Preparing your heirs for wealth

If you think your heirs are not quite old enough or prepared enough to discuss the wealth they will inherit on your death, you’re not alone. Unfortunately though, this way of thinking can leave your beneficiaries in a decision-making vacuum: an unnecessary predicament which can be avoided by facing your own mortality and making a plan. 

If you have a will in place, great. A will, however, is only a fundamental first step, not a comprehensive plan, point out authors of the 2017 Wealth Transfer Report from RBC Wealth Management. 

“One generation’s success at building wealth does not ensure the next generation’s ability to manage wealth responsibly, or provide effective stewardship for the future,” they write. “Knowing the value (alone) does little to prepare inheritors for managing the considerable responsibilities of wealth.” Overall, the report’s authors say the number of inheritors who’ve been prepared hovers at just one in three.

Worse, they say despite best intentions, individuals are repeating history in a negative way.

“Overall, our respondents reveal a marked level of discomfort when confronting the theme of wealth transfer directly: Only 40% say they are comfortable sharing details with their beneficiaries. As such, they risk subjecting their own heirs to the same lack of clarity and understanding they experienced during their own inheritance.”

Two thirds say their own wealth transfer plans aren’t fully developed – a critical barrier to having this discussion in the first place.  

While the report focuses on wealthier beneficiaries in society, the lessons remain true for most: There is planning, communication, and a fair bit of education your heirs need in order to make the best decisions about your wealth when the time comes. 

1. Recognize that action today can help you create a better future forever.  

First, it’s important to acknowledge that creating an estate plan means contemplating your own mortality – an inescapable element of the process. It can also involve some awkward conversations, particularly if you’re not in the habit of talking about money with family and loved ones. 

Without planning, however, the outcome you leave may not be the one you would choose. 

2. Get help to build your plan, then share it with those who matter. 

Estate planning typically isn’t a “do-it-yourself” project. Instead, you’ll probably need to rely on a network of professional advisors who can bring their expertise to different parts of your plan. Your network might include a lawyer and a financial advisor or other representative from your financial institution.  

Once you have your plan in place, it’s time to ensure that the people who are impacted by it are aware of your wishes. In the survey, only 35 per cent of those who had inherited money in the past said their benefactors had prepared them in advance. 

Members of your professional network can also help you explain your plan to beneficiaries and help those who inherit your assets to understand your preferences and the decisions you’ve made. 

3. Encourage education early.  

Most of the people surveyed are not confident that the wealth they pass on will be preserved by the people who inherit it. Nearly 60 per cent of Canadian parents said they aren’t sure that their children will preserve or grow their inheritance, though almost 70 per cent said their children were first in line to inherit. 

Here’s where a little financial education can go a long way: If you’re concerned about the money management skills of those to whom you’ll leave assets, now is the time to start putting structures in place to build financial literacy. Having a plan is itself an important first step. The survey showed that 58 per cent of those with a plan are confident the next generation will sustain their wealth, compared to just 33 per cent of those who haven’t taken time to prepare. 

Finally, although creating an estate plan sounds as though it will only have an impact after you’re gone, the confidence (your own confidence, and the confidence you instill in others with a little bit of preparation) is one of the benefits you can enjoy in life. In sum, these three steps – developing a plan, communicating it to those who matter, and taking action to ensure your wishes will be sustained over generations – can lead to confidence now about the future you’re creating. 

Let’s get together to discuss how you can create your wealth transfer plans, and get help in communicating those plans to the people who matter the most.

As always, please feel free to share this article with anyone you think would find it of value. 

Index Funds vs Actively Managed Funds: what are the main differences?

There are significant differences when it comes to Index Funds and Actively Managed Funds. Deciding between the two will depend on various factors including your risk appetite, the ROI you are looking to achieve and the timeframe in which you are looking to achieve this. When weighing up these factors it’s useful to know what each type of fund entails, what the main strengths are as well as some of the potential drawbacks of investing in them.

Index Funds 

An index fund (also known as a Tracker Fund) is based on a particular market index and aims to track that specific index as closely as possible. The most recognized of these indices are possibly Standard & Poor’s 500 Index, consisting of 500 of the largest US companies that’s listed on the NYSE. 

