colin White:Did I do that well enough, Matt and Jonathan?
Jonathan Hooper:Sounds good.
Matt Kempton:Alright. A disclaimer at the start of the podcast. This is a serious one.
Colin White:Well, I got really, really concerned. We're putting information out in the world that it does no harm. And, so I figured by spending a bit more time trying to make sure it does no harm, then we've we've kind of done our duty. Jonathan, as as with most of these podcasts, we do them a little bit, off the cuff just to keep it nice and fresh and conversational. It's not really programmed.
Colin White:I know Matt and I both have a large list of things we've seen gone wrong. But maybe you could set the stage with picking one of your favorite mistakes that you see happening in estate planning and the potential ramifications and a better way to look at it maybe?
Jonathan Hooper:Well one of the things that happens quite frequently is people just put something in place and then leave it there. And as their life changes and as their assets change they don't adjust it or they don't look back, and so there can be some unintended consequences. A lot of this comes from things like joint ownership. So one of the the gateways to problems is when someone is acting as a power of attorney for somebody else, and they take that document and they head off to the bank, and the bank says, okay, well now you have you have the right to access their their funds and to pay bills for them and act on their behalf, why don't we just add you as a joint owner on that account? Because it's easy and it will just make everything simpler for you.
Jonathan Hooper:And the reason why that's a gateway problem is as soon as someone's a named owner on that account, there are certain assumptions that enter their mind, and there are certain, access levels that they have over somebody else's money. Now, when you act as a power of attorney, you do have certain duties in place and obligations that are enforceable by the law and courts. But, most people who start there don't understand what they are, and so you can get mixed messages from a bank, about who has access and who has a right to that money. And the reason why this hits an estate planning curve is, well, when you plan to give money to somebody else and then enter a new owner or someone else who has access to that money, they can then divert or change the state of that money. So it could be in an just a plain old bank account or an investment account, and suddenly someone has the power to say, I'm gonna move it to a different institution.
Jonathan Hooper:I'm gonna put it into a a higher risk investment rather than a conservative investment that this person wanted. And there's a whole host of things that someone can do when they're a joint owner of, say, a bank account that the person who set up their estate plan may not have understood or may not have foreseen that they would do.
Colin White:How did you describe that again? That gateway problem?
Jonathan Hooper:It's a gateway problem. Because
Matt Kempton:as soon as you
Colin White:That's that that's that's gonna stick. That's gonna stick. There's a problem. No. It's a gateway problem.
Jonathan Hooper:It it is a gateway problem. It it's because it's the entry. Right? It's the entry point. So one of the biggest problems that I see or one of the biggest things that leads to disputes is after somebody dies, when there's a joint account owner with a deceased person who's not a spouse now spouses are are completely different, but, say, if somebody dies and their adult child or their neighbor or someone who's acting as a power of attorney who's not a spouse is a joint holder on that account, the bank usually says, hey look, this account was set up as joint with right of survivorship, which means the account is now your survivor.
Jonathan Hooper:And when somebody hears that they jump immediately to the conclusion of, well all of the money in that account therefore must be mine, even though the law says something different. So the law in this instance has been really clear since 2008 in Canada. It says if you're not a spouse and you're a joint account holder you have an legal obligation to hold that money in trust for the benefit of the deceased person's estate, it's not yours. But when you get the message at the bank, hey it's joint with right of survivorship, you're the last name person on the account so you're the you're the new owner of this account or you're the sole owner of this account, certain assumptions start to creep into their mind, and they start to say, well, it obviously must be mine. And that leads to a whole host of litigation and fighting over whose money is that.
Jonathan Hooper:Now you can gift money in that way, but you have to be really clear about it. It can't just be a sort of haphazard, well, because my name's the last, you know, surviving name on that account, it's obviously mine because the bank told me so.
Colin White:Let let me see if I can maybe give our listeners and viewers a a a first takeaway, if you will. You know, because you you began this by stating that one of the mistakes is that these things are done and then forgotten about and things change. And, you know, there's the there's 2 aspects. You can, you know, try to hold people accountable and say you should pay attention to your state plan all the time and keep it up to date. But it's like eating right or exercising.
