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Frequently Asked Questions

Most of us know the legal concept that the person holding a general power of attorney (the attorney) can do whatever the person who granted the power of attorney (the principal) can do legally on behalf of the principal, except making, revising, or revoking a will.  This is a truth.  However, it can be misleading. Often people think that if they have given someone a power of attorney, that person can also make decisions on behalf of their operating or holding companies in their place and stead as a director of those companies.  This is an incorrect belief and can leave your company without a person to run it when you are incapacitated and unable to run your company.

The person to whom you have granted a power of attorney can manage your personal legal and financial matters, but that person cannot act on behalf of any companies you own.  That person also cannot take your place and stead as a director of a company. There are several ways to do incapacity planning involving a company. 

The Business Corporation Act of B.C. provides that any company created under the laws of B.C., can in writing designate a person (who could be an individual or a company) as its attorney and empower that attorney either generally or for specific matters, to execute deeds, instruments, or other records on behalf of the corporation.  This is usually done by corporate resolution. 

The Power of Attorney Act of B.C. provides that a B.C. company may, by instrument in writing under its corporate seal, empower a person (who could be an individual or a company), for a specified matter or purpose, as its attorney, to execute all deeds or documents on its behalf. This is usually done by way of a power of attorney limited to a certain purpose (not general) under the corporate seal.

There are several methods of incapacity planning if you are a director of a company. The method I favoured when I was in private practice was to create companies, the Articles of which allowed the appointment of a substitute director.  I would then prepare the necessary corporate resolutions and documents to allow the company to remove the incapacitated director upon the director’s incapacity and install the substitute director. Your client’s lawyer will have his or her own method.

As investment advisors and portfolio managers, you don’t need to spend time on the legal nuances of incapacity planning involving companies.  What you need to know is that a power of attorney is not the appropriate tool for incapacity planning for an individual when it comes to the affairs of a company.  You need to know that your clients must consult either with me as the NBF estate planner in B.C. or consult a lawyer who understands incapacity planning involving businesses and companies to put in place the proper incapacity plan involving your clients’ companies.

Probate is a legal process under which a court validates a will. Obtaining probate serves several practical and legal purposes from the point of view of the executor. It enables the executor to deal with real estate on behalf of the estate. It provides banks and other institutions with confirmation of the executor’s authority to deal with the deceased’s assets. As well, it starts the clock on a statutory limitation period within which persons who wish to challenge the will must initiate an action.

There are many instances where a grant of probate may be required before the executor will be able to deal with the deceased’s assets. For example, the Land Title & Survey Authority of British Columbia will not register a transfer of the deceased’s land until after the grant of probate has been obtained. Most financial institutions will freeze the deceased’s bank accounts upon learning of the death. These accounts will remain frozen until after a grant of probate has been obtained.

Most executors are alerted to the probate requirements after they approach the deceased’s bank to try and gain access to the deceased’s bank accounts. As noted above, after a person dies their accounts are usually frozen by the bank. Generally, the bank will not unfreeze the deceased’s bank accounts without first seeing a grant of probate. This is because the bank wants to know that the will appointing the executor is valid.

If a person dies owning real estate, obtaining a grant of probate is mandatory before the executor can transfer the property to a beneficiary or sell it to a third party. These are the rules under the Land Title Act of British Columbia, and generally there are no exceptions.

An executor might also obtain a grant of probate in order to initiate the statutory limitation period under WESA, within which eligible persons who wish to challenge the will must initiate an action. This 180-day limitation period starts at the time a grant of probate is issued and applies only where a grant has been obtained. If a grant of probate is not obtained, the 180-day limitation period does not apply. In this circumstance, normal statutory limitation periods would apply (the basic statutory limitation period in British Columbia is 2 years from the date of discovery of the claim).

 As a result, most wills in BC are probated. As well, some wills are probated even where no probate fees would be payable (under the Probate Fee Act, no probate fees are payable if the value of the estate does not exceed $25,000). Obtaining a grant of probate can offer additional protections to an executor over not obtaining probate. Since being an executor is a substantial and often difficult role that carries with it personal liability of the executor, it is almost always a good idea to consider probating a will.

Probate fees are set by the Probate Fee Act of British Columbia. They are payable to the British Columbia Minister of Finance. The probate fee calculation is based on the gross value of the estate as at the date of death. “Value of the estate” is a defined term in the Probate Fee Act. Although the precise rules can be nuanced, broadly speaking probate fees are payable on the gross value (not the net value) of all of the deceased’s real estate and personal property situated in British Columbia, and on all of their intangible personal property (e.g. bank accounts) wherever located.

The current practice of probate registries in British Columbia is to allow for a deduction from the gross value of the estate the value of any mortgage registered against real property at the time of death. However, unsecured debts (such as unsecured lines of credit and credit card debt) cannot be deducted against the gross value of the estate.

