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Major changes to the Ontario Disability Support program

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The Ontario disability support program (ODSP), the income benefit for adult Ontarians with a disability, aged 18 years to 65, was introduced in 1998. The ODSP benefit replaced the old Family Benefits Allowance (FBA) which had been in place for a number of years, however on September 1 2017 the ODSP will undergo a number of major changes. These are the first major changes to the program since it was introduced 19 years ago.

Over the past 19 years the income benefit has been increased in increments of between 2% and 1% to the current maximum monthly benefit of $1,128 for a single person living on their own. On the other hand the changes in the asset limits and cash gifts for people who receive ODSP have changed little, that will change on September 1 2017. The changes will help to enhance the lives of the more 400,000 Ontarians who receive support through the ODSP plan.

The Ontario Disability Support Program (ODSP) increased the exemption limits on compensation awards for loss or injury in order to allow individuals to benefit more from these awards without reducing their income support. Compensation awards for pain and suffering have been increased from $100,000 and are now fully exempt as income and assets for individuals receiving Ontario Disability Support Program (ODSP). People with disabilities are now able to use their compensation for day-to-day living expenses or to reduce any debt, not just for pre-approved disability-related costs. This change was effective as of August 1st 2017.

The Changes to ODSP

These changes are part of a larger set of social assistance improvements that will be effective on September 1st, which include:

  • An increase in the monthly maximum deduction for disability-related employment expenses under ODSP from $300 to $1,000.
  • Changes to health benefits available under the Transitional Health Benefit to include batteries and repairs for mobility devices.
  • A full income exemption under ODSP of all donations received from a religious, charitable or benevolent organization for any purpose.
  • The basic cash exemption limit for a single person will be increased from $5,000 to $40,000
  • The basic cash exemption limit for a spouse included with the person will be increased from $7,500 to $50,000
  • Payments from a trust fund, or segregated fund: gifts and other voluntary payments will be increased from $6,000 for a 12 month period to $10,000
  • Gifts to purchase a principal residence will be exempt as income
  • Gifts to purchase a Primary motor vehicle will be exempt as income
  • Gifts to pay the 1st and last month’s rent will be exempt as income

The benefits of the Changes

These changes are welcomed, and people who receive ODSP no longer have to fear the loss of the monthly benefit if their bank account exceeds the $5,000 or $7.500 limit. Liquid asset limits of up to $40,000 or $50,000 will no longer be considered income in the month its received so they won’t lose their ODSP benefit that month. People on ODSP can even save a small amount from their employment income to buy a new coat, a new TV, furniture, a suit or dress, take a vacation or have a nice meal in a restaurant just like everyone else. They will no longer be forced to spend their small inheritance or hide the money from their case worker. They now have some breathing room to spare.

The New Regulations

The regulations have yet to be published so as they say, the devil is in the details. We expect to see the regulations published by September 1st. There are still many unanswered questions, can an individual who receives ODSP own a life insurance policy or segregated fund policy on their own lives with cash values of up to $100,000 without losing their disability benefits?.

Living on ODSP

Living on the ODSP monthly benefit is still not living in the lap of luxury. The rising cost of living makes it impossible to meet basic needs and people suffer as a result. Finding an apartment is next to unattainable on the current ODSP. Still parents will welcome the new changes because their hands will no longer be tied to an impossibly delicate $5,000 asset limit.

Case study vs the new asset limits  

A dentist, who has a daughter with a disability, employs her in his office. He pays her the minimum income allowed within the ODSP guidelines but his daughter is unable to save anything beyond the $5,000 liquid asset limit. Now with these new asset limits he can increase her salary and she can save money in her bank account to purchase those little extra’s, or buy her own clothes, and things that make her life just the same as other children who have part time jobs. She will no longer have to live within the confines of a $5,000 limit.

Case study vs a gift over the asset limit

Some time ago woman called me in despair, she was upset and crying. She told me her preauthorized rent payment had bounced because her ODSP office discovered she had received a $20,000 advance on her mother’s inheritance and her ODSP benefit had been cut off without notice. The estate trustee had given her the advance to buy a car because she lives in the country and she needs a car for shopping and doctor’s appointments in Toronto and other necessary trips. We began preparing her appeal to the Social Benefit Tribunal (SBT). She only had 30 days to prepare her case and submit her appeal to the SBT. However after September 1st this person will not lose her ODSP benefit and her rent payment won’t bounce because the asset limit has been increased to $40,000.

A case study vs a structured settlement

For people who receive structured settlements the unlimited awards will go a long way to assisting them with the lifestyle, for which the courts granted the settlement, to only to have the ODSP office take their benefit away. In most cases a structured settlement can take years to settle. In one case it took three years to settle the law suit. During that time the individual applied for and received a total ODSP income of approx. $40,000. In addition he also received  a lump sum payment of $63,000 in back payments from Canada Pension Plan Disability Benefits (CPPD). He had to repay ODSP the $40,000 he received over the three years, because he had an over payment. However through some creative planning we managed to dispose of the settlement and retain all but $125,000 which was paid to his mother for his personal costs and expenses. However when the new structured settlement regulations are in place he will only have to repay ODSP $25,000, and he can keep all of the structured settlement. He can use the funds in the settlement for what the courts intended, to maintain his lifestyle. 

Compiled in conjunction with John Dawson by:

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

Segregated funds

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asher2

They say that you shouldn’t judge a book by its cover.  I think the same applies to investment products.

Segregated funds have some real flaws, but in specific cases, can be very powerful.

Segregated funds are basically mutual funds offered and administered by Canadian insurance companies in the form of individual variable life insurance contracts with certain guarantees such as reimbursement of capital upon death.

They provide an opportunity for someone to invest in the stock market, and if the market goes up, they have an ability to ‘lock in’ the gains. If the market goes down so does the value of the investment although the initial value is guaranteed typically over a 15 year time frame.

The insurance component of segregated funds provides a number of benefits:

  • There is usually some form of 10 or 15 year guarantee that you will at least get your principal back if you hold the investment for that period of time.
  • There is some creditor protection so that funds held in a segregated fund are not likely accessible if someone were to sue you.
  • When someone passes away, if they have named a beneficiary, the assets pass directly to that person, and bypass probate fees on these assets.
  • In all cases, there is a ‘death’ guarantee, whereby if the owner passes away while owning the funds, there is a principal guarantee of at least 75%.  Several companies offer a 100% guarantee on death.
  • In some cases, there is also an ability to ‘lock in’ a new base for a principal guarantee.  This means that if you put in $100,000, and the account is now worth $110,000, you can lock in $110,000 as your new guaranteed amount, but this resets the guarantee time frame.  This means that if you hold the fund for 10 or 15 years from the time of ‘lock-in’, or pass away, and the value is less than $110,000 at that time, you will get $110,000.

 

The last three features are particularly attractive – especially in a volatile stock market.  It is ideal for someone who is in their 70s, and possibly not in the best of health.

Here is an example of how we have used this opportunity.

We have a client who was nervous about the market in the spring of 2009 (what person wasn’t nervous at that time).  She was 77 years old and had a sizable non-registered investment portfolio.  She took $300,000 and invested in equity funds (global, Canadian and small cap).  As the investment rose in value, we locked in the gains.  Her particular segregated fund enabled us to do this twice a year until age 80.  The last time we locked in her fund value, it was over $367,000.  If she is holding these funds when she passes away, and the value is $400,000, her beneficiaries will receive $400,000.  If the funds are worth $280,000, her beneficiaries will receive $367,000.  The reason is that the funds have a 100% death guarantee, and the new guaranteed minimum on the funds is $367,000.  In Ontario, she will also avoid roughly $5,400 in probate fees.

If someone is 50 years old, this can still work, but the typical guarantee period will be 15 years.  We appreciate that this is a long time to simply break even and that the guarantee has limited value given that the market is highly likely to reflect gains over 15 years. The higher fees also erode some of the benefit.

