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How will your Retirement be affected by a Divorce?

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There is a rising trend in Divorce after 50. Ending a marriage is one of the largest life events that can happen in a person’s life. You may have tried to make things work, but now it’s clear, the marriage is over. What do you do next? How do you ensure you will be OK financially? How will this affect your retirement plans? Knowing your options and how the Divorce will affect you is key. The first steps are:

  1. Gather financial documents and know your financial picture.

Make sure you know where all your financial and legal documents are, including pension statements. Having important documents on hand in the divorce process means you avoid time and expense trying to get copies of them later. Know what assets are shared and which are exempt.  

Did you know if you inherit money or receive a gift during the marriage (in most provinces) as long as it is kept in a separate account it does not have to be shared in a divorce. Once it is used to pay down the mortgage on a family home or put in a joint account, it will be considered the property of both spouses.

  1. Assess your credit.

Request a copy of your credit report, and correct any misinformation it contains. Good credit is the foundation of your financial future, so watch it carefully! Without credit it can be near impossible to obtain loans for any purpose, or even to manage the expenses of running your household.

  1. Open accounts in your own name.

You will need your own bank accounts and credit cards. It is not too soon to set these up. Use a different bank than where you currently have joint accounts, and open both savings and checking accounts in your name alone.

  1. Assemble a professional divorce team.

Today, financial portfolios –and the regulations that govern them –are much more complex, and you may need multiple layer of professional help to navigate all the legal and financial details.

  1. Be watchful.

No matter how much you may think you know someone, it is still very common for assets and/or income during divorce to be hidden –even though that’s underhanded, unethical and illegal.

It is common for one person to know more about the family finances than the other and one may not know the extent of their debts.

Resolve to get the help you need to start down the path toward your secure financial future.

For couples over 50 divorcing, generally the 2 largest assets are the house and pension. Splitting assets 50/50 may not result in the same financial picture now that is does in retirement. The goal is for both parties to come out equally and to keep income steady, so that retirement lifestyle is not negatively impacted by a divorce.

Knowing how your pension and your future monthly retirement income is affected by different asset splitting options is important. There are many ways to legally divide assets, to ensure both current and future financial needs are met.

It is a good idea to consult a financial professional as well as a lawyer if you are going through a divorce.

Your lawyer will focus on the legal issues and a planner can provide you a summary of the short, medium and long term implications of the proposed division of assets, including tax implications.

Additionally common-law relationships come with their own set of rules.

A CDFA – Certified Divorce Financial Analyst can assist you in getting the help you need to start down the path toward your secure financial future, giving you a better understanding of your financial situation.

Contact Heather for a no obligation review of your financial situation.

Lorne Zeiler
Written By:
Heather Holjivac
Senior Wealth Advisor
heather@tridelta.ca
416-527-2553

Why you probably shouldn’t ever want to own a cottage

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As you are reading this on what is hopefully a beautifully sunny and warm day, sitting on your dock on the water, what could be better than being at your cottage.

There is no question of how nice it can be, but do you really have to own it to enjoy it?

Occasionally clients ask our view on buying a cottage. This question usually leads to a broad discussion where the financial equation is only one part of the picture. Their stage of life, kids’ ages, desire to explore or stay put, comfort with property maintenance, and even their experiences growing up, play a big part in deciding whether to buy or not.
cottage
For me, I am pretty certain at this stage of life (with three school-aged children), we are not cottage buyers. I know that not everyone will agree with this opinion, but I know it is the right decision for me and my family. Here are five reasons why I won’t buy a cottage.