An index fund can be structured in different ways, including a unit investment trust, an ETF (exchange-traded fund) and a mutual fund. It doesn’t rely on a management team to make the investment decisions. Instead it’s managed passively as each fund has an overseeing portfolio manager, mirroring the index and not actually trading securities on the basis of knowledge about the financial markets.

One of the benefits of an index fund is that it is less complicated to understand and provides a much safer investment avenue. As such it is used by large corporate investors and novice individuals alike, as performance are less volatile over a longer period of time.

Additionally, index funds also tend to have lower expense ratios and, in many instances, offer more tax savings. Coupled by the fact that it doesn’t rely on stock selection by an individual, many of the market risks are eliminated.

One of the drawbacks of investing in an index fund is the absence of flexibility on offer. This is because in this type of fund there are more precise guidelines and strategies that have to be followed in order to match the specific index. Investment decisions must be executed with index returns in mind.

Another disadvantage is that investors are less likely to enjoy big gains in relation to the amount that they invest. It can’t outperform the market that it’s invested in; it can only grow in line with it. Unfortunately this means that when you do invest in an index fund, you abandon the chances of vast gains.

Actively Managed Funds

An actively managed fund will generally have an individual manager or team of managers that’s actively involved in making investment decisions for the fund. Unlike in an index fund, the success of the fund relies heavily on the fund manager’s knowledge, expertise and research of the market. So the manager will complete detailed analysis of various investments in a bid to exceed a specific market index.

One of the main advantages over an index fund is the flexibility in decision making. Investments are made based on the performance of individual companies (which is a powerful indicator) rather than the performance of a whole group of entities that make up an index. There are many instances of actively managed funds out-performing wide market indices on a consistent basis.

You will have an expert team monitoring and adapting your investment as time goes by. They will buy and sell certain stocks and securities depending on performance. This is an extremely valuable factor when it comes to volatile markets. Additionally it means that returns could potentially be much higher than that which is achievable in index funds.

However, considering that the goal of a fund manager in an actively managed fund is to beat the overall market, more risks do come into to play. After all higher returns go hand in hand with higher risks.

With added risk comes the issue of trust. Can you trust the manager in charge of your investment to have your best interest at heart? Will they make informed decisions based on expert knowledge? Many critics will argue that’s it more a question of luck than skill and knowledge. To mitigate this trust deficit, many people will look to the most reputable organisations active in the market. However, in most cases, this will mean higher fees.

The costs of actively managed funds are greater than those of index funds. The reason is because the individual and expert advice that’s enjoyed in specific security related investments comes at a cost. Investing firms have to pay investing managers to look after individual investments.

In conclusion there is no right or wrong. The “correct” type of fund will depend largely on individual investment needs, risk appetite and investment goals.

Are You On The Right Track?

Are You on the Right Track

In bull markets some investors develop unhealthy expectations as to the long term yields their investments should provide.  Ten years ago, some came to accept returns as high as 15% to 20% per annum as the base return their fund and portfolio managers were expected to provide. Of course, these expectations came crashing back to earth in 2008 as the bull was chased away by a very large bear. Today, many fund managers are of the opinion that double digit returns are going to be very difficult to achieve with any consistency over the long term.

Is it time for us to lower our expectations?

If we have to accept lower rates of return, do we still want to be exposed to the same previous level of risk?  There can be tremendous volatility in the equity markets and, as a result, many wonder if they are on the right track with their investment strategy.

4 Questions to ask yourself about your investment strategy

What are my goals?

If we don’t know what the target is, chances are it is going to be difficult to hit it. It is important to have an understanding of what we are investing for. Are we accumulating for shorter term goals, such as the purchase of a house, the education of our children? Or is the major objective to save for retirement? Perhaps it is a combination of these goals. If we know why we are investing and what the time frame for accumulation is we can determine how much risk is acceptable.

What is my risk tolerance?

This probably will depend on where you are in the life cycle. Investors who are in their 20’s to mid-30’s usually tolerate greater risk as they have sufficient time to make up any losses. In the middle years, especially when trying to save while raising and educating our children, steady growth with less risk is often the approach. At retirement, investors usually become extremely risk adverse as this is the time that capital is turned into income to replace earnings.

What are my retirement needs?

