August 2016 - Beacon Family Office

Tax-Smart Charitable Donations

In Canada, you are able to support helpful charities in a number of different ways. If you go over your donation plan strategically, you can optimize the benefits to both yourself and the charities that mean the most to you. Read on to learn more about strategies involving charitable donations:

Life Insurance Proceeds

If you have permanent life insurance, you are able to donate these proceeds to the charity of your choice, leaving a sizeable donation in your name that can really make a difference. Doing so will allow you claim the Charitable Donation Tax Credit on your annual premiums you pay, or you could choose for your estate to receive a tax credit after you pass away.

Donate Investments

You can donate your investments to a charity as well. If your investment has increased in price, it will come with the added benefit of being exempt from capital gains tax. If your investment has gone from $10,000 to $20,000, you can donate the $20,000 tax-free and also claim a Charitable Donation Tax Credit of $20,000 as well.

Combining Donations

The Charitable Donation Tax Credit is only 15% of your donation for the first $200 donated. Donations made after that are credited at 29%, a significant difference. If you pool all of the donations that you made, you are able to increase the amount of money that is credited at 29%. You are able to combine donations with your spouse and have one person claim the tax credit. It is important to remember that the maximum donation you can claim in one year is 75% of your annual net income (or 100% on the year of your death, or the previous year). Thankfully, you can carry donations forward for up to five years if you need to.

New Rules for 2016

There have been some important changes to donations made upon death, as of January 1^st 2016. Previously, tax credits were applied to your final tax return, with all remaining credits applied to the previous year. The donation can now be allocated to the tax year of the estate, a previous tax year of the estate along with the last two years of the individual.

These aren’t the only charitable donation strategies available to you. For advice on how to make the best use of your charitable donations, you should contact a financial advisor at The Beacon Group of Assante Financial Management Ltd.

Withdrawing from Your RRIF

When you are retired, you will have the choice of drawing from a number of different registered and non-registered accounts. You may choose to withdraw from your Registered Retirement Income Fund (RRIF), Tax-Free Savings Account (TFSA) or your non-registered accounts. Choosing which account to withdraw from first may seem like an easy decision, but there are a number of things you need to consider.

Which should you choose?

Conventional wisdom would dictate that you should draw from the TFSA first, followed by your non-registered accounts since they are the least-taxed sources. If you followed this practice, you would be living on these funds while only making the minimum withdrawal from your RRIF every tax year. This does make sense from a tax perspective (and will help you save money in the short-term) but there are also some tax implications to consider for your estate.

Estate Considerations

After you pass away, your Registered Retirement Income Fund assets will be taxable as income on your final tax return. If you have sizeable RRIF assets remaining, your money will be subject to the highest tax rate, which can range between 40 to 55 percent depending on where you live. Subjecting your assets to the highest tax rate can be avoided though. If your RRIF assets are received by your surviving spouse, they won’t be taxable on your final return. You can also avoid these taxes by taking a different approach to your retirement withdrawals.

Withdraw more than the Minimum

During your retirement, you should consider withdrawing more than the minimum from your RRIF, even if you don’t plan on spending it all. These withdrawals will be taxable, along with being subject to withholding tax, but the rate will most likely be lower than the final rate on your last tax return. You can then contribute some of the withdrawals to your or your spouse’s TFSA (if you have contribution room) so that all future income generated will be tax-free. You could also add them to one of your or your spouse’s non-registered accounts.

If you need help getting a handle on your retirement planning, the retirement planning advisors at The Beacon Group of Assante Financial Management Ltd. are here to help. They will guide you towards a prosperous retirement by helping you with the decisions that will benefit you both today and tomorrow.

Adjusting Your Estate Planning Strategies

Estate planning is not easy. It is important to go over your estate plan many years before it will be administered, but a lot can change during the years between. How do you properly develop an estate plan when your future plans may change? You may end up remarrying, or taking on a dependant unexpectedly. Luckily, in many of these kinds of situations, life insurance can help you.

