The Importance of Critical Illness Insurance in Retirement Planning

There are a number of obstacles that could potentially de-rail a comfortable retirement. These include marriage breakdown, a stock market crash, and being sued. Another huge obstacle would be the diagnosis of a life threatening critical illness affecting you or your spouse. While it might be difficult to insulate yourself against some of the threats to retirement security, Critical Illness insurance goes a long way to mitigate the financial disaster that could result from a change in health as we approach retirement.

Considering that the wealth of many Canadians is comprised of the equity in their homes and the balance of their retirement plans, having to access funds to combat a dreaded illness could put their retirement objectives in jeopardy. Imagine that you are just a few years into or approaching retirement and you or your spouse suffers a stroke.  The prognosis is for a long recovery and the cost associated with recovery and care is projected to be substantial. Statistics show that 62,000 Canadians suffer a stroke each year* with over 80% surviving* many of whom would require ongoing care. Since 80% of all strokes happen to Canadians over 60 those unlucky enough could definitely see their retirement funding jeopardized.

Sun Life recently reported that for a 45-year old couple, the risk of at least one spouse having a serious health condition by age 70 is 61.5%. With odds like these it is fortunate that a product exists that will provide tax-free cash to help defray the expenses associated with the care and recovery from a serious illness. Accessing retirement plans on the other hand, would trigger income tax on the funds withdrawn, adding to the financial burden.

While statistics indicate that the chances of having a critical illness are high, they also support the notion that those with the foresight in their planning to include Critical Illness insurance have a greater chance of keeping their retirement funds intact.

Critical Illness insurance is offered by most major Canadian life insurance companies. It can be purchased with different terms, from 10-year renewable to permanent plans providing protection up to age 100. Like most insurance products the cost is based on the age of the insured so the younger you get it the lower the cost will be. While 10 or 20-year plans are appealing based on price, consider how long you will need the coverage for. 

If you wish to keep the policy into your retirement years, for the reasons stated here, a permanent plan or one that offers coverage to age 75 may be preferable, as premiums are locked in at lower rates. Some policies offer a Return of Premium rider that refunds premiums paid when the contract expires or is cancelled with no critical illness claim.

Saving for retirement is always a good idea and protecting your savings in the event of a critical illness is essential. It may be wise to consider doing it now, while you are still in good health and can take advantage of lower premiums.

SIX IMPORTANT REASONS TO HAVE A WILL

It has been said that a Will is the last message you will leave your family. Having a Will can provide clear direction as to what your wishes are and who will get what. Die without a Will (known as dying intestate) and chaos will likely be the result.  Having a Will allows you to provide for certainty instead of chaos.

Most of the reasons to have a Will have to do with what happens if you don’t have one and that often will depend on what province you reside in. Each provincial government has its own Wills and Estate legislation which also provides for the rules regarding intestacy. The following are some of the reasons to have a Will and what could result without one.

1.  Informs your family how and when your property is to be distributed

Your Will affords you the opportunity to give clear instructions as to whom will receive your wealth. It also allows you to make bequests of certain items such as family heirlooms which you may wish to leave to a specific individual. For those who wish to leave funds to a charity, the Will allows you to do this. Without a Will, this opportunity may be lost. The bottom line is that you make the call. Dying without a Will means that the provincial government will make the determination on how your estate is to be distributed depending on the intestacy laws.

For example, if there is a spouse and children, the spouse will usually receive a specified amount. That amount can vary between $200,000 and $300,000 depending on the province. Any amounts over that are, for most provinces, split between the children and the spouse. The amounts due to the children, however, are not received by them until they reach the age of majority. Up until then, those funds are administered by the provincial government. If you reside in Alberta or Manitoba the children receive nothing, and all goes to the spouse.

If you die without a spouse and without children, then the assets will be left to parents, siblings, nieces and nephews, in that order. The government will receive all if there are no relatives. And remember those family heirlooms that you could dictate to whom they went in your Will? Without a will those and other similar assets will most likely have to be sold so the estate can properly be distributed.

2.  Allows the testator to name an Executor

The task of the Executor is to administer the estate and ensure that the testator’s wishes are carried out. Without a Will, there is no Executor, and an administrator must be appointed by the government. Usually, this will be the spouse, but if the spouse is not willing or capable then someone else will have to be found to carry out this function. Regardless, the result usually will be unnecessary delays and increased expenses.

In administering estate assets, the role of an Executor also helps to ensure that there is no loss of estate assets due to lack of oversight prior to the assets being distributed.