  1. Trying to juggle the summer plans of our kids leaves only two to four weeks of possible time the kids could be at the cottage each summer. At a different stage in life, cottage ownership could make more sense.
  1. We want the freedom to explore different parts of Canada in the summer (maybe even beyond Canada), and don’t want to feel that we are tied to one location. In addition, we can rent a cottage that is ideal for the age and stage of our kids — both in terms of water safety, and with an eye to places to visit within an hour of the cottage.
  2. I can’t fix anything myself. My wife is pretty good at it, but neither of us wants to spend our time away working on the property or even feeling guilty about what needs to be done. We want to enjoy it.
  3. Financially, there are better investments. Over the last 35 years, residential real estate in Canada has averaged a gain of 5.4 per cent annually. Over the same period, North American stock markets have averaged 10 per cent returns or more. If the growth is tax free on a personal residence, then the gap is smaller, but for a cottage there are usually capital gains taxes to deal with. For those who talk about needing to deduct investment management fees from returns, that can be true, but you would also need to deduct real estate taxes and non-capital expenses from the return on the cottage. Looking at the options, I would rather not lock up my capital in a cottage.
  4. Finally, no more freeloading friends and family to worry about. I know that many families love to invite people up to their cottage. It is often greatly appreciated. However, it can get very tiring after a while, and when it isn’t greatly appreciated, it can become a real weight on the relationship. When renting, you can occasionally invite people to join you, but they know not to expect the annual invite.

 
Reproduced from the National Post newspaper article 31st July 2015.

Ted Rechtshaffen
Written By:
Ted Rechtshaffen, MBA, CFP
President and CEO
tedr@tridelta.ca
(416) 733-3292 x 221

Turn a spouse’s loss into your gain

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Before rebalancing a portfolio for a new client, I make it a habit to confirm the Adjusted Cost Base (ACB) of any holdings in non-registered investment accounts.   In knowing the ACB, I’m able to know the capital gain (or loss) that would be triggered and the associated tax liability (if any) of selling the portfolio.  Now, we don’t want to let the ‘tax tail wag the dog’ so to speak; if the portfolio needs to be changed it needs to be changed.  But if we can save taxes while doing so clients certainly appreciate it!

I recently came across a situation where using a little known strategy, I was able to do just that.  Let’s call these clients Bob & Sue.

Sue is a high income earner (48% marginal tax rate) while Bob earns less and has a marginal tax rate of 20%.  Sue has a non-registered investment account in her name only, with a capital gain position of $30k.  Bob also has a non-registered investment account in his name with a capital loss position of $30k.  The tax liability for the household ‘as is’ would be $4,200 as follows:

Sue:  ($30,000 gain x 50%) x 48% = $7,200 owing.
Bob: ($30,000 loss x 50%) x 20% = $3,000 value of carrying loss forward.

If Sue had capital losses from previous years she could use them to offset her taxable capital gain.  In this instance, she did not.

Bob has a capital loss which he can carry back three years, or carry forward indefinitely to offset gains in other years.  However, being the lower income spouse the loss is less valuable to the household.  This is where the strategy comes in.

Bob sells the securities in his account for $40k (with an ACB of $70k) incurring a capital loss of $30k.  Sue immediately buys the same number of shares of the securities for $40k.  This step triggers the superficial loss rule, which comes into play when a taxpayer sells securities at a loss, and the identical property is acquired by the taxpayer, their spouse, or a corporation controlled by the taxpayer or their spouse within a 61-day period around the sale (30 days before the sale and 30 days afterward).  Under this rule Bob is denied use of the $30k loss, and the amount is added to the cost base of the securities purchased by Sue.

Sue’s cost base has now increased to $70k.  She must hold the securities for at least 30 days, but can sell them any time after that.  If we assume the share prices stay the same during that period, she will be able to declare a loss of $30k on the sale.  This loss can be applied against the capital gains in her account thus eliminating the $4,200 tax liability for the household.

While this wouldn’t apply to too many clients, it is an example of the types of strategy that we at TriDelta try to consider for all clients – wherever it can add value.

Brad Mol
Written By:
Brad Mol, CFP, CIWM, FMA
VP, Wealth Advisor
brad@tridelta.ca
(416) 802-5903

Market Turmoil – Why your portfolio is not as bad as the market

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Over the past 6 weeks, but especially in the past week, the stock markets have experienced a meaningful pullback.

From its peak to close yesterday, the TSX was down 11.5%.

The US S&P500 was down 7.9% from its peak.

Dow Jones Germany was down 14.8% from its peak.

Our clients have typically fared much better during this period for the following reasons:

  1. The Canadian Bond Universe is up 0.7% since September 1. This is one of the main reasons to own bonds – in most cases they act as a counterbalance to stocks during weakness in the stock market. In addition, it isn’t just owning bonds, but also making the right choices in terms of corporate bonds vs. government bonds, and owning long term bonds vs. short term that can further benefit a portfolio. Fortunately, at TriDelta we have been predicting lower long term bond yields, and have benefitted from owning longer term bonds.
  2. TriDelta looks at volatility risks and builds stock portfolios that are meaningfully less volatile for our more conservative clients, but even for our growth clients, there is an element of capital preservation in our stock selection. As a result, while our stock portfolios have declined in value, we have meaningfully outperformed the TSX index over this rough period. Conservative clients would have outperformed the TSX by 8% on the stock part of their portfolio since the beginning of September (decline of only 3.5%). Growth clients would have outperformed the TSX by 3% on the stock part of their portfolio.
  3. All this means that your asset allocation and risk profile have an important impact on performance when things are going well, and when things are not going so well. For example, a conservative TriDelta client with only 40% in stocks would be down roughly 1% since September 1st. A growth TriDelta client who is 80% in stocks will be down roughly 7% since the peak of the market. In addition, our High Income Balanced Fund is down just 1.5% since September 1. While we never want to be down, this should give you a better sense of how your portfolio has fared within the pullback.

13797194_mA final note on asset mix. We believe that if your asset mix was right for you 6 months ago, it is probably still correct for you today. The only reason for a meaningful change is if your cash flow needs have changed significantly or if your overall financial position has had a meaningful change. If those haven’t happened, we wouldn’t recommend changing now. Keep in mind that in February 2009 it was almost impossible to get people to invest in the market – with most late RRSP contributions going to cash. For the full year 2009, the TSX had a return of 35.1%. The point is that it is very difficult to pick a market bottom, but we do believe it isn’t far off from here. When the bottom hits after a sudden pullback, there is quite often a very strong rally. Investors with a long term perspective do not want to miss that rally.

We will continue to monitor various factors closely, and may make some changes to portfolios as we do throughout the year, but for now, we believe it is not the time for major changes.

One factor we are monitoring is Ebola. We do not know what Ebola will become on a global basis. We do know that over the past 90 years, the fear factor on ‘new’ diseases and viruses has been much greater than the actual global impact. How many of us even remember the Swine Flu? In June of 2009, the World Health Organization and the US Centers for Disease Control announced that it was a Pandemic – and fears were rampant. While not equating the two, we believe that it is very likely that today’s fear will prove to be overdone on a global basis.

As always, we are happy to talk to and meet with all clients at any time. If you have questions or concerns, please do not hesitate to contact your Wealth Advisor.

Thank you.

TriDelta Investment Management Committee

Cameron Winser

VP, Equities

Edward Jong

VP, Fixed Income

Ted Rechtshaffen

President and CEO

Anton Tucker

Executive VP

Lorne Zeiler

VP, Wealth Advisor

Why giving your grown children an allowance may make financial sense

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There is a saying “once your child, always your child.”

For many seniors, the new saying is “once a dependent, always a dependent”.

So does it ever end?

With reports suggesting that today’s seniors are the richest in history, maybe it shouldn’t end. As the pile of cash for some wealthy seniors keeps growing, the question of how to disperse this bounty is of growing importance.

Seniors often fear that by passing on their wealth too early they will kill ambition in their offspring, or leave the money vulnerable in a marriage breakup. Maybe they are just too inherently thrifty to give it all away or maybe they aren’t sure how much they will need themselves.

For those seniors inclined to help out their grown children, what about an adult allowance? Maybe this little handout isn’t something that needs to stop when they are 16 and get their first part time job. While the image of dear old dad handing out a shiny new quarter to his 37-year-old son each week may seem pretty comical — perhaps it is just our new reality. A BMO report recently said the typical senior today is nine times richer than the typical Millennial.

