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.

 

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.

 

Inheritance enhances retirement and estate plan

Over the years we have helped new clients and existing clients deal with inheritances. In the majority of cases the inheritances are coming from parents. These can be done upon the parent’s passing away but are also done while they are alive in more and more cases. In other cases we have clients receiving inheritances from uncles/aunts, siblings, friends, and other individuals.

The greater the inheritance the more critical it is to get some professional advice. One positive part of receiving an inheritance in Canada is the money is not taxed. Following are some topics we would discuss when a client receives an inheritance.

Paying off debt

We like the idea of paying off debt, especially personal mortgages, credit cards, and lines of credit that are not tax deductible.

To begin with, we obtain a summary of all loans, current rates, and repayment penalties, if any.

If only some debt is repaid, then the highest non-deductible interest rate debt should be paid off first. If fees or penalties apply, it is important to obtain an understanding of these and your wealth adviser should be able to map out the best options.

If you still would like to invest some, or all, of your cash then you’re best to take a new loan out for the specific purpose of investing.

The interest expense incurred from the money borrowed is generally tax deductible if the purpose of the use of the borrowed funds is to earn income in non-registered accounts.

Increased income

One of the results of receiving an inheritance is that your annual taxable income is likely to increase. If you purchase GICs and bonds, you will have to factor in the interest income received. If you purchase equities, you will have tax efficient dividend income to report and some deferral options.

We provide an estimate of what the income will be once the investments are selected and calculate an estimated income tax liability if the funds are invested in a non-registered account.

Type of non-registered account

If you feel a non-registered account is your best option you should determine the type of account.

If you are single the choice is easy; an individual account. If you are married or in a common-law relationship, you may consider to open an individual account and keep the funds only in your name. Alternatively, you may open a joint-with-right-of-survivorship (JTWROS) account with your spouse or common-law partner.

The person who received the inheritance would be primary on the account. If a non-registered account is already opened then we have a discussion regarding the risk of commingling funds in the event of a marriage breakdown.

This discussion has many other components to talk about including tax, income splitting, and estate wishes. Consulting a family law attorney may be required in cases of marital breakdowns.

Topping up RRSPs

One way to defer some of the above income is to deposit funds into a tax sheltered Registered Retirement Savings Plan, if contribution room exists.

The greater your income, the better this option is. If your income is at or below the lowest tax bracket then there may be other options you would want to consider.

The determining factor is your future income expectations. As an example: John received $250,000 as an inheritance. He is using $150,000 to pay off all debt and would like to invest the remaining $100,000. John has accumulated a $140,000 RRSP deduction limit, as he has never contributed the maximum each year. John plans to work for the next five years and earns approximately $80,000 in T4 income.

One option we may suggest to John is to contribute the $100,000 into his RRSP and claim $20,000 a year as a deduction over the next five years assuming that there is no extra cash flow for additional contributions. One of the main benefits of putting funds in the RRSP (and not claiming the full deduction right away) is that all income is tax sheltered.

Tax Free Savings Account

Any income earned within the TFSA is tax free, if you have never set up a TFSA, the cumulated TFSA contribution limit for 2019 is $63,500. It may be worthwhile to understand the advantage of this type of account and top up to the maximum limit. Starting in 2019, the annual limit is $6,000, indexed to inflation thereafter.

If you have both non-registered account and TFSA, then we would recommend you to transfer your assets (up to the maximum limit) from the non-registered account into the TFSA, to take advantage of the tax-free feature.

Skipping a generation

Sometimes the people receiving the inheritance do not need the funds themselves. In these situations we often map out a strategy that will skip to the next generation. Sometimes this will help younger generations pay off mortgages, purchase a home, or build up retirement savings

Structure of accounts

Many Canadians only have RRSP or TFSA accounts. Often when significant funds are received (inheritance, sell of a business, life insurance proceeds), people open their first non-registered account.

One thing that we see is people buying GICs and bonds where the interest income is fully taxable in a non-registered account while leaving the equity investments which have tax-efficient dividend income within their RRSP. When this happens, the structure of investments is backwards.

