Starting an RESP For Your Grandchildren

Starting an RESP For Your Grandchildren

by FinancialFinancial 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The contribution amount you contributed is after-tax income so, it can simply be withdrawn and made payable to you or your grandchild with no further taxes to worry about.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In Canada, all the contributions you make into an RESP will grow tax-free until withdrawn.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

Discuss Your Inheritance Plans

by FinancialFinancial PlanningInheritance

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 principal residence exemption

Understanding the Principal Residence Exemption

by Financial PlanningInvestment PlanningReal 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.

4 Retirement Misconceptions of Business Owners

by AgingBusinessFinancial 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

Creating a Succession Plan that Works

by BusinessFinancialFinancial 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?

Should you downsize?

by Financial PlanningLife 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

Life Insurance & Business Succession

by BusinessFinancialFinancial PlanningRisk ManagementUncategorised

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.

resp withdrawal strategy

What is Your RESP Withdrawal Strategy?

by EducationFinancial 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.

Understanding the Financial Repercussions of Life Events

Understanding the Financial Repercussions of Life Events

by FinancialFinancial PlanningLife Changes

Whether you are facing a job loss or going through a lengthy divorce, these huge changes don’t just affect you personally, they also have a major impact on your finances. If you are lucky, you will have enough time to discuss and prepare for these life-changing events by putting together a financial plan. Unfortunately, these types of life changes tend to happen right out of the blue. Either way, it is important to be certain you are prepared to deal with any potential scenario. We have provided a few tips on how to keep your personal finances intact through a number of trying life events:

Job Termination

In the unfortunate event where your company deems your position expendable, what should you do? You will have a decent severance package to get you through the next few months, but you’ll need to find gainful employment quickly. If you happen to land a new job quickly, you can invest the money from your severance or use it to pay down debt. You could even use it to help kick-start a business venture you’ve been thinking about. You’ll land on your feet quick enough, but sitting at home with a few weeks’ worth of severance on your hands can help you re-evaluate your career and your life aspirations.

Separation and Divorce

Divorce not only involves personal consequences, but financial ones as well, especially if you have children together. You will need to update your will and your beneficiaries on any savings plans or life insurance you may have. If you need to start providing child support, you could need term life and disability insurance to protect those future payments. If you eventually re-marry, you may need to create a spousal trust so that your new spouse will have income while still leaving some inheritance for all of your children.

Taking care of a special-needs child

Caring for a child with special needs will require a lot of time and attention. Parents need to be devoted to their child’s development and health every step of the way. This situation also has financial repercussions. You might want to open a Registered Disability Savings Plan (RDSP) to ensure your child’s financial security. You may also establish a trust fund in their name.

When you experience a life change, contact The Beacon Group of Assante Financial Management Ltd. and they will help adapt your financial plans to fit the changes in your life.

Naming Beneficiaries for Your Financial Assets

Naming Beneficiaries for Your Financial Assets

by Estate PlanningFinancialFinancial PlanningInheritance

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.