The reason this makes more sense for someone much older is that it isn’t unreasonable that a 77 year old will pass away in less than 15 years.  This shorter guarantee period, along with the ability to lock in a new minimum, and the ability to take bigger investment risks with little downside is a powerful combination for estate planning purposes. For this situation, you don’t want a safe investment.  This is where you should be aggressive given the safety net of the guarantee.

Despite a segregated fund being an insurance product, there is no health test or physical required. If someone is 77 and has an illness that will shorten their remaining life expectancy, they could shift some of their investments into segregated funds with a 100% death guarantee (which means that they either gain or get their money back over a short time period) and avoid probate fees.

This scenario demonstrates the value of segregated funds and truth in the expression; you can’t judge all investments by their cover.

Here is a two minute segregated fund video interview hosted by Rob Carrick of the Globe & Mail

 

http://www.theglobeandmail.com/globe-investor/investment-ideas/lets-talk-investing/video-the-benefits-of-segregated-funds-in-estate-planning/article6001116/

 

Article complied by Asher Tward, VP Estate Planning at TriDelta Financial

Travel insurance is a must.

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Prepared to risk it for a few bucks?

Whether you’re a snowbird enjoying the warm weather for 5 months, taking a week-long all inclusive vacation to a beach or skiing down the slopes, it’s always a good idea to get travel insurance before you go.

The following is a true story:

Later that night after enjoying a meal at one of their favorite restaurants in Florida, Carrie began to feel nauseous, lightheaded and faint.  Since the symptoms remained for a few hours, her husband Alan called an ambulance.  The paramedics rushed them to the nearest hospital where a doctor diagnosed Carrie with food poisoning. After resting at the hospital for three hours, she was given some prescription medicine and then sent on her way. As they were leaving the hospital, Alan was handed a bill for $4,000. They were flabbergasted at the cost, but relieved to know that they had travel insurance through his work.  On the way back to the hotel they discussed how fortunate Canadians are with our healthcare system.

While sifting through the mail upon their return from the vacation, Alan noticed a bill for the ambulance for $500. He spoke with the travel insurance representative from his work and was told that the coverage did not include ambulance rides; this he had to unhappily pay for out of pocket.

The moral of the story here is, ensure that you have proper medical insurance in place. If you have travel insurance through work, make sure that the coverage that you thought you had covers what you expect it to. If you do not have proper insurance coverage, seek advice and get a travel insurance plan suited to the needs of the travelers.

If you would like to find out more information about travel insurance or get a quote, please do not hesitate to contact me.

Written by Jay Bernbaum, TriDelta Insurance Solutions

Insurance – only two thirds of Canadians have life insurance

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Most people have insurance for their motor vehicle and home, but many fail to cover their most valuable assets, their life and potential loss of employment income.

This statistic is disturbing, given the risk that those without insurance face. Equally important is that life insurance owners occasionally monitor what they own and whether it still fits. We must review it against our original goals and update this as our life circumstances evolve.

Despite the typical Canadians’ risk averse nature, many are leaving themselves open to unnecessary financial risk and worry, a TD conducted poll suggests.

This Risky Business Poll revealed that the majority of Canadians claim to be cautious and risk-avoiders (55%), with only 8% saying they are risk-takers. However, the same poll finds that 3-in-10 Canadians don’t have life insurance and 6-in-10 don’t have critical illness insurance.

Canadians are however in better shape on this than Americans. In the US ownership of individual life insurance has hit a 50-year low, according to a new LIMRA study. The Trends in Life Insurance Ownership study, conducted every six years by LIMRA, found that only 44 percent of U.S. households have individual life insurance.

Of the 31% of Canadians who do not have life insurance, 40% say they don’t think it’s necessary, 23% admit they probably should have it and another 23% feel they can’t afford it. Additionally, one-third of Canadians worry they aren’t adequately protected by their insurance policies.

When asked what life events have changed their appetite towards risk, the top answer from Canadians was having children (48%), followed by buying a house (23%) and getting married (18%).

Reference: Results for the TD Risky Business Poll were collected through an Environics Research Group telephone omnibus, conducted October 27 – November 11. A total of 1,500 completed surveys were collected with Canadian adults.

At TriDelta we pride ourselves on our expertise and servicing of insurance. Please contact us to discuss your needs even if it’s simply to review your existing policies and how they fit into your current lifestyle.

By Anton Tucker – Vice President.

If you have questions or want to discuss your personal situation, please call Anton at 905-901-3429 or email him at anton@tridelta.ca

Great Wealth Strategy to Share

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At TriDelta we have a client who is a doctor in his early 60s.  We have just saved him roughly $400,000 by implementing a relatively simple but little known planning strategy.  We call it PCIS – or Personal Corporate Insurance Swap.

This is a strategy that can add significant wealth – even though most people who could benefit, are unaware of it.

PCIS is one of those strategies that certainly doesn’t apply to everyone – but the great thing is that you probably know someone who can benefit.  Here is your chance to do them a great favour by putting this article in front of them.

Here is who can benefit:

  • Someone who has a company.
  •  This can be a business owner, a professional with a corporation (Doctor, Dentist, Lawyer, Accountant, Architect, etc.), or someone who set up a holding company.
  •  AND they own life insurance outside of their company.
  • This can include various forms of life insurance (term or permanent) held by any owner of the corporation.  This often means either spouse as well as their adult children.
  •  If someone fits this criteria, then there is a decent chance that they can benefit from PCIS.

 

To help explain the strategy I will use the real life example of our doctor client:

In the 1980’s he took out life insurance on himself and his wife.  A few years ago, when doctors could become incorporated, he set up a medical professional corporation.

While most people don’t think about this, the older you get, the more valuable your life insurance policy becomes.  If you suffered a health problem since you set up your life insurance, your life insurance policy becomes more valuable.  The key point is that your life insurance policy has a real, tangible value.

This is important to this strategy as the next step is to use the following piece of the tax code (S. 148).  I will get a bit technical here.  Although very broad, there are subsections which effectively state that when you transfer a life insurance policy to a corporation that is non-arms length, it will result in a deemed disposition based on a formula.  The formula is the Cash Surrender Value of the policy (CSV) LESS the Adjusted Cost Base (ACB).  However, the individual is entitled to the Fair Market Value (FMV) of the policy regardless of whether this is greater than the CSV.   This essentially means that the corporation can pay to the shareholder (either in cash or a promissory note) an amount equal to the FMV LESS the ACB of the policy.  The corporation’s ACB to acquire this policy is the CSV, not the FMV.

This is a bit complicated, but here is the impact:

For our client, their $2 million life insurance policies that they took out in the 1980s, have an appraised FMV of $1,200,000 today.  This was appraised by an actuary.  With this official appraisal, the clients then transfer ownership of these insurance policies worth $1,200,000 to their corporation in exchange for $1,200,000.  Given that these policies do not have any CSV, there is no tax implication to the transfers.

This provides them with two substantial benefits.

The first is that it allowed them to take out $1,200,000 from their corporation tax free.  At an average dividend rate of 30%, that saves them $360,000.

The second is that from this point forward, they can pay all of their insurance premiums from the corporation using pre-tax money.  Over the rest of their life, this will save tens of thousands of dollars.

This swap raises an obvious question.  If the corporation owns the insurance policies, how will they get the insurance proceeds out of the corporation when the time comes?

Fortunately, life insurance proceeds are structured in such a way so that each $1 in insurance proceeds adds $1 to the Capital Dividend Account (CDA)of the corporation LESS every dollar of ACB.  For every dollar in the CDA of a corporation, a company is able to dividend out $1 tax free.  Effectively, holding the insurance within the corporation should result in the exact same benefit at the end as holding the insurance personally.  It should be noted that the ACB of a life policy typically drops to $0 over time, and for most people at life expectancy, their policy ACB should be $0 – resulting in no tax implications to the shareholders.

Of course, no good strategy is that simple.

Some issues to consider before implementing the PCIS:

  1. You can only do this PCIS once.  Does it make sense to do this now or to wait until the insurance policies are worth more?
  2. There is some costs to doing this (usually $5,000 to $10,000) for actuarial and professional advice.  Do the benefits meaningfully outweigh the costs?
  3. How does PCIS fit within the overall financial plan.  Is there sufficient value in the corporation today to make the strategy fully beneficial?  Should the funds come out of the corporation now or is it better to keep them in the corporation but keep it as a demand loan?
  4. Will you be selling your corporation at some point in the future?  If so, you want to be careful where exactly you hold the insurance, as you don’t want to complicate a sale.  If done correctly, this issue can probably be avoided.
  5. Is there a sizable deemed disposition on the transfer?  You will want to know the Cash Surrender Value and the Adjusted Cost Basis of your policies before proceeding.

In order to make this strategy work for you or someone you know, you want to be sure to work with an insurance and estate planning specialist with significant corporate tax knowledge – like we provide at TriDelta.  They should be able to help you determine if this strategy makes sense to use, how to use it, and to hand hold you through the process.

If it does work for you or someone you know, it can be a rare and significant financial win.

Author: Asher Tward, VP Estate Planning.  Phone 416-733-3292 x222

 

Don’t let divorce devastate your financial well being.

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Divorce is never easy.

While the goal is to separate lives with the least impact, this does not always happen. Divorce not only affects us emotionally, but also disrupts our financial situation.

I receive many calls from women inquiring about the best way to secure their financial future through separation and divorce.

The following basic steps will get you started and help you team up with the right professionals to get the job done properly.

Your  divorce must not only address your current separation of assets, but your financial well being and take into consideration things such as retirement planning, tax implications, the long lasting impact of the division of assets including:

  • Pension benefits
  • RRSP account balances
  • Canada Pension benefits
  • TFSA accounts
  • Cash flow
  • Housing options
  • Insurance requirements
  • Company benefit plans
  • Support options

 

What do you need to do during a divorce settlement to make sure you keep on track to retire comfortably?

  1. Compile a summary of all income, assets and benefits in both yours and your spouse’s name.
  2. Determine the net values and the tax implications of any sales or transfers of assets,
  3. Review past tax returns and use them to forecast your post divorce scenario.
  4. Revise your Financial Plan to reflect the division of assets, potential loss of benefits and its overall impact.
  5. Negotiate accordingly, from a position of understanding.

These simple steps provide a basic outline of some things to consider, but it is important to consult not only a lawyer, but also partner with a qualified financial professional specializing in divorce and separation of assets to ensure you get the best professional advice throughout the process. 

In my conversations with the divorcees I work with, areas that have often been overlooked are:

  1. The understanding of how Pensions, RRSP’s and CPP benefits can be split in divorce.
  2. Ensuring the continuation of your ex-spouses company benefits and health drugs plans or compensation to offset the loss of this coverage.
  3. Ensuring there is insurance in place, with an irrevocable beneficiary designation, for continuation of child support and spousal support payments on the death of the ex-spouse.
  4. Urgently establishing your own credit.
  5. Closing joint bank accounts and other joint debt obligations and structuring your new individual accounts efficiently.
  6. Partnering with a financial professional specializing in divorce before, during and after divorce to outline the real cost of your divorce agreement and to help protect your interests.

If you are considering divorce or in the process, consult a CDFA. We are financial professionals who specialize in assessing the long-term financial impacts of divorce settlements and work with your lawyer or mediator to help analyze your settlement before it’s too late.

Following these steps and having a plan of action will ensure your retirement plans stay on track after your divorce.

If you have any questions, please contact me at heather@tridelta.ca.

Written by Heather Holjevac, CFP, CDFA, EPC, Senior Wealth Advisor, TriDelta Financial.

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