Holding your child’s hand when they purchase their first home

Financial success often involves making good decisions and avoiding big mistakes.

Parents who spend the time to teach their children the basics of finances will help start them off on a more informed path.

One of the first big decisions your adult child may make is with regards to the purchase of a home. They will have a higher probability of making a good decision when you guide them through all the basic information of home ownership. You can be the steady hand during a stressful and emotional decision.

The following are the ten basic pieces of information they should know:

1. Working with a Realtor

The first thing I would tell your children is the importance of working with a good Realtor. Also, teach your children that the purchaser is not the one who pays the commissions when the house sells. The seller of real estate pays a commission that is typically split between the real estate agent who listed the house for sale and the Realtor who represents the buyer. The Realtor should know exactly what you are looking for and be able to provide you realistic offer prices that fit your budget.

2. Why you need to work with a lawyer

I would also recommend talking to your children about finding the right lawyer or notary to work with when purchasing real estate. The branch of law that deals with the transfer of legal title of real property from one person to another is called conveyancing. Ideally, you know of a good lawyer that deals with conveyancing that you can introduce to your son or daughter. The lawyer will be able to assist with holding the money (in trust), handling the transfer documents, ensuring a clean transfer for title with land titles (i.e. ensuring no liens, etc.), and preparing the purchaser’s statement of adjustments.

3. Explain B.C. Property Transfer Tax (PTT)

Although the buyer does not have to worry about paying real estate fees, they do have to be prepared to pay the PTT. For the purposes of explaining the PPT, we will use the average selling price of a single-family home in Victoria, which was $846,500.00 at the end of September, according to the Victoria Real Estate Board. In B.C., the PPT is a tax charged at one per cent on the first $200,000 of the purchase price and two per cent on the remainder. For the average selling price of a single-family home in Victoria, your child will have to pay the following:

$200,000 x 1 per cent =$ 2,000

$646,500 x 2 per cent = $12,930

Total PTT$14,930

4. Insurance

Protecting your most important financial purchase is prudent. Having home insurance will also be mandatory if your child has a mortgage with a financial institution. Consider pulling out your insurance policy and explaining the terminology to your child will give them some basic knowledge to help them get started. Your child should obtain an understanding of the different coverages and deductible levels, and how those decisions impact premiums. Sometimes insurance companies will request that certain improvements are done to the home to ensure continued insurability or avoid exclusions of coverage. Insurance companies are becoming more risk sensitive. As a result, they are requiring some home owners to go through a home inspection process to continue insurability. Insurance companies may hire third-party inspectors to assist with managing this risk. They will prepare a Residential Appraisal Report that would typically show deficiencies and recommendations that need to be addressed. These deficiencies and recommendations may result in future costs.

5. Utilities

Often times, if your child has been renting, they may be unfamiliar with the concept of the total cost of utilities. Obtaining an understanding of the common utility charges, such as water charges, garbage pick-up, natural gas, electricity, sewer, internet and telephone will help them better prepare for the total cost of home ownership.

6. Assessed values

The assessed value of a property is broken down into the parcel land and the improvements (home and other structures). Many times during real estate transactions, the selling price is grossly different from the assessed value. It’s helpful to ensure your child understands that these values are not necessarily an accurate reflection of value.

7. Property taxes

Tax records are public information. At any time you can go into the municipal hall and look up the taxes due on the property. When you are looking at homes with a Realtor, they will also be able to provide the history of property taxes for any home that you are looking at. This information is readily available on the systems that Realtors have access to.

8. Building inspection

As parents, I think it is important to assist with the emotional aspect of purchasing a home. It may be far too easy for a child to quickly fall in love with a house without doing the full due diligence. Most people would say that it is prudent to get a building inspection done.

As with any profession, there are good inspectors and not-so-good inspectors. My personal experience with building inspectors is that they are not all created equal. Helping your child pick a building inspector with a good reputation is important. You want to help them find a building inspector that will take a very thorough look at the house go onto the roof, go into the crawl space/attic).

If you, or the building inspector, find serious deficiencies then you can either attempt to negotiate a lower price or walk away. Parents may have a more objective view of the condition, and work that would be required to maintain the property.

I once had a client that visited a house ten times prior to making a purchase — I loved hearing that. I realize that when good opportunities come along that buyers often don’t have that flexibility. When you do make an offer on a home that you are interested in, I would certainly encourage your child to make it subject to a building inspection. This will enable you to do a thorough walk through with your child.

9. Initial costs

With any house purchase, you will have initial costs that need to be factored in.

Normally, appliances and window coverings are not included in the purchase price unless specifically included in the offer. Ensuring you have equipment to maintain the property (i.e. lawn mower, weed eater) is also a factor.

A thorough walk-through of the property will enable you to obtain an understanding of the other initial costs you would need to factor in. Sometimes helping your children pick up used items initially will assist them budget when excess cash flow is tight.

10. Financial terminology

Without opening your pocket book, you can help educate your children about financial terminology. Help them summarize the typical information that the bank will require for a mortgage application (two years of tax returns, notices of assessments).

Talk to them about saving and what types of accounts to put their savings into (Tax Free Savings Account, Registered Retirement Savings Plan or investment/bank account).

Discuss a plan on how to come up with the down payment. Ideally, when your child purchases their first home, they can get away from the cost of mortgage insurance.

In order to do this, they will have to put 20 per cent down.

Discuss the difference between variable rate mortgages and fixed rate mortgages with your children. In some home equity type mortgages, you can have a mixture of both variable and fixed. Another option is to have different durations or terms to maturity. As an example, your child could have half of the mortgage funds in a three year variable rate and half in a five year fixed rate.

Parents can also help children with financial support when purchasing a home.

Next week, we will outline some of the ways parents can help their children financially and how this is typically structured.

Kevin Greenard CPA CA FMA CFP CIM is a portfolio manager and director of wealth management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week at timescolonist.com. Call 250-389-2138.

 

Coming up with the down payment for your home

Last week, we encouraged those individuals interested in purchasing either a condo or a single-family dwelling to understand the financial numbers and to set goals. I have heard many people say that the prices in Victoria are excessive and that it is impossible for young people to purchase a residence. It may be more difficult than in years past, but it certainly is possible if you set your mind to it. Many things in life that are worthwhile take time and patience — purchasing your first home is no different.

Getting trained and educated

I share with my own kids the importance of getting an education on a weekly basis. It is not about sitting in a classroom and hoping that a teacher motivates you to absorb the informed presented. It is about motivating yourself. It is about wanting to read and wanting to learn. Education normally translates to higher income. I’m always telling my kids to pay attention to everything around them and try to surround themselves with intelligent people. Successful people are self-motivated and good listeners. Having skills that create higher income is necessary not only to come up with a down payment on a home but to be able to service the debt, insurance, property taxes, repairs and maintenance going forward.

Working hard and savings

Taking on more responsibility at work, working longer hours and working harder should translate to you accumulating more savings for a down payment. If you put the minimum number of hours in, then accumulating the required savings for a down payment may be a frustrating concept, especially if house prices are rising every year. At least for the years leading up to your first house purchase, we would recommend putting in extra hours at work. Some would say this is short-term pain for long-term gain, which could be true for people that don’t enjoy their jobs. I personally have found the years where I was working extra hard to be really rewarding. It was such a nice feeling to achieve specific goals.