There are many benefits of consolidating investments at one institution, including lower fees and more account options. It is beneficial to deposit the inheritance cash into a non-registered account at the same institution as the RRSP. If this is done then the structure can be corrected.

We are able to do a series of trades that will correct the overall structure will ensure that interest income on fixed income is tax sheltered within the RRSP. By holding Canadian equities in the non-registered account, you will receive the benefit of the dividend tax credit, and taxation of capital gains and losses.

Updated documents

Obtain the appropriate forms to update your investment accounts, Powers of Attorney, beneficiaries and ownership. We always encourage people to update their Will and other legal documents (if necessary).

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.

 

Act today to minimize a massive final tax bill

Taxpayers, naturally, are fixated on trying to minimize tax in the current year. This is a classic scenario of someone not being able to see the forest for the trees. The forest is your ultimate final tax liability. The trees are the current year taxes. The final tax bill in Canada consists of any income up to the time of death, accrued gains are deemed to be realized at the same time and estate administration tax (probate fees).

Annually, in early June we will look at our client’s tax returns and see the level of taxable income and tax payable they incurred in the current year. When the current tax payable is too low we may schedule an estate planning meeting.

The estate planning meeting typically starts off by a rough tax calculation of what your final tax liability would be today, based on your current assets, if you were to pass away. If you have not gone through this exercise, then it is worth doing. In some cases, the government stands to inherit a significant portion of your net worth if not structured appropriately. The conversation is setting the framework for a more detailed analysis done as part of the financial planning process.

Throughout our working lives we commonly reduce our annual tax bill by making Registered Retirement Savings Plan (RRSP) contributions. An important item for people to understand is the tax consequences when withdrawals are made and also the tax consequences upon death.

Withdrawals from registered accounts are generally considered taxable income in the year the payments are made. Over time your RRSP account may have generated different types of income including dividend income, interest income and capital gains. All of this income would have been deferred. All RRSP and Registered Retirement Income Fund (RRIF) withdrawals are considered ordinary income taxed at your full marginal tax rate regardless of the original type of income.

When a registered account owner dies, the total value of their registered account is included in the owner’s final tax return. The final tax return is often referred to as a terminal tax return. The proceeds will be taxed at the owner’s marginal tax rate. The highest marginal tax rate (British Columbia and federal) is currently 49.8 per cent. An individual that has $800,000 in an RRSP/RRIF account may have to pay $398,400 of that amount to Canada Revenue Agency in income taxes. If the RRSP names the estate as beneficiary, then an estate administration tax or probate fee of approximately $11,200 would apply. Accounting, legal, and executor costs can result in less than half being directed to your beneficiaries and more than half going to taxes and other fees.

These taxes must be paid out of the estate. CRA considers you to have cashed in all of your registered accounts in the year of death. Paying over 50 per cent of your retirement savings to CRA is not something investors strive for. There are a few situations where this tax liability can be deferred or possibly reduced.

Spouse

Registered assets can be transferred from the deceased to their spouse or common law spouse on a tax-free rollover basis provided they are named as beneficiary. The rollover would be transferred into the spouse’s registered account provided they have one. If the spouse does not have a registered account, they are able to establish one. The registered assets are brought into income on the spouse’s return and offset by a tax receipt for the same amount. This rollover allows the funds to continue growing on a tax-deferred basis. The rollover does not affect the spouse’s RRSP contribution room.

If your spouse is specifically named the beneficiary of your RRIF account, then you should consider designating your spouse as a “successor annuitant.” As a successor annuitant, the surviving spouse will receive the remaining RRIF payment(s) if applicable and obtain immediate ownership of the registered account on death. These assets will bypass the deceased’s estate and reduce probate fees. You should discuss all estate settlement issues with your Wealth Advisor and financial institution to obtain a complete understanding.

Minor child or grandchild

Registered assets may be passed onto a financially dependent child or grandchild provided you have named them the beneficiary of your registered account. In order to be financially dependent, the child or grandchild’s income must not exceed the basic personal exemption amount. A child that is under 18 must ensure that the full amount is paid out by the time that child turns 18.

