Why a Testamentary Trust Still Matters

Why a Testamentary Trust Still Matters

by Estate PlanningFinancial PlanningInheritance

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

Recent changes

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

Why you should still consider a trust

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

Managing your children’s funds

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

Taking care of your spouse

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

Managing a second marriage

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

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

Finding Financial Opportunities in Life Events

Finding Financial Opportunities in Life Events

by Financial PlanningLife Changes

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

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

Income

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

Job Loss

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

Inheritance

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

Dealing With Your Parents’ Health

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

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

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

Planning for Retirement as a Small Business Owner

Planning for Retirement as a Small Business Owner

by AgingBusinessFinancial PlanningReal Estate

When you own your own business you might live under the mantra that your business is your retirement plan. This can sometimes work out to be true, but it’s not always a guarantee. You do not want to enter your retirement years without a solid financial plan already in place. It’s not enough to rely on CPP to cover all of your living expenses and maintain the quality of life to which you have grown accustomed. Here are some financial plans that might be helpful to have in place long before retirement is on the horizon.

Equity in the Business

It is possible that your succession plan is for you to retain shares in a class where you can claim dividends to supplement your retirement income. If your company is large enough to do this and still thrive then that is certainly a viable option; however, many small businesses would not be able to sustain this type of dividend. It’s important to talk with your financial advisor well in advance of your retirement years to plan if this is the right move for you.

Registered Retirement Savings Plan

Investing in an RRSP is the most secure way to ensure you have money available to you when you need it in your retirement. By making sizable and regular contributions to an RRSP portfolio, you can ensure that your retirement fund has grown to a sufficient size by the time regular withdrawals need to occur. With different investment options available you have the potential to grow your retirement fund over the course of many years.

Real Estate

Since small business owners can’t depend on a pension plan it might be wise to invest in real estate. This can be done by purchasing income property or simply by ensuring your own mortgage is paid in full. Having your own property be mortgage free by the time you want to retire leaves you with the option to sell and make a nice deposit into your retirement fund. Real estate has been known to be a dependable source of income over the years.

As a small business owner you have to juggle many different things on a daily basis. You may not be close to your retirement years but it is imperative that you invest in yourself and in your future in order to retire in a way that is comfortable for you. It’s never too early to start. Speak with your financial advisor from The Beacon Group of Assante Financial Management Ltd. to make the best choice for your future.

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How to Reign in Retirement Savings Anxiety

by Financial Planning

After working and raising a family for twenty years, retirement is probably something you are looking forward to and dream about regularly. With people living longer and longer with each passing generation, it’s easy to be worried about how you will be able to save for 25 to 30 years of retirement. You don’t want to compromise your desired lifestyle. You don’t want to be worrying about money. You want to be able to travel the world.

The best way to alleviate your retirement savings worries is to get a handle on your finances. Here are some tips you can use to help plan for your retirement, worry-free.

Choose your retirement age

The first step is to pick the year in which you wish to retire. The average age of retirement (between the years 2009 and 2013) was 63 for private sector employees, and 61 for the public sector. If you own your own business, the average age of retirement is 66.[1] You can use these statistics as a guideline, but choosing your retirement year is a choice specific to your unique situation. The main question to ask yourself is: how much time do you need to save enough to retire with your desired lifestyle?

Estimate your retirement nest egg

 The best way to get an accurate estimate of how much money you need to save is to speak to a financial advisor. The retirement planning specialists at The Beacon Group of Assante Financial Management, Ltd. can help you determine the right savings goal for your situation. When you meet with them, they go over your desired monthly budget, your vacation plans and other planned retirement endeavours with you. Using that knowledge, they can give an accurate retirement savings goal and prepare a plan to help you reach it.

Retirement Savings Strategies

If you are worried that you could outlive your savings, a financial advisor can help you build a dependable income source that will cover your basic lifestyle needs. Some examples of a dependable income source include life annuities and government pension benefits. To help fund long-term needs, you may be advised to invest a healthy portion of your savings for growth.

