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The importance of a Will

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A Will is something that most of us should have unless our net worth is limited and we’re happy with the way the government mandates distribution between spouses, children and grandchildren (detailed below).

Any special inheritance wish will however need to be properly spelled out in a legal document, which takes effect when you die.  Without a valid Will with detailed instructions, the result is often contentious with family members feeling that the deceased would have wished things to be different.  This results in more grief and often family in-fighting.

For most of us a Will is a vital part of your financial plan that must be updated throughout our lifetime.

Canadian Will surveys over the past decade reveal remarkably similar statistics showing that approximately 55% of Canadians have a written Will. This is encouraging although still leaves many without clear direction of how to handle the distribution of assets.

Another key point is how old the Will is and whether it is still applicable to one’s evolving life situation and distribution wishes. A recent survey by Legal Wills suggests that about 12% of Wills are out-of-date, which bumps the number of people needing Wills (either new or amended) to well over half of Canadian adults.

So what do we need to do? First off, let’s understand the basics:

  • Estate planning involves the transfer of someone’s assets (e.g. property, money) when they die, as well as a variety of other personal matters. Wills, estates, trusts and power of attorney are all common tools used in estate planning.
  • A person’s will is a written document that sets out the person’s wishes about how his or her estate should be taken care of and distributed after death. It takes effect when the person dies.
  • An estate is the property that a person owns or has a legal interest in. The term is often used to describe the assets and liabilities left by a person after death.
  • A trust is created to hold property or assets for the benefit of a particular person called the beneficiary. It is managed by a person called a trustee, who has an obligation to deal with the property for the beneficiary of the trust.

The bottom quintile of Canadians net worth tops out at $206,765 (Environics Canada), which means that in the event of death for couples without a will, the spouse essentially inherit all the assets, which may not be the deceased’s wish.

This is how it works when a person dies without a valid will, called “intestate”, Ontario’s Succession Law Reform Act sets out how the estate is distributed.

  • According to the Act, unless someone who is financially dependent on the deceased person makes a claim, the first $200,000 is given to the deceased person’s spouse if he or she has decided to claim his/her entitlement. The other possibility is to claim half of the net family property. A lawyer can help determine which is the better choice.
  • Anything over $200,000 is shared between the spouse and the descendants (e.g. children, grandchildren) according to specific rules.
  • If there is no spouse, the deceased person’s children will inherit the estate. If any of them have died, that child’s descendants (e.g. the deceased person’s grandchildren) will inherit their share.
  • If there is no spouse or children or grandchildren, the deceased person’s parents inherit the estate equally.
  • If there are no surviving parents, the deceased person’s brothers and sisters inherit the estate. If any of the brothers and sisters have died, their children (the deceased person’s nieces and nephews) inherit their share.
  • If there are no surviving brothers and sisters, the deceased person’s nieces and nephews inherit the estate equally. However if a niece or nephew has died, their share does not pass to their children.
  • When only more distant relatives survive (e.g. cousins, great nieces or nephews, great aunts and uncles), the rules are complex and you should speak to a lawyer.
  • If any heir was alive when his or her relative died, but died before the estate was distributed, that person’s own heirs are entitled to their share.
  • When a person dies without a will, only blood relatives, including children born outside of marriage, or legally adopted children can inherit. Half-blood relatives share equally with whole-blood relatives.

Going to a lawyer rather than drawing up your own will significantly reduces the risk that assets will not go to those you had hoped to benefit. This is especially important in today’s world in which we see more common-law relationships, blended families, and second or third marriages.

Some people simply opt for inexpensive ‘Will kits’ that may prove problematic particularly given the many blank spaces in these kits and how easy it is to make a mistake, which typically wouldn’t come to light until after you had died.

There are now also a number of online versions that serve many Canadians needs at a fraction of the cost, which may be suitable for your situation, but be sure to research your options and take the time to review the competitive offerings applicable to your province.

An advantage of these online services is that updating your will can be easily achieved, but the main attraction is the lower cost than a lawyer.

Our opinion is to be sure of all the angles and take advantage of our legal experts to discuss your needs and ensure that your Will is applicable for your needs despite a price premium. The financial peace of mind this delivers will be well worth the cost.

Regardless of the method you choose what’s important is to get your wishes properly documented and procrastinate no further.

Anton Tucker
Compiled By:
Anton Tucker, CFP, FMA, CIM, FCSI
Executive VP and Portfolio Manager
anton@tridelta.ca
(905) 330-7448

Challenges of caring for aging parents

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9209134_sAdult children don’t want to think about it and, all too often, their parents don’t want to talk about it, however every day, hundreds of thousands of Canadians are suddenly thrust into an unfamiliar world of caring for an aging parent because they have put off planning for the inevitable.