Permanent life insurance

Purchasing permanent life insurance can help you and your estate deal with a variety of situations that may arise during the course of your life. The proceeds from a payout are payable when needed and also tax-free. There is a guaranteed amount that you will know up front as well. These are some of the common unexpected estate planning needs that permanent life insurance can meet:

Making things equal

You can use your life insurance to provide one child a guaranteed inheritance amount when you plan to give another child ownership of an indivisible asset, like a vacation property for example.

Remarrying

If you go through a divorce with your first spouse and then remarry, permanent life insurance can give you the means to give an inheritance to your children from the first marriage while also providing for your current spouse.

Final expenses

The cost of your funeral and your debts could be covered under permanent life insurance. Some people purchase a life insurance policy for this reason alone, so other assets will not need to be liquidated in order to cover the costs.

A tax-free inheritance

If you leave a life insurance pay-out to your beneficiaries, you are gifting them funds that are free from tax that won’t be delayed by estate administration. They would also be free from any costly probate fees.

Taking care of a dependant

If you have a dependant like a child or grandchildren with special needs, you can use your life insurance proceeds to go towards their day-to-day care.

Permanent life insurance is an important tool that shouldn’t be overlooked when planning your estate. Your unique needs may change over the course of your life, so it’s good to have a tax-free vehicle like life insurance available for you to use for a variety of potential scenarios. Talk to an estate planning advisor at The Beacon Group of Assante Financial Management Ltd. to learn more about how permanent life insurance can help your estate.

3 Common Reactions to the Market Cycle

Sometimes in life you find out the hard way that reality doesn’t always meet your expectations. This can be especially true when dealing with investments. You might think that you are comfortable with a temporary drop in your investment value, but when it actually happens, you may not be very comfortable with it. There are three common reactions investors have when dealing with the market cycle.

You become anxious and lose sleep

Your shiny new investment takes a dip in the first week, and dealing with it is way more difficult than you expected. Risky investments aren’t worth it if they cause you enough stress that you can no longer sleep at night. In this case, we recommend that you move your money into more conservative investments. You can talk with your financial advisor about adjusting your portfolio to be better aligned with your actual risk tolerance.

You don’t like it at first, but you get used to it

Your investment takes a dive and you start to worry. You talk to your advisor and they assure you that if you wait it out, you won’t regret it. You just have to be patient while seeing your investments through the market cycle. Once your investment rebounds, you experience the market cycle for yourself. This makes you more comfortable with accepting risk. You may even want to target more aggressive investments, or you may be happy with what you are doing. Talk to your financial advisor either way.

You don’t think twice about it

You keep an eye on your portfolio from time to time, but in general you realize that it’s not a good strategy to time the market and micromanage your investments. You and your financial advisor came up with an investment plan and you are going to stick with it. You don’t need to change your portfolio and you can sleep easy knowing your investments are in good hands.

No matter what your reaction is, every investor needs a good financial advisor to help them with their investments. This is true for investment veterans and for rookies. You should contact a financial advisor at The Beacon Group of Assante Financial Management Ltd. They will help your investment portfolio match your unique needs and personality so you can sleep easy if the market makes you nervous, or you can take some risks if you are more aggressive.

Are You Prepared for the Unexpected When it Comes to Retirement Planning?

The simple fact that Canadians are living longer and longer means that we are more likely to come face-to-face with unexpected events that can have financial consequences. A Canadian in their 60s has a very good chance of making well into their 80s. This increased longevity means that Canadians need to plan to have their retirement income last for at least 25 to 30 years. Unfortunately, a lot can happen within those 30 years of retirement that can affect a serious effect on your savings. Read on to learn more about how to best prepare for the unexpected when planning your retirement.

Long-Term Health Care

Canadians can expect to experience at least one major life event that will upset their financial life in their senior years. The most expensive events typically involve the cost of health care. Depending on your situation, you may face higher than expected health care expenses because you are no longer covered under your employer’s group health insurance. This may lead to you facing costly expenses such as dental, vision, and prescription expenses that are not covered by government plans. The largest potential health expenses you will need to plan for is long-term care. The government only foots a minor percentage of that bill, so most of it will need to be paid out of pocket. A stay of even a couple of years can put a major dent into your savings, which is why it’s a smart idea to allow for these potential expenses by planning accordingly. You should purchase long-term health care if you won’t be covered by your employer anymore.

