Estate planning: the pandemic effect on family finances

Most adult Canadians should have a will and an estate plan. This isn’t new advice. The results from the recent Manulife State of Estate Planning Survey shows nearly half of Canadians (46%) report not having any of the following: financial advisor, written financial plan, or a formal estate plan. Only 13% report having all three. (Manulife Ipsos research).

Why the gap? Canadians are generally diligent in money matters. We focus on paying down debt and saving for retirement, and we’ve actually increased our savings during the pandemic. When it comes to estate planning, what’s holding us back?

Manulife Investment Management polled  2,000 Canadians to get a snapshot of estate planning in Canada: Here are some of the insights:

The pandemic has impacted estate planning in Canada

The survey found the pandemic has been a game changer for some, with as many as one in five (19%) saying the ongoing crisis has prompted them to have more conversations about wealth transfer and/or estate planning, or to review/update their wills and beneficiary designations.

Those who already have a will/estate plan are increasingly discussing it with both their financial advisor and beneficiaries (28%), perhaps because the uncertainty caused by the pandemic has necessitated such conversations.

Despite more Canadians thinking about wealth transfer and estate planning, the Manulife State of Estate Planning Survey found fewer reported having a written financial plan than did during pre-pandemic times and those who expect to inherit are less likely to say they have met with their financial advisor or discussed the situation with the person from whom they're expecting to inherit.

There are many reasons for not addressing financial and estate planning matters. During the pandemic some people may have been uncomfortable discussing sensitive matters with an advisor in virtual meetings over Zoom, for example.

Then, there's the "discomfort factor": Many of us just don't like talking about certain topics, including our finances. In fact, a recent national survey by FP Canada found that nearly one-in-four respondents said talking about money makes them uncomfortable, and nearly one-in-ten don't talk with anyone, including their spouse, about money. Those with assets under $40,000 are even more unlikely to bring up the subject.

In the short-term, not making an estate plan may ease our discomfort but in the longer-term, not having one creates more problems. That's because an estate plan allows us to make our wishes clear, potentially minimize the tax on our hard-earned savings and investments, as well as avoid confusion and unintended consequences for beneficiaries.

It's estimated that from 2016 until 2026, $1 trillion will be transferred from one generation to the next in Canada making it the largest transfer of wealth in our history. Estate planning is more important than ever to ensure our assets go where we want them to.

Aside from the context of a global pandemic, the survey found that, overwhelmingly, Canadians are failing to plan. In doing so, they may be failing their loved ones, as intended beneficiaries may pay the price of delays, additional fees, and increased confusion and stress with regards to inherited wealth.

"Most Canadians lack familiarity when it comes to most aspects of estate planning…".

– Source: Manulife State of Estate Planning Survey 2021

What's an estate plan, anyway?

Estate planning sounds like a lofty term but it's simply a formal way to answer the questions, "Who", "What", and "When" about your assets. For example, "What assets do we want to go to whom, and when do we want them to be given (during the lifetime, at death, or after death?)

The building blocks of an estate plan typically include writing a will or wills, assigning a power of attorney, and designating a beneficiary on a life insurance policy. Some situations may also require establishing a trust or having a business or partnership agreement in the case of someone owning a business.

Pandemic Wake-up Call: More Canadians are discussing their estate plan with both their financial advisor and beneficiaries compared to pre-pandemic times.

Source: Manulife/IPSOS Will& Estate Planning Survey 2021

Maximizing the value of your estate

Having an estate plan allows you to leave the most money possible to your loved ones, as well as to charitable causes. Most provinces charge a probate fee to process your will that's based on the total amount of your assets at the time of your death. A well-designed plan can minimize probate fees and taxes. It can also reduce potential legal costs and delays in the case of disputes.

What happens if you don't have an estate plan?

It's natural to assume that when you die, your assets will automatically be passed along to your loved ones. Unfortunately, without a will, that may not be the case. If you pass without a will the courts will appoint someone to manage and disperse the assets in your estate. This means you have no control over a) who manages your estate, and b) which beneficiaries receive your assets. On top of that, there will be long delays and additional legal costs in distributing assets to your beneficiaries due to the probate process.

Your beneficiaries will have to wait longer and potentially receive less. Since each province has its own rules around beneficiaries, in certain provinces, for example, common-law and same-sex spouses may have fewer rights to the estate than legally married spouses. Also, if supporting a charity is important to you, without a will, by law, no donations can be made from an estate to a charitable organization.

Here's what the experts say you should consider while making a will.

Segregated funds and estate planning

People may not always think about investment products playing a role in estate planning, but  some of the products can become the "unsung heroes" of a plan built to provide fast, cost efficient, and private wealth transfer. That’s because investments like segregated fund contracts bypass the estate.

The challenges of the pandemic have put issues like estate planning in the spotlight as many Canadians realize how circumstances can change when we least expect. Having an estate plan allows you to ensure your assets go to the intended beneficiaries in the most cost and tax effective way, and in the timeliest manner.  

Find out more:

Read the survey highlights