Converting capital into a consistent income might be the objective for the retirement years. For example, if we know what our fixed expenses will be, providing a guaranteed investment income that covers these expenses will help us to enjoy a comfortable retirement. While GIC’s might guarantee the capital, it only guarantees the interest rate up to the maturity date. Current interest rates are so low, nervous investors who would be comforted with guarantees may wish to consider a Guaranteed Minimum Withdrawal Benefit plan from an insurance company.

Are my investments tax efficient?

With a registered plan (RSPs, IPP’s etc.) all investments are treated the same – tax deductible going in (highly tax efficient), totally taxable as income coming out (highly inefficient). Even though deposits are not tax deductible, Tax Free Savings Accounts (TFSA’s) are highly recommended due to the fact that all growth is tax free and can be withdrawn at any time with no tax payable.

Looking at non-registered investments, usually the higher the risk the more tax efficient the investment. Pure capital gains are taxed at the lowest rate, guaranteed income (such as a GIC) at the highest rate. Dividends are taxed somewhere in the middle. There are many types of financial vehicles and most of them are appropriate in the right circumstances. Employing effective portfolio allocation can ensure that you are not unduly affected by equity volatility, fluctuating interest rates, or high rates of income tax.

Knowing the answer to these four questions should go a long way in determining whether or not you are on the right track. Having a full understanding of the options available to you is important.

There is nothing as certain as uncertainty. We live in very turbulent times with respect to the investment climate and developing an investment strategy during this time can be a very daunting and confusing task. Given that there are now investment vehicles that deal specifically with many of the issues facing investors today, discussion and consultation has never been more important.

As always, please feel free to share this information with your family and friends.


Recover Your Long Term Care Costs

Recover Your Long Term Care Costs

Will your family be affected by the costs of caring for an aging loved one?

Statistics Canada states that over 350,000 Canadians 65 or older and 30% of those older than 85 will reside in long term care facilities.  With increasing poor health and decreased return on investments, the fear of facing financial instability in your declining years is real.

How will this impact your family?

Caring for an aging parent or spouse takes its toll emotionally and financially.  Adult children with families and job pressures of their own are often torn between their obligations to their parents, children and careers.  This often results in three generations feeling the impact of this care.

Is it important to you to have control over your level of care?

Consider this:

  • The cost of providing for long term care is on the rise
  • While many Canadians assume that full-time care in a long term care facility will be fully paid by government health programs; this simply is not the case. In fact, only a small part (if at all) of the costs of a residential care facility will be paid by government health care programs
  • 28% of all Canadians over the age of 15 provide care to someone with long term health issues
  • For the senior generation, the prospect of the failing health of a spouse puts both their retirement funds and their children’s or grandchildren’s inheritance at risk
  • Capital needed to provide $10,000 month benefit (care for both parents) for 10 years is $ 1,000,000 (if capital is invested at 4% after-tax)


Case Study

Norman (age 64) and Barbara (age 61) have three children, aged 32-39.  While still in good health the family does have a concern for their future care.

To safeguard against failing health it was decided that they purchase Long Term Care Policies to protect their quality of care and a Joint Last to Die Term 100 Life Insurance Policy to recover the costs.

The Long Term Care policies would pay a benefit for facility care in the amount of $1,250 per week for each parent.  The monthly premium for $10,000 per month Long Term Care for both Norman and Barbara is $544.17.

The Premium for a Joint Last to Die Term to Age 100 policy with a death benefit of $250,000 is $354.83 per month.

Upon the death of both parents $250,000 is paid to the beneficiaries (children) tax free from the life insurance policy, returning most if not all of the premiums paid.



Advantages of the Long Term Care Back to Back Strategy

  • Shifts the financial risk of care to the insurance company
  • Allows for a comfortable risk free retirement
  • Preserves estate value for future generations

When is the best time to put this structure in place?

  • Remember, the older the insured, the higher the costs
  • Do it early while you are still insurable!

Please call me if you think your family would benefit from this strategy.  Feel free to use the sharing icons below to forward this to someone who might find this of interest.



Should you wish to learn a little more about long term care, the Canadian Life and Health Insurance Association (CLHIA) has published a brochure which can be downloaded here
Canada Pension Plan – Should You Take it Early?

Canada Pension Plan – Should You Take it Early?

The new rules governing CPP were introduced in 2012 and they take full effect in 2016.  The earliest you can take your CPP Pension is age 60, the latest is 70. The standard question regarding CPP remains the same – should I take it early or wait?

