Naming Beneficiaries for Your Financial Assets

When naming a beneficiary for each of your financial assets, the obvious choice may not always be the best choice. You should consider tax and estate planning implications, among other things. We have listed important items you should consider when naming beneficiaries for major financial assets:

Tax-Free Savings Accounts

With a Tax-Free Savings Account (TFSA), you can name a beneficiary, a successor holder, or both. Only your spouse can be named as the successor holder. This means your surviving spouse can take ownership of the assets in your TFSA without affecting their own contribution room. A beneficiary can get your TFSA assets tax-free and can apply them to their contribution room if they have enough space. It’s important to note that any increase in the value of the TFSA between your death and the date of the transfer will, unfortunately, be taxable to the beneficiary

Registered Retirement Plans (RRSPs and RRIFs)

When you name your dependent child or your spouse as the beneficiary of your RRSP or RRIF, the plan assets roll over on a tax-deferred basis. The same is not true if you name an adult child or anyone else as the beneficiary. When transferring your retirement funds to someone other than a dependent child or spouse, the tax liability for the transfer will go to your estate. This will reduce the amount of money you have to give through your other non-registered assets.

Segregated Funds and Life Insurance Policies

In some situations, you may want to consider using a testamentary trust instead of naming a spouse or child as a beneficiary of life insurance or segregated funds. When you name a minor as a beneficiary, the proceeds of the policy or investments must be paid into a trust in their name. If you name your own testamentary trust, you can control where your trust will be held and who will be managing your funds. This is especially a good idea in blended families. You can guarantee each child and spouse gets exactly what you desire, even if they are a minor.

The implications and rules of naming a beneficiary are complex and can very daunting to work out on your own. An estate planning expert at The Beacon Group of Assante Financial Management Ltd. can help you review your personal estate planning goals in order to name an appropriate beneficiary or successor holder for your registered and non-registered accounts.

Minimizing Financial Conflict with Siblings

It’s the sad reality of the world we live in, but conflict surrounding money within families is all too common. There are no set rules or guidelines when it comes to siblings and money. We have listed three typical situations that you may find yourself in that involve your family and money, and some strategies to help get through them while keeping everyone happy.

Inheritance

It is common practice for a parent to name one of their children as executor or estate trustee of a will. Unfortunately, this may cause some discord between siblings. A sibling that is not the executor may feel that key decisions should be made together, which could cause some conflict. The money involved in inheritance can also be a point of contention. One sibling might feel like the assets are being split up unevenly. These matters aren’t usually resolved overnight and can lead to delays and family conflicts lasting years. The best way to prevent this problem is by making your will as fair as possible. You should consider naming someone other than one of your children as executor as well. Speak with your financial advisor at The Beacon Group of Assante Financial Management Ltd. about your estate planning options.

Lending money

What do you do if one of your siblings comes to you and asks for a loan? It’s easy enough to give a loved one some help in their time of need, but you need to consider what the money is going to be used for. If your sibling is living a troubled life, giving them more money will enable them to continue. You aren’t likely to get this money back in this scenario either. If your sibling is looking for help to send their child to university, you will be helping them immensely and you are likely to get your money paid back. It is okay to put the loan and the repayment terms in writing. This will help legitimize the lending and help protect your relationship. You are allowed to say “no” to your family too. Either way, you should only loan money out if you can afford to lose it if it’s not repaid. There are so many choices when it comes to lending cash to siblings, but at the end of the day, you need to do what feels right to you.

Caring for a disabled sibling

If you have a sibling with special needs that requires lifetime support, what happens to them when your parents pass away? Is another sibling going to pick up the slack? Caring for your sibling could require bringing them in to live with you or organizing and handling the finances involved in caring for them. This is something you need to discuss with your parents long before they have reached the end of their life.

The financial advisors at The Beacon Group of Assante Financial Management Ltd. can help you with any financial matters concerning your family.

How to Choose the Right Estate Executor

Everyone knows that it’s a smart and responsible choice to have a will, but not everyone understands the importance of selecting the right estate executor to help manage their affairs and distribute their assets upon death. Picking the right executor will mean that your loved ones will receive their rightful inheritance in a timely manner. Picking the wrong executor could lead to a load of problems including tax issues and late payments. Read further for information on choosing the right executor and what that will mean for you and your family:

The role of an executor

An estate executor is the person named in your will that will be your personal representative after your death. This person is legally responsible for carrying out your wishes outlined in the will. An executor can be one of your children or your spouse, a family friend, a professional advisor, or a trust company. You will need to weigh the pros and cons of each option to find the right person or company for the job.