Caring for aging parents can be overwhelming. When an elderly parent is no longer able to be fully independent or needs more help, how do you find out what you need to know to effectively care for them?  Missteps due to lack of knowledge have long lasting, expensive, and even endangering consequences.

If you are an Adult Child, dealing with a senior parent with Chronic Health issues, do you know the steps or resources to guide you and your parents as they age further?

The following are questions you need to find answers to, before a crisis happens:

  • Are you concerned that your aging parent or loved one is no longer safe in their home?
  • Can your parents stay in their home with intermittent care ?
  • Do you know what in home care options and support is provided by the Government, Alzheimers Society, the Red Cross , CCAC -Community Care Access Centers (www.ccac-ont.ca), the Arthritis  Society?
  • Do they need a retirement residence, now called “Assisted Living”, or a nursing home?
  • Do you need to sell the family home?
  • If so, do you know how much is needed for alternate accommodation including additional heath care costs?
  • What will be the financial burden of caring for an elderly loved one? Are there emergency funds in place if needed?
  • What are the legal issues surrounding handling their finances? Are appropriate Powers of Attorney and Wills in place? NOTE: Did you know if an individual has dementia or Alzheimer’s, these cannot be changed?
  • How do you organize and downsize a lifetime of “things”?
  • If you sell the family home, how do you ensure the proceeds are safe and will last?
  • How do you manage with all the doctor’s appointments and other daily issues?
  • How do you take control after years of your parents doing it all on their own?

Once issues are identified, the first step is to have a family meeting to manage the challenges of aging and work together as a family. This will help you prepare for a more certain future and understanding the full range of issues around your aging parent. It will reduce uncertainties and open up conversations that often lead to positive changes in family dynamics.

Throughout the meeting, it is important to listen. One of the biggest fears of an aging individual is losing independence and familiar surroundings.

Bringing up assisted living may be a difficult one, however initially many families are happy to help their loved one by checking up on them, making meals, helping with the bills, etc. , but as time goes on and lives get busy, this takes a toll.

If a loved one moves into an assisted living community, time can be spent actually visiting, sharing their lives and making new memories together. The change in quality of life can be impactful.

Sometimes people are reluctant to explore senior communities and learn what assisted living is really about. Often they do not know what questions to ask. You need to know all the options that are available so that when the time comes an informed choice can be made. Many facilities welcome visits and offer complimentary meals and even overnight stays.

For more tips to assist you manage the challenges of aging or to sign up for a future seminar on the topic of AGING PARENTS: The Family Survival Guide, contact Heather at heather@tridelta.ca or 416-527-2553.

Heather Holjevac is an Elder Planning Counselor and has presented seminars on the topic of AGING PARENTS: The Family Survival Guide with the Alzheimers Society and the Toronto Public Library’s -Ask the Expert Series.

Compiled by Heather Holjevac, Senior Wealth Advisor TriDelta Financial

Cremation – Did You Know?

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18838870_sAt TriDelta Financial we believe in life balance and planning, which requires addressing those ‘not so pleasant’ aspects along with the fun stuff. Our second article from Glen Oaks Memorial Gardens in Oakville looks at cremation, a choice that is increasingly popular in Canada.

Did you know that cremation has been used for thousands of years?  Cremated remains have been discovered that date back more than 20,000 years. In fact, in some countries, such as England and Japan, cremation is the most widely used practice.

What’s more, although the process may be similar worldwide, the rituals around cremation vary.

For example, in India it’s traditional for the chief mourner to perform the, “rite of the skull,” where the soul is freed from entrapment in the body.

In Canada, a growing number of Canadians, from many different faiths, choose cremation as their preferred means of disposition.

For this reason, it’s important to know that even when cremation is chosen, funeral home visitations and traditional funeral ceremonies can still be held, especially as they provide an important opportunity for family and friends to come together to visit, pay their respects, and remember.

And did you know that cremation is more widely accepted than ever because most religions allow for cremation? However the majority of Orthodox Jews, Muslims, Greek Orthodox, Russian Orthodox as well as many Roman Catholic families choose traditional burial or entombment.

Yet regardless of a person’s background or faith, family plays an important role in the cremation process.

For example, for Buddhist families who choose cremation, it’s traditional for the oldest nephew of the deceased to press the button that delivers the body into the cremation chamber.
But as important as family is, cremation is also about individuality, as it often provides the truest opportunity to reflect who you really are.

In fact, besides any uniquely chosen elements of the service itself, there are also many non-traditional options available afterwards – including incorporating remains into statuary art, wind chimes, sundials, diamonds, or just about any other kind of jewelry.

Of course, should you desire a more traditional monument, it’s also good to know that cremated remains may be buried in full-sized graves or may be inurned in above ground options such as cremation rocks, memorial gardens or granite memorials.