While you can elect to start receiving CPP at age 60, the discount rate under the new rules has increased.  Starting in 2016, your CPP income will be reduced by 0.6% each month you receive your benefit prior to age 65.  In other words, electing to take your CPP at age 60 will provide an income of 36% less than if you waited until age 65.

CPP benefits may also be delayed until age 70 so conversely, as of 2016, delaying your CPP benefits after age 65 will result in an increased income of 0.7% for each month of deferral.  At age 70, the retiree would have additional monthly income of 42% over that what he or she would have had at 65 and approximately 120% more than taking the benefit at age 60.  The question now becomes, “how long do you think you will live?”

Assuming that an individual has $10,000 of CPP pension at age 65, and ignoring inflation (CPP income benefits are indexed according to the Consumer Price Index), the following table compares the total base income with that if benefits are taken early or late:

CPP Benefit Commencement
Total benefit received Age 60 Age 65 Age 70
One year $ 6,400 $10,000 $ 14,200
Five years $32,000 $ 50,000 $ 71,000
Ten Years $64,000 $100,000 $142,000

The question of life expectancy can be a factor in determining whether or not to take your CPP early.  For example, according to the above table if you take your pension at age 60, by the time you reach age 65; you would already have received $32,000 in benefits.  With $10,000 in pension income commencing at age 65 the crossover point would be age 73 (the point at which the total income commencing at age 60 equals the total income commencing at age 65). If you were to die prior to age 73, you would have been better off taking the earlier option.

If your choice is to delay taking the pension until age 70 instead of 65, the crossover would not be reached until age 85.

Some individuals may wish to elect to take the pension early and invest it hoping that the income from age 60 combined with the investment growth will exceed the total income that would be received by starting at 65.

Remember, if you elect to take your pension before 65 and you are still working, you must continue to contribute to CPP.  After age 65, continuing contributions while working are voluntary.  On the plus side, these extra contributions will increase your pension under the Post-Retirement Benefit (PRB).

Reasons to take your CPP before age 65

  • You need the money – number crunching aside, if your circumstances are such that you need the income then you probably should exercise your option to take it early;
  • You are in poor health – if your health is such that your life expectancy may be shortened, consider taking the pension at 60;
  • If you are confident of investing profitably – if you are reasonably certain that you can invest profitably enough to offset the higher income obtained from delaying your start date then taking it early may make sense. If you are still continuing to work, you could use the CPP pension as a contribution to your RSP or your TFSA.

Reasons to delay taking your CPP to age 70

  • You don’t need the money – If you have substantial taxable income in retirement you may want to defer the CPP until the last possible date especially if you don’t require the income to live or support your lifestyle;
  • If you are confident of living to a ripe old age – if you have been blessed with great genes and your health is good you may wish to consider delaying your CPP until age 70. Using the earlier example and ignoring indexing, if your base CPP was $10,000 at 65 then the pension, if delayed until age 70, would be $14,200. If you took the higher income at 70, you would reach the crossover point over the age 65 benefit at age 84 and after that would be farther ahead.

This information should help you make a more informed choice about when to commence your CPP benefits.  Even if retirement is years away it is never too early to start planning for this final chapter in your life.  Call me if would like to discuss your retirement planning.

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There is Nothing so Certain as Death and Taxes

Or so the saying goes.  This certainly is true in Canada where there is a “deemed disposition” when a taxpayer dies.  What this means is that a taxpayer is deemed to dispose of all his or her assets at fair market value immediately preceding death.

How does this affect your assets?

  • For certain assets (e.g. stock investments, company shares, revenue property, collectables), if the fair market value is greater than the adjusted cost base then capital gains will result.
  • Fifty percent of capital gains are included in the deceased taxpayer’s income.
  • Revenue property could also attract additional tax in the form of recaptured depreciation.

There are some exceptions

  • Assets which are left to a spouse will have the gain deferred until the spouse dies or disposes of the asset.
  • A principal residence is not subject to capital gains.
  • Shares that the deceased owned in a Qualifying Small Business Corporation may qualify for the Lifetime Capital Gains Exemption where the first $800,000 of capital gain is exempt from taxation

Registered Funds receive different tax treatment

RRSP, RRIF, TFSA and Pension Funds

  • A spouse who is left registered funds by her husband or his wife may roll those funds into his or her Registered Savings Plan or Retirement Income Fund and avoid paying income tax.
  • Registered funds left to anyone other than a spouse or qualifying disabled child are fully taxable as income. Some rules also apply to minor dependent children which involve spreading the tax by purchase of a qualifying annuity for 18 years less the age of the child at the time of acquiring the annuity.
  • Amounts paid to a beneficiary of a Tax Free Savings Account are not subject to income tax.