3.  Protects a common law spouse

British Columbia, Saskatchewan, Manitoba, North West Territories and Nunavut recognize common law marriages where the parties have lived together for more than two years. In these jurisdictions common law spouses have the same rights as a married spouse. In all other provinces, however, they are not recognized and as a result are entitled to nothing. There may be exceptions where a dependency claim can be made to the courts, but that could prove to be expensive and result in significant delays. It also could result in other family members making objections to the court. With a properly drafted Will, the rights of a common law spouse are protected.

4.  Naming a guardian for your children

Having the choice as to who will look after your children should you die is an extremely important reason to have a Will. This is especially true in the case of a common disaster involving both parents. Consider the unimaginable scenario in which the decision as to who should be the guardian of your children was left to the courts.

5.  Leaving instructions for your funeral, burial or cremation

A Will affords you the opportunity to leave concise instructions regarding your funeral arrangements. Dying without a Will or with no clear directive could cause stress and family discord. 

6.  Proper estate planning can result in income tax savings

Estate planning, including a properly drafted Last Will and Testament, may result in tax savings. On the other hand, dying intestate will see this opportunity lost and administrative costs increased. 

It is unfortunate that many Canadians do not have a Will. While there may be some circumstances where a Will is not necessary, for those Canadians who are married and have children, a Will is vital and should not be overlooked. Ideally, a Will should be drafted by a lawyer who is acquainted with all the technical requirements and contingencies that come into play. 

If you are without a Will, talk to a professional who can assist you as soon as you can.

Alberta Budget 2018

The 2018 budget for Alberta focuses on the diversification of its post-recession economy, with the aim of creating more stability and less vulnerability to future fluctuations in oil prices. Here are some of the highlights:

Corporate

Interactive Digital Media Tax Credit

Alberta intends to bring in a new Interactive Digital Media Tax Credit with a maximum funding of $20 million per year, which aims to offer eligible companies with a benefit of 25% of eligible labour costs. This benefit relates to costs incurred after April 1, 2018 and is aiming to better support the interactive digital media sector in the province.

Alberta Investor Tax Credit

The 2018 budget extends the existing Alberta Investor Tax Credit until 2012-22. The existing program offers a 30% tax credit to both individuals and corporations who commit to making equity investments in eligible Alberta businesses, such as those involved in research, development, digital animation and various others.

Diversity & Inclusion Credit

Relating to the Interactive Digital Media Tax Credit and Alberta Investor Tax Credit, the budget notes a 5% diversity and inclusion credit enhancement which could be claimed if the company offers employment to an individual from an under-represented group.

Capital Investment Tax Credit

The budget announces that the Capital Investment Tax Credit, a 10% non-refundable tax credit of up to $5 million for a corporation’s eligible capital expenditures on manufacturing, processing and tourism infrastructure, will also be extended until 2021-22.

Personal

Alberta Child Benefit

The 2018 budget details increases to these benefits for families with 1, 2, 3 and 4 plus children, as well as increasing the phase-out threshold for family net income from $41,786 to $42,287.

Alberta Family Employment Tax Credit

Increases have also been announced in the budget to offer more benefits for working families who have income from employment of more than $2,760 per year. The phase-out threshold has been extended from a family net income of $41,786 to $42,287, as well as increases to the benefit amounts for each family size.

Cannabis Tax

The budget covers the agreement made by Alberta to adhere to a structured tax framework with the Canadian government for a period of two years after the legalization of cannabis for recreational purposes. Specifically, either $1 per gram or 10% of the producer price (whichever is greater) will be collected and the province will receive 75% of this tax room, both to be collected by the federal government. In addition, an additional tax of a maximum of 10% of the retail price may also be collected by the province.

Education Property Tax

A freeze has been set on education property tax collection, but the current rates have increased as follows:

·      From $2.48 to $2.56 per $1,000 or equalized assessment for residential/farmland property.

From $3.64 to £3.76 for non-residential property

Ontario Budget 2018

The 2018 Ontario budget features a number of new measures and billions of dollars of enhanced spending across the spectrum, as announced by the province’s Finance Minister, Charles Sousa. Read on for some of the key proposals.

Personal

Eliminate Surtax

A new sliding scale for personal income tax will be introduced, with seven personal income tax rates which will be applied directly to taxable income, in an attempt to eliminate Ontario’s surtax. The province estimates that approximately 680,000 will pay less tax as a result.