Colin White:You know, people are going to naturally drift in and out of doing it well. So being a bit more of a realist perhaps or a practical person, I've always encouraged people to keep it as absolutely simple as they can and not put any complication in there unless it's excruciatingly important. Envisioning the future where the complications make things more fragile and it's more often to cause a problem. Is that a reasonable take that you would support or is that something we should just tell people to eat their vegetables and leave our advice there?
Jonathan Hooper:Well, you do need to eat your vegetables, and you do need to keep your estate plan update. But as an estate lawyer, I understand signing and will or dealing with your estate plan is never the first document that you wanna do. No one ever skips to the office and says, guess what I'm doing today? I can't wait to sign my will. I can't wait to get an update to my estate plan or, you know, to reorganize my my assets.
Jonathan Hooper:So I understand this is not something that people are really anxious and excited to do. But it's really, really important because if you can think long term and think of this is the best and last gift that you can give your family by giving them as much certainty as you can after you pass away and leave things as clearly as you can, it's a real help. And I think that can help direct people's mind instead of sort of facing their own mortality and saying, I don't I don't like this or this is a difficult document or I I don't like thinking about this. If you think about it as a in a real positive light as this is a gift I can give my family. This is a gift I can give my spouse and my kids to make sure that things are taken care of.
Jonathan Hooper:That might help shift an attitude here. But to your point about, do you wanna keep things clear and certain? Yes. Now there are the general rule that I always tell clients is you've gotta understand what you're signing. You have to understand what it is that you're setting up in terms of an estate plan.
Jonathan Hooper:Because if you don't understand it, then chances are someone like your executive may not understand it unless they're a professional or unless they have, experience as an executor. I find that there's a tension here, though. There's a tension between I want it really simple, and I don't wanna pay any unnecessary taxes. And that always comes up in in a in the discussion with clients and in the state planning context is I want minimal taxes and I want it real simple. And they end up unfortunately being at 2 opposing sides of the spectrum.
Jonathan Hooper:And where you usually end up meeting is somewhere in the middle, which is if you want it nice and simple, we can make it simple, but that might not mean that you're, mitigating your taxes or paying the fewest amount of taxes possible.
Colin White:Yeah. Just But to Just sorry. Just to jump in with another key takeaway because you're jumping to another topic. This could be another great takeaway. You know, to to frame this as, you know, it's important to have your state plan together so that it looks after your wishes in your estate is how many people look at it.
Colin White:But the other side of it is looking that I don't want to leave a mess behind that's going to cause a bunch of people a bunch of time and lawyers to go to court to sort my estate out. So sometimes it's not about that you have a really strong goal to accomplish with your estate as far as where you want the money to go perhaps. But it's, you know, I think most people who love their family at all just should not want to leave a mess. So sometimes if it's just a very, very basic estate, getting it properly organized because costs and and time and money of leaving something that's disorganized is a very serious burden. So you go from potentially leaving an asset behind to leaving a huge headache behind.
Colin White:And so there's 2 ways to motivate somebody towards this.
Jonathan Hooper:Yeah. I think one of the best ways of of highlighting that is to say, well, what happens if you die without a will? Right? What what happens if you die without having any plan in place for who gets what? Well, the short answer is then you don't decide who gets what.
Jonathan Hooper:You may assume that, well, it goes to my spouse or goes to, you know, whoever you might assume it goes to, but there's a law in whatever province you're living in that says this is who gets it, this is the portion that they get, and this is who has the has the privilege of applying to the court for authority to deal with this. And more often than not, that person needs to obtain a bond that's usually worth 1a quarter, 1a half times the value of your assets in order just to apply for the right to administer your estate. Just to make the decisions, to get control of the bank account, to follow your final tax return, to to just do the bread and butter basics of administering your estate. And then they have no discretion in terms of who gets what's left over. There's a law in every province that says this is who gets it.