The best way to alleviate retirement savings anxiety is to have a plan in place. If you have concerns about your plan’s ability to meet your retirement goals, you should contact a retirement planning specialist at The Beacon Group of Assante Financial Management, Ltd.

[1] Statistics Canada CANSIM, Table 282-0051.

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How RRSP/RRIF Designations Can Protect Your Family

by Financial Planning

Naming beneficiaries for your RRSP and RRIF investments is not an easy process. There are many different options, each with their own benefits and tax implications. Beneficiary designations for these accounts are an important part of the estate planning process. Possible beneficiaries for your RRSP and RRIFs include your current spouse or your children/grandchildren. In this article, we will go over each choice in detail and outline their individual benefits and tax implications.

Naming your spouse as beneficiary

 Naming your surviving spouse as the sole beneficiary to your RRSP gives them the option to roll over the investment as long as it is all transferred into an RRSP/RRIF/Annuity in their name. This option is available everywhere but Quebec and as long as it’s done before the end of the year following the year of death.

If the spouse is not the sole beneficiary, it’s best to designate the estate as the RRSP beneficiary and the will should then specify that the spouse must consent to receive the funds as a refund of premium or just the after-tax value of the RRSP. Without this specification, the spouse could opt to take the value of the RRSP in cash, which will leave the estate to pay the taxes.

For RRIF accounts, similar rollover options are available, with some difference. The spouse has the option of rolling the RRIF funds into a registered plan in their name with the minimum payment being taxable to the estate.

If the spouse is designated as the successor to receive annuities, they can be named on the policy in place of the deceased and continue receiving RRIF installments.

Naming your children as beneficiaries

 You can defer taxes if your registered plans are transferred to a term-to-18 annuity of a dependent minor child. Any withdrawals will be taxable to the child. If your RRSP is highly valued, a testamentary trust should be considered instead of a transfer.

Transferring your plan to a financially dependent disabled child is also possible. You can transfer to their RRSP, RRIF, RDSP or term annuity. Registered Disability Savings Plans (RDSPs) are subject to a $200,000 limit and aren’t eligible for the Canada Disability Savings Grant. RRIF withdrawals are taxable to the beneficiary.

 There are many things to consider when planning your estate, each with their own financial pros and cons. For help with your estate planning, contact The Beacon Group of Assante Financial Management, Ltd. Our financial advisors and estate planning specialists are ready to answer your questions and help you make the right choices for your unique situation.

 

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A Guide to Helping Your Parents Financially

by Financial Planning

There may come a day (if it hasn’t happened already) where you will need to start taking care of your parents. This will include staying on top of their financial situation, which may include estate planning, taxes, and even their day-to-day budgeting. Some parents are very open to receiving help from their children, while others may be more stubborn. Either way, the first step to helping your parents with their finances is initiating a conversation. We will go over the best way to do so, along with figuring out their financial situation and how you can help them.

Starting the conversation

 Some parents may not be open to the idea of sharing financial matters with their children. In these cases, it is best to ease them into the conversation by bringing up a small financial discussion every now and then. You can do that by first talking about your own finances. You can tell them that you just updated your will and use that topic to lead into a question about their own will. The next time, you can talk to them about your decision about power of attorney for your estate. You can share this effort with your siblings if you have any.

Digging into their finances

 Once your parents have become comfortable with talking about their finances, the next step is to gather enough information to draw an accurate picture. Is their retirement income covering all of their expenses? Do they have the resources to handle possible future health care needs? Do they have life or long-term care insurance coverage? Do they have an estate plan in place to protect themselves, their loved ones, and their assets?

How you can help

 Now that you have gathered your parents’ financial information, you can determine where you need to help them. You may determine that you need to help them with their day-to-day banking, or that you may need to pinch in with money of your own. In order to properly help them, you will need to know the contact information for their doctor, lawyer, financial advisor, and accountant. If you are named executor of their will, you will need to know where the will is physically kept along with important items like a safety deposit box. If you have brothers or sisters, you should encourage your parents to talk to them all about their plans for distributing the inheritance. This can help avoid conflict once they pass, and make your life as executor much easier.