Setting goals and knowing the numbers

In our last column we outlined the key ratios and approximate numbers to give people an idea of the costs of purchasing either a condo or a single-family dwelling. Setting goals is really important if you want to make a significant purchase. Once you know how much you have to set aside every month then you can create a budget. You may find it takes several years to reach your goal. Once you keep track of all your expenses you can determine what you are spending all your money on. You might be surprised at how much you spend going out for breakfast, lunches, dinners, and coffees. Eating breakfast and dinner at home, and making a lunch might enable you to save a little more towards your important goals. Over time, those numbers add up.

Goal of funding the down payment

Ideally, when you purchase your first home you can get away from the cost of mortgage insurance. In order to do this, you will have to put 20 per cent down. For the purposes of this article, we will use the average selling price of a single-family home in Victoria, which was $846,500.00 at the end of September, according to the Victoria Real Estate Board. Also, for illustration purposes, we can use the average selling price of a condo being $511,600.00 in Victoria per VREB at the same point in time. The down payments for a house and condo would be $169,300 and $102,320, respectively.

Below we have mapped out some ideas for those who have been able to set aside some funds with respect to coming up with a down payment.

Utilize the RRSP Home Buyers Plan (HBP)

People who begin contributing to an RRSP may not own a house yet. Does it make sense to contribute to an RRSP if you think you will need to keep funds liquid to buy a home?

In some cases, the answer is yes, especially if a person is earning good income. The HBP allows participants to withdraw up to $35,000 in a calendar year from an RRSP to buy or build a qualifying home. Couples may each utilize the HBP (combined maximum of $70,000). The plan may be suitable for any first-time home buyers who are buying a home and may need additional funds to pay for a down payment or reduce financing costs. As mentioned above, a larger down payment may eliminate the costs to insure the mortgage.

The HBP is open only to first-time buyers and applicants should check for specific details on who can apply. Participants in these plans should understand that withdrawals need to be repaid or have the amount included as taxable income.

The first repayment is due two years after you first withdrew the money. If you withdrew the money in 2019 you will not have to begin payments until 2021. Each year, Canada Revenue Agency will send you a Notice of Assessment with a statement including: amount repaid (including any additional payments), HBP balance, and the amount of the next repayment to make. Participants have up to 15 years to repay the amount that is withdrawn under the HBP. Generally, each year the repayment amount is approximately 1/15 of the total amount withdrawn until the full amount is repaid to your RRSPs. For example, if Bill and Wendy each withdrew $35,000 from their respect RRSP accounts in April 2019, they must each pay at least 1/15th (or $2,333.33) of the original withdrawal starting in 2021 (or the first 60 days of 2022).

Withdrawals from an RRSP account are generally considered taxable income. Financial institutions are required to withhold the following tax on RRSP withdrawals: 10 per cent on the first $5,000, 20 per cent between $5,001 and $15,000, and 30 per cent on amounts greater than $15,000. A qualifying HBP withdrawal is one of the exceptions to this rule. If you give the financial institution a signed T1036 (HBP) then this allows a financial institution to release the full amount of funds (up to $35,000) to you without withholding tax.

It is important to ensure that $35,000 is earmarked in your RRSP within a year of the required withdrawal. You do not want to have this in speculative holdings that could potentially decline with market declines at the same time you need to pull the funds out.

Maximize the Tax Free Savings Account

The Tax Free Savings Account (TFSA) is an ideal account for young people to save for a house. If in 2009 you were 18 years of age or older then you would have accumulated up to $63,500 in TFSA room. The following are the annual and cumulative limits:

Year Annual limit Cumulative limit
2009 $5,000 $5,000
2010 $5,000 $10,000
2011 $5,000 $15,000
2012 $5,000 $20,000
2013 $5,500 $25,500
2014 $5,500 $31,000
2015 $10,000 $41,000
2016 $5,500 $46,500
2017 $5,500 $52,000
2018 $5,500 $57,500
2019 $6,000 $63,500

We recommend investing the TFSA in a manner that is consistent with your own personal time horizon and risk appetite. If you are several years away from purchasing a home then investing in primarily medium risk equities may provide some additional growth (capital gains and dividends) over time. If you are within 12 months of purchasing a home then we recommend ear marking the funds in either cash equivalents or short-term fixed income to ensure you are not impacted by short-term equity market volatility.

For couples purchasing a home it is possible to each have contributed $63,500 into a TFSA (or $127,000). In addition to the contributions you will also have the accumulated growth in these accounts that can be withdrawn.

Non-Registered Investment Account

Once you have maximized the TFSA and hit the $35,000 thresh hold within your RRSP then we encourage opening up a non-registered investment account. For younger individuals who have specific goals, I often will encourage “compartmentalizing” the savings function. If you have a dedicated investment account, you can set up a pre-authorized monthly contribution (PAC).

Hierarchy – House

Below is a guideline for down payment savings in order to purchase a house:

TFSA RRSP Non-Registered Total Savings
Individuals $63,500 $70,000 $35,800 $169,300
Couples $127,000 $42,300 $0 $169,300

Below is a guideline for down payment savings in order to purchase a condo:

TFSA RRSP Non-Registered Total Savings
Individuals $63,500 $38,820 $0 $102,320
Couples $127,000 $0 $0 $102,320

I believe the sooner you purchase a house and quit paying rent, the better off you will be. The power of compounding wealth over time is a key concept I wish I could easily explain to young people. Sacrificing in the short-term to get this done is well worth it in the long run.

Kevin Greenard CPA CA FMA CFP CIM is a portfolio manager and director of wealth management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week at timescolonist.com. Call 250-389-2138.

 

Buying your first home — know the numbers

One of the most rewarding investments is the purchase of a principal residence.

Getting away from paying rent and building equity can be a significant financial step in the right direction. Many younger people today may not know the numbers regarding what it would take for them to make such a significant purchase. My recommendation would be to begin by setting goals and gaining knowledge.

This article should not replace meeting with a financial institution and getting specific advice from a mortgage specialist. As a starting point, I want to illustrate some numbers using the average selling price of a single-family home in Victoria, which was $846,500.00 at the end of September 2019, according to the Victoria Real Estate Board. Also, for illustration purposes, we can use the average selling price of a condo being $511,600.00 in Victoria at the same point in time.

What are the key ratios that you look at?

The four key ratios for mortgages are: Total Debt Service Ratio (TDSR), Gross Debt Service Ratio (GDSR), Loan To Value ratio (LTV), and Pressure Test Interest rate (PTI).

To calculate your Total Debt Service Ratio, take your total debt and divide it by your income. Total debt for this ratio includes the new mortgage, heat, property tax, condo fees, car loans, etc. Your income is the amount that is represented on your tax return or T4 slips. Once all of these numbers have been verified, the ratio cannot exceed 44 per cent. For example, if your gross monthly income is $6,000 per month, then the total overall debt cannot exceed $2,640 per month.

Gross Debt Service Ratio is similar to the TDSR. The main difference is that the GDSR only takes into account mortgage-related debt. Mortgage-related debt would include mortgage payment, heat, property taxes and condo fees (if applicable). Once you have this information, you apply the same formula of taking your mortgage debt and dividing it by your income. Typically, the ratio for GDSR cannot exceed 39 per cent. Using the same numbers as above, if your gross monthly income is $6,000 per month, then the total mortgage-related debt cannot exceed $2,340 per month.

The Loan To Value Ratio is another key ratio used by mortgage lenders. When mortgage lenders look at this ratio they are first looking to determine if the mortgage is a high ratio mortgage or a regular mortgage. A high ratio mortgage is one where you are financing more than 80 per cent of the value of the home. When you have a LTV of more than 80 per cent, you then are required to get mortgage insurance. A regular mortgage is when the LTV is lower than 80 per cent and there is no requirement to obtain mortgage insurance.