The cost of living

It’s easy to convince yourself that your cost of living will decrease during retirement. Expenses like transportation will go down because you are no longer commuting, but you will see an increase in many other ways. Your time spent travelling and participating in recreational activities needs to be factored in as well. You can’t forget about inflation either. Even low-level inflation will devalue your savings somewhat. The key is to be a bit aggressive and aim for investments that will outpace inflation, instead of being completely safe and having inflation cut into your retirement savings.

Expect the unexpected

Retirement savings is all about planning for the expected and accounting for the unexpected. If you want to be sure that you have everything covered, you should talk to a retirement planning advisor at The Beacon Group of Assante Financial Management Ltd. to get started.

Finding Investment Common Ground with Your Spouse

It can be hard to find common ground between two unique individuals, even when they are in a relationship. This kind of dilemma can occur when dealing with investments. Just because you love each other doesn’t mean you have the same risk tolerance as investors! You may not be able to sleep at night if the market has taken a hit, while your spouse may be sleeping soundly right next to you, knowing your investments are bound to go back up. If you find yourself in this kind of situation with your loved one, we can help. Here are three approaches that can help you find investment common ground with your spouse.

Agreeing on a goal and timeline

There are three key factors to take into consideration when creating an investment portfolio. They are called investment objective, time horizon and risk tolerance. Even if you and your spouse don’t have the same risk tolerance, you may be able to come to an agreement because of your circumstances. For example, if you want to save for a down payment on the home of your dreams, you may be able to convince the aggressive investor to stay away from high-risk investments knowing that your home purchase may rest in the balance. You both can agree on your objective and time horizon and come to an agreement on your risk tolerance for this investment.

Meeting halfway

You may be able to find common ground with your spouse by creating a diversified portfolio. This means you can adjust the risk level of the investment to please each spouse. You should be able to find a mutual fund with an agreeable mix of equities and fixed income that creates a suitable compromise for each spouse’s risk tolerance. This would eliminate the more aggressive and conservative holding, allowing you both to meet halfway. This strategy can be very beneficial as diversifying your portfolio is a smart investment strategy.

Separate portfolios

You won’t always be able to come to a compromise, so you may just have to agree to disagree. If this is the case, you may have to each keep your own separate portfolio. This actually isn’t a bad investment strategy; it can be considered a well-rounded approach to investing. You may be able to strike a nice balance between the two of you. One portfolio could focus on long-term growth while the other focuses on capital preservation.

If you and your spouse need help with your investments, you should talk to a financial advisor at The Beacon Group of Assante Financial Management Ltd.

How Do You Use Your TFSA?

The recent federal election brought the Tax-Free Savings Accounts (TFSA) into the spotlight. The Liberals promised to lower the contribution limit from the Conservative Government’s $10,000 to $5,500. The Liberal government followed through with their promise, so the 2016 TFSA limit is now $5,500. Thankfully, Canadians aren’t losing the contribution room they’ve accumulated, so somebody opening an account today would be able to put in $46,500. The real question isn’t about how much room you have, but rather how to properly make use of the tax-free incentive. Read on to learn more about how to best use the TFSA to your advantage.

The Holistic Approach

We find that a lot of Canadians have “tunnel vision” when it comes to the TFSA. It’s much more effective to take a look at the big picture when deciding how to use the TFSA. You need to take your life goals and long-term financial plans into consideration first, and then make investment choices that will help you meet your objectives on time with an acceptable amount of risk tolerance. With that in mind, it will be easier for you to determine the securities you need to invest in, and if they are to be allocated in non-registered or registered accounts.

Short-Term Goals

If you are planning on, for example, purchasing a new car in the next five years, it would make a lot of sense to use some of your TFSA room for that goal. It would not make sense to then invest aggressively, as a risky investment could mean that there won’t be enough money in the account when the time comes for your purchase. It would be better to invest in conservative holdings to ensure some growth but also to have peace of mind knowing you will have the money when it’s needed.