Choosing an executor

An estate executor must be willing to take on that role. Nobody can be forced to do it. Your executor should be trustworthy, organized, and have the time and availability to act if called upon. You can name more than one executor in your will but in these cases, it’s best to include a decision-making mechanism in your will. You should also consider naming an alternate executor in case your primary one is unable to act. If there is no alternate, the court will decide who will be your executor. It is important to get the approval of the individual(s) you plan to name executor in your will before putting them in your will. Doing so will help with the administration of your will when the time comes.

Executor compensation

Acting as an estate executor is not a charitable act. Every executor is entitled to fair compensation for the responsibility and time spent acting on your behalf. The compensation can be based upon the size of the estate, the time spent administering the estate, among other factors. Spouses and close family members tend to charge the least while trust companies will charge the most. The skills and expertise provided by an advisor or trust company can be well worth the extra cost, though.

If you have any questions about your will, estate planning, or naming an executor, contact a financial advisor at The Beacon Group of Assante Financial Management Ltd. today.

Helping Your Teens Develop Good Money Habits

It seems like it happens in the blink of an eye. One minute you’re cradling your newborn, the next you’re dealing with an ornery teenager. Life changes significantly as your children age, and you have to consider more than coping with mood swings. These money tips from your financial advisor at The Beacon Group of Assante Financial Management Ltd. will help you navigate the teenage years and help your kids make the transition to adulthood with solid money habits.

Review Your Education Savings Goal

You’ve been investing in your child’s Registered Education Savings Plan (RESP) for over a decade. Now that your child is nearing graduation from high school, it’s time to reassess your education savings goal. Speak with your financial advisor to discuss whether it makes sense to adjust your asset allocation or re-evaluate your saving philosophy from growth-oriented to conservative.

You also have a clearer picture of your child’s education plans and goals. Are they headed to college or university? Will they be staying in town or living away from home? Is graduate school or medical school on the horizon? Speak with your financial advisor and together you can understand the financial implications.

Entering the Working World

Many people begin to branch out into the working world in their teen years. Some just earn a bit of pocket money babysitting or dog-walking, while others enter the fast food or retail universe with paychecks, taxes, and employment insurance (EI) deductions.

Getting a part-time job has many benefits. Your child becomes more independent, develops new skills, understands the working world, and earns an income. However, it must also be weighed against studies and extra-curricular activities.

Now that your child has an income, as a family you must discuss the financial expectations. Decide as a family whether your teen is expected to pay their cell phone bill, or whether they should contribute some percent of their income to savings or their RESP.

Speak with your financial advisor about options that make financial sense for your teen and the family. For example, your child can file an income tax return to maximize future Registered Retirement Savings Plan (RRSP) contribution room. If your teen files taxes, they may be eligible for a tax refund and qualify for the GST/HST credit.

Teaching Money Smarts

Before your teens vault into adulthood and learn hard lessons about budgeting, credit card use, student debt, and more, it’s time to get them on the path to success before they leave home. Talk to your teen on their level about the balance between saving and spending, and present wants versus future needs. Set a good example and demonstrate that sound financial planning pays off in the end.

Speak with your financial advisor from The Beacon Group of Assante Financial Management Ltd. for more tips about helping your teens develop good money habits.

A Tax-Smart Guide to Giving Grandchildren Gifts

You love your grandchildren and you spoil them rotten, but beyond frivolous gifts like candy and toys, you would love to give them a good financial start in life by gifting them money. It goes without saying that a cash gift is not nearly as exciting as a new bike, but your grandchildren will greatly appreciate the help down the road. You will gain the satisfaction of seeing your gift make a real difference in your loved ones’ lives. It can also bring you financial benefits, as long as you are aware of the rules. Here is what you need to know about gifting money to your grandchildren:

Attribution

There is no initial gift tax in Canada, so no amount is payable after you give the gift to your child. However, if the money is gifted to a minor child and it is held in a non-registered investment account, any income generated by that gift money is attributed to you. Any capital gains are taxed to the child. No attribution applies if your grandchild is an adult.

In order to make your gift tax-effective and avoid attribution, you should contribute cash into their Registered Education Savings Plan, Tax-Free Savings Account, or Registered Retirement Savings Plan. RESPs, TFSAs, and RRSPs guarantee you won’t have to pay any tax on your gift and investments in these plans will grow and compound in a tax-deferred/tax-free environment.

