October 2016 - Beacon Family Office

Creating a Succession Plan that Works

Building a successful company involves years of dedication and hard work. Whether unfortunate or fortunate, you can’t work forever. As a business owner, you should have a clear succession plan in place before you consider retirement. It may be difficult to fathom giving up control of your company, but one day the time will come when you either pass on control to a family member or loved one or you decide to sell. A succession plan should not be left to the last minute because you can never predict what life is going to throw your way. Advanced planning will prove to be beneficial to everyone involved with your company.

Consult with Your Financial Advisor

Many small businesses are so caught up with their day-to-day business that they do not have a succession plan in place leaving their business vulnerable if disaster strikes and you are no longer able to run your company. The first step to creating a succession plan that works is to involve the help of a financial advisor. A financial advisor will be able to assess your business and guide you on the right path you desire for your succession plan, or help you plan one if you are unsure of what your plan should be.

Developing a Family Succession Plan

You can begin brainstorming what you ultimately want as your succession plan at any time. If you have someone in mind to take over the company once you are no longer in control, you should begin priming that person to do your job. Make sure that your company is going to be well taken care of by an informed successor by starting training early. It’s also important to be certain that who you have chosen as your successor is both willing and able to take the position. For instance, not all children wish to take over the family business even if it is somewhat expected of them. A serious conversation about the future is an important part for all of those involved in any succession plan.

Preparing Your Company for Sale

If your plan involves selling the company to an outside purchaser, you will want to prepare your company for sale. Just as you would do upgrades to a house to make it more appealing to a purchaser, the same idea should be done with your business. Ensure that your company is appealing by cracking down on overdue accounts receivables, having proper paperwork in organized order, and by doing everything possible to increase the value of your business. Your financial advisor can assist you in attracting a top buyer for your business when it’s time to sell.

Protect the legacy of your company with the same care that you put into building it. Create a succession plan, and let your financial advisor at The Beacon Group of Assante Financial Management Ltd. help you transition to the next stage of the journey.

Should you downsize?

Once your children go off to college or move out to start their own adult lives, even a modest house can feel like a sprawling estate. If you find yourself in the situation where you have an empty nest and are wondering what your next steps should be, talk to an advisor at The Beacon Group of Assante Financial Management Ltd. and assess if it’s time to turn your empty nest into your retirement fund.

Emotional Attachment & Nostalgia

There are many driving factors involved in the sale of a house. One leading factor is emotion. For some, the house may have more sentimental value than monetary value. Perhaps it was always the house where Christmas was held every year, or maybe even a family property passed down through the generations. Emotional attachment is possibly one of the most difficult hurdles to jump when it comes to the sale of a house.

Financial Considerations

There are also financial considerations to be made. Ask yourself: why are you selling? Is it to generate a large lump sum of money for your future estate beneficiaries to inherit? If this is your thinking, a financial advisor at The Beacon Group of Assante Financial Management Ltd. will be able to tell you if it’s the right time to sell or if the house is better left unsold to become part of your future estate as a sizable asset. This is a great way to pass tax-free money to your children, but you need to be mindful of probate tax. A financial advisor at The Beacon Group of Assante Financial Management Ltd. can help you decide what is best.

Maintenance

Another motivating factor that may influence your decision to sell is the upkeep. Having a large family home for only two adults is not always the most logical. An attractive option for many is to downsize to a low-maintenance, luxury condo that is more compatible with a more mature lifestyle.

Travel

If your retirement plans include plenty of world travel, then having an empty house may not be the best option for you. Selling your house and downsizing to either a smaller house or a condo will make leaving for long and frequent vacations much easier as there is less concern that something will go wrong while you are away. Travel may also be easier to accomplish with a large lump sum of money from the sale of your house.

Retirement looks different for each person. Don’t hesitate to contact the Beacon Group of Assante Financial Management Ltd. and begin discussions about the future of your family home.

