Skip to Main Content

Clients Primed for Stress-Test Conversations

Carol Willes, Director, Estate Planning, BMO Private Wealth, highlights why now is the ideal time to stress test estate plans – and sheds new light on potential post-COVID-19 issues, including for your business-owner client niche.

August 2021

Photo of Carol Willes

Carol Willes

Director, Estate Planning, BMO Private Wealth

Read bio

Strike While the Iron is Hot

Stress testing estate planning is always a good strategy, because frankly, we don’t know when we’re going to hit a crisis. COVID-19 is the best example, and it has been a wake-up call for many clients – more so than the big market devaluations we saw in the mid 2000s because it has affected people on a personal level. Facing mortality has driven many to reflect and worry about their family or business stakeholders. As an Advisor, this is an important time to broach the topic, and use this wake-up call as an opportunity to add value.

As a first step, it’s important to help clients identify and/or review the four fundamental pillars of their estate plan to ensure stability through a potential life-event hurricane: asset structure; family make-up, legacy goals (i.e., family protection); and importantly, the skillset required to execute. For example, does the named attorney under the power of attorney (POA) have the permanence and availability necessary? Are they close by? This has been a real problem during the pandemic because people in another country or even province can’t necessarily travel to manage affairs properly. Blended-family situations can also cause troubles, particularly when the eldest child from the first marriage is named as the executor and trustee for a step-parent, which creates an inherent conflict of interest. That is why it is so critical to check these legal documents periodically to ensure they reflect the client’s current reality. According to a recent survey, over half of Canadians have no Will at all, while only a third say they have one that is up-to-date.1

Another potential issue that has been particularly relevant in recent conversations is equalizing family assets at a time when valuations are wildly fluctuating. A cottage that was once worth $700,000 could now be valued at upwards of $2 million, so what does that mean for being “fair” with the kids? Estate plans should be revisited regularly to ensure distributions are still as intended. While strategies to resolve these scenarios are more suited for the creative planning phase, as an Advisor, it’s key to help clients be aware of these possible conflicts, and refer them to the right experts – whether that’s an estate, tax, or business succession planner, or external specialists.

Facing mortality has driven many to reflect and worry about their family or business stakeholders. As an Advisor, this is an important time to broach the topic…to add value.

Going Deeper for Business-Owner Clients

For business owners specifically, I always compare an estate plan to a business-continuity plan because the latter also considers unexpected events that can seriously impact employees, partners, customers and family – an untimely death or illness is just as disruptive as a cash flow crisis or potential supply chain disruptions.

Here’s a helpful checklist of three essential stress-test items for this client niche when it comes to keeping the estate waters smooth:

  • Alternate signing authorities – always ensure these exist for banking purposes or business contracts in case something untoward should happen
  • “Separate POA” for business assets – consider naming a decision-maker with knowledge of the company, experience and commitment (not necessarily a spouse), which is often overlooked and can lead to less-than-ideal results
  • Capable executor – this person should have the ability to effectively manage the succession plan while the estate is being administered, including any outstanding contractual requirements. Ask your client: Will your executor be able to administer your complex estate and keep the business going in a time of crisis?

Regardless of the size and structure of their business, it’s also important for clients to maintain current and solid business agreements. Whether they are shareholder/partnership agreements or supply and production contracts, they should provide clarity and certainty for stakeholders. If you pass away, do you have mechanisms or contingencies to ensure continuity? Is there a provision for a buyout? Whether intended to manage the relationship among business partners, or engage in commercial arrangements with external parties, the relevance and currency of these agreements will profoundly affect operations when an owner dies or loses capacity. Regularly reviewing the terms will facilitate efficient estate administration, while protecting the value of the business, its operations – and those who depend on it.

Another consideration is “key person” insurance, particularly if there is a death, and a buyout needs to take place, or a replacement is found. The proceeds would help mitigate the loss of that individual’s contributions, until an alternate solution is found. Frequent monitoring of such protection is necessary to ensure it reflects the current business environment. In addition, if a client has personal coverage, this likely will not help the business, and vice versa. So, it’s important to understand the type of insurance held, and whether it’s serving the right purpose, with proceeds landing in the right place.

Another consideration is “key person” insurance, particularly if there is a death, and a buyout needs to take place.

What’s a Hotchpot Clause?

With regards to small-business ownership, one of the biggest concerns right now – in the wake of COVID – is planning the transition to a family member, because many of these companies have really experienced wide fluctuations in value of late. Many have unfortunately been extinguished, while others have benefited from massive growth depending on their market niche. So, if a client is looking to pass the business down to the next generation, and there are other non-business children as well, the top two estate questions then become: how do we equalize assets for other family members, and how does the owner recoup full value? This piece has been so unpredictable over the last year, because business value, in some instances, maybe 10 times more than in March 2020, while the owner’s other assets may not have risen at the same rapid rate.

As a result, it’s becoming increasingly necessary to think through an insurance solution that could help with this potentially lopsided family situation – and/or ensure documents provide executor authority to make equalization possible where applicable (otherwise known as a ‘hotchpot’ provision). This is an issue that was rarely explored before last year, but is becoming all the more prevalent in client conversations to remove that added stress and bring peace of mind.

The biggest concern right now – in the wake of COVID – is planning the transition to a family member, because companies have really experienced wide fluctuations in value of late.