Other fees and costs

  • Funeral and other last expenses;
  • Probate fees;
  • Administrative costs and possibly legal fees.

Reduce or avoid the impact

Estate planning and life insurance solutions

Freezing the estate which has the effect of fixing the amount of tax payable on assets upon death and passing future growth to the next generation;

  • In conjunction with the above, the use of a family trust with the objective of multiplying the number of Lifetime Capital Gains Exemptions on shares in a Qualifying Small Business Corporation distributed to other family members.
  • The use of joint accounts. This strategy should be used with careful consideration and professional guidance.
  • Effective use of life insurance, both personally and corporately owned, which can provide sufficient liquidity at death to pay taxes with insurance proceeds rather than “hard dollars”. This can be especially true by using Joint Second-to-Die life insurance which will provide proceeds to pay the deferred tax upon the death of the surviving spouse.

While we often complain about the cost of living, the cost of dying can also be extremely high and could create significant problems for those we leave behind.  With sound advice and planning the financial impact on your family and business partners can be softened and, sometimes, even eliminated.


Can Probate be Avoided?

Executors often find that the probate process can be both time consuming and expensive.  Planning strategies exist that may eliminate or reduce the requirement of having assets probated.

What is probate?

Probate is a legal procedure that validates a deceased’s will and confirms the executor’s authority to carry out the testator’s wishes. This provides assurance to third parties such as financial institutions and land registry offices that the executor has the power to deal with assets according to the will.

Are all wills subject to probate?

There is no requirement that every will must be probated.  Proper planning can eliminate the need for probate and also, the type of asset involved will generally dictate whether or not probate is required.

What is the cost of probate?

  • This will depend on the province. At the low end, Alberta has a flat maximum fee of $400, while at the upper end Ontario has a levy of $15 per thousand on estates valued in excess of $50,000.  British Columbia has fees of $14 per thousand (estates over $50,000) plus a filing fee;
  • Property which is owned in another province may attract fees based on that province’s fee schedule.

What are advantages to probate?

  • When Letters of Probate are obtained, financial institutions, transfer agents, land registry offices and other third parties can safely transfer the assets to the intended recipients;
  • The time frame for any court challenges to the will or estate is usually measured from when the probate was granted. This limits the period of when legal action might be taken.

What are the disadvantages to probate?

  • The process can be time consuming and complex;
  • Depending on the jurisdiction the cost of probate along with the legal fees can be expensive;
  • The process is open to public scrutiny so information about the estate distribution is made public.

7 Tips to avoid probate

There are a number of strategies to, if not avoid probate entirely, reduce the value of the assets that would otherwise be exposed to probate.

  • Make sure you have a will – Probate fees will be applied automatically if you die intestate (without a will);
  • Gifting prior to death – this can reduce the value of the estate, so it has to be done with care. It is important that all control over the gift must be relinquished.  Be careful as there may be income tax considerations, (capital gains etc.), as well as possible property transfer taxes;
  • Use named beneficiaries whenever possible – moving assets to vehicles such as life insurance, annuities, and segregated funds is a great way to avoid probate. The bonus here is that it also allows the proceeds to be paid quickly and directly to the beneficiary.  This also applies to registered investments such as RRSP’s, RRIF’s, TFSA’s and pensions;

To avoid the unintended future inclusion of these assets in your estate if the named beneficiary dies, you should consider naming a successor (contingent) beneficiary;

Named beneficiaries also provide a confidential transfer.  The exception to this is in Saskatchewan where probate rules dictate that beneficiaries to insurance products be listed even though the proceeds are not subject to probate;