Registered Education Savings Plan (RESP)

For RESPs, tax on income and growth is deferred. The tax becomes payable upon withdrawal, but it will fall into your grandchild’s hands and not yours. Make sure you plan this kind of contribution with the child’s parents so that you don’t exceed the contribution limit. Your financial advisor can help you come up with other strategies for flexibility, such as taking advantage of the maximum Canadian Education Savings Grant (CESG) with a $2,500 yearly contribution to an RESP.

Tax-Free Savings Account (TFSA)

If you want to avoid paying tax on funds that you intend to gift through your will, you can contribute that money to an adult grandchild’s TFSA tax-free. Canadians are allowed to make contributions to their TFSA after they turn 18.

Registered Retirement Savings Plan (RRSP)

Cash gifted into your grandchild’s Registered Retirement Savings Plan can grow and compound tax-deferred until they take advantage of it. The Home Buyer’s Plan allows first-time home buyers to withdraw money from their RRSP to put towards purchasing a home. The Lifelong Learning Plan allows you to take money from your RRSP to pay for full-time education. It’s also important to make sure there is enough contribution room available before giving the gift.

Contact a financial advisor at The Beacon Group of Assante Financial Management Ltd. today to help you sort out the best options for giving your loved ones the gift of financial security.

Are You Prepared for the Unpredictable?

Try as you may, you are not able to control everything life sends your way. A major life-altering event like sudden job loss or serious illness can throw you and your family for a loop. You can’t prevent these types of things, but the one thing you can do is prepare financially so you are ready for any possible scenario. We have outlined the steps you should take when a life-changing event suddenly crops up:

Sudden Job Loss

The first step you need to take when receiving the news that you will be let go is to seek legal counsel. Contact your lawyer to confirm that the terms of your termination and your severance package are acceptable. You should speak to a financial advisor to see if any portion of your severance is eligible to roll over to your Registered Retirement Savings Plan. You should also consider the possibility that the taxable amount can be split between two years instead of one. If you are lucky enough to find a new job in a timely manner, your severance package becomes a windfall. If you are still seeking employment after a month or two, your severance could run out and you may need to start using your emergency fund along with your Employment Insurance benefits.

Disability

To protect yourself from the financial repercussions of a debilitating injury, disability insurance can help. This type of insurance replaces a portion of your regular income if an illness or injury prevents you from going to work. You may have disability insurance under your employer’s group benefits plan, but you will want to check the level of coverage. If their definition of disability is restrictive, or if the income provided wouldn’t be enough, you want to consider personal coverage to supplement it. If you are self-employed, you should consider purchasing insurance that will replace a percentage of your income.

Critical Illness

Similar to disability insurance, there is also coverage for critical illness. Disability insurance replaces your income, but critical illness insurance covers the expenses associated with your illness. Heart attacks, strokes, and cancer are the most common conditions that are covered by critical illness policies.

If you want to make sure you’re prepared for any life-altering events, you should contact a financial advisor at The Beacon Group of Assante Financial Management Ltd. Having the peace of mind that you and your family are protected from the unpredictable is invaluable.

How to Cope With the Sandwich Generation Squeeze

 

Picture a sandwich. The top slice of bread is the responsibility of taking care of your elderly parents. The bottom slice is your young adult children who have boomeranged back home or are involved in post-secondary education. You are the meat stuck in the middle, trying to take care of both while working towards your retirement. This, in a nutshell, is the crisis the “sandwich generation” faces today. If you find yourself in this situation, take heart that you aren’t alone and you have people fighting for your best interests. The following are steps you can take to manage being stuck in the middle of caring for two generations:

Eldercare

The health insurance provided by the government leaves many elements of care uncovered or only partially covered, including nursing care at home. If one parent is still independent of you, you may wish to ask this parent to sell their home in order to downsize for extra monthly cash flow. If you are personally assisting your parent with their care, there is community care available in most regions and there is always private caregiving assistance.

Kids’ Education

The cost of post-secondary education is rising every year. Parents with two children that are close in age really feel the squeeze when both kids are enrolled at college or university.

The first step is to plan ahead and start investing early in Registered Education Savings Plan (RESP). You should consider supplementing the RESP with Tax-Free Savings Account (TFSA) investments, family trusts, in-trust accounts, or a combination of these. The Beacon Group of Assante Financial Management Ltd. can help you reach your education savings goals.