4 Small Business Owner Tax Tips

Being an entrepreneur is quite different from working for a large company in many ways. One particular way that stands out from the rest is the responsibility to maintain and file taxes. Unless you happen to own an accounting or auditing firm, there may be more questions than answers when it comes to how to complete and record everything to do with taxes successfully. Although tax season happens once a year, it is a round the calendar job to keep track of every dollar spent and ensure that taxes are adequately claimed to help bring down your taxes owing. Here are some tips for small business owners that are sure to help you sort out your tax situation.

Keep Every Business Receipt

Although it may seem like a daunting task to begin with, it is imperative that you save every meal, gas, parking, equipment purchase, and any other receipt which has a relationship to your business. It’s easier to rifle through your many business receipts than to not have them and not be able to claim them when the time comes.

Be Mindful of Meal Prices

It is absolutely permitted to claim meals as part of your business expenses, however be mindful of the cost. The Canada Revenue Agency (CRA) is cracking down on business meals submitted for tax write-offs that are more than $100 per person. To avoid catching the watchful eye of the CRA, do not submit any meal receipts where more than $100 is spent on each guest.

Convention or Furthering Education Programs

It is expected that conventions or furthering education programs directly related to your field should be attended and can be deducted as a tax write-off. The key to remember is that only reasonable expenses will be accepted. If there is a three-day conference held somewhere where travel is required, however you decided to stay for seven nights and have a vacation out of the time away, it is only possible to submit three nights as a business expense.

Knowing What Can Be Deducted

Having the knowledge of what is an acceptable deductible and what is unacceptable is an important part of taxes. If taxes are not your area of expertise, it will be beneficial to you to speak to someone who is an expert in the field.

As a small business owner you likely wear multiple hats. When it comes to taxes, however, it’s best to have a professional help you out. At The Beacon Group of Assante Financial Management Ltd. there will always be someone available to assist you with managing your small business taxes.

How to Identify and Overcome Stress Triggers

Whether you are an entrepreneur, a consultant, or a C-suite executive, you are bound to have days where the stress feels too difficult to overcome. Stress can hamper your mood, reduce productivity, lead to illness, and negatively affect those around us. The key to handling your stress is to understand it on a deeper level. Generally speaking, there are two types of stress triggers: external triggers and internal triggers.

External Stress Triggers

These are things that are completely out of your control that cause you stress. There is no limit to what can cause stress and much of it leaves us powerless and helpless. Things like environmental disasters, accidents, random illness, or even death; all of these things are uncontrollable and can be the cause of great stress.

Unfortunately, there is no prevention for external stress triggers. The only thing you can do is arm yourself defensively against them. By living a healthy lifestyle and maintaining a healthy body you will be able to handle more stress than you might think. If you have a healthy body and mind you will be able to obtain a positive perspective when things may appear to be grim. A certain level of “roll off your shoulders” attitude is required if you want to live as stress-free as possible. Many things in life are out of your control and it is your choice how you deal with them. Empower yourself by responding to stress triggers in a healthy, constructive way, rather than reacting to stress negatively.

Internal Stress Triggers

These stress triggers are much more difficult to overcome than external triggers. Internal stress triggers are thoughts and feelings we invoke upon ourselves that cause us to feel inadequate, anxious, or overwhelmed. This can be taking on too much at work or at home, or letting our fears overtake our daily routines. Whatever your internal stress triggers are it is important to address them before they take over your life.

Dealing with internal stress triggers involves taking a good look at the expectations you put on your own shoulders and evaluating their attainability. It’s difficult to tell yourself that you can’t or shouldn’t do something when you have spent your entire life building yourself up for greatness. Humble yourself and ask for help when needed. It is also important to set aside some time for you to relax in a day. Pick up a relaxing hobby such as yoga or meditation to allow your body and mind time to destress and rejuvenate.

Stress can be a life-altering thing. Don’t let it take over everything you have worked so hard to achieve.