The Pressure Test Rate is essentially a stress test to see if you could handle higher mortgage payments if interest rates were to rise. Currently, the rate used in Canada is 5.19 per cent which can be changed by the federal government. This rate decreased in July 2019 for the first time in three years. For any person applying for a mortgage for a new purchase, refinancing an existing mortgage, or purchasing an investment property, they are required to have the PTI test applied.

Determining a down payment amount on a property is not black and white.

The down payment amount can fluctuate because the mortgage amount can fluctuate based on your income and ability to handle the ratios mentioned above. The down payment can be as low as five per cent with the assumption that the applicant’s income is able to support the other 95 per cent. For any down payment that is less than 20 per cent, you must factor in the high ratio insurance premium. For any down payment which is 20 per cent and above, then there is no high ratio insurance involved, and you would have a better chance at getting a higher approved mortgage amount.

Using the average selling prices for a home and condo in Victoria, mentioned above, let’s look at both regular and high ratio mortgages with respect to the required down payments. This provides four different down payment scenarios as follows: house with a high ratio mortgage; house with a regular mortgage; condo with high ratio mortgage; and condo with regular mortgage. The high ratio mortgages will require mortgage insurance and we assumed a 20 per cent down payment on the regular mortgages.

House price $846,500

Scenario 1: House High Ratio Mortgage

  • $500,000*5 per cent = $25,000
  • $346,500*10 per cent = $34,650
  • Total down payment = $59,650

(Note: CMHC-insured mortgage loans require five per cent down payment on the purchase price portion up to and including $500,000 and ten per cent down payment for the purchase price portion between $500,000 and $1,000,000).

Scenario 2: House Regular Mortgage

  • $846,500*20 per cent = $169,300 (Minimum down payment to avoid mortgage insurance).

Condo price $511,600

Scenario 3: Condo High Ratio Mortgage

  • $500,000*5 per cent = $25,000
  • $11,600*10 per cent = $1,160
  • Total down payment $26,160

Scenario 4: Condo Regular Mortgage

  • $511,600*20 per cent = $102,320 (Minimum down payment to avoid mortgage insurance).

Understanding how mortgage insurance works

There are three companies in Canada that provide insurance for high ratio mortgages: Canadian Mortgage and Housing Corporation (CMHC), Genworth and Canada Guarantee (CG). All three of these companies can do high ratio mortgages and can provide more options for banks and customers. As an example, sometimes the CMHC might not approve a deal so the banks may need other options in order to have the mortgage insured and approved. For insurance premiums, it’s based on the per cent of a down payment up to 20 per cent.

To illustrate this, we will use CMHC insurance. Below we have included a table from the CMHC website for the premiums. Most questions can be looked up on the CMHC’s website.

Loan-to-Value

Premium on Total Loan

Premium on Increase to Loan Amount for Portability

Up to and including 65%

0.60%

0.60%

Up to and including 75%

1.70%

5.90%

Up to and including 80%

2.40%

6.05%

Up to and including 85%

2.80%

6.20%

Up to and including 90%

3.10%

6.25%

Up to and including 95%

4.00%

6.30%

90.01% to 95% – Non-Traditional Down Payment

4.50%

6.60%

Using Scenario 1 for a house above, let’s walk through the math. If the house purchase price is $846,500 and your down payment is $59,650 then the mortgage amount is the difference, or $786,850. Therefore, using the table above the mortgage insurance premium is $31,474. This is calculated by multiplying $786,850 x four per cent. The mortgage amount that would need to be approved would be $818,324. This is calculated by adding the original difference of $786,850 plus the mortgage insurance premium of $31,474 = $818,324.

Using Scenario 3 for a condo, let’s walk through the math. If the condo purchase price is $511,600 and your down payment is $26,160, then the mortgage amount is the difference, or $485,440. Therefore, using the table above the mortgage insurance premium is $19,417.60. This is calculated by multiplying $485,440 x four per cent. The mortgage amount that would need to be approved would be $8,324. This is calculated by adding the original difference of $485,440 plus the mortgage insurance premium of $19,417.60 = $504,857.60.

What would your monthly payments be?

For illustration purposes, let’s assume you are going with a five-year fixed interest rate of 2.89 per cent, a 25 year amortization, and a monthly payment schedule.

Let’s go back to the previous four scenarios:

House price $846,500

Scenario 1: House High Ratio Mortgage

  • Purchase price: $846,500
  • Down payment: $59,650
  • Insurance premium: $31,474
  • Mortgage amount: $818,324
  • Payment per month: $3,826.64
  • House price $846,500

Scenario 2: House Regular Mortgage

  • Purchase price: $846,500
  • Down payment: $169,300
  • Mortgage amount:$677,200
  • Payment per month: $3,166.72

Condo price $511,600

Scenario 3: Condo High Ratio Mortgage

  • Purchase price: $511,600
  • Down payment: $26,160
  • Insurance premium: $19,417.60
  • Mortgage amount:$504,857.60
  • Payment per month: $2,360.81

Condo price $846,500

Scenario 4: Regular Mortgage

  • Purchase price: $511,600
  • Down payment: $102,320
  • Mortgage amount:$409,280
  • Payment per month: $1,913.87

The above monthly mortgage payment numbers were taken from the CMHC online calculator. You can change any of these numbers to fit your specific scenario. To purchase a house with a 20 per cent down payment and avoid mortgage insurance, your approximate family income would have to be $115,000 (assuming you have no other debts). To purchase a condo with a 20 per cent down payment and avoid mortgage insurance, your approximate family income would have to be $75,000 (assuming you have no other debts). These numbers are only approximate numbers to be used as a general guideline to help you begin the process of planning the largest financial decision you may make in your life.

Kevin Greenard CPA CA FMA CFP CIM is a portfolio manager and director of wealth management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week at timescolonist.com. Call 250-389-2138.

Who cares for your pet after you pass?

About 15 years ago, I had a client with a terminal illness.

Her biggest concern wasn’t about her own health, but rather who was going to take care of her dog after she died.

I hadn’t really given that type of question a lot of thought until that day.

Today, one of the questions we ask clients is if they have any pets. For many of our clients, their pet is a member of the family. Your pet is dependent on you for its survival and well-being. A contingency plan should be in place if something were to happen to you. When we ask clients about who will take care of their pet(s) when they pass away, most have not considered the matter, let alone made any concrete plans.

Ideally, you have a family member or friend in mind who could care for your pet. To be sure, it is best to have this discussion with the individual to make sure they would be willing and able to care for your pet in the event something were to happen. You should ensure that the new owner is able to keep the pet. Allergies, being too busy, conflict with other pets, prohibition of pets in the new owner’s residence and lack of interest are a few complicating factors for you to consider.

Let us assume you have found the right individual to care for your pet(s). It is not possible for you to leave money to your pet in your will. A pet is considered property under the law. It is, however, possible to leave a pet to the named individual to care for. A simple method is to leave your pet to the named individual, which we will call the “caretaker,” within your will.

Normally a sentence would be added in this section of your will to deal with the contingency of the caretaker being unable or unwilling to care for your pet. One approach in this situation is to give your executor the power to select an appropriate person to take in the animals.

Another approach is to establish a more formal arrangement for your pet’s care. Some people refer to this as a Pet Trust.

Let’s say you have a dog named Marley. You could establish the “Marley Fund” in your will. Although you cannot leave money directly to Marley, you can establish a trust for Marley’s care.