The basic calculation for probate fees is a lock-step formula based on the gross value of the estate as follows:

•  no fee for the value of the estate between $0 and $25,000;

•  $6 per $1,000 or part of $1,000 for the value of the estate between $25,000 and $50,000; and

•  $14 per $1,000 or part of $1,000 for the value of the estate above $50,000.

In practice, the probate registry will confirm the precise probate fee payable based on the Statement of Assets, Liabilities and Distribution submitted as part of the probate application.

The timing of your annual savings investment will make a difference in the long run, but it is far from being the critical factor many seem to believe.

Case in point: consider an investor blessed with the power of perfect market timing (blue line) compared to another investor cursed with systematically picking the worst possible day to invest each year, over 30 years (red line). In the end, the market timing champion would have outperformed the most unfortunate of all investors by a mild 1.1%/year. If we take the more realistic example of an investor saving systematically at the beginning of each month, this annual outperformance shrinks below 1%.

How is such a small gap possible? Simply because in the long run, the first year's return is superfluous. What truly matters is the frequency of savings and passage of time, not market timing.

No. Selling in times of heightened uncertainty is generally the best way to ensure heavy losses, as it often rhymes with selling low and missing the rebound.

More importantly, one should keep in mind that the only certainty is that there will always be uncertainty, as it is the price to pay for capital appreciation in the long run.

And –need we add –it isn’t in the media’s best interest to report the latest news with nuance and historical perspective; better to let fear and pessimism easily set in. However, the chart on the right should act as a reminder that letting emotions take over is a good recipe for short-term gain, but long-term pain.

Quite the contrary, it is likely that investors will only rarely see a calendar year where equity returns are close to their long-term historical averages.

Case in point: since 1957, only 8 years out of 63 have seen the Canadian stock market generate performance near average (+/-2%).

One likely reason for this myth is the common misconception that “average” is synonymous with “typical.”

However, there is no such thing as a “typical” year in the stock market.

As a result, investors should expect a wide range of possible outcomes in any given year, whereas only the passage of time can lead to an annualized return near the market’s long-term average.

It is true that daily market fluctuations resemble a coin toss. Nevertheless, two fundamental reasons make investing completely different from gambling.

First, unlike the world of gambling, investing in the stock market is not a zero-sum game, as evidenced by the positive median annualized return (red dotted line). In the long run, equity returns come from companies’ ability to grow their earnings, not from other investors’ misfortune.

Second, while gambling remains just as uncertain no matter how long you “play”, the opposite occurs within equity markets, as evidenced by the narrowing range of outcomes over time (grey area). The longer one “plays” (i.e. remains invested), the greater the chances are of converging towards the premium investors earn for bearing equity risk.

It depends. But since 1980, you would have been better off investing the full amount right away 86% of the time, while the decision to split the investment evenly over twelve months would have cost an average of 3.9% in lost returns. This simple study assumes a portfolio* evenly balanced between Canadian bonds and global equities.

 Of course, no one wants to put money to work right before a market correction, this myth being a prime example of one of the most well documented behavioural biases in finance: loss aversion.

Yet, think of it this way. Would you invest in a strategy that loses 8 times out of 10 and by an average of 3.9%? After all, these are the historical properties of dollar cost averaging.

While predominantly investing in domestic equities might seem sufficient and feel comforting, such a portfolio could, in fact, be just the opposite. Do not confuse familiarity with safety. For  instance, Canada’s stock market’s high concentration in some of the most cyclical sectors and its relative lack of growth-oriented companies poses a risk that can result in unpleasant surprises if left undiversified.

The good news is that there are plenty of opportunities abroad to complement for such risks. After all, Canadian stocks only represent 3% of the global equity investment universe... a far cry from the ~45% they account for in Canadians’ portfolios*. Home bias indeed!

It is true that the most turbulent periods for markets are generally concomitant with recessions. As such, those with eyes riveted on daily stock exchange prices are very likely to experience fear in times of economic downturn.

However, if we step back from market fluctuations and look, rather, at the historical performance of a basic balanced portfolio* during the last six recessions, we see that the average return was actually zero. Not something to celebrate, but far from the financial catastrophe many seem to believe –especially when we consider returns in the previous and following years. What’s more, let’s not forget that recessions are relatively rare events, covering only 17% of the last 50 years.

Therefore, it is not the recession that investors should fear, but fear itself… or rather the risk of materializing heavy losses, when in the grip of emotion, at an untimely moment.

That depends on what your investment objectives are.

GICs are indeed among the safest investment vehicles available. However, their returns, while guaranteed, generally fail to cover inflation, leaving their holders at risk of seeing their purchasing power decline over time.

It should be specified that this observation reflects the low interest rate environment prevailing over the past several years. For instance, although a 1-year GICs provided income above inflation in the 1990s, this has not been the case since 2009.

Ultimately, the selection of an investment vehicle depends on risk tolerance - GICs may therefore be the right choice for some. However, a key risk for investors whose investment horizon is measured in years may not be the short-term volatility of other assets, but rather the potential erosion of their purchasing power over the long run.

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