So, as you can see, there are numerous memorialization options available to suit any culture and desire.

To find out more, click here  to request your free Cremation with Remembrance brochure today or call Chuck Duchesnay at (289) 351-1040.Article compiled by Chuck Duchesnay, Branch Manager, Glen Oaks Memorial Gardens & Reception Centre, Oakville, ON.

Leaving money to charity in your will? There is a better way

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ted_financial_postI recently met with someone who wants to leave all of their money to two charities. They put this in place because they didn’t have close family members (or didn’t feel the family members needed the money), and they wanted to leave a real legacy to a couple of causes that were close to them.

Their situation was as follows: Age 85. $550,000 in savings (75% non-registered and TFSA). Pensions and RRIF withdrawals totaling $70,000 a year. Living in an upscale retirement residence. Drawing roughly $20,000 a year from savings.

While it seemed like his estate plan made sense, there are better ways to leave that legacy than through a will — ways that could grow the amount of giving by over $100,000.

Here are 3 problems with leaving money to charities in the will:

1. By leaving money to a registered charity you will receive a charitable tax credit of between 40% and 50%. The only issue is that you will only receive the tax credit on charitable giving of up to 75% of your current years’ income. For example, if you make $100,000, you could give up to $75,000 and receive the full tax credit. In your ‘final’ tax return, you will get a credit for up to 100% of your income.

The problem is if you have income of $80,000 in your final return, and leave $800,000 to charity, you will have foregone almost $360,000 of tax credits! If you die with a very large RIF, this may work because your RIF would be considered as income on your final tax return (if you don’t have a surviving spouse). Otherwise, it is a real missed opportunity.

2. Wills with very large charitable giving occasionally are contested by family members who feel that they should have received more. This can cause lots of delays, legal costs and heartache. All can be avoided by giving to the charities outside of the Will.

3. You are paying too much tax. In many cases, this money is getting taxed every year sitting in a non-registered investment account, never being spent. Finally it will go to the estate, and in some cases be hit with a probate fee as much as 1.5%, and then go to the charity.

The best way to avoid these problems is by some blend of giving annually and taking out a life insurance policy with the charity as beneficiary. By giving annually you will almost always be in a position to receive the full charitable tax credit (unless you give a very large amount).

You will also have significant flexibility in terms of how much to give, who to give to, and be able to change your mind any year you wish. The charity will also benefit today instead of having to wait for many years.

T2820027_saking out a life insurance policy is not as common, but is actually one of the best ways to leave a charitable legacy. Using an insurance policy with the charity as a beneficiary can be a quadruple benefit if you qualify. The first benefit is that if it is structured properly, the annual insurance premiums can be considered annual charitable giving, so that you get the tax benefit each year.

The second benefit is that the insurance policy bypasses the estate, and is paid directly to the charity. This avoids estate battles over the funds.

The third benefit is that the proceeds avoid probate because they don’t form part of the estate. In Ontario, this 1.5% fee can add up on a major charitable gift.

The fourth benefit is if you are in reasonable health for your age (even if you are 75 or 80 years old), the ‘rate of return’ on the insurance can be much higher than other options. This is because the money is tax sheltered and as a permanent life insurance policy, the actual rate of return (money put in vs. money that comes out) is often well over 7% per year.

There are several other good ways to leave funds to charities including community foundations, setting up a private foundation and donor advised funds. Every one of these options requires some personal planning to determine what makes the most sense for your situation.

In the case of the 85-year-old, by giving $30,000 a year to charity they are receiving the full tax credit every year. If he lives to age 97, he should still have an estate of about $200,000. If he is still alive at 97, he can stop giving to charity in order to ensure he has funds to cover another ten years. In his case, if we assume he lives to age 97, he will have given an extra $100,000 to the charities than if he simply left the money in his will, and he will have been able to see the impact of his giving in his lifetime.

Leaving significant money to charity can be of great value to you, the charity and society at large. However, if the plan is to simply leave it through your will, there are likely many other smarter ways to make a bigger impact with the same funds.

Written by Ted Rechtshaffen, President & CEO of TriDelta Financial.
Reproduced from the National Post newspaper article  23rd March 2013.

 

Ever Considered Loaning your Spouse Money?

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Here’s why you might.

We all look for ways to reduce the amount of tax we pay.  Sometimes I come across situations where one spouse has accumulated a larger non-registered investment account than the other.  This can happen over time when one spouse has a higher income than the other, or perhaps when one spouse receives an inheritance.

This often leads to higher taxes being paid by the household.  In an effort to reduce taxes, income splitting strategies can help shift income from a high tax bracket family member to a low tax bracket family member.