Tips of What Not to Do

From my years of estate planning expertise, I’ve seen firsthand some common mistakes that should be avoided, including making assets joint (with anyone other than a spouse) when they shouldn’t be. This is generally done to save on probate cost and speed up estate administration, but it can create enormous problems. For example, if clients want to set up trusts for grandchildren, or want to engage in charitable giving, they’ve actually removed these assets from their estate by making them joint, while potentially putting them at risk from the joint owner’s creditors or spouse. [PRO TIP: For alternative solutions, learn more about BMO Segregated Funds to help achieve estate goals.]

Another problematic situation I often see is encouraging seniors in their early 70s to pre-gift money to their children to alleviate estate uncertainty and avoid paying probate fees. The issue here arises when someone ends up having a stroke and requires round-the-clock care, or needs to be in a retirement home earlier than planned, but they can no longer afford it. While it’s tempting to help kids pay down their mortgage, I always caution clients by letting them know they still have runway left, and they may need that extra income to take care of themselves, because these costs can be quite expensive. The same can also be said of charitable giving, in that it needs to be strategic, and balanced with future needs.

Start Now: Clients Can’t Afford Later

Ultimately, estate planning is an important part of a client’s wealth journey that needs to be addressed, and earlier is always better. Once the four fundamental pillars are identified and understood, baking in flexibility where possible is essential, so clients can deal with the winds as they blow.

In non-crisis times, it’s so tempting for people, particularly business owners, to say “I’ll deal with it later”. The best response here is to say that they can’t afford later.

In non-crisis times, it’s so tempting for people, particularly business owners, to say, “I’ll deal with it later.” The best response here is to say that they can’t afford later, because their stakeholders depend on them to get it right now and be prepared – from family to employees to their own customers. As an Advisor, it’s crucial not to shy away from these complex estate discussions because you’re worried about making mistakes. Lean on your network of planning experts to guide you on the right path, and provide valued external referrals when warranted. That’s what we’re here for.

For more insights to enrich your practice, contact your BMO Global Asset Management Regional Sales Representative.

To learn about innovative insurance solutions that can enhance estate planning strategies, contact BMO Insurance.



1 Angus-Reid Institute, What ‘will’ happen with your assets? Half of Canadian adults say they don’t have a last will and testament, January 2018

BMO Global Asset Management Disclosures:

Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent simplified prospectus.

This article is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Investments should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.

BMO Global Asset Management is a brand name that comprises BMO Asset Management Inc., BMO Investments Inc., BMO Asset Management Corp., BMO Asset Management Limited and BMO’s specialized investment management firms.

®/™ Registered trade-marks/trade-mark of Bank of Montreal, used under licence.

BMO Life Assurance Company Disclosure:

BMO Life Assurance Company is the issuer of the BMO Segregated Funds individual variable insurance contract referred to in the Information Folder and the guarantor of any guarantee provisions therein. The BMO GIF Information Folder and Policy Provisions provide full details and govern in all cases. BMO GIF products are offered through BMO Life Assurance, a separate legal entity than BMO Global Asset Management and wholly owned by BMO Financial Group. Segregated funds are only available for sale by individuals with appropriate insurance licences and are not considered a mutual fund. Segregated fund fees are higher than mutual funds as they include insurance fees to provide for the guarantees on deposits at maturity or on death.

®/™Registered trade-marks/trade-mark of Bank of Montreal, used under licence.

BMO Global Asset Management is the brand name for various affiliated entities of BMO Financial Group that provide investment management, and trust and custody services. BMO Global Asset Management comprises BMO Asset Management Inc., BMO Investments Inc., BMO Asset Management Corp., BMO Asset Management Limited and BMO’s specialized investment management firms. Certain of the products and services offered under the brand name, BMO Global Asset Management are designed specifically for various categories of investors in a number of different countries and regions and may not be available to all investors. Products and services are only offered to such investors in those countries and regions in accordance with applicable laws and regulations. BMO Financial Group is a service mark of Bank of Montreal (BMO).

BMO ETFs are managed and administered by BMO Asset Management Inc., an investment fund manager and portfolio manager and separate legal entity from Bank of Montreal. Commissions, management fees and expenses all may be associated with investments in exchange traded funds. Please read the prospectus before investing.

Exchange traded funds are not guaranteed, their values change frequently and past performance may not be repeated.

BMO Mutual Funds are managed by BMO Investments Inc., which is an investment fund manager and a separate legal entity from Bank of Montreal.

Commissions, trailing commissions (if applicable), management fees and expenses all may be associated with mutual fund investments. Please read the ETF facts, fund facts or prospectus of the relevant mutual fund before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

For a summary of the risks of an investment in the BMO Mutual Funds, please see the specific risks set out in the prospectus. ETF Series of the BMO Mutual Funds trade like stocks, fluctuate in market value and may trade at a discount to their net asset value, which may increase the risk of loss. Distributions are not guaranteed and are subject to change and/or elimination.

BMO Life Assurance Company is the issuer of the BMO Segregated Funds individual variable insurance contract referred to in the Information Folder and the guarantor of any guarantee provisions therein. The BMO GIF Information Folder and Policy Provisions provide full details and govern in all cases. BMO GIF products are offered through BMO Life Assurance, a separate legal entity than BMO Global Asset Management and wholly owned by BMO Financial Group. Segregated funds are only available for sale by individuals with appropriate insurance licences and are not considered a mutual fund. Segregated fund fees are higher than mutual funds as they include insurance fees to provide for the guarantees on deposits at maturity or on death.