Jonathan Hooper:And so it isn't, okay to just leave things without a will. Even even the most or even someone who has, you know, very few means or very few assets, you don't need to have a complicated estate to need it. And the example I always give is someone's gonna need to file your tax return, someone's gonna need to close out your bank account, Someone's gonna collect your CPP death benefit. There are just little things like that that require someone who's legally authorized to do it. And all it takes is you appointing of an executor under a validly executed will in order to make that happen.
Colin White:Excellent points all the way across, but I stopped you as you started digging into different motivations and the avoiding taxes or up the idea that you're avoiding taxes or avoiding probate are very powerful motivators. And I will point out that, you know, it is something that people react very strongly to. And anything that people react very strongly to becomes a marketing tool. Because if people are very afraid of taxes in Canada, they afraid is the wrong word. They hate taxes.
Colin White:So if somebody stands up and says, hey, I can save you tax or I can save you probate fees, there's a big, big audience for that. There's a big market for that. And the lengths that people are willing to go to are perhaps, I would pause it a little bit beyond where they should be, for the actual benefits and in doing the math on the potential savings. So maybe you would care to comment on the idea of avoiding probate or avoiding tax. And I use the word avoiding there in in a in an argumentative way.
Colin White:Avoiding Not
Jonathan Hooper:in a legally binding way.
Colin White:Yeah. Not in legal non legal binding, but
Jonathan Hooper:CRA is not gonna come after you for that.
Matt Kempton:Yeah. Exactly. We made the disclaimer. Don't worry. Yeah.
Colin White:So how how do you approach those topics when you're talking with people and they're planning?
Jonathan Hooper:So this is really a math issue. A lot of people say I wanna avoid tax or I want to pay the least amount of tax possible. And when we're talking about taxes, typically in the estate world, we're talking about 2 different kinds. We're talking about either probate tax or a probate fee involved with needing to probate your will. We'll talk about that a little bit more in a second.
Jonathan Hooper:And the other one is capital gains tax, which is a tax that, if you own real estate that's not your principal residence or if you own, shares in a private company or investments, you will need to pay capital gains tax on your death on those assets. And so there are a lot of different ways in the estate planning world that you can minimize payment of capital gains tax. Now the question really becomes a math one, which is how much money are you going to spend in professional fees, hiring accountants and lawyers, and setting up different strategies and different entities to minimize the tax you're paying versus how much tax are you actually saving. So that is the math question that you need to to pose yourself with every client. And so you may say, I wanna pay less tax, but if you are not careful, you could end up paying almost as much in professional fees and ongoing filing fees in order to not pay tax.
Jonathan Hooper:So you end up not saving your estate any money. You're just paying it to a different person or people.
Matt Kempton:Well, and timing matters too. If you if you pass before July or June 15, 2024, you've also saved your estate a fair amount in capital gains. If you happen to a little bit after, well, your state is paid quite a bit more in capital gains potentially.
Jonathan Hooper:Well, I mean, this is just it, which is you don't know what's gonna happen between when you set up your estate plan and when you pass away. The law could change. The tax rates could change. There's so many different variables that you you can plan for but aren't within your control. And so it's really important when I talk to clients to say, let's focus on what you can control.
Jonathan Hooper:Let's focus on the things that you are able to manage. And so, no, we can't we can't predict where the capital gains tax or inclusion rate will go between now and, say, 5 years or 10 years from now, but we can plan for who who's your executor and who's your backup. How is your business or how are your investments owned? Are they owned by you or a company or a trust? And let's plan for where that's gonna go in the next 5 or 10 years because you are you are able to set up, contingencies in an estate plan to a degree.
Jonathan Hooper:And so it's always wise to set those up and make sure that you have that plan in place in order in in order to enable your assets and what you have to go to who you want. And the more complicated that structure is I mean, there is a case to be made where if you do have significant assets where you own them in different ways, it makes sense for you to have a a more complicated state structure. So you instead of just having an income and maybe some RRSPs and other savings, some people do earn money and own it through a incorporated company. Maybe that company is owned by a family trust, and so you have a couple of different layers there, and that makes sense for ownership and for, for taxes potentially. But the more complicated you get, the more likely things are to go wrong, or things can be misunderstood, or you can lose sight of what needs to happen in order to keep that structure going.