Don’t wait until your parents are overwhelmed. Start the conversation with them today to make the lives of your loved ones easier. For any advice about helping your parents with their finances, contact The Beacon Group of Assante Financial Management, Ltd. today.

 

Taxes and Succession Planning

Taxes and Succession Planning

by FinancialFinancial PlanningLife ChangesTax Planning

You spend your whole life paying taxes, why should the last step into retirement be any different? As you prepare yourself and your company to be transitioned to the next generation of owners and operators it’s important to plan for the taxes associated with your succession plan. Be certain to discuss with your financial advisor and legal counsel to determine which succession plan is best for your tax situation. Here is a brief look into a few options available to someone who is wishing to retire or sell their business.

Selling shares held in your own name to an outside party

You are able to sell personally held shares, but they are subject to a capital gains tax. There is a lifetime exemption of $750,000.00 in qualified small business corporation shares that you may be able to apply to the sale of your business. This is a possible way to offset a portion of the capital gains tax; this should be discussed with your financial advisor.

Selling corporate assets or corporately-held shares to an outside party

Another option for selling the company is to sell the corporate assets or the shares of the business held by a corporation or a holding company. The types of assets sold and the amount of income generated by the sale will determine how the taxes are to be treated. Once the corporation has liquidated all of its assets and no longer operates, you can choose to either dissolve the corporation or keep it operating to hold some of the revenue generated from the sale as a way of deferring taxes. This income can be paid to shareholders as dividends over the course of time.

Estate Freeze

This method is best for transferring the ownership to a chosen successor, not an outside party. This is typically done by transferring the common shares into preferred shares and then issuing common shares to the beneficiaries. This essentially freezes the tax liability and allows the successor to come into the business with little investment contribution. This is a commonly used practice when it’s a family business and the next generation is taking over.

Succession planning can be an exciting time because it means the next chapter in your life is on the horizon. But be certain to plan closely with your financial advisor from The Beacon Group of Assante Financial Management Ltd. in order to achieve the most tax beneficial and best plan available to you and your company.

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Adjusting Financial Plans When Your Marital Status Changes

by Financial PlanningLife Changes

Any change in marital status is a significant life shift, and thus it should always be accompanied by a reevaluation of your financial health. Whether you are getting married, divorced, or have been widowed, you will have to update your will and adjust the beneficiaries of your pension plan and insurance plan. Additionally, any big change in life status presents a fitting opportunity to reassess your investments, family trusts, and estate planning.

Marriage

If you are planning to get married, you should evaluate your financial options long before “I dos” are exchanged. Marriage opens up a whole new realm of financial opportunities, whether you and your spouse will be combining incomes or a non-earning spouse needs financial protection. Your financial advisor from The Beacon Group at Assante Financial Management Ltd. can help you assess your options. Additionally, marriage is an opportunity to take advantage of beneficial tax planning strategies, like income-splitting and combined or transferred tax credits.

Divorce

At the other end of the spectrum from marriage is divorce, but it’s an equally important life event in terms of the financial implication. You must cope with a reduction in financial assurances, like adjusting to a single income. Whether you are the spouse who is receiving or paying a lump sum settlement, you must make arrangements to give or receive such a large sum. Finally, it would be wise to invest in disability or critical illness insurance in case you are ever forced out of work. The team at The Beacon Group of Assante Financial Management Ltd. will assist you in developing a comprehensive financial plan that protects the future of you and your children as you navigate this stressful life circumstance.

Remarriage

If you are getting remarried and there are children involved, you will need to update insurance coverage and possibly equalize education savings. Your financial advisor can also assist you with updating your estate plans, like creating a spousal trust. A spousal trust will provide for your current spouse until death, and be dissolved as assets for the children from your first marriage thereafter.

Widowed

When your spouse passes, it may be an overwhelming and emotionally trying time. Your financial advisor can help you navigate this difficult phase by managing the proceeds from investment funds, insurance, and your spouse’s estate. You can experience a sound financial future even with this often sudden and tragic change in marital status.

