By Don Stewart, Executive Director at Finzo
Aside from ensuring your client's investments and insurances are right for them, as a financial adviser you should have a healthy interest in ensuring a few other things in your client's life are addressed. Ensuring that your clients are prepared and taking the appropriate steps to tie up loose ends if they can’t make decisions, or aren’t around to make decisions, will be a key step.
What is the common reminder your clients will hear when addressing these issues? The choice of executor, or power of attorney, is incredibly important. Advise you clients to choose them carefully, he/she need to find someone who is judicious and able to set aside any personal issues to carry out your client's wishes as he/she had intended.
People change.
The upstanding stable individual you client entrust with his/her affairs today, might not be the upstanding stable individual who should be entrusted with their affairs in five- or ten-years’ time. Dynamics can alter very quickly due to various reasons. Mental health issues, relationship changes or life milestones can suddenly trigger thinking or behaviour not previously associated with the trusted person.
Financial advisers get a look under the hood of life planning matters on a regular basis and these changes unfortunately do happen. Someone involved in a current case we’re privy to has given us permission to highlight the perils of unexpected behaviour. It can rear its head and leave parties bogged down in a legal quagmire for years. Not only is time wasted, but estates can be frittered away. If the deceased knew what was occurring with their assets, well the phrase, ‘turning in their grave’ was coined for a reason.
Cynthia and James (not their real names) were made executors of their Aunt’s estate. Both everything you’d want as executors. Reliable and trustworthy, both in professional jobs and without any personal differences. You’d expect them to finalise everything in short order.
Their Aunt passed away nearly a decade ago and they’re still battling it out over her estate. And ‘battling’ gives the impression this is two parties at war. Nothing could be further from the truth. Cynthia would like to move on; no one really knows what James wants. Since their Aunt passed, James developed an intense hatred for Cynthia.
The estate comprised a modest house and a small amount of money. Combined, it wasn’t a large sum and it’s been getting smaller by the year (it’s not in a location where real estate prices have readily appreciated). Every action by Cynthia has prompted an opposite reaction from James. This has drawn the lawyers into the fray.
Initially Cynthia wanted to buy the property herself. That wasn’t going to work because James decided he wanted to buy the property. Stalemate. Eventually Cynthia decided she wanted to sell the property and be done with the issue. James then decided while he was happy to keep his share, he no longer wanted to buy the property. Further frustrating Cynthia.
This has kept the estate from being settled and there doesn’t seem any prospect of it being settled soon. The pair communicate through lawyers and while Cynthia could take the matter to court and likely win an outcome, she’d rather be fair and equitable so both parties walk away with an even share.
The small sum of money left within the estate has been drained. The pair are now covering the associated property holding costs and legal fees out of their own pockets.
Usually the moral of the story is how your clients need to be careful in who they choose to carry out his/her wishes. Being especially careful with the personalities of those chosen. There are countless tales involving poor choices of executors and the associated headaches they bring.
Cynthia’s story shows you might well be making the most judicious choice at the time, but through no fault of your own an executor does a 180 and kicks off with unexpected behaviour.
What to do if your clients is concerned about this?
It may mean continually looking for warning signs, but if those warnings don’t emerge and your client want a truly independent executor, we recommend they seek appropriate financial and legal advice to put things in place.
This material is for educational purposes only and is not intended to provide specific advice