In order to establish this type of trust, you must have a caretaker that you also name as the trustee. The Marley Fund would receive a sum of money payable to the trustee/caretaker provided that the trustee/caretaker uses it to look after Marley. Similar to up above, a sentence would be added in the Marley Fund section of your will to deal with the contingency of the trustee/caretaker you previous chose being unable, or unwilling, to care for your pet. Normally, you would give your executor the power to select an appropriate trustee/caretaker to accept the money from the Marley Fund and take responsibility for caring for Marley.

Naturally, the above paragraphs brings up the discussion of how much money should be left through your will for the care of your pet(s). Several media stories have talked about the ultra-wealth leaving millions of dollars for their pet(s) care to the trustee/caretaker. Those stories are certainly not the norm. In the majority of the wills I have reviewed with these clauses, the amounts are much more modest.

It should be relatively straight-forward to estimate a reasonable dollar amount to designate for the trustee/caretaker. The calculation could be based on your assessment of the life expectancy of your pet, age of the pet and an estimate of the annual costs.

Perhaps the largest annual costs for caring for pets are veterinarian costs if your pet needed specific medical care. Some of our clients have pet insurance for which they pay monthly insurance premiums. Similar to adult term insurance, the premiums are normally adjusted upward as the pet ages. The insurance approach can easily be budgeted out for future cash flows. Even when a pet is covered under insurance, small deductibles are still normally payable. The estimated annual cost of insurance and the deductibles could be part of the calculation.

Each pet is different. Grooming costs, equipment costs and medications will fluctuate. Estimating food and other costs for your pets should also be a relatively easy exercise. The budget could even include the costs of pet cremation and burial, as well as an extra amount for your caretaker/trustee for the time caring for your pet.

You could simply leave a flat dollar amount to the trust or create a methodology that is outlined along with the estimated remaining life of your pet. You could create a budget that says it costs roughly $2,000 a year for your pet. If you feel you would like to leave $2,000 for each estimated year of life left for your pet you would have to know your pet’s age and estimated lifespan. If your dog’s breed has an average lifespan of 12 years then you could build this formula into the calculation. The amount that you set aside for the caretaker for a three-year-old dog (nine years estimated remaining lifespan) would be greater then the amount you set aside for a ten year old dog (two years estimated remaining lifespan). If you use this type of methodology we would recommend you discuss this with the caretaker to make sure they are agreeable.

Kevin Greenard CPA CA FMA CFP CIM is a portfolio manager and director of wealth management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week at www.timescolonist.com. Call 250.389.2138.

 

Taking care of aging parents and their finances

Over the years, we have helped clients overcome many different challenges. This article focuses on the challenges of looking after our parents as they age. This is a complex responsibility as it involves emotional and financial management. Handling these effectively requires different skills. Below are a few points to assist with the financial challenges.

Our parents looked after us for many years. They cleaned up after us, dealt with us through the hormonal teen years and helped us with our education. This support helped launch us into our adult lives when we left home and started our own families.

As our own kids are becoming educated, our parents are getting on in years. Eventually our parents reach a stage where they need our support and the caretaking roles begin to be reversed. As already mentioned, supporting aging parents can be complicated. In some cases, aging parents are able to make rational financial and lifestyle decisions. In other cases, they are not. In some cases, they are accepting of change. In other cases they are not.

We have seen many cases of physical impairment and cognitive decline. In some cases, aging parents may lose hearing, speaking, vision, mobility/walking and other taken for granted abilities that help us with our daily living. Cases of cognitive decline could involve normal aging or a more serious decline of mental function. Typically the cognitive problems involve memory, language and judgement. Having worked with a variety of clients over a couple of decades, we have been able to see first-hand the impact of the aging process on financial issues first-hand.

It is advisable to talk to your aging parents about financial issues while they still have full cognitive functions. Most people don’t know how to begin such a conversation. One approach could be to print off an article like this and ask your parent what they think. It is possible they are not seeing the impact of age on themselves. If you are avoiding the discussion and not prepared, your aging parent may be unresponsive to even the best-intentioned help if you wait too long.

How involved children are in dealing with their parent’s financial, mental, physical well-being and lifestyle can differ from culture to culture. Even within a culture, different families have different formulae for how to help aging parent. I’m assuming that if you are still reading this article, you or someone you know wants information on how to help aging parent(s). This just might be one of the most difficult things you will have to do, but hopefully this article will give you some tips to make it a bit easier. Here are our top ten discussion points to consider when dealing with your aging parent’s financial situation:

1. Trust is the No. 1 component that I see as being important. If you are trying to help your aging parents, I would stress to your parents that your discussions will be kept strictly in confidence unless it is agreed issues can be talked about with others. Trust will be completely lost if a person in those discussions does not respect that concept. In order for all parties to communicate opening, they have to feel that what is discussed will not leave the room unless agreed upon. I think all loving relationships are based on trust. If trust has been lost over the years then you have a big obstacle to overcome.

2. The second most important item to talk to your parents about deals with capacity. It is very easy to procrastinate and avoid discussing the challenges of aging. Over the last couple of decades, I have helped hundreds of families go through this important step through a series of discussions. Similar to the advice that I give clients, an important point to highlight to your parents is any form of planning has to be done while they have capacity and are physically able. The more time you have the more likely you are to ensure your parents are taken care of in accordance with their wishes. Don’t wait until it is too late.

3. Ensure you talk to your parents about having all the important legal documents in place, including an up to date will, power of attorney and health-care directives. The discussion should involve you getting an understanding of all the key people helping your parents (i.e. lawyer, accountant, insurance adviser).

4. In addition to the standard legal documents, it is often worth discussing setting up banking power of attorney and financial power of attorney. With banking power of attorney, you can monitor the bank statements to screen for unusual transactions or withdrawals. Unfortunately, the elderly are a vulnerable population and targets of fraud. The primary benefit of having these power of attorney documents in place is the ability to assist with paying bills and making other financial decisions. Another benefit is the position of oversight to ensure that they do not become a victim of fraud.

5. Consolidate bank and investment accounts. If your parents have multiple bank accounts then get them to explain the rationale for having more than one. In the majority of situations one bank account is sufficient. You should try to ensure that all OAS, CPP, RPP, RRIF and income payments are deposited automatically into one bank account. Automatic expense payments should also all be done from the one bank account. Having investment accounts at different financial institutions causes added work to keep in touch with more than one adviser and to monitor the disparate investments. If your parents have three RRIF accounts, then they are getting three times the statements and tax slips. As they age, it is easier to consolidate all RRIF accounts together, consolidate all TFSA accounts together and have only one non-registered account. We encourage you to talk to your parents about reducing the number of bank accounts and financial institutions they deal with if you are getting multiple statements from different institutions.

6. Taking some of the volume of information off their plate can be helpful. A simple example of this is assisting with correspondence they receive in the mail. If you find that your parents are no longer opening and reading their mail, or simply have lost interest in looking at it, then it is relatively easy to get their financial mail (i.e. monthly statements) redirected so that you can take care of it and monitor it. We can also arrange it so both you and your parents receive all mail from our institution.

7. One example of correspondence that is important to stay on top of is from Canada Revenue Agency. Helping your parents file their annual tax return by organizing the information and ensuring it is filed can help them deal with something that can be quite daunting and confusing. Gathering information related to health care costs and medical receipts can be complex. Ensuring your parents are applying for all the tax credits (i.e. Disability Tax Credits) and claiming all receipts can minimize their tax bills and ensure they are compliant. Create a system for your parents to keep all receipts (i.e. medical receipts). You can go through and see what needs to be kept and what they can get rid of. You can help them safely dispose of confidential information and statements. You can help your parents respond to any assessments and ensure that any required instalment payments are made.