The practice of giving allowances to children began around the beginning of the 20th century.  The idea was that giving children an allowance taught them how to budget, how to make choices in spending, and hopefully helped them to become better savers and smarter consumers.

An  adult allowance has the same basic ideas as the child allowance:

  • The parent that has some excess wealth will provide some new source of regular income to a child, that will allow them to enjoy special treats or to live more comfortably.
  • Rather than simply buying things for the child, a more modest, regular allowance will teach the child how to save up for something that they really want.
  • Ideally a portion of this allowance might be saved for an emergency fund or some very long range but important goal.

14484926_sI am sure that the idea of an adult allowance causes a stress inducing pain for many readers. I can hear the comments now…’why can’t the kids of today pick up their own bootstraps,’ ‘when will they ever stand on their own two feet,’ ‘they clearly didn’t learn any valuable lessons with their allowances as kids, why would they learn anything now?’

To those reader comments in my head, I share your pain.  But if not an adult allowance, what are the options for wealthier older parents when it comes to ideas on what to do with their money?

The three standard options are:

  • Start spending more on yourselves. The only problem is that for many people, they already have what they need, and they are who they are. This means that other than a short term blip, they tend to go back to the same reasonable spending ways that helped to bring them their wealth in the first place.
  • Another option is to give much more to charity. This certainly has its merits, but for many people they would much prefer to keep their wealth (or at least the majority of it) in their family. Maybe there is much more room for many people to give to charity than they currently do, but it almost requires a cultural change to get this to take a larger place in someone’s spending.
  • If not on themselves or to charity, it means that extra wealth (whatever won’t be spent personally in your lifetime) will end up with the children or family members anyway.

If you are very likely to be leaving money to your children, probably the worst way to leave the money is still the most common method – through a Will.

Among the problems with a Will is:

  • in most provinces it faces a probate fee that can add up to a 1.5% tax on the estate
  • the funds will go to adult beneficiaries in one large lump sum that may not be managed appropriately by the beneficiaries
  • more and more people receiving the inheritance are already in their 60s, and could have used some of the money years before, but don’t need it now
  • in some cases the funds could be used in a much more tax efficient way by the adult children than by sitting in the parents large taxable investment account year after year
  • the parent never gets to see the benefit of their giving

You could choose to give while you live in one or more large lump sums. This could be a reasonable way to give as long as you are very confident that you can afford to give the lump sum, and that your children or other beneficiaries will do something reasonable with a large gift.

Another alternative is simply to go back to giving a weekly or monthly allowance – just like you did many years ago. While this method won’t help with major challenges like a house down payment (and it doesn’t preclude a larger gift), there are some meaningful advantages.

The first is that the parents maintain a greater degree of financial control. After all, it is tough to ask for the cheque back on a big gift if you change your mind. For the child receiving an allowance, it can become part of their family budgeting, and something that they can reasonably count on. It may not have the wow factor of a big one time gift, but it may also be something that the children can effectively manage financially.

Like all issues involving family and money, each family is different. Where the children are financially astute and responsible, there is much less concern with larger gifts. However, where those strengths may not be in place, a regular allowance may make much more sense.

One final note in favour of the allowance. We are seeing more potential issues these days when a parent gives a large gift to a married child, and the child subsequently gets divorced. While it used to be a little easier to put a gift in the form of a demand loan, and call it back, there have been some recent court cases where the judge ruled that a loan with no regular interest payments and no expectation of being repaid, is the same as a gift, and is therefore part of the family assets to be split in a divorce.

When it comes to helping adult children financially, it makes sense to be a little proactive if you have the wealth to do so. The typical approach to estate planning usually only helps the government to get more than its fair share.

Of course, once you start thinking about all sorts of fancy strategies, sometimes the old tried and true of an allowance is one of the best.

Ted can be reached at tedr@tridelta.ca or by phone at 416-733-3292 x221 or 1-888-816-8927 x221

Reproduced from the National Post newspaper article 16th August 2014.

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