Jonathan Hooper:And so it's really important that if you do have more complicated estate plan and things do change in your life or change in your business or you have a plan to leave people money, that that stays that way. Because if life changes and your estate plan doesn't, it may not all pan out the way you intended when you first set it
Colin White:up. Well, I think you said it pretty well, as my wife said to me at a fairly high, volume not that many years ago, math counts. And, you know, there's there's a lot of wisdom to unpack in that. But sometimes it's working with clients who, you know, have a goal in their mind that they just haven't completely thought all the way through. I had a conversation with one client who was desperate that this particular property they owned go to one of their kids because there's no way that anybody would be able to afford to buy a property today.
Colin White:You know? So our kids are never gonna be able to afford to buy a property. And I said, well, if that property gets sold, they'd have the amount of money from the inflated price of the property sale that they could then maybe buy a house in their own hometown rather than something that's a 100 kilometers away. And they just never thought of that. They thought the whole agency effect.
Colin White:I have a house, my child would need a house, therefore I'm going to give this house to them. That's the most effective way to do it. But it's not the most effective way. And I know for a fact in that particular case, the kid had no interest in that piece of property. So sometimes people have these goals that they're trying to accomplish, but they haven't really thought through how to accomplish that goal.
Colin White:We get involved. We're not lawyers, we don't do wills. But when clients are setting goals, we try to unpack all of the assumptions that they're building in Because some clients have built a little mini empire or some description that they think is perfect and they want to leave intact and they oftentimes don't talk to the next generation about this mini empire and assume everybody obviously would want to keep it and go to some lengths to make that happen when, in fact, they haven't spoken to the next generation about that. And the next generation is surprised, a little bit dismayed, at the outcome when that kind of thing happens. Do you ever, in your practice, get into a situation where you're talking with multiple generations in the in the process of doing this, or would you normally just focus with the person who is, you know, setting the plan more so than the beneficiaries?
Jonathan Hooper:I do get involved in multiple generations. In fact, I always advise people, particularly older people, to involve the people who they are who the who their beneficiaries are, particularly if it's family. And I say, look, don't give anyone surprises if you don't need to. Particularly after you pass away, if it's your kids left over, a lot of people say, look, my kids are fine. They'll figure it out.
Jonathan Hooper:And I say, well, listen. Think about it this way. If your kids, are grieving, and it was sudden and not expected, they're gonna be dealing with grief, they're gonna be dealing with upset, their lives are gonna be on hold because they're dealing with this, and they're not gonna be at their best to make the best decisions. And it's not through no fault of their own, it's just through the fact of circumstance of grief and the situation they're in that they may not be as thinking as clearly as they ordinarily would be. And so I always suggest and have had meetings with multi generations in the room and said, listen, here is the estate plan.
Jonathan Hooper:After mom and dad die, this is how it's going to pan out. This is how it's gonna go, this is who gets what, this is how it goes. Right? And this is who's gonna make it happen. And I find that those are actually some of the more relieving meetings that, that you can have.
Jonathan Hooper:Because instead of there's usually tension coming in at the beginning because there's uncertainty. But then a lot of people know, okay, instead of sort of bracing for it and saying, well, what's gonna happen? Or having an assumption of what's gonna happen. There's actual knowledge of this is what's in place and this is how things are gonna go, and this is who's gonna do it. And so it does take out a lot of the sting if there's, if there's a situation where there's a surprise.
Jonathan Hooper:So it really does make a difference to involve everyone and to let everyone know who's gonna be involved, what the circumstance is gonna be, and who's gonna get what. The the fewer surprises, the better. Because a lot of litigation ensues, not necessarily from what people would see as being unfair, but they would say, hey. Look. Why did mom or dad choose this person to be the executor and not me?
Jonathan Hooper:Right? What didn't they trust me? Didn't they, you know, didn't they want think I was more responsible than they were because I thought I was more responsible? And then it becomes about the relationship dynamic between the the surviving family members and not about making sure that what mom and dad had gets to you.