8. Obtain a copy of your parent’s financial plan. Normally the plan is a great starting point to obtain a complete listing of your parent’s net worth and the previous recommendations and actionable steps. Having this in writing, with concrete actionable steps, helps ensure your parents execute the appropriate financial strategies. If they do not have a total wealth plan, then you may suggest that they have one completed. One component of a total wealth plan deals with estate planning. The planner completing the plan can bring this component up during the presentation which I would encourage you to attend with your parents. Obtaining any memorandums to deal with personal household items or digital directives with logins and passwords is also helpful.

9. If your parents are currently not working with a portfolio manager then you could recommend that they meet with one. Prior to the meeting, you could assist your parents in creating a cash flow summary, both incoming and outgoing. A portfolio manager would want to have a clear understanding of your parent’s investment objective and risk tolerance. An Investment Policy Statement (IPS) could be created summarizing the discussion. One part of the IPS would cover the required cash flow to transfer from the investment account to the bank account (frequency and dollar amount). A portfolio manager can do trades on behalf of your parents without having to call them on each trade to make a decision. In some situations we can coordinate meetings with our private banker who can also service the client’s day-to-day banking needs. This can be particularly helpful if your parents do not live in close proximity to you.

10. Prepare a financial data organizer that has all of the above documents organized or a summary of the details where originals can be found. It should include a summary of all accounts and insurance policies. It should list all the advisers and professionals assisting you in your banking, financial, insurance, and legal documents. If your parents have a safety deposit box then you should know where the key is and what the purpose of it is.

Some of us are better prepared to help an aging parent than others. Our personal wealth, resources, time, health and family situation, including our ability to set and maintain healthy boundaries are all factors. Trust is the No. 1 factor to ensure the best outcome for assisting your aging parents. Once that trust is established, you and your parents should have clearer and better communication. A capable portfolio manager can act as an invaluable intermediary in this kind of situation. We can assist with having the initial meeting and discussions. We can also assist in mapping out a plan that is triggered at certain points (i.e. death of one parent, health deteriorates, etc.). Depending on how the plan is created you may find yourself gradually or abruptly taking over some responsibilities. The more you plan today, the easier this process will be.

Kevin Greenard CPA CA FMA CFP CIM is a portfolio manager and director of wealth management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week at timescolonist.com. Call 250-389-2138.

Memorandum to distribute personal and household effects

Your will is essentially a document that outlines what you want done with your assets after you pass away.

The term asset is very broad and can include everything from personal and household effects (“articles”) up to your principal residence.

The general structure of a Will typically starts with leaving specific bequests. This can be very general where you simply state that you would like a specific item, or amount of money, to go to one or a small number of specific individuals. This can also get more complex where you identify numerous bequests to kids, grandkids, nieces, nephews, charities, etc.

After the specific bequests, there is a statement that determines the division of the residual of the estate. Common examples of residuals could be to a spouse, siblings, children or charity.

I have had clients who wanted to make sure that certain personal and household effects (“articles”) were given to specific individuals. An example could be a special painting that you want to go to your niece who is very artistic or a collection of records to go to a nephew who shared your love of music.

While the list of items that you would like to be given to specific individuals could get very long, it is possible to put all the specific bequests in your will. Additionally, if you want to add an item, change a bequest or have disposed of one of the listed items, you will have to revise your will. Although this is possible, it can be a lot of trouble to go through for smaller articles and there may be a cost associated with these revisions.

An alternative to itemizing every specific small asset in your will is to have a separate document to deal with the articles. I call this document a Personal and Household Effects Memorandum (memorandum). One of the nice parts about using a memorandum is that it can be updated without having to update the will. The will would refer to the memorandum and exclude the small articles.

The memorandum approach is very flexible. For example, let’s say you had some expensive antique furniture that you wanted to give to your close friend and you put this specific bequest into your will. After speaking with your close friend, you learn that she doesn’t have room for it or even want it. If you want to change this bequest to someone else, you will need to update your will or have a codicil (an addition or supplement that explains, modifies, or revokes a will or part of one) — both of which come at a cost.

With a side memorandum, you would simply change the article bequest to another person.

Another scenario is if you dispose of some of your articles. In this case, the memorandum can be updated without having to update the entire will. Having a memorandum also enables your will to focus on the larger assets and enables your executor to have a clear understanding of how you would like some of the smaller articles with sentimental value to be distributed.

When I have talked to clients about having a methodology to distribute the smaller articles in their house, I have heard different approaches. Many have not done anything the first time we talk about it. I have had clients tell me they have put stickers underneath or behind each item, with names of the individual to receive each item. Over time, these stickers can fall off causing confusion. Other methods that I have seen that works in some situations are to distribute items during your lifetime. In the most likely outcome, you may downsize or move into an assisted living accommodation. This may be the ideal opportunity to distribute some of your items.

I also prefer the memorandum approach because it provides clarity for your executor by itemizing each article that you would like to be given to specific individuals. It can sometimes be the smaller items that family have disagreements with afterward. The memorandum should hopefully minimize disagreements between family members over items of sentimental value and avoid unnecessary conflict.

I have explained to clients how I use a memorandum and refer to it in my will. My memorandum was created using a password protected Excel template. The columns include individual name, contact address, phone number and other notes. Although you may know where all the individuals who are receiving your personal articles reside, your executor may not know. It is helpful to list the address and phone number to assist your executor. The notes column is for additional comments that may include logistics, such as shipping or customs notes if the individuals are not nearby.

A benefit of the Excel spreadsheet Personal and Household Effects Memorandum is that it can be easily edited when items are bought, sold or disposed of without having to update the will. If your executor has the electronic copy, the list can be sorted by individual to make organizing the distribution easier. This comprehensive list of assets could be supplemented with photos/videos to add extra clarity for your executor and would also be useful to keep as a general record of all of your assets for insurance purposes.

The Excel spreadsheets should list all personal and household items of significance that are not specifically mentioned in the will. An up-to-date printed copy is always stored with my will, My will refers to this memorandum. I ensure the printed copy is signed, dated and also witnessed.

Just as I think it is important that a will be kept simple and straight forward, I think the memorandum should be kept to articles of importance, sentimental items and other significant items. Many household items have very little value and are not of any great significance. It is also possible that the individuals that you wish to come into possession of the articles do not want them. It could be that logistical issues or shipping costs of moving an item(s) to a named individual far exceeds the value of the article. Your will should give the power to the executor to handle these potential outcomes.

Kevin Greenard CPA CA FMA CFP CIM is a portfolio manager and director of wealth management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week at timescolonist.com. Call 250-389-2138.

 

Helping your executor with your digital footprint

One of the first roles of an executor of a will is to gather and secure their client’s assets.

This process includes ensuring the principle residence is locked and all known assets are secured. The executor has a fiduciary responsibility to do this for the benefit of all beneficiaries. One of the challenges an executor faces is actually obtaining a complete list of all assets of the deceased.

Years ago, it was not uncommon for an executor to think they had a listing of all assets, only to discover additional assets at a later time. Sometimes reviewing bank statements might trigger the discovery of additional assets such as transfers to accounts not previously documented. Going through the regular mail was also a way to obtain recently issued account statements and gather current information on assets. Sometimes opening up the mail would also reveal a cheque that could lead to the discovery of additional assets.

