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How to Improve the Client Fact-finding Process

By Kevin Wark

Insufficient time is often spent on the process of gathering essential client information. This can result in missed opportunities to provide the client with new ideas and product solutions, and in turn may result in planning that creates unintended and, in some cases, disastrous results. Advisors need to know how to ask questions in these five key areas to uncover hidden gems.

1. Family Relationships

Exploring a client’s current marital status — single, married, or common law, as well as the names and ages of children is a bit of a no-brainer. But it is equally important to review the client’s prior relationships and what legal obligations, if any, arose from those relationships. For example, a previous divorce or break-up of a common law relationship could result in ongoing support obligations that, by agreement or court order, must be supported by life insurance coverage. In many cases, however, this insurance has not been purchased, has been allowed to lapse, or is term when it should be permanent. There may also be children of a former relationship that are considered dependants for succession law purposes.

Explore the marital status of any adult children. Where there are concerns about a relationship breaking down, special planning may be required before gifts are made to those children, either while alive or upon death. This also creates the opportunity to obtain an introduction to those children to explore their wealth planning and life insurance needs. 

2. Ownership of Property

As part of developing a picture of your client’s situation, you will want to create an inventory of their current assets and liabilities. This may result in the repositioning of assets to better meet the client’s investment goals. Armed with more detailed information, the advisor can also prepare an analysis of current liquidity needs on death. If there is a funding shortfall, options such as life insurance can be highlighted.

Identifying the client’s assets will typically be straightforward. But this is not always the case. Some clients may indicate they own assets that are owned in a trust, by a corporation, or in joint tenancy with a spouse or adult child. They may also not mention, without some prodding, “contingent assets” such as beneficial interests in a trust or future inheritances. Having the big picture will position the advisor to properly analyze a client’s situation. 

3. Beneficiary Designations

The client may already hold investments in an RRSP, TFSA, or RRIF. The client should be asked to confirm if beneficiary designations are in place, as this will influence the tax treatment of the proceeds, probate requirements, and the ability to tax-shelter funds in these plans after death. You should not take the client’s word but ask for written confirmation from the financial institution holding those assets. This will also disclose whether there are contingent beneficiaries who will receive the benefits if the primary beneficiary predecease the owner/annuitant. 

Similar considerations apply to life insurance policies in terms of probate planning. However, there are additional questions that need to be asked, such as whether the person was always the owner of the policy, if anyone else is paying the premium, and what was the original purpose of the insurance. There have been several recent court cases that have overridden a beneficiary designation due to matrimonial claims or contractual/equitable principles. The answers to these questions will determine whether someone else may assert a claim to the insurance proceeds and the planning implications of such a claim.

4. Residency and Citizenship of the Client and other Family Members

With the increasing number of families immigrating to Canada, and the mobility of family members, you should not assume that your client and family are citizens and/or residents of Canada. For example, there are now more than one million U.S. citizens living in Canada. This potentially exposes them to taxation in both the U.S and Canada, which has important ramifications for both investment and insurance purposes. Children may have also moved to the U.S., Europe, or more exotic locations. Clients who wish to make gifts to them during their lifetime and upon death may require the input of legal counsel in the applicable foreign locations. 

5. Business Owners 

The special needs of business owners require additional and careful fact-finding. One important issue is the valuation of their business interests, and taxation of those interests on death. There may be buy-sell provisions that require the shares to be purchased on the death of a shareholder, at a price that is not necessarily reflective of fair market value. You also need to determine who will take over the business upon the owner’s death, and where the funds will come from to purchase that business interest. These important considerations are on every business owner’s mind. In many situations, life insurance is the most cost-effective way to ensure funds are available to support a business succession.

Kevin Wark, LLB, CLU, TEP, is the author of The Essential Canadian Guide to Estate Planning (2nd Ed.) and The Essential Canadian Guide to Income Splitting. Download a complete estate planning fact-finder at www.integratedestate.ca

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