Boomerang Kids

25.9%[1] of young adults in Canada between the ages of 25 to 29 live at home with their parents. This boomerang generation can burden their parents with extra cost or prevent them from a planned downsize of their home. The key to handling this situation is communication. Talk openly with your adult children about their plans, responsibilities, and expectations to help maintain a healthy relationship with them.

Contingency fund

Nobody can predict the future. You should consider setting money aside during your prime working years to cover the potential costs of supporting your parents or adult children. The Beacon Group of Assante Financial Management Ltd. can develop a plan to help alleviate the pressures of being in the sandwich generation while setting your family up for future care as well.


 

[1] Statistics Canada, Living Arrangements of Young Adults Aged 20 to 29 (2011 Census)

Why Naming a Power of Attorney is Important

It’s hard to ever envision anything bad happening to us, but it’s important to look beyond our own fears so that we can look out for ourselves in the future. Whether it’s renewing insurance, dealing with your investments or any other important decision, it’s imperative that we all take some time to consider the possibility of not being able to make our own decisions. This is where planning ahead and naming a power of attorney is so important. Here are the two main reasons why.

Your Finances

You’ve worked your whole life to achieve what you have – whether it’s your home, a company, investments or anything of financial matter. It’s important that if you ever suffer from some unforeseen health or medical condition, and are unable to make the decisions yourself, someone you know and trust can make them for you. This is why planning for the future is so important.

Power of attorney means you get to select someone who may act on your behalf. This not only ensures that your needs and desires are properly taken care of, but also that they are done promptly and accurately. Without this, it would require an individual to apply to become your representative, which may not be someone you desire to oversee your decisions in the first place.

Your Healthcare

There’s nothing more important than health and the people who can makes those tough decisions for you when you no longer can. Whether it’s treatment, or even housing, the person you select to be your appointed representative can offer you the comfort of knowing how you wish to be treated. This also incudes any preferences for life support or resuscitation. Additionally, you can also select what restrictions your power of attorney has.

Having a person appointed to deal with your desires and needs at a time when you may be suffering can offer you that sense of comfort and peace knowing that things will be taken care of.

When it comes to long-term planning, we must never exclude the possibility that we may not always be able to make our own decisions. It’s imperative to see beyond our fear and look towards the peace and comfort of having someone we can trust to make those hard decisions for us. We can’t predict how life may change. We can only do our best to plan for it, which is why naming a power of attorney is so important.

Consult The Beacon Group of Assante Financial Management Ltd. for expert advice on estate planning, tax planning, retirement planning, or investment advice.

Time in the Market versus Timing the Market

Keeping a watchful eye on your investments can be an emotional rollercoaster. It’s very tempting to react to every little upswing and downswing in the market because it’s your hard-earned money on the line. Markets rise, fall, plateau, bottom out and then rebound time and time again – we just don’t know exactly when or why. You can’t predict the future, no matter how much research you do. This is why time in the market always beats timing the market.

Timing and Luck

If you believe you can time the market successfully by buying and selling at the right moment, you need a lot of luck. Actually, you will need to be lucky three times to really cash in. If the market is on an upswing and you want to cash in, you will have to guess the best time to sell. But what if you sell and your holdings continue to rise? If you did sell at the right time, you need to pick a new place to park your money until you are prepared to invest again. This could involve higher risk or suffering through tiny savings account interest rates. Once you are ready to invest again, you need to get lucky by timing your purchase when the market has actually bottomed out – you risk missing the rebound in this case.

Reaction vs. Patience

When you notice the market is on an upswing, it can be tempting to start investing extra money. The same goes for when the market is dropping – a voice in the back of your mind is probably screaming “sell!” It’s in our nature to react to changes that could affect our well-being, but in this case, it’s not very smart. You are much more likely to have success in the market if you keep your money in for a significant amount of time. Your holdings will survive through peaks and valleys, rebounds and bottom outs, you just need to be patient and trust your financial advisors.

To come out ahead when timing the market, you need to have a lot of luck. You need to guess right three times in a row, which has proven to be very difficult to do. Don’t be tempted to base your investment decisions on timing and predicting the market. For help with your investment decisions, you should talk to a financial advisor at The Beacon Group of Assante Financial Management Ltd. They will help you focus on the long-term by showing you exactly why time in the market is better than timing the market.