In order to ensure a stable transition should you experience a change in marital status, your best practice is to prepare in advance. Your financial advisor can help prepare you for a happy and financially secure future.

education fund

How to Plan for Your Child’s Education

by EducationFinancial PlanningInvestment Planning

Sometimes it feels like no time passes between the day your child nervously steps through the kindergarten doors for the first time and when they confidently walk on stage to claim their high school diploma. If you want to provide your child with funding for a university education in Canada, it takes a proactive approach – not just idly throwing a few dollars into a Registered Education Savings Plan (RESP) and hoping the numbers add up. Here are some key steps to successfully fund your child’s education:

Step 1: Know the Numbers

Each RESP has a lifetime maximum of $50,000 per child. This number may seem sufficient, but consider that according to Statistics Canada the average yearly tuition at Canadian post-secondary institutions is just shy of $6,000. With tuition rates rising by year, an average four-year program can be expected to cost $25,000 before a penny is spent on room and board ($48,000 for four years, according to the University of British Columbia) or books, fees, transportation, and personal expenses.

As evidenced by the numbers, a $50,000 contribution to your RESP is a terrific start, but it’s only a start. Supplement this fund with savings in a Tax-Free Savings Account (TFSA) and in-trust account. 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.

Step 2: Allocate Your Asset Mix

Every investor is different, and your asset mix will vary depending on your risk tolerance, time horizon, and investment objective. Your risk tolerance depends entirely on your own investment personality. The time horizon is relatively fixed, if your child plans to attend post-secondary school immediately after high school. Your investment objective should include tuition, books, and fees. Account for living expenses in case they go to a school out of town. Share these factors with your financial advisor, and they’ll help you determine the right mix of fixed income and equities to suit your goals.

Step 3: Track Your Investments

If you have an organized education savings plan in place, it is not necessary to obsessively monitor the progress of your investments. The Beacon Group of Assante Financial Management Ltd.’s advisors will make sure your investment growth is on track to meet your savings goals. If market fluctuations affect your target allocation, your advisor can assist with rebalancing to make sure everything is on track.

With these three steps and assistance from The Beacon Group financial advisors, you can meet your education savings goals. Before you know it, your child will be walking up for convocation to accept a well-earned university degree.

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How You Can Make the Most of a Financial Windfall

by FinancialFinancial Planning

Not every financial windfall comes from getting extremely lucky and winning the lottery. You might receive a large amount of money from the sale of property, a severance package, an insurance policy or an inheritance. For some, they might never have had such a large sum of money available to them. It’s tough to know what to do in that case. For others, they may know not to spend it all in one place, but may not be sure of the best course of action. If you find yourself with this nice problem to have, here are some guidelines to follow to make the best use of a financial windfall.

Reduce high-interest debt

 You may want to consider reducing any debt you are holding on credit cards, lines of credit, or personal loans. These typically have the highest interest rate so paying these off will have the biggest impact on your monthly interest costs. You may also consider making a large lump sum payment on your mortgage, as long as you can do so without a prepayment penalty. Your retirement gets a whole lot easier without a monthly mortgage payment!

Revisit your life goals

 With a sizeable lump sum available to you, some life goals that you may not have been able to pursue could become available to you. You may be able to launch a business you’ve been thinking about since you now have start-up money. You and your family could purchase a beautiful lake-side cottage to make your summers more exciting. You could retire earlier than you thought now that you have money available to put into your retirement savings. The possibilities are endless.

Adjust your risk tolerance

 A financial windfall may affect how and how much you invest going forward. For example, you can now consider lowering the risk level of your investment portfolio because you are no longer seeking as high of a return. One the flip side, it may give you the freedom to invest more aggressively, because having extra money will allow you to withstand extra volatility.

 If you find yourself in this situation, it is important to review your options, determine your priorities, and clarify your goals and aspirations. Once you have those in orders, you should contact a financial advisor at The Beacon Group of Assante Financial Management, Ltd. Your financial advisor can help ensure that your funds are managed according to your needs and desires.