Life Insurance & Business Succession

Having a life insurance policy in place is one of the best ways to ensure your family’s financial well-being after you pass. However, it may not be only family members that require financial support in your absence. If you are a small business owner, you should strongly consider taking a policy out on yourself that will act as part of your succession plan. Below are two examples of how having a life insurance policy specifically designated to the succession of your business can be used to benefit those you leave behind.

Estate Taxes

Much thought is put into estate planning on a personal level, but if you are a small business owner, it’s important to predict the business estate taxes to be paid upon your death. Discussions with a financial advisor will help you through this process as there are many factors involved in determining how much of the business will be taxable when the business owner dies. If the business was financially successful, there could be a large tax bill requiring payment as part of the estate settlement. This is when a specifically designated life insurance policy can really save your successor. Designate in your Will what each insurance policy you hold is to be applied against to ensure no confusion if you happen to meet an untimely death.

Replacement of Talent

In a small business situation, the business owner often plays a vital role in the day-to-day operations of the company. If the owner was there at the inception of the business and has spent years mastering the business, it will not be an easy feat to replace that person if they should die unexpectedly. People can pass away without notice, and if the survival of their company depends on their specific job being done, then existing staff may need to seek outside help. Having a life insurance policy on the business owner who carries the business is a useful tool for hiring a replacement. Likely someone with the expertise to successfully run a company will come at a higher salary, and having the financial means accessible to fund that salary could mean the difference between the company sinking or the company continuing to thrive.

Life insurance policies are important to have to ensure your family is cared for after your death. However it’s imperative that you also remember to protect your company against financial ruin after your death. Be certain to have enough life insurance in place to cover any expenses associated with your passing. We would be happy to provide you with further information about securing your legacy.

What is Your RESP Withdrawal Strategy?

As an entrepreneur, you are accustomed to saving money for various expenses, including your children’s post-secondary education. After years of wise investing through your children’s Registered Education Savings Plan (RESP), the time has come to contemplate a withdrawal. This may come as a bitter-sweet moment as you are proud to watch your children grow and realize their potential, but in the same breath; where has the time gone?

Beyond the sentiment of approaching university, there are logistical matters to attend to. Withdrawing money from an RESP involves more strategic thought that maybe initially perceived. Here are some key points to remember when preparing to withdraw from an RESP.

Always Think About Taxes

As with most things in life, there are tax consequences to using an RESP, but there are ways to manage the tax implications. Each RESP is made up of two pools of money. One pool is made up of your original contributions, while the other contains any government grants or RESP additional earnings referred to as Education Assistance Payments (EAP). The original contributions belong to the contributor and can be withdrawn tax-free, whereas any EAPs are taxable upon withdrawal and become the tax responsibility of the RESP beneficiary.

Deciding Which Pool to Take From

It is beneficial to take from the EAP portion of your RESP when you are a low-income earning student because even with the money from the EAP the student is likely going to be under the taxable threshold and no taxes will be charged. This is why many people choose to empty the EAP portion of their RESP prior to the original contributions. It is also useful to use this money first because any unused EAPs need to be returned to the government upon completion of or the leaving of school.

There are of course situations where it would be more beneficial to take from the original contributions portion of the RESP. This would be when the child has a particularly high-income year due to working throughout the school year or a high-paying summer job. Adding any EAP funds will only heighten the annual income of the student and lead to further tax owings. In this case, it’s best to take from the original contributions as they are tax-free and will not count towards the income of the student.

As with most investments, an RESP comes with many complexities. Your education planning advisor at The Beacon Group of Assante Financial Management Ltd. can assess your child’s situation and help choose the best withdrawal strategy.

Avoiding Hidden Tax Liability for Your Heirs

Let’s say you bought a cabin in the Rockies many moons ago for $80,000. The property has already tripled in value, and by the time you pass you expect it will be worth about $400,000. The capital gain on your cozy cabin is $320,000. With a marginal tax rate of 45%, a capital gains tax of $72,000 would be due. Rather than enjoying family retreats at the cabin, your heirs may have to sell the property in order to be able to pay this tax.

