When to review your estate plan

It’s easy to think you can put off changes to an estate plan – the plan doesn’t even take effect during your lifetime. But it’s important to react in good time because many changes call for strategies best implemented sooner rather than later. Also, you make estate planning changes now for the same reason you made a will and purchased life insurance: to benefit your loved ones if you pass away prematurely.

Life changes calling for a review

Typically, you should review an estate plan whenever a new situation arises that potentially calls for an update. But if several years have passed without looking over your plan, it’s a good idea to conduct a review anyway.

Keep in mind that although a will is central to estate planning, much more is involved. Assets could be distributed outside of the will, through such means as life insurance and registered savings plans. Certain family situations may call for the establishment of a trust. Estate planning also includes powers of attorney for both financial matters and personal care. And you may require tax planning to help preserve the value of estate assets.

Here are key financial and life changes that are reason to review your estate plan.

Change in appointed individuals

In the process of estate planning, you name individuals as beneficiaries, attorney (for power of attorney), executor and possibly trustee. If your executor, alternate executor, trustee or alternate trustee passes away, moves out of province or is no longer capable or interested, you’ll need to name a replacement. You may also find that your estate has become more complex to administer, now requiring the services of a corporate executor.

If a beneficiary suffers a serious illness or disability, you may consider establishing a trust. You may also wish to add beneficiaries, such as grandchildren.

Marital or family status changes

You have quite a few changes to make in the event of separation or divorce, or a new marriage or common-law relationship. There’s the larger picture of revising the financial aspect of your estate plan and the details of changing beneficiary designations – from your will to a life insurance policy. If you’re newly married with a blended family, you may want to explore estate planning strategies to help provide for your new spouse and children from a previous marriage. You also need to update your will and estate plan upon the birth or adoption of a child, and may need to make changes when a child reaches the age of majority.

Developments in your financial life

There’s no need to update your will and estate plan every time there’s a routine change in your net worth. But you should review your plan if a major change affects distributions from your estate or calls for a new tax strategy. Such changes include receiving a significant inheritance, purchasing vacation or rental income property or any major business-related change – buying or selling a business, or deciding to hand over the business to your children.

If assets appreciate considerably, you may need to implement a tax strategy to manage capital gains tax payable by your estate. Also, consider digital assets. Assign your executor or another person the responsibility for online financial accounts and their passwords, any digital content on websites and social media, and related digital property.

If you’re in retirement and plan to leave a large balance in your registered retirement savings, without a spousal rollover opportunity, you may need to plan how the estate will cover the tax liability.

Changing distribution of assets

A variety of scenarios may arise when you want to change the way you allocate estate assets among beneficiaries. For example, say that vacation property was to be handed down to both children, but now one child moved out of province. Perhaps one child will inherit the property, and the other child will be made beneficiary of a permanent life insurance policy. Another example is if you decide to make a charity one of the beneficiaries of your will.

The timing of distributions can change. Instead of giving a beneficiary one lump sum, you might now have reason to make smaller distributions over time.

Help with your review

You’ll make many of these changes with us, and others with your lawyer, but please feel free to contact us to discuss any or all possible changes to your estate plan.

Unknowns – Known and Unknown

The world is full of surprises or unknowns, some of which we can anticipate, while others are harder to foresee. “Known unknowns” are uncertainties and issues of which we are aware, but do not know the outcome. An example is this year’s U.S. presidential election. “Unknown unknowns” are events that we do not expect or have never happened before, such as the COVID-19 pandemic.

The COVID-19 pandemic has brought a new set of known unknowns. We know the virus exists, but do not know when and how the economy will recover, how many people will be infected, when a vaccine will be available, and how safe and effective the vaccine will be. The significant support to economies and capital markets from central bank interventions and government spending have eased some of these concerns. Just as we have not yet won the war against the virus, the long-term effects of its economic consequences remain to be seen.

Quantitative easing in the time of COVID-19

Quantitative easing (the increase of money supply in the economy from central banks) is not a new tool. It was first designed to combat the global financial crisis in 2009. From 2009 to 2015, the U.S. Federal Reserve injected $3.5 trillion into the economy, which led to asset inflation. To avoid a dramatic economic shock, the Fed retracted these measures very slowly. Over the course of approximately four years, the money supply shrank by about $0.8 trillion.

The Fed is using this same tool to fight the economic consequences of the pandemic, but with unprecedented speed. In just three months, $3 trillion was added to the economy. In that same time, cash went from being king (when markets were volatile) to trash (as supply increased). While quantitative easing has inflated asset prices, it has consequences – in other words, new known unknowns.

It is not certain how long this situation will last. It is estimated that the Fed’s balance sheet will be extended to $10 trillion and, if the past is any guide, will take three decades to return to pre-pandemic levels. If that is the case, asset prices will remain elevated as cash is devalued (30 years is effectively permanent). Asset holders will benefit the most, while savers suffer. This could amplify another growing issue – the wealth gap, a problem central banks have ignored in the past. Can they continue to ignore it for the next decade or even three?

Forever indebted?

In addition to quantitative easing, another by product of this pandemic was government spending in the form of subsidies to individuals and businesses. These totalled approximately 15% of gross domestic product (GDP) in both Canada and U.S. The challenge is not the subsidies themselves, but that both governments were running deficits prior to this and the extra burden adds uncertainty to how the debts will be repaid. Raising taxes is an obvious solution but could further weaken the economy and is politically unpopular. The only other solution is higher debt and larger deficits for longer – so long that many will see it as permanent. Large debt balances are only affordable if interest rates are zero, and who is going to save at zero interest?

The “new” new normal

The term a “new normal” was created after the financial crisis to describe a world where money supply is above trend and interest rates are below normal. After this pandemic, we will enter a “new new normal” where money supply is likely to be even more above trend and rates are close to zero for a decade, or decades. The unknowns in economies and human behaviour will continue to evolve in the next several years. Over the long term, there are very good odds stock markets will broadly outperform bonds, as yields are so low. Over the short term, there will be a tug-of-war between those who believe we will return to the “new normal” established in 2009 and those who believe we are headed to the “new new normal”. Either way, there is sure to be volatility, opportunities and challenges.

Combine top 15 equity holdings as of June 30, 2020 of the Evolution 40i60e Standard portfolio with Alpha-style exposure: