Financial Planning Archives - Page 5 of 8

When you and your spouse decide to start a family together, you have to make an important decision together: will both parents return to work, or will one remain as a stay-at-home parent? While there is no right or wrong answer, it is crucial that you first weigh whether or not it is suitable from an earnings and expenses-related standpoint.

Guaranteeing Sufficient Income

The most important thing to do is work out a budget with your spouse in advance of making such a change. It is important to ensure that the household can remain financially secure with a sole breadwinner. Factor in additional bills, investments, and savings to determine whether opting to be a stay-at-home parent is a viable option. Staying at home will also shift expenses; you’ll save on gas and lunches out, but you’ll have whole new expense categories for diapers and baby clothes.

Taking into consideration the age of your children, hours that they’re home, and amount of attentive care they require (special needs, etc.), the stay-at-home spouse may be able to work part-time or launch a home-based business. This can help to maintain a steady income flow as home office-based expenses and other legitimate costs associated with a home business are tax-deductible.

Saving Opportunities

If you are looking to save on expenses as a household, having one parent remain at home with the children can be a blessing in disguise. The biggest contributor is the lack of daycare costs, which in Calgary top $1000 per month per child. Child care for infants is even more expensive. If the family unit includes an older parent or in-law in need of consistent support, there may be an opportunity to save even more money. Having someone at home helps to reduce for care-related expenses either via facility or home care.

Tax Planning and Maintaining Insurance Coverage

Income-splitting opportunities are ripe for the picking for households with a stay-at-home spouse and the other being the primary source of income. The main breadwinner can contribute towards a spousal Registered Retirement Savings Plan (RRSP). Additionally, they have the option to give funds to the spouse with a lower income to invest in their own Tax-Free Savings Account (TFSA). Combined, expect a considerable deduction on taxes. Clever spousal loan strategies involving higher earning spouses lending money to their lower-earning partner to invest and be taxed at a lower rate are also applicable. In this sense, having a stay-at-home spouse can allow for lower taxes and higher return rates.

These savings may be important in regards to maintaining adequate insurance coverage. With one spouse no longer earning an income, it is more crucial than ever that the appropriate amount of insurance is readily available to cover the cost of replacing their services. Also, you may want to consider critical illness insurance to compensate for whoever remains at home with no income being ineligible for disability insurance.

By considering your options and weighing the pros and cons appropriate for your income and expenses, becoming a stay-at-home parent may be more of an opportunity than a burden. Making sense of the financial aspects of such a lifestyle change is important to maintain a sound future, and reaching out to The Beacon Group of Assante Financial Management Ltd. to speak with one of our financial advisor will help make sense of it all. Feel free to contact us if you require further assistance with financial planning, investment planning, tax planning, and insurance planning with stay-at-home parenting in mind.

A Closer Look at the Probate Process

May 22, 2017

by Estate Planning Financial Planning

When it comes to creating a will, you should also become familiar with the probate process. This approval process is crucial for your estate and your executor. Applying for a probate approval confirms that your executor is the right person to be handling your money after death and ensures they’re using the most recent version of your will. Plus, the process can involve probate fees that will need to be arranged. Taking a closer look at the probate process can help you to properly prepare your will and executor to be ready when it comes to distributing your assets.

When is a Probate Required?

After death, your executor is responsible for securing the assets of the estate, paying your debts, and determining if probate is needed. The situations in which your executor will need to apply for a probate is:

If you pass away with debts
If there are bank accounts or registered investments without a named beneficiary
If there is owned property that isn’t being passed directly to a spouse or common-law partner through joint ownership

Why is a Probate Recommended?

Institutions like your bank will want proof that you passed away, confirmation that your executor is the right person and that they possess the final testament of your will. Many institutions will also want a proof of probate to avoid any legal issues if the will becomes contested.

How Does the Executor Apply?

The executor will need to visit the province’s probate court to be granted probate approval. There are different laws for each province, so it’s important for your executor to understand your province’s rules, approval process, and the costs involved. If they have issues obtaining or understanding the information, they should talk directly to a lawyer.

Are There Fees Involved?

Each province sets out their own specific amount of probate fees. Some charge a flat rate, while others charge a percentage of your assets.

How Can You Better Plan to Distribute Assets?

You can arrange to have two wills; one that will be used to distribute assets that need to go through probate, and one that will be used to distribute assets that do not. Legal counsel can help you arrange to have the two wills properly worded. If this option is not available in your province, you could also give cash gifts to family instead which may be exempt from tax. Another option would be set up a trust or private company to own your assets, this way your assets will not go through probate.