In the days before investments were held in nominee name, clients would often hold physical share certificates. In other situations, a share certificate for a growth stock that doesn’t pay a dividend would be found in a pile of papers or up in the attic. Does it have value or is it defunct?

When a certificate is found by an executor, we can help out by doing a search. The search will determine if the company has value or not. Every year, I find myself doing fewer and fewer certificate searches. People who still have share certificates with value are encouraged to bring them to a wealth adviser to put them into nominee name, especially in order to make things easier for your executor. If you have a share certificate that you know is defunct, then it is best to shred them to avoid confusion or uncertainty later.

On the opposite side of the spectrum from share certificates are paperless options. Clients have the option at most financial institutions to either receive statements or to go paperless. It is also not uncommon to see clients having multiple small RRSP accounts spread all over town. Clients who have selected paperless should ensure they have a mechanism for your executor to obtain completeness. Writing everything in a book that your executor can find is a good starting point.

What is becoming more important is for individuals to discuss their digital footprint with the executor they have chosen. In my personal will, I make reference to a “digital memorandum.” This is a complete listing of my digital footprint. The memorandum is divided into a few different categories — retailers, financial, utilities, telecom, work, social media and other. The memorandum contains all the pertinent details, including the website, username and password.

This digital memorandum ensures your executor can print off your paperless bills, as bill payment is one of their responsibilities. Many bills, such as utility bills, are now primarily paperless. After all bills are paid, it is then prudent to authorize your executor to close down all appropriate accounts.

With more options to have access to services online, there are more passwords to remember. We all know the frustration when you go to a particular site and you cannot remember the username and password combination due to increased security and constant password updates. This is why it is important to update your records each time you update or change your username or password. Best practices for passwords would be to never write this information down. In my opinion, that is not practical from two standpoints. First, unless someone has an unbelievable memory I would think this would be nearly impossible. My digital memorandum has hundreds of different user names and passwords, with hundreds of different passwords to remember. I would think best practices would be to ensure that you do not have the same password for everything you access. Second, it doesn’t matter how good your memory is once you have passed away. Your executor would not know any of your account information unless you record it in a manner that they can access.

As mentioned earlier, a good starting point for this is by writing everything in one book. This can work, but it is also harder to keep organized with constant updates. If your hand writing is anything like mine, it can be difficult for your executor to decipher. Another option would be to maintain these records digitally in either a Word or Excel file. This can make it easier to read and easier to update without having to erase or scratch out old information. You would simply delete the old information and replace it with the updated information. The Excel or Word document should always be password protected on your computer. It may be a good idea to give your executor the password to first log into your computer, and also the directory where the digital memorandum is stored along with the password to unlock the Word or Excel file.

Once you have decided on your preferred method of maintaining and updating your information, it is important to keep an updated printed copy of the digital memorandum with your original will in a safe and secure location. This will help your executor with their duties and allow them to deal with your digital foot print.

Kevin Greenard CPA CA FMA CFP CIM is a portfolio manager and director of wealth management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week in the Times Colonist. Call 250-389-2138.

 

Understanding what flows through your estate

At every stage of our client’s lives, we feel they should have an up to date will.

Unforeseen events can happen and planning is essential to ensure your assets and estate are distributed according to your wishes.

The term “estate” can be used different ways. For purposes of this article, we will refer to any assets that are divided according to your will as forming part of your estate.

Below we will illustrate the “estate” term using various options that a client has with respect to their investment accounts, both registered and non-registered.

Registered accounts

Examples of registered accounts are Registered Retirement Savings Plans, Registered Retirement Income Fund, Locked-In Retirement Account, Locked-In Income Fund and Tax Free Savings Account. When a client opens a registered account, one of the questions we ask them relate to who they would like to name as beneficiaries. A client can name an individual(s) or simply name the estate as beneficiary.

In the majority of cases, couples will name their spouse the beneficiary of RRSP/RRIF accounts to obtain the tax deferred roll-over to the surviving spouse on the first death. With a TFSA, benefits exist for naming your spouse as the full amount of the deceased’s TFSA can roll into the surviving spouses TFSA without using up the survivor’s contribution limit. When a person or persons are named beneficiary on a registered account it essentially bypasses a person’s estate.

Individuals also have the option of naming their “estate” the beneficiary on their registered accounts. When “estate” is named, it is extra important for clients to have a will. Essentially, your will divides all registered accounts where “estate” is named.

In reviewing a client’s will, we have at times noted conflicts with what the will says and who the named beneficiary is on a client’s account. Some clients will want to specifically put account numbers and types of accounts within a will. This is not necessary if you have named beneficiaries on the accounts. It also can add confusion in your will if you leave certain accounts to certain individuals within your will — the specific outcome may not be as desired as the account values will change over time. In the majority of cases, we encourage clients not to mention the types of accounts and account numbers within a will. We encourage clients to focus on having a detailed plan with respect to their overall estate.

Non-registered accounts

Common types of non-registered accounts include individual, joint tenancy, tenancy in common and corporate accounts. Couples typically like to have investment accounts held in joint tenancy. Most joint tenancy accounts will have both couples names and then “Joint With Right of Survivorship” or “JTWROS” after the names.

Typically, with a JTWROS for couples, on the first passing, nothing flows through the deceased’s estate. In other family situations (i.e. not a spouse) where accounts have been structure for estate planning purposes only this may not apply. The surviving spouse would essentially bring us in a copy of the death certificate and notarized copy of the will.

Once these documents are brought in, we would have a couple of documents for the surviving spouse to sign (i.e. Letter of Indemnity and new account documents). Typically, a new individual account is opened in the name of the surviving spouse and then the securities would be rolled over as they are, including the book values, into the new account.

When a person passes away with an individual account or holds a percentage of assets in a tenancy in common ownership within their account, this would flow into the person’s estate.

Probate and executor fees

There are no probate fees for estates under $25,000, 0.6 per cent on the portion of the estate from $25,000 to $50,000, in B.C. The maximum compensation is five per cent for executors in B.C.

With couples, we typically try to arrange joint tenancy on all assets to ensure probate can be avoided on the first passing. In many cases, couples name each other executors to eliminate or reduce the executor costs.

In some cases, such as complex family situations (i.e. second marriages, children from a previous relationship), it is not always possible to avoid probate and executor fees to achieve your primary goals. Your primary goals will trump other goals such as avoiding probate and executor costs. In some situations, it is best to structure things so that probate and executor fees may apply.

Certainly on the second passing, it becomes more difficult to avoid probate and other costs such as legal and accounting. In some cases we are able to set up family meetings to deal with complex situations or to do further estate planning after the first passing.

Charts and visuals

I often use charts when discussing estate planning. I find it can be useful to help clients understand and visualize the purpose of a will. I’ll start the process by drawing a bucket in the middle of a blank page. On the bottom of the bucket I will write the word Estate. On the top side of the bucket, I will write the word will. I then pause to make sure that the clients understands that the will only divides what goes into the bucket. Many things can be structured to avoid the bucket altogether (i.e accounts that have named beneficiaries and JTWROS accounts).

On the left hand side of the page, I will begin listing all the assets that the individual has. Examples of typical asset listed include an RRSP, TFSA, boat, vehicle, bank account, non-registered account, house and life insurance policy. In each one of these examples, we draw a line to see which part of your estate flows directly to the bucket and which part of your estate flows directly to a beneficiary or joint owner.

We also draw a faucet on the right hand side of the bucket. The faucet represents probate fees, potential executor fees, accounting fees, legal fees and other costs outlined in the meeting.