Financially dependent child

A child of any age that is financially dependent on you can receive the proceeds of your registered account as a refund of premiums. This essentially means that the tax will be paid at the child’s marginal tax rate, likely to be considerably lower than your marginal tax rate on the terminal tax return.

Rollover to Registered Disability Savings Plan

In 2010, positive changes occurred to help parents and grandparents who have a financially dependent disabled child or grandchild. Essentially this enables the RRSP accounts of parents and grandparents (referred to as the annuitant) to be rolled over to the RDSP beneficiary. The estate benefit is that up to $200,000 of the annuitant’s RRSP can be transferred to the beneficiary’s RDSP. Care should be taken to make sure the transfer qualifies under current tax rules and thresholds. The end goal is to minimize tax and hopefully your beneficiaries receive a larger inheritance. We recommend you speak with a Wealth Advisor if you are considering naming a disabled child or grandchild the beneficiary of your registered account.

Rollover to Registered Retirement Savings Plan

The RDSP is my favourite option for rollover, but what happens if the RRSP/RRIF is greater than $200,000 (the maximum rollover for the RDSP)? Another good option to explore if the child is dependent on you by reason of physical or mental infirmity is the tax free rollover of the registered account (i.e. RRIF) into the disabled child’s own registered account (i.e. RRSP). With disabled children there are no immediate tax consequences and there is no requirement to purchase an annuity. You may want to discuss the practical issues relating to having your registered account rolled into registered account in the name of a disabled child.

Other planning options for children with disabilities

A combination of the RDSP and RRSP rollover is normally sufficient if the annuitant has a small to medium sized RRSP/RRIF account. Other planning options are available if you have a sizable RRSP and are worried about disabilities payments from the government.

Beneficiaries

Care should be taken when you select the beneficiary or beneficiaries of your registered accounts. If you name a beneficiary that does not qualify for one of the preferential tax treatments listed above, then it could cause some problems for the other beneficiaries of your estate. An example may be naming your brother as the beneficiary of your RRSP and your children as beneficiaries of the balance of your estate. In this example, the brother would receive the full RRSP assets and the tax bill would have to be paid by the estate, reducing the amount your children would receive.

Important points

Every individual situation is different and we encourage individuals to obtain professional advice. Below we have listed a few general ideas and techniques that you may want to consider in your attempt to reduce a large tax bill:

  • Pension credit — you should determine if you are able to utilize the pension tax credit of $2,000. If you are 65 or older, then certain withdrawals from registered accounts may qualify for this credit. Rolling a portion of your RRSP into RRIF would allow you to create qualifying income. For couples this credit may be claimed twice – effectively allowing some couples to withdraw up to $4,000 per year from their RRIF account(s) tax-free (provided they do not have other qualifying pension income).
  • Single or widowed — single and widowed individuals will incur more risk with respect to the likelihood of paying a large tax bill. Single and widowed individuals should understand the tax consequences of them dying as no tax deferrals are available.
  • Charitable giving — one of the most effective ways to reduce taxes in your year of death is through charitable giving. Those with charitable intentions should meet with their professional advisors to assess the overall tax bill after planned charitable donations are taken into account.
  • Life insurance — one commonly used strategy is for individuals to purchase life insurance to cover this future tax liability. The tax liability created upon death coincides conveniently with the life insurance proceeds. This would enable individuals to name specific beneficiaries on their registered account without the other beneficiaries of the estate having to cover the tax liability.
  • Estate as beneficiary — if you name your estate the beneficiary of your registered account then probate fees will apply. An up-to-date will provides guidance on the distribution of your estate.
  • Life expectancy — Individuals who live a long healthy life will likely be able to diminish their registered accounts over time as planned. Ensuring your lifestyle is suitable to a longer life expectancy is the easiest way to defer and minimize tax.