The probate process can be difficult to understand, not only for you, but your executor as well. Hiring a professional who can help guide the both of you through the process can ensure your estate planning goes smoothly and as intended. Book a consultation with your financial advisor at The Beacon Group of Assante Financial Management Ltd. today.

Starting an RESP For Your Grandchildren

May 8, 2017

by Financial Financial Planning

As a grandparent, you want what’s best for your grandchild. With the increased costs of education these days, there is no better way to support your kin than to start a Registered Education Savings Plan (RESP). An RESP is simple to start and comes with government incentives that help to increase the value. It’s an excellent way to shelter a little more cash from taxes while contributing to the future of your loved ones. Here we discuss what you need to know when contributing to an RESP.

How does an RESP work?

As a subscriber, you would make contributions to the RESP. The promoter, often a financial institution, will register the RESP with the Canada Revenue Agency. Your contribution, along with government grants and tax-sheltered income earnings, will accumulate in the account. The promoter will then pay the income earned along with the contribution amount when the beneficiary, your grandchild, is enrolled in an education program.

How much can you contribute?

You can contribute as much as you like each year and with a lifetime limit of $50,000 for each beneficiary. Just know that your RESP contributions are not tax deductible but are tax-sheltered.

How does the withdrawal work?

The contribution amount you contributed is after-tax income so, it can simply be withdrawn and made payable to you or your grandchild with no further taxes to worry about. The Educational Assistance Payment (EAP) amount however, is a withdrawal of funds that originates from the tax-free government grants (Canada Education Savings grant, the Canada Learning Bond, and amounts paid under the Provincial Education Savings Program) and tax-sheltered income earnings. For this reason, these payments will need to be included in your grandchild’s income statement for their annual taxes, but at the student’s minimal tax rate.

What if they don’t attend school?

If the beneficiary does not go to post-secondary school, then the contribution amount is paid out to you, the subscriber, at the end of the contract. At that time, you would not be required to include the contributions in your income statements.

Benefits

In Canada, all the contributions you make into an RESP will grow tax-free until withdrawn. You may also be eligible for the Canadian Educational Savings Grant where the government will match 20% at $500 per year and $7,200 over a lifetime. This makes an RESP a better inheritance contribution for your grandkids than money, as the money that you were planning to give your children can now be shielded from taxes as it grows. This won’t happen with cash inheritance and real estate.

If you’re interested in opening an RESP, reach out to a trusted advisor from The Beacon Group of Assante Financial Management Ltd. today who can walk you through all the necessary rules and regulations set out by your province The sooner you put in, the more the contributions will grow for your grandchild’s education.

Discuss Your Inheritance Plans

May 1, 2017

by Financial Financial Planning Inheritance

You may be surprised to hear that many Canadians have not created a solid inheritance plan, even though they are expecting to leave assets to their loved ones. Creating a strategy is an important first step, but so is the discussion with the beneficiaries and a financial advisor. Keeping your inheritance private can cause all kinds of surprises and complications after your death. Here we explore the steps you can take to discuss your inheritance plans in advance.

Planning with your Partner

The first thing you should do is to create a plan with your partner on how your wealth should be distributed. This will involve outlining which of your family and friends will be beneficiaries, your financial situation, and your initial inheritance goals. You should also consider those who may need special financial assistance, if it will be equal share, and the necessary provisions.

Create an Inventory

Once you have a strategy, take some time to review your assets that will be included in your estate planning. Make an inventory of all the items such as your house, car, investment properties, personal belongings, and financial investments. Also, note any debts you may have and any fees that will be associated with probate.

Include a Financial Advisor

You should always discuss your inheritance plans with a financial advisor. They have the expertise to help you understand the tax implications, capital gains, and other financial responsibilities that will fall onto your beneficiaries.

Discuss Assets

You may expect that one of your kin will be thrilled with inheriting your belongings, but they may not feel the same. Not everyone can bear the burden of the costs of a house or cottage. Talking to your family before you finalize your inheritance plan for assets can help you both plan what is the best for everyone.

Communicate about Money

Communicating your plans to your family regarding money is also important. You may be considering charitable gifting to your beneficiaries as part of the inheritance. While it may be attractive to some family members, not everyone may prefer this over heirlooms.

Probate Planning

Joint investment or bank accounts with your children can help them to avoid probate fees after your death. But this can cause some issues and complications if there are other children involved. A discussion with your family members in advance may help smooth over any potential bad feelings.

Discussing your inheritance plans with your family, beneficiaries, and financial advisor is the best decision you can make to ensure that everything is left as you wish, and that everyone is as content as can be with your decisions. Your financial advisor at The Beacon Group of Assante Financial Management Ltd. can advise on estate planning strategies to ensure your wishes are met.