This is not as simple as making a non-registered account ‘joint’ with a lower income spouse or minor child.  CRA would consider this a gift to a non-arm’s-length person and attribution rules would apply, essentially attributing most if not all of the income back to the higher income individual and taxing it in their hands.

One income splitting strategy where attribution rules would not apply is to use a spousal loan.

A spousal loan works like this:

  •  The higher tax bracket spouse (lender) loans funds to the lower tax bracket spouse (borrower) at the prescribed rate.
  • The prescribed rate is set quarterly and is based on the 90-day Treasury bill rate.  Today that rate is at a historic low of only 1%!
  • The borrower must pay interest on the loan annually by January 30 of the following year ($1,000 for a $100,000 loan).
  • The investment income generated is taxed in the hands of the borrower, not the lender.
  • The interest paid on the loan can be deducted by the borrower and is taxed in the hands of the lender.
  • A written agreement should be put in place documenting the loan.  This also locks in the rate of 1% for the life of the loan, regardless if the prescribed rate increases in the future.

coupleTo illustrate the potential benefits of this strategy, let’s look at a hypothetical couple Tom & Mary Connor.

Tom recently inherited $500,000 from his mother.  Tom faces a marginal tax rate of 46.41% while his wife Mary’s marginal tax rate is 31.15%.  Tom plans on investing the money and can earn 5%.  For simplicity, let’s assume the 5% return is simple interest.

If Tom invests the funds himself, his after-tax return would be $13,397.

$500,000 x 5% x (1 – 46.41%) = $13,397.

Instead, Tom can lend Mary $500,000 at the prescribed rate of 1%, thereby shifting the growth on the money to Mary who is in a lower tax bracket while avoiding attribution rules.

Tom would include the $5,000 in interest on the loan as income, providing an after-tax return of $2,680.

Mary would include $20,000 in interest as income (5% return less 1% in interest costs), providing an after-tax return of $13,770

The total after-tax return for the household is $16,450.

The spousal loan strategy has provided an incremental family return of $3,053 after one year.  As the portfolio grows and the resulting income from the portfolio increases, the incremental improvement in family return also increases.

This tax-planning strategy does however have potential non-tax consequences that should be considered:

  • You may be more likely to be reassessed by CRA.
  • Tax returns become a bit more complicated.
  • If the marriage breaks down, the situation will become more complex and will be subject to family law provisions.

Your entire financial situation, goals & objectives should be considered before employing any strategy.  If you find yourself in a similar situation to Tom, a spousal loan may work very well, especially considering the historically low prescribed rate of 1% that can be locked in today.

Written by Brad Mol, Senior Wealth Advisor, TriDelta Financial

 

 

Planning your funeral

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At TriDelta Financial we believe in life balance and planning, which requires addressing those ‘not so pleasant’ aspects along with the fun stuff. Planning a funeral is one of these important realities and we asked Glen Oaks Memorial in Oakville to provide some planning insight:

Although everyone agrees that a baby shower, birthday celebration, wedding, vacation or even a picnic requires planning. People seldom consider planning ahead for one of the most important events in their lives.

Death is a 100% certainty – it’s a natural part of life. But your death will inevitably bring loss and sadness to those who love you. By planning your own funeral now, you can ease the burden on your loved ones in the future.

Planning now means you make the decisions

There are countless decisions to be made when a funeral is being arranged, from choice of flowers to choice of cemetery. When you plan ahead you can decide on every detail yourself without any pressure. In fact, planning your own funeral can be as satisfying as planning for any other important event in your life. You can make sure the arrangements are exactly what you want, and your family won’t have to guess what your wishes may have been.

Some final decisions really should be yours

Burial? Cremation? Deciding how to manage your remains is one of the most wrenching decisions your loved ones must make. By pre-planning, you can make an informed choice. And your family can take the time now to discuss ideas openly, while minds are clear and focused.

Financially, it makes far more sense to plan ahead

Family members often feel emotionally pressured to overspend on funeral arrangements. By taking control of the costs today, not only will you relieve your family from those pressures, you could save your estate thousands of dollars, allowing you to leave an even greater legacy.

Even if your estate will provide the funds for your funeral, it still makes financial sense to plan now.  By making your investment in today’s dollars, you’ll protect your estate from inflation rates in the future. In fact, your investment in pre-planning is guaranteed. Legislation requires funeral and cemetery companies to put monies received for a pre-arrangement into a trust account held by a financial institution that has Canada Deposit Insurance Corporation depositors’ insurance. Or you can purchase insurance to fund your pre-arrangement.

The right time to plan your funeral  is now, which will provide peace of mind.

To get started, click here to request your free Estate Planning Kit today or call Chuck Duchesnay at (289) 351-1040.

Article compiled by Chuck Duchesnay, Branch Manager, Glen Oaks Memorial Gardens & Reception Centre, Oakville, ON.

 

 

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