A wealth adviser should be able to generate a financial plan to review with you and your accountant. The financial plan should outline the tax your estate would have to pay if you were to die today. This will begin a conversation that may allow you to create a strategy that reduces the impact of final taxes on your estate and throughout your lifetime.

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.

 

Online access and paperless options becoming more mainstream

Computers, phones and tablets have all become mainstream in today’s modern households. The thirst for current knowledge in a busy mobile world has never been greater. More than ten years ago, businesses began introducing new online options for clients to get financial information. Although some were slow to adopt this technology change, most clients today desire to have online access to both their bank and investment accounts.

The term online access has caused some confusion, especially when financial firms have both online access through a website (the web) and login access through an application (the app) for a tablet and smart phone. What you can access and do on both of these online platforms are different. We recommend that clients create an account and get comfortable with both to obtain all available information on their accounts. I think the hesitation early on was due to peoples’ comfort level in regard to technology and security issues.

There are many benefits to setting up online access. One of the main reasons people like online access is the ability to set up “paperless” options. With most financial firms, this is done through the website version. Going paperless is an optional choice, or an added benefit, that clients have once they have online access on the web. Let us look at some of the benefits of online access and paperless delivery.

Security

I mentioned that some people may be hesitant to go online for security reasons. Financial firms have spent enormous capital to ensure appropriate security is available for their clients. Some people could easily argue that with mail delivery being a manual process that the arrival of your mail at your home is not 100 per cent guaranteed. When you receive other people’s mail you may wonder if anyone has received yours. Many people feel that it is more secure to go paperless and not have your financial information sent by regular mail.

Customization

Clients have the ability to select and customize what documents they wish to receive by paper delivery or by paperless delivery. The three broad categories are statements (monthly statements), confirmation slips (sent after each trade) and tax documents. Clients must elect paperless or paper delivery on each account. For example, a client could elect paperless delivery on the TFSA and RRSP account but wish to have paper delivery on the taxable or cash account. It is normally less confusing for clients if they either go all paperless delivery or all paper delivery.

Timeliness

Another benefit of online access and paperless delivery is that you would be able to access your statements sooner. With paperless delivery you would receive a notification by email that your financial information is available online and you could immediately log in and view this information. With paper delivery, the statements would have to be printed by your financial firm and mailed to you. When Canada Post was going on strike, many clients converted to paperless documents to ensure they continued to get their financial information in a timely manner.

Tax documents

Many clients today like the idea of logging onto a secure website and printing off their tax documents. We also recommend that clients create “My Account” with CRA and print the slips automatically sent to them as a completeness check. Once you have set-up “My Account” with the CRA you can take advantage of their sign-in partner service. This allows you to sign into “My Account” with the CRA using the same sign-in information you use for your online access at your financial institution. This is one less password you will have to remember. If you have online access, you would be able to compile all tax slips provided you have paperless delivery and online accounts set up by March 31. If you have paperless tax documents, the latest your accountant should receive your tax documents is April 1st every year. Even if you are travelling you can access your documents and send these through to your accountant — remember to use secure email.

Environment

Paperless documents also has the added benefit of being good for the environment. Financial firms reduce printing costs, mailing/delivery costs and do their part for the environment by reducing the amount of paper they use. Clients viewing the information online can do so in a secure manner. They do not have to print the statements and worry about storing the financial information securely or shredding old documents. When clients select paperless delivery, they can go online and go back several years to look up financial information whenever they need to. It is easy to find and stays secure in the meantime.

Power of Attorney (POA) — monitor parents

In many situations, we are dealing with two or more generations in a family. When our clients are aging, we will typically have a discussion with them about steps they can do today in the event they become unable to make financial decisions. If they have reliable and responsible children, we will often suggest a family meeting where one of their adult children is introduced to us. We have a discussion about financial information for aging clients or clients suffering from dementia or Alzheimer’s disease. We like to have this conversation while our aging clients still have capacity and the ability to set up a financial power of attorney. Financial information can be confusing and create anxiety in some cases. Establishing a power of attorney, to monitor your situation can reduce this significantly. What works really well is to set up the account delivery as paperless and provide full online access to the power of attorney.