  • Use of Joint Tenancy – Holding assets in joint tenancy with a spouse, child or other family member will avoid probate as the asset passes automatically upon death to the other individual. Using joint tenancy to avoid probate fees should involve careful consideration as there will be a loss of control once it is jointly held and the asset will be exposed to the joint tenant’s creditors;
  • Use of Trusts – Transferring assets to a trust will remove the asset from the estate. The use of an alter-ego or joint spousal trust can be very effective for this purpose.  Be careful of appreciable assets that may attract a taxable disposition upon transfer;
  • Transferring assets to a corporation – Except for outstanding mortgages on real estate which are deductible, generally probate fees are charged against the gross value of an estate asset. If an estate asset was purchased with borrowed money, it may be beneficial to transfer that asset to a limited company.  This will reduce the value of the estate and the company share value will be the asset less the debt used to acquire it;
  • Multiple Wills – Not all assets are subject to probate. It is becoming popular to have two wills – one for those assets that are probatable and one for those that are not.  For example, someone who owns private company shares may wish to use a second will to transfer those assets as private company shares are not subject to probate.  If assets are held in another province with lower probate fees there may be an advantage to have a separate will dealing with those assets;

The strategy of multiple wills is not available in all provinces and the use of multiple wills may create problems with the new Graduated Rate Estate tax with respect to testamentary trusts.

Please note that legislation governing probate and the fees that are levied vary by province so not all the ideas presented here will apply to every province.  This article does not apply to the province of Quebec.  Careful planning is advisable with all estate planning considerations and it is important to seek professional advice when considering these strategies.

We are here to answer any questions you may have on this complicated issue. As always, please feel free to share this article by using the share buttons below.


Retirement – Are Your Prepared?

Whether you are decades away from retirement or if it is just around the corner, being aware of the planning opportunities will take the fear and uncertainty out of this major life event.

Blue sky your retirement plans to get clarity

As you approach retirement, preparation and planning become extremely important to help ensure that this period of your life will be as comfortable as possible.   If you are like most, you have spent considerable time contemplating the type of retirement you wish for yourself.

  • Is extensive travel your dream?
  • Do you have an expensive hobby or two you want to take up?
  • Will you stop working totally or continue to do some work on your own terms using your life experience and skills to supplement your income.
  • Will you remain in your house or will you downsize to smaller, easier to care for premises? Or perhaps housing that will be more compatible with the challenges of aging?

There are many lifestyle issues that need to be considered but to realize these dreams you must also be really secure in retirement, so the financial issues must be planned for as well.

The big question – How much will I need to retire?

Recent studies reported that middle and upper middle class couples spend approximately $50,000 to $60,000 per year in retirement.  If this seems a lot lower than what you and your spouse are spending now, it probably is.  That is because most retirees no longer have the same level of expenses around housing, education and raising a family.

The average age for retirement in Canada for males is age 62 (females, age 61).  At that age, normal life expectancy is another 22 years.  Many financial advisors use a rule of thumb that says you will need a nest egg of approximately 25 times your post-retirement spending.

The average CPP retirement pension is approximately $7,600 per year or approximately $15,000 per married couple (if spouse qualifies for income at same rate).  Assuming a 4% withdrawal rate and adjusted for inflation this means that a middle class couple would require a retirement fund of $875,000 to $1,125,000.  If you do not qualify for or wish to ignore your government benefits you would require between $1,250,000 and $1,500,000. For those lucky enough to have participated in a company pension plan, you may already have sufficient retirement income.

8 Retirement planning tips

Review your sources of retirement income

  • Registered plans –including RRSP’s, corporate pension plans, TFSA’s
  • Government programs – CPP, QPP, OAS etc.
  • Non-registered investments – stocks, bonds, mutual and segregated funds, cash value life insurance, prescribed life annuities
  • Income producing real estate – including proceeds from the sale of principal residence if downsizing.

Eliminate or consolidate debt

  • Try to avoid carrying debt into retirement. If interest rates rise and your retirement income is limited or fixed your lifestyle could be negatively affected.

Understand your government benefits

  • Review what government programs you are eligible for.

Know your company pension plan

  • If you are a member of a company pension plan review your pension handbook or meet with the pension administrator to understand what options are available for you. This should include reviewing the spousal survivor options.

Reduce or eliminate investment risk

  • Consider reallocating your investment portfolio in contemplation of retirement to eliminate or reduce risk. You may want to shift away from primarily equities in an effort to provide more stable returns.

Protect your savings and income

  • Also consider effective risk management to avoid depleting assets in the case of a health emergency affecting yourself or a family member. There are many insurance options available to help you do this including Critical Illness, Long Term Care and Life Insurance.

