When a Financial Plan Meets an Estate Plan
By: Austin Walker, Wealth Advisor, Scotia McLeod and Holly LeValliant, Estate and Trust Consultant, Scotiatrust
Our lives were upended by the pandemic, and things since then have been anything but typical. From elevated inflation to skyrocketing interest rates, our expectations for the future and perceptions of what is normal have been challenged. The word “unprecedented” may be overused, but it highlights the unpredictability of our daily lives and financial situations. This is why dynamic planning, combined with agile risk management, is essential to a successful wealth management strategy.
A financial plan is our best tool, offering a snapshot of one’s existing financial situation extrapolated over a lifetime using intricate models and assumptions to forecast future cash flows and asset values. This cornerstone document informs decisions on portfolio construction and management, adequate insurance coverage, and the most tax-efficient method to draw down assets. Beyond these, a financial plan can significantly aid in estate planning, helping a testator ensure financial stability for future generations, leave a legacy, and plan for dependents' needs.
How can a financial plan be used when planning an estate? A robust financial plan should consider estate planning as a central tenet, and a strong estate plan should be built around the financial plan. Both disciplines identify goals and determine the feasibility of achieving them while considering the best strategies to enhance their likelihood of success.
For most, an estate plan asks, “What will be left at the end of my life, and what do I want to do with it?” Answers vary, but common estate plans include intergenerational wealth transfers, support of dependents, and charitable bequests. The timing of death and the state of one's estate at that time are unknowns. Here, financial planning comes into play. While not exact, prudent cash flow and net worth analysis help estimate the estate's value at various points in the future. It can predict capital gains tax on assets, forecast portfolio and real estate values, and estimate probate tax.
Estate planning is essential at different life stages, but without a thorough financial plan, a testator may not achieve their wishes. Although a financial plan cannot predict everything, it provides a risk-based roadmap illustrating a range of outcomes. These outcomes guide estate plans to ensure that a testator is as prepared as possible.
Understanding the symbiotic relationship between financial planning and estate planning is crucial for creating a well-designed and holistic a wealth management strategy.