Primary estate goals

Minimizing probate fees and executor fees are typically in the secondary goal category. As much as clients would like to avoid unnecessary fees, it should never trump achieving your primary goals. During an estate planning meeting, the majority of the time is spent mapping out details of your primary and secondary goals. Primary goals could be specific directions with respect to income taxes, protecting assets, succession planning for a business, asset distribution and transition, providing for family and friends and charitable giving.

These estate planning discussions are done to hopefully ensure all is structured correctly. Once we know what you are trying to achieve then we can compare your goals, both primary and secondary, to your existing will to ensure the two are aligned. If they are not aligned, then we could, in conjunction with your other professional advisers (lawyer and accountant), provide options or suggestions. Another goal of these discussions is to ensure your estate is distributed in a timely manner and to manage expenses and taxes in an efficient way.

Kevin Greenard CPA CA FMA CFP CIM is a portfolio manager and director, wealth management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week in the Times Colonist. Call 250-389-2138.

 

The stock market through 90 years of concern and fear

Ever since the stock market was first introduced, investors have been concerned about declining markets.

It’s only natural.

In fact, there hasn’t been a single year since the Great Depression during which world events have not impacted investor sentiment. When the dust has cleared, however, financial markets have always found a way to survive some bruising world events, either made by man or nature.

In order to best manage their fear, we encourage investors to always establish a quality portfolio that follows an established process. The asset mix must be consistent with your cash flow needs, time horizon, investment objectives and risk tolerance. For investors with longer-term time horizons, declines in the markets may provide an opportunity to buy quality investments at lower prices.

It is, however, extremely challenging to try to time when the markets will pull back.

To illustrate this point, the following scenarios were compiled by Scotia Asset Management using data from the Bloomberg S&P/TSX Composite Total Return Index (the “Index”) between Jan. 2, 2007 to Dec. 30, 2018. It assumes that, at the beginning of January 2007, four investors (A, B, C, and D) each had $10,000 to invest.

• Investor A missed the 30 best days the accumulated returns would be $4,300, and value of Investor A’s account on Dec. 30, 2018 would be approximately $14,300.

• Investor B missed the 20 best days the returns would be $5,836, and value of Investor B’s account on Dec. 30, 2018 would be approximately $15,836.

• Investor C missed the 10 best days the returns would be $8,586, and value of Investor C’s account on Dec. 30, 2018 would be approximately $18,586.

• Investor D decided to stay invested the entire period and accumulated returns would be $15,763, and value of Investor D’s account on Dec. 30, 2018 would be approximately $25,763.

Understandably, when the markets experience a correction or decline, it does not instill confidence in investors who stay fully. Nevertheless, investors will be able to weather these periods provided they have a well-designed portfolio, with quality holdings. As much as a decline can catch people off guard, a subsequent recovery can reward their patience. Winston Churchill said it best during the dark days of the Second Word War: “If you are going through hell, keep going.” We have always made it through uncertainty and challenging market conditions in the past. In the long run, the stock market has an upward tendency.

The following is a chronology of significant events that have resulted in market fears to hopefully lend some important perspective that the current concerns in the markets are yet another bump in the road of investing. Concerns that people have today will likely pass only to be replaced with other concerns at some point in the future.

Financial markets have managed to survive the following major events and concerns:

  • 1929-30s The Great Depression
  • 1939 Second World War begins
  • 1940 France falls
  • 1941 Pearl Harbor
  • 1942 Wartime price controls
  • 1943 Industry mobilizes
  • 1944 Consumer good shortage
  • 1945 Post-war recession predicted
  • 1946 Dow tops 200, market “too high”
  • 1947 Cold War begins
  • 1948 Berlin blockade
  • 1949 Soviets explode A-bomb
  • 1950 Korean War
  • 1951 Excess profits tax
  • 1952 U.S. steel strike
  • 1953 Soviets explode H-bomb
  • 1954 Dow tops 300, market “too high”
  • 1955 Eisenhower illness
  • 1956 Suez crisis
  • 1957 Soviets launch Sputnik
  • 1958 Recession
  • 1959 Castro seizes power
  • 1960 Soviets down spy plane
  • 1961 Berlin Wall erected
  • 1962 Cuban missile crisis
  • 1963 Kennedy assassinated
  • 1964 Gulf of Tonkin, Vietnam
  • 1965 Civil rights marches
  • 1966 Vietnam war escalates
  • 1967 Newark riots
  • 1968 USS Pueblo seized, Korea
  • 1969 Money supply tightens, market falls
  • 1970 Cambodia invaded, war spreads
  • 1971 Wage/price freeze
  • 1972 Watergate
  • 1973 Oil embargo
  • 1974 Nixon resigns
  • 1975 U.S. withdrawal from Vietnam
  • 1976 New York City blackout/bankruptcy concerns
  • 1977 Energy crisis
  • 1978 Massacres in Cambodia
  • 1979 Three Mile Island Disaster
  • 1980 Abscam scandal rocks Congress
  • 1981 U.S. Pres. Ronald Reagan & Pope Jean Paul II shot
  • 1982 Worst recession in 40 years
  • 1983 Soviets shoot down Korean airliner
  • 1984 Iran/Iraq war escalates
  • 1985 U.S. become a debtor nation
  • 1986 Bombing in Libya
  • 1987 Record setting market decline
  • 1988 Bank failures peak
  • 1989 Junk bond crisis
  • 1990 Iraq invades Kuwait
  • 1991 U.S. recession, USSR dissolves
  • 1992 Los Angeles riots
  • 1993 Great flood
  • 1994 Federal Reserve raises rates six times
  • 1995 Dow tops 4,000 then 5,000, market “too high”
  • 1996 Technology stock stumble
  • 1997 Asian financial crisis
  • 1998 Global economic turmoil
  • 1999 Fears of Y2K problem
  • 2000 Internet “bubble” bursts
  • 2001 Terrorist attacks in U.S.
  • 2002 Worst bear market since ’29-32, Enron Tyco, Worlcom
  • 2003 War in Iraq, SARS
  • 2004 Madrid terrorist bombing, Asian tsunami
  • 2005 Terrorist attacks in London, hurricane Katrina
  • 2006 U.S. housing market declines, Iran nuclear program
  • 2007 Subprime mortgage loans
  • 2008 Stock market decline, Bear Stearns Bailout, Lehman Bankruptcy
  • 2009 Continue stock market decline at start of year, Barack Obama Sworn in
  • 2010 Haiti earthquake, U.S. Troops withdraw from Iraq
  • 2011 Bin Laden killed, Japan earthquakes
  • 2012 Kim Jong Un appointed Supreme Leader (North Korea tensions)
  • 2013 Boston Bombings, Xi Jinping elected President in China
  • 2014 Eboa Epidemic, Oil Markets Crash
  • 2015 Paris Attacks, Europe Refugee Crisis, Greek debt crisis
  • 2016 Brexit, Donald Trump wins US Presidential Election
  • 2017 Russian interference investigation (Russian tensions), bit coin
  • 2018 U.S. imposes tariffs on China, Conflicts with trade agreements, NAFTA agreement uncertainly
  • 2019 S&P 500 reaches 3,000, yield curve inversion

Kevin Greenard CPA CA FMA CFP CIM is a portfolio manager and director, wealth management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week in the Times Colonist. Call 250-389-2138.

 

Updating your list of key contacts

We begin every meeting with our clients by reviewing a summary sheet of key macro items we believe are important for the client to either understand or communicate to us.

We provide new clients with a financial checklist to take home, fill out and return to us either by email, mail or at our next meeting. In many ways, it is similar to if you were visiting a medical professional for the first time. In order for the medical professional to best help you, they would need to know both your and your family’s health histories.