Colin White:Well, I mean, this is appointing somebody who's kind of seen as an honor. Like, I, you know, I give you the honor of being my executor. And, you know, it's not that much of an honor. It's a bit of a curse. In fact, I've only met 1 person my whole life who was willing to be an executor a second time.
Colin White:But many parents will say I need to name all of my kids as executor. I don't want anybody to feel left out. And, you know, that's that's just not the case. You know, it's it's it's no nowhere near the honor some people think it is.
Jonathan Hooper:Well, an executor is a job. It's it's a job, and you have to look at it that way. And when you're appointing someone, you have to look and go, is this person capable of doing the job of an executor? And that's the conversation that I frequently have with clients. We talk about what that job entails.
Jonathan Hooper:I have a I have an introductory letter for every executor that's about 8 pages long that says, congratulations. Now that you're an executor, here's your job description and what you have to do. And a lot of people are surprised at the amount of work involved and what needs to happen. And quite often, it's not only a thankless job. It's a job that you're gonna get pushback from from either siblings or other beneficiaries, whether it's you're not doing it fast enough, I wanna get my money now, you know, you're not keeping me in the loop, whether it's
Matt Kempton:And you're not taking a fee for this, are you?
Colin White:You should
Matt Kempton:be working for free.
Jonathan Hooper:You should be doing this for free. Exactly. Well, the I mean, the the thing is every province sets their the compensation that you can get. But typically, you don't get compensated until the very end of the job anyways. And so a lot of people say, look.
Jonathan Hooper:Don't worry. I'll do it for free. But at the end of the year, 18 months, 2 years, if it goes all smoothly, a lot of people are like, yep. I'm actually gonna I'm actually gonna see if I can get some compensation because it's worth my while. Now compensation is a taxable benefit, and that's a different conversation that we have, which means it's treated like income.
Jonathan Hooper:It's not treated like a gift. So, it does have its own set of complications, but compensation is a real thing because it's a job, and it needs to be treated with the seriousness of any other job.
Colin White:Oh, I always point out to people, you know you can be sued if you fuck this up. Right? You know, that normally gives people attention. I mean, an 8 page letter, yes, would give somebody pause. But if you point out to them and say, if you don't do this right, people are allowed to sue you is where I tend to get people's attention with the seriousness of the job they're just about to take on.
Colin White:I just want to circle back to one of the comments you made about when you can, you want to be fully, you want to fully disclose. Because one of the things we deal with in our world is the pass on of wealth from 1 generation to the next. And there's a lot of studies that are out there about the negative impacts of sudden wealth and a generation waiting to receive money or
Matt Kempton:becoming unsustainable on their own based on expecting an inheritance of a
Colin White:expecting an inheritance of a certain level. And when those expectations get frustrated because life doesn't go in a straight line, the animosity that it can cause. So one of the situations that, you know, we counsel people with and talk to them is about that, how ready is the next generation? How capable is the next generation? And wanting to make sure we guide people to informing them as to the decision they're making.
Colin White:Yes, because having a conversation is great, But if that next generation hasn't fully launched or is having, you know, issues, sometimes that can be a reason to kind of be a little more opaque about, you know, what kind of an estate may be left behind, because it can have very negative impacts on somebody's current existence. You know, if people begin to plan for, oh, I don't need to worry about my financial stability. I don't need to worry about my retirement because I'm gonna get all this money from mom and dad. Now that can be a very, very dangerous way to choose to live your life. And, you know, life doesn't go in a straight line and maybe that estate that you thought was really big is not as big as you thought it was when you finally get your hands on it because, you know, mom made it into her nineties.
Colin White:So, you know, that's one of the things we caution people about and then how they have conversations and making sure everybody's ready to have the conversation to try to mitigate the the chances that, again, the sudden wealth and having a negative outcome is is mitigated or avoided where possible. Have you run across any situations where where there is, that kind of frustration in in settling a family estate that that spring to mind? Anybody hire lawyers go to court to argue about their expectations being frustrated?