Know your health benefits

  • Determine how you will maintain your dental care, prescription, and other extended health costs through retirement.

Review your estate planning strategy

  • Are you still on track or do modifications have to be made to wills, trusts, tax planning, Shareholder and other agreements?

Tax planning in retirement

Tax planning most likely was part of your investment strategy during your working years and you shouldn’t abandon that now just because you are retired.  Tax planning is just as important as it was pre-retirement.

Pay attention to the following:

Mark your calendar for your 71st birthday

  • By the end of the year you turn age 71, you must convert your RRSP’s into RRIF’s or annuities. There will be adverse consequences if you do not so be sure to take note.

Defer your taxable retirement income until age 71

  • Since your income from your RRIF or registered life annuity is fully taxable try to bridge your income from date of retirement to age 71 using non-registered funds. Your TFSA is a perfect vehicle to accomplish this so try to contribute the maximum (or exercise the catch up) for you and your spouse during your working years.  Also, taking income from your segregated or mutual funds will also be an effective way of bridging your retirement income until age 71 at a very low tax rate.

RRSP contributions in year you turn 71

  • If you have unused RRSP contribution room you can make a lump sum contribution until December 31st of the year you turn 71. Your resulting RRSP deduction can be carried forward indefinitely and will allow you to spread out the deduction over any number of years reducing the tax on your future retirement income.

Try to avoid any claw backs

  • Your objective should be to effectively reduce line 234 on your income tax return – total income. Paying attention to how your investment income is taxed will assist with this. For example, the type of investment income that creates the most total income on line 234 is dividend income which is adjusted for income purposes to between 125% and 138% of the dividend received.  This compares with 50% for capital gains and approximately 15% or less for prescribed annuities.

Continue to obtain professional advice

  • Continue to work with your advisors to find ways for you to reduce your post retirement tax bill to allow you to keep more dollars in your wallet.


Planning for a healthy retirement both financially and physically will ensure that you can enjoy a long and well deserved retirement on your terms.

Shared Ownership Critical Illness

Shared Ownership Critical Illness

Shared Ownership refers to a concept where more than one party owns an interest in an insurance policy.  The most common of these arrangements is where the corporation is the owner and beneficiary of the death benefit and the shareholder or employee owns the cash value of the policy.

Recently there has been growing interest in applying this strategy to a Critical Illness policy.  Although the CI policy does not have cash value, there is usually an option to have a Return of premium (ROP) in the following situations:

  • Upon death – If the insured dies without having submitted a claim for critical illness the premiums paid are refunded;
  • Upon Termination – If the policy reaches its termination age without a claim being made, the premiums paid are refunded;
  • Upon Surrender – If the policy is surrendered without a claim, premiums paid are refunded.

Who should consider this arrangement?

Anyone who owns shares in a corporation and wishes to protect that corporation against loss if one of the shareholders or other key employee is diagnosed with a critical illness.

How does it work?

A Shared Ownership Agreement is drafted documenting:

  • That the corporation will own, pay for and be the beneficiary of the CI coverage on the key shareholder or employee;
  • That the shareholder will own and pay for the Return of Premium option upon the surrender of the policy.

Who benefits?

Under this arrangement the company is protected against loss but should no critical illness occur the shareholder/employee will receive a financial benefit as the premiums paid will be refunded.


Case Study

Barry applies for $500,000 of lifetime critical illness coverage with a return of premium benefit upon surrender.  His company lawyer drafts a Shared Ownership Agreement, which stipulates that the corporation owns and is beneficiary of the $500,000 CI benefit while Barry owns and pays for the ROP benefit.

Premium Structure

  • The total annual premium for the policy is $ 9,131.
  • The Corporation pays the cost of insurance $7,003
  • Barry personally pays the ROP benefit of $2,128

How does Barry Benefit?

Twenty years later, when Barry turns 60, he determines that the CI coverage is no longer required. His company cancels the policy and Barry exercises his return of premium option.  Barry receives a cheque from the insurance company for $182,628 Tax Free.

This represents an after tax rate of return on Barry’s annual ROP premium ($2,128) of 12.5% compound interest.

Is this really an important planning strategy?