Long-Term Goals

If you are looking to use your TFSA as a source of retirement income, or for other long-term goals, it would be wise to take a holistic approach instead of just focusing on one kind of account or one type of investment. In order to best save for your retirement, it’s a smart idea to build your nest egg strategically, with fixed income holdings and equity spread across different accounts. Investors should make the best use of the Registered Retirement Savings Plan (RRSP), TFSA and non-registered accounts to ensure tax-efficiency and flexibility.

Navigation through the world of registered and non-registered investments can be tricky. If you need help with your investment planning strategy, you should contact The Beacon Group of Assante Financial Management Ltd. today.

Why a Testamentary Trust Still Matters

Testamentary trusts have taken a hit recently and have had their tax savings advantages restricted. This doesn’t mean they are going away though – it’s quite the contrary. Testamentary trusts are still a very effective way to maintain control of the money you will be leaving to your beneficiaries. Read on to learn more about what has changed for testamentary trusts and how they can still be useful when planning your estate.

Recent changes

As of the first of January 2016, testamentary trusts will be taxed at the highest marginal taxation rate, with two exceptions. A testamentary trust will qualify for graduated rates for the first 36 months after the date of passing and if the beneficiary of the trust qualifies for the disability tax credit.

Why you should still consider a trust

A trust is still a valuable estate planning tool. There are number of examples where they can be extremely useful:

Managing your children’s funds

If you are leaving a sizeable inheritance to a beneficiary that is a child, grandchild or other young relative, you may wish to control how these funds are received and used. If they happen to be a minor, the funds must be held in trust until they reach the age of majority. If they have a disability, you can still create a trust that benefits from graduated rates that will be able to help take care of them for their whole life.

Taking care of your spouse

If you believe that your spouse would be best served by having a financial expert manage their wealth, then you can use a trust and assign a professional to manage it. This is especially helpful when they are dealing with a disability or an illness.

Managing a second marriage

Speaking of spouses, you can provide your current spouse with a lifetime benefit that will benefit others down the road. If you want to support your wife from your current marriage, but have children from your first, you can set up the trust so the rest of the money will go to them once your current spouse passes on.

There are many ways that a testamentary trust can help you with your estate, even with the recent changes. If you are planning your estate, you should contact an estate planning advisor at The Beacon Group of Assante Financial Management Ltd. Our experts can help you make the best choices for your unique situation.

Finding Financial Opportunities in Life Events

The events that occur throughout each of our lives can provide both opportunities and hurdles in the forecast of our finances. There’s no way to predict the way our lives will unfold or the financial outcomes, so for these reasons, it is important to have some sense of guidance when it comes to unforeseen changes that can happen in regards to our financial planning.

There are many factors that are involved when it comes to the outcome of our finances. Here are a few examples.

Income

Income obviously plays a major role in the leverage of financial planning. But it also includes external factors such as family size, ability for your spouse to work, education for the children, and whether you make any initial plans for investments. Every element contributes to potential future outcomes for your finances, and it can be tricky to know exactly where you may end up.

Job Loss

These days, no one can predict what the security of our jobs are, or will be over the next 20 years. Things change fast. If the loss of a job in your household occurs without any sort of safety net or plan set in place to allow some wiggle room for securing another, this could cause much added stress down the road. Being unprepared for turbulent outcomes can throw a peg into the wheel that can shake up any future plans that have been set in place.

Inheritance

At some point in life, you may receive some family inheritance. This can give you an opportunity that didn’t exist before. Whether you choose to spend it on a fancy car or invest it, for example, in some rental property in order to ensure a more secure financial future, the option is clearly up to you. But remember that every decision will affect your future. Properly planning ahead requires discipline.

Dealing With Your Parents’ Health

It may come to a point where you or your spouse’s parent may require frequent care. This means unexpected financial hurdles. Placing your loved one in home care is something that may require significant time, money and planning. Without the proper financial planning, this could cause potential problems for providing education funds for the kids down the road or a safety net for the future.

The bottom line is that life is unpredictable, and things change fast. It’s impossible to always foresee life events and changes that may occur. This is why it’s imperative to have guidance in developing some sort of financial planning for when life does throw hurdles at you so that you can do your best to make the most out of each situation and turn those hurdles into opportunities.

For all your financial planning needs, The Beacon Group of Assante Financial Management Ltd. is on your side.