This is just a hypothetical scenario, but it happens all too often, and not just with real estate property. Any successful investments or businesses that have multiplied in value will be subject to hefty capital gains taxes.

You can avoid these substantial tax liabilities by understanding how capital gains tax is applied and calculated, and to which assets the tax will apply. Next, you can prepare for capital gains tax as part of your estate planning by leaving funds to cover the tax after you’re gone.

Calculating Capital Gains Tax

Capital gain is the difference between the fair market of an asset (like a home, business, or stock) at the time of your death and the price you paid for it, with some minor variances depending on the asset. Capital gains tax is 50% of the value of the capital gain, as demonstrated in our earlier cabin example. Capital gains tax applies to property like non-registered investments, real estate other than your principal residence, share or partnership in a family business, and personal assets like vehicles, jewellery, and artwork.

Offsetting the Tax Liability For Your Heirs

A common way to offset the expected tax liability is to purchase a life insurance policy that names your heirs as beneficiaries. This policy should be insured for an amount that sufficiently covers the expected capital gains tax.

This is a wise strategy as insurance proceeds are tax-free and do not go through probate. With a guaranteed payout and affordable premiums, life insurance is generally recommended ahead of alternatives. Considering the downsides of having to pay interest on a loan or selling the assets below market value, life insurance is the best option for offsetting the tax liability.

RRSP/RRIF Tax Liability

Beyond capital gains tax, you must also account for the potential tax liability when your Registered Retirement Savings Plan (RRSP) and Registered Retirement Income Fund (RRIF) transfer into your income. You can defer taxation by transferring the funds into the RRSP/RRIF of your spouse or financially dependent child. Alternatively, you may wish to donate the proceeds of your registered plans to a designated charity. While charity donations are ordinarily limited to 75% of net income, you may donate 100% of net income in the year or immediately preceding year of your death.

It is extremely important to consider the tax liability during the estate planning process. As part of The Beacon Group of Assante Financial Management Ltd.’s Lifetime Legacy Advantage, we will help you develop estate planning strategies that provide your heirs with a secure future.

How to Kickstart Your Retirement Savings Goal

Planning for your retirement comes with its fair share of concerns. With people living longer and longer, how much do you need to save so you don’t run out of money? Will the volatile markets work in your favour and help you grow your savings? How can you contribute to your retirement savings to offset these two concerns?

Not everyone has the flexibility or risk tolerance to shift to higher yielding yet more volatile investments. The safer option is trying to save more each paycheque in order to increase the amount you are saving. If you are open to putting more of your hard-earned money into savings, or if you are okay with slightly compromising your current lifestyle in order to boost your retirement, we have two approaches you should consider:

Pay Yourself First

A great way to save is taking an approach where you pay yourself first. You need to figure out the amount of money you need to save from each paycheque in order to reach your retirement savings goals. The idea behind this is for you to put your desired amount in an investment account before you spend any money on the rest of your budget. It’s an automated way to increase your retirement fund. When budgeting, you should consider this retirement savings amount as another required payment and work around it. You can consider adjusting the amount you save if other investment goals, like education savings for your children, become a new priority.

Analyze your Budget

It helps to think of budgeting in a positive sense rather than a negative. It’s not so much about restricting your lifestyle; it’s about giving you the ability to achieve long-term goals. You can analyze each of your monthly expenses and try to think of ideas as to how you can reduce or remove some costs. This will allow you to direct extra money towards your retirement savings. This could be as simple as bundling your phone, TV, and internet services or delaying the purchase of a new car for another year. You can track the money you are saving and direct it towards your retirement while watching it grow.

A financial advisor at The Beacon Group of Assante Financial Management Ltd. can help you review your current budget and savings plans, and help support and meet all of your financial objectives.