Consider this*,

  • One in three Canadians will develop life threatening cancer;
  • Half of all heart attack victims are under the age of 65;
  • Each year 50,000 Canadians suffer a stroke with 75% of all victims being left with a disability.

The CI Shared Ownership Strategy can result in significant financial benefits for the individual shareholder while the Corporation enjoys the protection of its key employees against loss from a critical illness.

Call me if you would like to explore whether this strategy will benefit you and your company.  Or feel free to use the sharing icons below to forward this to someone who might find this of interest.


For Barry’s case study, Industrial Alliance’s Transition Critical Illness product to age 100 with Flexible Return of Premium was illustrated. Of course, results will depend on age and amount plus product features will be vary by company.

*Source: RBC Insurance

Family Business Planning Strategies

Family Business Planning Strategies

67% are at Risk of Succession Failure

If you are an owner in a family enterprise, the likelihood of your business successfully transitioning to the next generations is not very good.  This has not changed over the years. Statistics show a failure rate of:

  • 67% of businesses fail to succeed into the second generation
  • 90% fail by the third generation

With 80% to 90% of all enterprises in North America being family owned, it is important to address the reasons why transition is difficult.

Why does this happen and what can you do to prevent it?


Family enterprises are often put at risk by family dynamics.  This can be especially true if the family has not had any meaningful dialogue on the succession of the business. And, while we are throwing around statistics, it has been estimated that 65% of families have not had any meaningful discussion about business succession.

  • Family issues can often hijack or delay the planning process. Sibling rivalries, family disputes, health issues and other concerns certainly present challenges that need to be dealt with in order for the succession plan to move forward.
  • Many times a founder of a family business looks to rely on the business to provide him or her with a comfortable retirement while the children view the shares of the company as their inheritance.
  • Sometimes an appropriate family successor is not readily identifiable or not available at all.


  • In these times a decision needs to be made as to whether or not ownership needs to be separated from management, at least until the second generation is willing or capable to assume the reigns of management.
  • If the founder needs to receive value or future income from the business a proper decision as to who is running the company is vital. If this is not forthcoming, then there may be no other alternative but to sell the company.


Tax Planning

When planning for the succession of the business an important objective is to reduce income tax on the disposition (sale or inheritance). One of the methods is to implement an estate freeze which transfers the future taxable growth to the next generation.  The corporate and trust structure utilized in this strategy may also create multiple Small Business Gains Exemptions which can reduce or eliminate the income tax on capital gains.

Just as it is important for a business owner to plan to reduce taxes during his or her lifetime, it is also important to maximize the value of the estate by planning to reduce taxes at death.

Minimize Management and Shareholder Disputes

This can be accomplished with the implementation of a Shareholders’ Agreement.   Often there are multiple parties that should be subject to the terms of the agreement, including any Holding Companies or Trusts that may be created to deal with the tax planning issues.  The Shareholders’ Agreement will include the procedures to deal with any shareholder disputes as well as confer rights and restrictions on the shareholders.

The agreement should also define the exit strategy that the business owners may wish to employ.

Estate Equalization

Often the family business represents the bulk of the family fortune.  There are times that one or more children may be involved in the company while the other siblings are not.  Proper planning is necessary to ensure that the children are treated fairly in the succession plan for the business when the founder dies.

One method often employed in this regard is for the children active in the business to receive the shares as per the will or shareholders’ agreement while the non-business children receive other assets or the proceeds of a life insurance policy.

Founder’s Retirement Plan

It is problematic that often a business owner’s wealth may be represented by up to 80% of his or her company’s worth.  It is important that the founder develop a retirement plan independent of the business so that his or retirement is not unduly affected by any business setback.

Protecting the Company’s Share Value

Risk management should be employed to provide for any unforeseen circumstances that would have the effect of reducing share value.  As previously mentioned, if the bulk of a family’s wealth is represented by the shares the family holds in the business, a significant reduction in that share value could prove catastrophic to the family.  These unforeseen circumstances include the death, disability or serious health issues of those vital to the success of the business, especially the founder.  Proper risk management will help to ensure that the business will survive for the benefit of future generations and continue to provide for the security of the founder and/or his or her spouse.


Since the dynamics of family businesses differ from non-family firms, particular attention is required in the planning for the management and succession of these enterprises.  This planning should not be left until it is too late – it is never too soon to begin.

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