Jonathan Hooper:Happens all the time. There's there's actually a law in Nova Scotia that's, that's designed to say that if you're a dependent, and that's a very generously interpreted, term. It basically means are you a spouse or a child of someone that has died, then you are able to apply to the court for relief if you don't believe that you've been sufficiently provided for by the deceased person. So what that means in plain language is if you don't get a certain amount from the deceased person's estate, you can sue that person's estate for more. And that is an I n for a lot of people who, you know, think that they're owed more, or who have a higher expectation to try to use as a bargaining chip.
Jonathan Hooper:Now, there's there's that, but there's also a general expectation when they think that mom and dad have a house that's paid off or that they have you know, are com living comfortably that they're also gonna inherit that kind of lifestyle from their parents. And unless there's there's a conversation or unless there's a plan in place, that may not happen. For example, I had, I was involved in a state situation where there were there were 2 beneficiaries, 2 children, and the the surviving parent died with sizable, estate on paper. However, it turned out that they hadn't been filing their taxes for about 15 years, and they owned several different pieces of real estate that had some capital gains taxes to pay. And so that very sizable estate turned into a not very sizable estate very quickly after taxes needed to be paid and filings needed to be made, and and it didn't happen quickly.
Jonathan Hooper:It took a number of years for everything to get sorted out and settled out and and for, you know, CRA to be complied with. And what on paper looked like a very sizable amount at the start ended up being a lot less than the beneficiaries were anticipating. And it did involve a number of different lawyers and, a lot of different court proceedings in order to get to that end, but, it didn't, in the end, help anyone because it's a math issue. Right? And particularly when it comes to taxes, they have got to be paid.
Jonathan Hooper:And you can disagree with that, but you're disagreeing with one of the more powerful government agencies that there is, and everybody pays taxes, and, and they get paid first, not you.
Colin White:Maybe you can circle back for a second because you brought up something that that is interesting, and, I don't think it's terribly well understood that, you know, as you say that the dependents, which is loosely defined, have the ability to challenge a will. Now when you have a situation where, you know, there's an estranged member of the family, whether it's a child or a spouse, how difficult or how possible is it for somebody to do an estate plan that can either dramatically minimize or reduce the entitlement of somebody that they're estranged from? Is that something that's a nonstarter? There's a basic amount that's gonna be required regardless of anything, or are there planning techniques that you can use to execute on that in the situation that, you know, somebody's estranged?
Jonathan Hooper:So there are techniques that you can use, particularly if you are over a certain age. So the the claim that you can make is against what's left in someone's estate. And then the state is a it's a defined term in in this area, which means what's left in that person's name when they pass away. So there are ways that you can change ownership or divert ownership to somebody somebody else to minimize or basically deplete what would be left in your estate. So an example of that would be to use some kind of a trust, like a family trust, or perhaps a joint partner or alter ego trust.
Jonathan Hooper:Those are some estate planning tools where you can change ownership from yourself to one of these trusts, and that type of claim can't be made against a trust. It can only be made against assets in your own hands. So that's and again this isn't something that happens all that that is a certainty. What you have to do is you have to plan for this. This isn't say, well, alright.
Jonathan Hooper:So I've got, you know, x child who I don't want to get anything, so I'm obviously just gonna do this, and I've got this, you know, one trust that's gonna solve all my problems. Well, that's not the case. You actually do have to talk to professionals in order to make sure that you're doing you're doing it properly. But the the main part here is it's not something that you should do as a knee jerk reaction. There are a lot of people who say, listen.
Jonathan Hooper:I, you know, I've given an example might be this. I've helped out this person in their life more than their sibling. Know, I helped them give a down payment for a house. I've helped, you know, do something else, and so I'm going to give them less. But I also want them to know that I'm giving them less in my will because I gave them more while they were alive.
Jonathan Hooper:Right? And so there are ways that you can actually address that in your will and in your estate plan to balance things out and to make sure that they know it. And the and I guess one of the benefits here is if you talk to them in advance, then again, there won't be any surprises. It won't be, hey. Why am I getting $250,000 less than my sibling?