Power of Attorney (POA) — monitor children

We are often asked if we will help our clients children get started on the right path with investing. When the accounts are set up we can easily add the parent on as a power of attorney. A parent may want to gift money to their children and the POA on the account enables them to keep an eye on the child’s financial progress. Guiding your children on how to deal with money can be as important as guiding them toward a good education and profession. Children naturally do not know the different ways to invest or the different types of investment accounts.

Transfers between accounts

If you have online access set up with your bank and financial firm, it creates an added benefit of viewing both. Online access enables you to transfer funds from a bank account into your investment account. This can be done quickly and efficiently, without the need of writing physical cheques.

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.

Part VI – Real Estate: Skipping to Other Generations When Planning Your Estate

With the value in real estate and other holdings, many Canadians have accumulated a significant estate that involves planning.  Talking about estate planning need not be uncomfortable.  For many, this naturally leads to who you would like to receive your estate – either family, friends, and/or charitable groups.  The process involves mapping out a plan that minimizes tax, while at the same time ensuring your distribution goals are met.

The second stage of the estate-planning process is when we ask for clients to bring a copy of the documents they currently have in place. We also obtain a copy of their family tree and information about current executor(s), representative, or other individuals currently named in the will.

To illustrate the process, we will use a typical couple, Mr. and Mrs. Gray, both aged 73. They last updated their wills 24 years ago.  They have what is commonly referred to as “mirror wills” where each leave their estate to their spouse in a similar fashion.  The will also has a common disaster clause that if they were to both pass away within 30 days that the estate would be divided equally amongst their three children.  We will refer this to as the “traditional method”.

Since they last updated their Will, all three of their children (currently aged 56, 54, and 52) have started families of their own. In fact, the Gray’s now have seven grandchildren between the ages of 11 and 32, and two great grandchildren (aged seven and three).  None of which were born when they last updated their Will.

In reviewing their will, we noted that this traditional method of estate distribution left everything to their now financially well-off adult children, to the exclusion of their grandchildren. We highlighted that the current will does not mention the grandchildren or great grandchildren. In exploring this outcome, they expressed they wanted to map out an estate plan that also assisted those that needed help the most.

The last time the Gray’s updated their will they had a relatively modest net worth, but in the last 24 years they were able to accumulate a significant net worth. We had a discussion with Mr. and Mrs. Gray that focused around the timing of distributing their estate.

The traditional method effectively distributed nothing today and everything after both of them passed away.

We discussed the pros and cons of distributing funds early. During our discussion, the plan that was created was combination of components, parts involved a distribution to the grandchildren based on certain milestones.  They also wanted to make sure their grandchildren obtained a good education.  The estate plan details that we outlined in the short term were relatively easy to put in place and were as follows:

  1. For the youngest members of the family they wanted to set up and fund Registered Education Savings Plans (RESP) for all eligible grandchildren and great grandchildren. The RESP contribution shifted capital from a taxable account to a tax deferred structure. This effectively results in income splitting for the extended family. Another added benefit is that RESP accounts would receive the 20 per cent Canada Education Savings Grant based on the amounts contributed.
  2. For the family members already in university, the plan was to assist with the cost of tuition and other university costs up to $10,000 per year per grandchild.
  3. For the grandchildren who were at the stage of wanting to purchase a principal residence, they wanted to set aside a one-time lump sum payment of $50,000 specifically to assist each grandchild with the down payment on a home.

One of the more challenging areas of the Gray’s estate plan dealt with their real estate. In addition to their principal residence, they also owned a recreational property in the Gulf Islands. The recreational property had some significant unrealized capital gains. It was important for the Gray’s to ensure both properties were kept within the family, if possible. We called a family meeting together where we outlined different options to achieve this goal. The key with this part of the estate plan was communication with Mr. and Mrs. Gray and their three children. We were able to obtain a clear plan that was satisfactory to all family members.

The finishing touch to a well-executed estate plan is ensuring the details are clearly documented in an up-to-date will.