Free Tuition

Access to further education will be income linked, with those families with an income of less than $90,000 per year receiving free tuition and families with an income of between $90,000 and $175,00 per year receiving financial aid for tuition costs.

Free Pre-School Child Care

Effective in the Fall of 2020, children aged two-and-a-half until they are eligible for kindergarten can receive free licensed child care. 

New Ontario Drug and Dental Program

For those without workplace benefits or not covered by OHIP+, this program offers up to 4.1 million Ontarians a benefit that pays up to 80% of expense up to a cap of $400 for a single person, up to $600 for a couple and $50 per child in a family with two children, regardless of their income.

Free Prescription Drugs

The budget announces the introduction of free prescription drugs for those aged 65 or older, resulting in an average of $240 per year in savings per senior.

Charitable Donation Tax Credit

The non-refundable Ontario Charitable Donation Tax Credit will be tweaked to increase the top rate, remaining at 5.05% for the first $200 but increasing to 17.5% for anything above $200.

Seniors’ Healthy Home Program

$750 is offered to eligible households with seniors of 75 years of age or older to help them to care for and maintain their residence.

Corporate

R&D Tax Credit

The budget introduces a non-refundable tax credit of 3.5% on eligible costs relating to R&D, or an enhanced rate of 5.5% for eligible expenditures of $1 million plus. Note that this enhanced rate would not be payable to corporations where eligible R&D expenditures in the current tax year are less than 90% of eligible R&D expenditures in the tax year before.

Innovation Tax Credit

The existing Ontario Innovation Tax Credit will see changes to its credit rate in the following way:

·      If a company has a ratio of R&D expenditures to gross revenues of 10% or less, they will continue to receive the 8% credit.

·      If their ratio is between 10% and 20%, they will receive an enhanced credit rate of between 8-12%, calculated on a straight line basis.

·      If their ratio is 20% or more, they will receive an enhanced credit rate of 12%.

Ontario Interactive Digital Media Tax Credit

Eligibility to receive this tax credit will be broadened to include film and television websites.

2018 Federal Budget Highlights for Families

Several key changes relating to personal financial arrangements are covered in the Canadian government’s 2018 federal budget, which could affect the finances of you and your family. Below are some of the most significant changes to be aware of:

Parental Leave

The government is creating a new five-week “use-it-or-lose-it” incentive for new fathers to take parental leave. This would increase the EI parental leave to 40 weeks (maximum) when the second parent agrees to take at least 5 weeks off. Effective June 2019, couples who opt for extended parental leave of 18 months, the second parent can take up to 8 additional weeks, at 33% of their income.

Gender Equality

The government aims to reduce the gender wage gap by 2.7% for public servants and 2.6% in the federal private sector. The aim is to ensure that men and women receive the same pay for equal work. They have also announced increased funding for female entrepreneurs.

Trusts

Effective for 2021 tax filings, the government will require reporting for certain trusts to provide information to provide information on identities of all trustees, beneficiaries, settlors of the trust and each person that has the ability to exert control over the trust.

Registered Disability Savings Plan holders

The budget proposes to extend to 2023 the current temporary measure whereby a family member such as a spouse or parent can hold an RDSP plan on behalf of an adult with reduced capacity.

If you would like more information, please don’t hesitate to contact us.

BC Budget Highlights 2018

BC Finance Minister Carole James delivered the province’s 2018 budget update on February 20, 2018. The budget anticipates a surplus of $219 million for the current year, $281 million for 2019 and $284 million in 2020.

Corporate and personal tax rates remain unchanged.

The biggest changes are:

  • Elimination of Medical Services Plan (MSP Premiums) effective January 1, 2020
  • Addition of the Employer Health Tax (EHT)
  • Provincial Property Taxes
  • Childcare

The Employer Health Tax and Medical Services Plan premiums:

Effective January 1, 2020, the Medical Services Premium (MSP) will be eliminated. In last year’s budget update, MSP was reduced by 50% effective January 1, 2018. Starting in 2019, the budget introduces the Employer Health Tax (EHT). The EHT is to help fund the elimination of the MSP premiums.

The Employer Health Tax will be calculated as a percentage of payroll:

Provincial Property Transfer Taxes

Effective February 21, 2018, the following will occur:

  • The provincial property transfer taxes (PTT) will increase to 5% (from 3%) on residential property values above $3 million.
  • The PPT applies to foreign purchasers of residential properties in BC will increase to 20% (from 15%) and the tax will extend to include the Fraser Valley, Capital, Nanaimo and Central Okanagan Regional Districts.
  • There is a new speculation tax on residential property in BC. This tax is targeted at foreign and domestic homeowners who don’t pay income tax in BC. Starting in 2018, it’s a rate of $5/$1,000 of assessed value, in 2019, this will increase to $20/$1,000.