Jonathan Hooper:Or why am I why are they getting a house and I'm not in your will? Or something like that.
Colin White:Do the courts legally accept that as reasoning, or are they still gonna apply a flat percentage and ignore, the history that may be laid out in a document like that?
Jonathan Hooper:Well, the legislation sets out grounds for relief and what can be done. And there's there's some fairly consistent case law in Nova Scotia that says if you're if you are found to be a dependent and you're not provided for or you are excluded from a will, about what percentage or what amount you would get. So it's not a it's not a free for all. I mean, there are there's different legislation across the country. Nova Scotia is on the more generous end.
Jonathan Hooper:BC has legislation that actually lets the courts basically open up a will and and make make wide sweeping changes. But there are things you can do here, and and there's even a defense in there too. So in Nova Scotia, it's not carte blanche. There are there's actual defenses that say if you have really good reasons for not wanting to give a dependent, whether it's a spouse or a child something, that is a valid defense if they bring a claim for relief under the legislation. And so I have a lot of good conversations with clients, and I say, Listen, if you do want to do this and you don't want to pay for it, what you need to do is write out your reasons, and you need to give them to me.
Jonathan Hooper:It can be in the lawyer's file, which is confidential. And so if at the end of the day, after you pass away, if there is some kind of a claim, we have in your file the reasons and the defense available if your estate needs it. So, again, that's a worst case scenario, but that's part of what I do. I deal with worst case scenarios, what could possibly go wrong here. And so being proactive there says, now we've got a defense in place.
Jonathan Hooper:So it's not a foregone conclusion that whoever brings this claim is gonna be successful. You can have you can have things in place to help your state defend against that type of a claim if needed.
Colin White:So when you when I brought up the idea about changing or challenging or or setting things up outside of these these, statutory rights of people to have an entitlement, You you jumped immediately to the trust world. So just to be clear, is there anything really short of establishing a trust and moving things out of your name that can be done? Or is that really the only refuse for somebody who's trying to do something that might be contrary to that legislation?
Jonathan Hooper:Well, there's changing in direct ownership, but that has a whole host of other consequences. And that's a whole other podcast in terms of how do I change ownership to somebody else and still make maintain some degree of control over it. Well, that's that's a lot more complicated than the answer is you can't. So trusts are an obvious one. Another way of giving things to the next generation without using a will is using different investments.
Jonathan Hooper:And this is where, you know, your area comes in, which is if there's things like an RRSP or a tax free savings account or even life insurance where you can designate a beneficiary to receive it, it goes directly to that beneficiary on the death of that person, and it doesn't go into their estate unless there's no beneficiary on the policy and the default is the estate. So that's another effective tool of giving money to the next generation that's quick, and that's direct, that doesn't involve going into your estate necessarily. So, when you do have planning, with someone and you say, well, I've got multiple kids, I want to make sure everyone gets, for example, an equal amount, and you want to add people as beneficiaries, that's where you have to do a little bit of making sure that everything works in concert. So you need to plan and make sure that who are the beneficiaries here? Should it be individual people?
Jonathan Hooper:You know, should one child get your RRSP? Should another child get your tax free savings account? Should another kid get your life insurance? And is it all gonna end up equal? The answer to that is usually no, and it's really hard to predict.
Jonathan Hooper:So that that's a question that you need to have with clients is if it's your spouse, usually the answer is a 100% yes because there's tax reasons for it. It's simple. You just you know, your spouse gets everything if you die, if if that's what you want. That makes it pretty clear. But it gets more complicated when you go, what if my spouse passed?
Colin White:Well, you and I had a conversation when beneficiary designations go wrong because I've seen that happen too frequently in my career. And there's a there's a a couple of basic ways. If you get if you have a RRSP beneficiary and the money goes to the the beneficiary, the state's still responsible for the tax. So the state doesn't have enough money to pay the tax and necessary goes back after the beneficiary, which could be a surprise if that happens 2 months, 2 years later. And, you know, when there's a contrary indication in the will over the beneficiary designation, and then that can cause expense and delay in accomplishing this as well.