Understanding Critical Illness Insurance

Mortality and critical illness are not common conversation topics around the dinner table. The discussion and preparation for such events is almost taboo to discuss, however being prepared for the worst could prove to be the wisest preparation of your life.

The Impact of Critical Illness

Critical illness is certainly not a welcomed or anticipated infliction, but it is all too common for Canadians of all ages. Although Canada offers free health care for treatment of most critical illnesses, there are plenty of expenses that are not provided for. Things such as in-home nursing care or power wheelchairs will all come at an additional cost to you and your family. Even if you earn a steady income and are financially stable, things can be quickly derailed with an unexpected turn of health.

Critical Illness Insurance Payments

Payments for critical illness insurance differ from regular health insurance. Regular health insurance typically pays amounts distributed over an extended course of time. Critical illness insurance is a lump sum payment, typically payable 30 days after the diagnosis of a covered illness. The lump sum payment offers some financial flexibility to improve quality of life, such as purchasing home medical equipment or financing a home accessibility renovation.

Stay-at-Home Spouse Insurance

Often forgotten in matters of insurance is the stay-at-home spouse. Since the spouse is not earning an income it may not seem logical to add extra insurance for them, however this is a misconception. The stay-at-home spouse is keeping the house in good order and may be raising children, so in their absence quite a few things will be neglected. Critical illness insurance can ensure that house cleaning and daycare bills can be paid for should the need arise, as they were not anticipated expenses but turn out to be necessary ones.

Critical Illness Insurance for the Small Business Owner

It is also wise to have critical illness insurance if you are a small business owner. Someone who runs their own business cannot afford to be away from work for extended periods of time and may need to hire a replacement in their absence. The funds received from a critical illness insurance payout can also bridge the gap for expenses not covered under the employee group benefits, if there are even benefits available in the first place.

Although insurance is sometimes an annoyance to research and pay for, it has proven time and time again to be a life-saving utility. Allow your financial advisor to guide you on the path to critical illness insurance and discuss other risk management options to strengthen your family protection net.

The Health Benefits of a Good Night’s Sleep

Do you ever feel exhausted before lunch hour hits? Perhaps you need to assess the quality of sleep you are getting each night. We have become a society completely reliant on caffeine to get us through our work days successfully, however could the answer to heavy eyelids be as easy as getting a good night’s sleep? Absolutely. The benefits of getting a good night’s sleep are so astonishing you will ask yourself why you haven’t been striving for it in years past.

Technology

Even though it may be our intention to go to bed early, we may not always be successful. Modern technology can make our lives easier, but that artificial light and the magnetic pull to watch one more episode, check the fantasy roster one last time, or read one last email make quality sleep harder to achieve. Turning off the television and powering down the laptops, tablets, and smartphones is the best way for our minds to close down properly for the night.

Memory

During sleep, quite a few sensational things happen. For instance, memory is stimulated while you sleep. If you are trying to prepare for an important proposal or have a big presentation to give, getting an excellent night sleep will allow your brain to process all of the information and in fact aid in your memory retention.

Stress

Sleep will also benefit you by helping to keep your stress levels under control. By lowering your stress you are helping to keep your cardiovascular health under control. Stress can lead to high blood pressure and high cholesterol, so by getting a restful night’s sleep you can help your body to fend off these problems.

Fatigue

If you drive to work, there is the ever-present problem of falling asleep at the wheel. An accident can cause irreversible damage to you or those around you. Sometimes coffee doesn’t provide you with the alertness required to operate a motor vehicle safely. Getting a good night’s sleep can save your life.

Creativity

If you find yourself in a creative rut at work, instead of being hard on yourself, try to get more sleep. Your creativity can be sparked by simply being fully rested as your brain does quite a bit of regenerating while you are sleeping.

Sleep can be the solution to many of our problems in mind and body. However it is important to recognize that miracles do not happen over the course of one night. It is important to maintain a healthy sleep schedule as often as possible to ensure you are always putting your best self forward.