The purpose of this article is to outline some of the reasons why we ask for this information.

Accounting information

Do you prepare your own tax return or do you have someone prepare your taxes on your behalf? If you have an accountant, then at a minimum we obtain the name of the individual(s) you work with, the firm name, mailing address, phone number, fax number and email. We also like to know when the relationship began. If you do not have an accountant, then how is your return prepared (software package, paper version, family member)? We have all new clients complete a Canada Revenue Agency (CRA) representative form as a starting point. With your consent, this enables us to get some background information and all carry-forward limits. We obtain alerts from CRA when our clients get new mail (Notices of Assessments, reassessments, review letters). Often we are able to review this before our clients receive it. If we are not able to assist the client directly, then we can point them in the correct direction.

For our corporate clients and incorporated medical professionals, it is important for us to speak at least annually, if not more frequently, with their accountants. We can provide the accounting firm with the information they require to expedite the preparation of corporate and trust returns. It also enables us to document the structure, shareholdings, and overall strategy with respect to tax sheltering, dividend payments and wages. This information needs to be consistent with all financial planning documents we prepare.

Legal information

One of the sections on our professional checklist requests details regarding the lawyer and notaries you work with. For our corporate and trust clients, they may have a different lawyer to help with the structure, records office and minute filings. All clients should have a notary or lawyer that helps prepare their personal legal documents. This is perhaps the area where we have to nudge clients along a bit as the natural tendency is often procrastination.

The benefit of us asking new clients to fill out the professional checklist, and asking existing clients to update or provide this information, is that it encourages people to dedicate time to get it done. The most basic of questions we ask is whether our clients have a will. We believe it is important to know when it was last updated, where the original(s) are kept and who the executor and alternate executors are? We also advise clients that we do not prepare wills and don’t require copies of our clients’ wills unless they have questions and concerns. When we have estate planning meetings, I will always want to know how our clients ultimately want their estate distributed. If the will does reflect their most current wishes, then I will work with their lawyer to ensure it is updated.

We also obtain details regarding power of attorney, including legal, bank, and financial information. Unlike wills, there is no registry for powers of attorney. We ensure that we document details that clients provide, and request that they confirm no changes at every meeting. In cases where clients are aging we will encourage them to bring the representatives that they trust in to meet with us prior to a situation where the client’s capacity can be questioned.

Often the legal section of our checklist is returned without the requested information or incomplete. In some cases, it may be because the client didn’t understand the question or that it is not applicable. Many people want to know about the different types of power of attorney and health care directives (i.e. representation agreement) available, but have never really talked to anyone about it.

Perhaps the most important part of this exercise is that it enables our clients to open up about personal situations that have been bothering them. After working with clients for a couple of decades, there are very few situations that we have not found solutions for if clients want to talk about it.

Banking information

When clients first open up accounts, they must provide a copy of a void cheque to ensure we have the correct details. In some cases, we have clients who have multiple bank accounts at different institutions. Many couples have joint accounts. Some clients choose to have individual accounts. Our elderly clients have, at times, had questions about setting children up as power of attorney on bank accounts and investment accounts or setting them up as joint owners. We try to both simplify our clients banking needs while at the same time ensuring they understand the pros and cons of each decision that they make.

Every investment account is linked to a bank account. It is possible to have different bank accounts linked to different investment accounts. That can get a bit confusing, especially as our clients are aging. We generally encourage closing unnecessary accounts and consolidating them into one Canadian chequing account. In this one account you can have all your deposits transferred in including CPP, OAS, RPP pensions, and withdrawals from your financial institution. Establishing a good relationship with one banking institution makes sense to have one point of contact. It makes cash-flow planning and taxation administration easier. Whenever our clients change their banking information they must let us know so we can update the applicable link to the investment account(s).

Insurance information

When clients come to the insurance section of the checklist, people often don’t have a clear understanding of what insurance coverage they have. Some may have had insurance they purchased years ago, but are fuzzy on all the details. Sometimes clients bring in policies that have lapsed, have been replaced, or converted. In other cases, they are fully in force. For existing in-force policies, we document all details, including why the insurance was initially put in place. We also obtain details of the cost of insurance and any periodic cash-flow needs to fund. In some cases, the insurance is fully paid up. In other situations, premiums are set to be paid monthly or annually normally. When we see monthly premium payments, we normally talk to the client about converting to annual as the cost of insurance is typically slightly lower. With annual payments we are also able to coordinate payments from a non-registered account to insurance companies on our client’s behalf. We ensure that cash flow is available to fund and we can make the payment direction, similarly to us making installment payments to CRA.

In some cases, our clients have no insurance and they do not need insurance. In other cases, our clients have young families, or have significant debt loads, partnership agreements, compliance with separation agreement clauses, etc. When there is an obvious need we will outline how risks can be managed in the scope of an overall financial plan.

Asking questions about insurance and obtaining details of all in force policies enables us to understand the full picture. One of the side benefits of gathering all insurance details is that it is required information to complete a comprehensive financial plan. Within a financial plan, a section covers insurance. Insurance can often help provide solutions to concerns, protection, taxation benefits, and estate maximization and ensuring asset transfers after taxes have been paid.

Family information

For every client, we request that they provide us some background of their family dynamic, usually via a family tree, starting with details on their parents. If their parents are deceased, then we request that they provide their age at the point of their death. This type of information is useful from a genetic footprint standpoint. In situations where parents are still living it opens up many discussions. Are your parents currently dependent on you or will they need assistance as they age? In some cases, we will encourage our clients to bring their parents in and we can assist them with any questions. When parents are living, there will likely either be some form of future cost (i.e. extended care, funeral costs) or future inheritance. This information is useful when mapping out future cash flow needs and financial plans.

Obtaining details about siblings is also important, as they, too, can provide information from a genetic standpoint. We have many situations where we can set up siblings and our clients on joint family accounts if the situation is right. When siblings open up accounts, it provides more options for estate planning with parents, such as in-kind distributions. Siblings can also be an option with respect to executor and powers of attorney depending on proximity, age and knowledge level.

Information on children and grandchildren is also important to know. For younger children and grandchildren, the discussion can initially focus on setting up Registered Education Savings Plans. We will often discuss with our clients what type of assistance, if any, they want to provide to any minor children once they become adults. In some cases we have clients that feel they have no obligation to assist their children after they leave them. Some feel they feel an obligation to fund education costs only. Others want to extend the assistance to helping their children purchase their first home. Every client is different and we try to get an initial understanding of where they are within this wide spectrum.

When family members combine accounts at one institution, it is referred to as “house-holding.” As overall asset levels rise and reach certain thresholds, then fees as a percentage can decline for all family members.

We also want to obtain details outside of a family tree if non-family beneficiaries are listed on life-insurance policies and registered accounts. At times, we have had beneficiaries that live overseas and have been challenging to reach. Making sure we have up-to-date addresses and phone numbers of key individuals that are part of your estate plan.

Finally, many of our clients have pets that are an integral part of their family and have concerns about what will happen to them as part of their estate. We can provide solutions that give pet owners options and peace of mind.

Other information

With extended families and complicated family situations we ask our clients to provide marriage contracts, prenuptial agreements or any information that gives us a complete understanding. We also ask clients to provide any additional details that they feel we should know. Stated another way, are there any specific concerns that are bothering them?

Kevin Greenard CPA CA FMA CFP CIM is a portfolio manager and director of wealth management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week in the Times Colonist. Call 250-389-2138.