Colin White:That was one of the reasons I tend to revert back in most cases to just put it in the estate as a beneficiary, letting the estate pay all of the taxes and pay everything off and then just have that one document. But you're right, that does take longer time. And in the situations where people are looking for that estate to move quicker, a beneficiary designation can speed up the process in a material way. But it really depends on the circumstances as to how important that that is. But I can't remember.
Colin White:I know you and I had a conversation about wills and and beneficiaries. Do you remember that conversation we had?
Jonathan Hooper:Yeah, I do. So I think the answer here is there's 2 ways, 2 primary ways you can designate beneficiaries. 1 is with the account or with the investment itself, and the other is in a will or in a testamentary document. So if you do it in both, you better make sure that they're the same. Because if they're different then you get into a competing priority, which is, well which one?
Jonathan Hooper:Which one governs? And the answer is the last one in priority. But there's also a complicating factor here too. So for example is if you put on your document, you set up tax free savings account, and you say, I want my spouse to be the beneficiary. Well, what happens if there's a relationship breakdown and then you want to give it to somebody else and you go to your lawyer, say, 2 years later, and you say, I want my child to have it.
Jonathan Hooper:And and that in your will, you say my child is the beneficiary of my tax free savings account. Well, when you die, there's 2 different documents with 2 different names on them. Now there is there is a way to resolve this, but it may not be the way that you would think about or that you would plan for. And one of the things to keep in mind, and this is where things can go wrong, is if you do set something in your will in terms of who you want a beneficiary to be, it's only effective for the documents that are or the the products that you have in place at the time the will is signed. So if you make subsequent changes like opening a new account, or changing an account, or, setting up a different account, or sometimes it can be as simple as renewing an account that then has a different number, right, or an RRSP turns into a RIF, right, which is a different animal.
Jonathan Hooper:Then if that's not changed in your will, then you're gonna have a disconnect, and then you could potentially have a fight over who's the ultimate beneficiary here because your will might say one thing, but if the that product or that investment didn't exist at the time your will was there, then your will isn't gonna change who the beneficiary is.
Colin White:Alright. So, John, what I wanna suggest we do is we're we're gonna cut it here because you did introduce another whole topic I wanted to spend some time on on joint ownership, because I've got some very humorous and some very ugly stories about how those things have gone wrong over the years. And, you alluded to it being a much bigger topic. So there's a few things that we haven't gotten into at this point. But, in the interest of keeping our listeners and viewers attention, maybe we could tease it and say, Hey, coming soon, there'll be a follow-up podcast talking about, the the strategies of using joint ownership, for for estate planning purposes and the myriad of ways that that can go sideways and the problems it can cause.
Colin White:Is that is that a fair characterization?
Jonathan Hooper:It is. I think joint ownership is presented as this is the simplest option for estate planning, and it's the one that by far causes the most fights. Indeed. And there's there's no question in my mind. I'm in court more often over issues of joint ownership and in state world than I am over anything else.
Colin White:Well, then I'm gonna have to tune in and listen to the next podcast as you were very empathic there. So, Jonathan, thank you so much for this. Can't wait for the next. It's been a it's been a pleasure, and I know where all of our listeners and viewers are gonna appreciate this information. That is information only, not to be construed as advice.
Colin White:Go back and relisten to the start of the podcast if you forgot the disclaimer. But hopefully, this gives you things to talk with your professionals about and helps you organize your thinking a little bit more. So thanks for tuning in to bare Naked Money. If you like it, then subscribe. And if you have any ideas for topics, reach out to us and let us know.
Colin White:We're always looking for fresh topics. So thanks very much. If you're breaking a sweat trying to figure out what your financial advisor is talking about, you're not getting the service you need. You probably hate trying to get an answer from them, but you also think moving your accounts will be a headache. And it might be.
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Kathryn Toope:For more information on the subject of today's podcast or any other financial topic, please visit us online at verecan.com. That's verecan.com. There's plenty of information there, or you can reach out to someone on the team. Thanks for listening. Please note, the information provided in this podcast is for general information purposes only.
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