Understanding the Principal Residence Exemption

January 27, 2017

by Financial Planning Investment Planning Real Estate

It’s not uncommon for families to own more than one property at the same time. Additional properties can be used as a source of income, or possibly be a vacation home. Whatever the purpose for your additional properties, there are tax laws that govern what taxes you will owe upon the sale of any property. The Principal Residence Exemption is a tax privilege given to Canadians to protect them from capital gains tax when they sell their principal residence.

What is the Capital Gains Tax?

Capital gains tax is accrued when you sell a property for more than what you bought it for. You will be taxed on the profits of the sale which can be quite a large amount depending on the difference in the purchase and sale price. This becomes problematic when a house that was purchased decades ago for a now nominal amount, sells for considerably higher than the purchase price because over time the property value has increased significantly. The average home price in Calgary in 1996 was $176,305; the average home price in 2016 was $453,936, representing 157% average growth. The CRA offers extensive detail on how to calculate capital gains taxes on all eligible property.

Principal Residence Exemption

Even if you do own multiple properties, whichever house is designated as your principal residence is safe from capital gains taxes upon sale, thanks to the Principal Residence Exemption. The Canada Revenue Agency states that the Principal Residence Exemption can be used by a family unit once per year. The family unit is described as the taxpayer and their spouse and any minor and unmarried dependents. This means that under the principal residence exemption, a family could move once a year and not pay capital gains on any earnings from the sale of their principal residence. Capital gains tax comes into play when additional properties are sold that are not designated as the principal residence of the family unit.

Strategic Planning

If you own multiple properties and are planning to liquidate your real estate in the near future, speak to your financial advisor on how to approach each sale and receive advice on how to possibly avoid paying capital gains taxes.

The principal residence exemption is not designed to protect house flippers who buy and sell a house in the same year with the sole intentions of turning a profit. It is designed to be a tax break for families who may need to buy and sell in the same year for whatever personal or work reasons may arise. Talk with your financial advisor if you are worried about, or would like more information on capital gains taxes, the principal residence exemption, or tax planning and tax optimization.

4 Retirement Misconceptions of Business Owners

November 7, 2016

by Aging Business Financial Planning

Running a successful business is a lot of work. Much of your time is dedicated to growing and maintaining your business development to ensure the longevity of your business ventures. Oftentimes a small business owner views their company as their retirement fund; the promise of a long-term payout after years of personal investment. This can be a dangerous outlook on retirement for many reasons. Here is a quick breakdown of 4 retirement misconceptions for entrepreneurs.

The Cost of Retirement is Easy to Calculate

Planning financially for the future is more difficult than one might initially think. As a successful business owner, you have likely set a standard of living for you and your family. There is a lifestyle to uphold even after your days at the office are over and done with. Perhaps you have children in post-secondary school who require financial assistance, or maybe you are caring for an elderly parent of your own. Whatever costs are present during your working life will likely follow you into retirement, in addition to whatever costs may be added. It’s difficult to plan in advance exactly how much money you will require to maintain your established standard of living. Also keep in mind that without the demands of your business you are likely going to be spending more on trips and other luxury items. Everything comes with a price tag.

I Know Exactly How Much My Business is Worth

Your business is worth what someone is willing to pay for it. Although there are educated ways to determine the actual value, it still may not be what you have in mind. Business owners have an elevated sense of what their business is worth because it means more to them than just money. However, for a potential purchaser the emotional attachment may not be present and to them it’s just business. Do not overestimate what your business is worth as part of your retirement plan.

My Business is My Sole Retirement Plan

This method of thinking is very dangerous as a small business owner. There are absolutely no guarantees in the business world for never-ending success. In order to secure your future, further retirement plans should be put in place. If business slows and you have to close the doors, would you be able to care for your family? Having a retirement plan that you contribute to on a monthly basis plays an important role in securing financial stability in your future.

I Have a Plan for the Future

Having a plan is a fantastic way to start, however life does not always go according to plans. People can easily get sick, which can be an imposing unforeseen expense. You could pass away before your plan has come to fruition, leaving your family to financially fend for themselves. There are many ways that life can derail your set future plans and having adequate money in a retirement savings is the safest way to protect against unfortunate happenstances.

Don’t allow your hard-earned money slip through your fingers as you enter retirement. Have a financial plan in place and start contributing early. To discuss other retirement planning strategies, speak with your financial advisor at The Beacon Group of Assante Financial Management Ltd.

Creating a Succession Plan that Works

October 31, 2016

by Business Financial Financial Planning

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?

October 28, 2016

by Financial Planning Life Changes

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.

Life Insurance & Business Succession

October 17, 2016

by Business Financial Financial Planning Risk Management Uncategorised

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?

October 14, 2016

by Education Financial Planning

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.