 

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 TC. Call 250.389.2138. greenardgroup.com

This is for information purposes only. It is recommended that individuals consult with their financial advisor before acting on any information contained in  this article. The opinions stated are those of the author and not necessarily those of Scotia Capital Inc. or The Bank of Nova Scotia. ScotiaMcLeod is a 
division of Scotia Capital Inc., Member Canadian Investor Protection Fund.

Ten Tips on Working With A Portfolio Manager

HEALTHY LIVING MAGAZINE

Over the years, I have had many discussions with people about what is important to them.  Health is nearly always at the top of the list.  Connected to this is having time to enjoy an active and social lifestyle.

Life has become busy, and it is tough to squeeze in everything that you have to do, let alone have time left over for all the things you want to do. Sometimes it is simply a matter of making a choice. One of my favourite concepts I learned years ago in economics is ‘opportunity cost’. It can relate to time, money or experiences. We can’t get it back, borrow or save it. Time is sacred – especially family time and doing your own investing can take time and attention away from your family. So ask yourself – is doing your own investing worth the time you are spending on it?

One way to focus on the things you want to do is to delegate the day-to-day management of your finances to a portfolio manager who can help you manage your investments by creating what is called a ‘managed’ or ‘discretionary’ account. They are able to execute trades on your behalf without obtaining verbal permission, so when the market changes, they are able to act quickly and prudently.

Here are some tips for working with portfolio manager to improve your financial health:

Have a Plan

You are more likely to achieve the things you want if you set goals to paper. With fitness goals it would be things like running your first 10k race or lowering your blood pressure. Financial plans are the same – sit down with your portfolio manager and outline what you want to achieve with your estate, your investments and your retirement. Once a plan is in place, a periodic check-up takes a fraction of the time to ensure everything is on track.

Stay in Control

If you are worried about being out of touch with your investments, there are measures in place to keep you in the driver’s seat. One of the required documents for managed accounts is an Investment Policy Statement (IPS). This sets the parameters with your portfolio manager and provides some constraints/limits around their discretion. For example, you could outline in the IPS that you wish to always maintain a minimum of 40 per cent in fixed income. This lets you delegate on your terms, and ensures a disciplined approach to managing your portfolio. Technology has made it easier and faster for you and your portfolio manager to track your progress, review changes or update the program. Developing a written agenda that gets shared in advance of a meeting, whether in person or virtual, can create efficiencies and ensures nothing is missed. Whether it is email, Skype, or even text messaging – there are many ways for you to stay connected to your finances.

Think About Taxes and Legal Issues

Your finances often involve other professionals such as lawyers or accountants, so it is beneficial to get everyone connected early on. Work with your portfolio manager to complete a professional checklist that includes important names and a list of key documents. If your team can communicate directly with one another, it’s easier to map out planning recommendations and tax-efficient investment strategies. Your portfolio manager can also act as your authorized representative with the Canada Revenue Agency and can even make CRA installment payments on your behalf. Every summer, I am reviewing assessment notices, carry-forwards, contribution limits (i.e. TFSA and RRSP) and income levels to allow my clients to enjoy the outdoors and improve their quality of life

Put Family First

Having a complete picture helps a portfolio manager map out strategies to preserve your capital and to protect your family. If a life event occurs or your circumstances change – from new babies, to inheritances, to critical illness –  your portfolio manager can provide options and solutions. When the family member who manages the finances passes away suddenly, it can be very stressful for the surviving spouse or children during a time that is already emotionally draining. To help in this situation, many families create well thought-out plans that can involve working with their portfolio manager to make discretionary financial decisions in a time of transition. A Portfolio Manager can take care of your finances regardless of the curves that life throws them.

As a portfolio manager, I feel it is critical to be accessible and to keep clients well-informed with effective communication. What I am finding is that conversations are shifting to areas outside of investments, including the financial implications of health issues and changes within the family.

If you are looking for a way to simplify, reduce stress in your life, and proactively manage your finances, a portfolio manager might be a good way to improve your financial health.