Childcare

There will be a new affordable child care benefit that will reduce child care costs by up to $1,250 per month per child by 2020. The new benefit will apply in September 2018. Families with pre-tax incomes of $45,000 or less will receive the full benefit, (up to the cost of care) while those who make up to $111,000 will receive a reduced amount, scaling based on income. The government will be releasing an online benefit calculator to help parents budget.

The budget will provide up to $350/month directly to licensed child care providers to reduce fees. They will be the following:

  • Up to $350/month for group infant/toddler care
  • Up to $200/month for family infant/toddler care
  • Up to $100/month for group care for children aged 3-5
  • Up to $60/month for family care for children aged 3-5

To learn how these changes will affect you, please don’t hesitate to contact us.

RRSP Deadline is March 1, 2018. How much tax can you save?

RRSP Deadline: March 1, 2018

The deadline for contributing to your Registered Retirement Savings Plan (RRSP) for the 2017 tax filing year is March 1, 2018. You generally have 60 days within the new calendar year to make RRSP contributions that can be applied to lowering your taxes for the previous year.

If you want to see how much tax you can save, enter your details below!

Boomer + Sandwich Generation + Club Sandwich + Boomerang = Financial Instability

The Sandwich Generation was a term coined by Dorothy Miller in 1981 to describe adult children who were “sandwiched” between their aging parents and their own maturing children. There is even a term for those of us who are in our 50’s or 60’s with elderly parents, adult children and grandchildren – the Club Sandwich.   More recently, the Boomerang Generation (the estimated 29% of adults ranging in ages 25 to 34, who live with their parents), are adding to the financial pressures as Boomers head into retirement.

It is estimated that by 2026, 1 in 5 Canadians will be older than 65. This means fewer adults to both fund and provide for elder care. Today, it is likely that the average married couple will have more living parents than they do children.

What are the challenges?

The truth is that many members of the Sandwich Generation find the circumstances are both emotionally and financially draining.  In the past, women have been looked upon to provide the primary care giving in the home while men take care of the income needs. Today, roles have changed with the majority of working age women employed outside of the home. As a result, financially, both parents are looked upon to provide for the family. For The Sandwich Generation helping their parents and their children at the same time, creates a stress that can affect both their mental and physical health.

Risk Management in the Sandwich Generation

Having an effective financial plan becomes key in dealing with the challenges. As the main breadwinner in this situation it is possible that three generations are dependent upon you. One of the first issues to be addressed then is how you protect your revenue stream.

5 Steps to Minimize risk for the Sandwich Generation

1.  Have an open and clear discussion about family resources and needs – The older generation needs to have a discussion with their children so that everyone knows what steps have or have not been taken to provide for the senior’s care when they are no longer able to care for themselves. This would also be a good time to initiate or continue any talk about what liquidity needs exist for taxes, long term care, funeral costs and last expenses etc.

2.  Complete a life insurance needs analysis – Where there is not sufficient capital to continue family and dependent’s income at the death of a breadwinner, life insurance can provide the necessary funds required to maintain lifestyle, pay debt, reduce mortgages, fund children’s education and provide money for aging parent’s care. Life insurance is an affordable way to guarantee future security. 

3.  Review your disability and critical illness coverage – If there is not sufficient income that will continue to be paid should you become unable to work due to sickness or accident, consider long term disability coverage. Critical illness insurance will provide needed capital in the event of diagnosis of a life threatening illness or condition. Not only will this provide financial support but will also improve your chances of recovery without the financial stress that often accompanies such a condition.

4.  Investigate Long Term Care Insurance – Having the appropriate amount of LTC insurance will help to reduce the stress of having to care for a parent when they are no longer able to fully care for themselves.  Consider having all the siblings share the cost.

5.  Draft a Living Will or similar Representation Agreement – Making your wishes known to your loved ones in the event you are no longer capable of making medical decisions will go a long way to providing comfort to all concerned when difficult choices need to be made.

As you can see, being part of the Sandwich Generation can be very stressful – emotionally and financially. Having someone to talk to or being part of a support group dealing with this issue, will certainly help manage the emotional challenges. Sitting down with a financial advisor or estate planner will help you determine what strategies you may need to implement to provide the financial security your family needs.