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Financial Post / Rechtshaffen: Avoid these five mistakes when estate planning to preserve family peace

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Some decisions can lead to terrible family rifts that never mend

Family feuds get ratings. Just look at Prince Harry and Meghan Markle.

But we’re more interested in promoting peace and harmony within families, especially when it comes to estate planning. This can often be more difficult when an estate is larger in value.

Some estate planning decisions can lead to terrible family rifts that never recover. Here are some of the biggest mistakes we see.

Treating family members differently

Family members are different. They have different skill sets and different levels of responsibility and maturity. Some are kind and giving, others take and take. But if you want to create big family fights, leave your assets to your children in an unequal manner. Leave 45 per cent to Joe and 45 per cent to Susie, but 10 per cent to Bill.

People do this all the time, and they may have very valid reasons for doing so, but it is still a recipe for disaster. The best scenario is if you can comfortably tell Joe, Susie and Bill in advance why you are doing this. To do so without explanation will very likely lead to anger and jealousy between the children when they find out.

Our general recommendation is to try to leave assets equally even if you don’t think it is fair.

Pass the family cottage to multiple children

You love the family cottage and your wish is to keep it in the family for your kids and grandkids to enjoy for decades to come. This can be a very dangerous part of the estate plan, because your children may not necessarily feel the same way about the cottage that you do. Or they may really like the cottage, but could use the cash instead.

It is rare for the next generation to be fully in line on this issue. Sometimes it is just geography: one child moves away and won’t use the cottage much. But even if they all like it, they might get into issues about repairs and renovations or scheduling who uses it when. Families can sometimes get along fine with a little distance, but spending too much time under the same roof can create problems.

We generally recommend either selling the cottage in your later years or, if you keep the cottage, make sure it is openly discussed. Some solutions can include setting up life insurance set up to specifically pay taxes and perhaps one or two children, so that the remaining children can afford to keep the cottage. Open communication is key, but often a sale is the cleanest approach.

Don’t tell the kids anything about your money

You might think your money isn’t their business. They can find out your true net worth after you are dead. This approach is akin to lighting a bomb with a very long fuse.

One of the biggest problems here is that there may have been times in your children’s lives when they really needed financial help, but they don’t really need it any more. Children who now realize you could have easily helped during the difficult times, but chose not to do so can get angry.

It is true that it isn’t the children’s or beneficiaries’ money to spend in advance. Yet there is often a sense of betrayal at keeping such a significant secret, as well as a sense of missed opportunities to do more during one’s life.

This silent approach also often eliminates any ability to understand what might be most meaningful to your children or beneficiaries. Maybe less so in terms of cash, but in terms of family heirlooms or property. Perhaps a piece of art or furniture was really important to two children, but there was never any discussion about it, so it is now completely left to them to fight over. This may sound like a small issue, but many families have split up forever over just this type of scenario.

If you sense a theme here, it is that communication is key. Don’t keep things so private that you avoid having the discussions that need to take place.

Purposely or inadvertently leaving most or all assets to a new spouse

This sometimes happens by accident due to poor planning around ownership titles, lack of pre-nuptial agreements or the unintended naming of beneficiaries on investment accounts or life insurance. Other times, it is meant to hurt the children … and it will. The hurt can certainly go both ways and is often a major issue when a spouse is not fairly treated.

Either way, you want to be extra careful in these situations to first understand what you hope to accomplish, and then make sure your documents are aligned to achieve this.

Significant charitable giving

Of course, you are more than entitled to give all your money to charity, but if it isn’t discussed with your so-called traditional beneficiaries, there can be fights with the charity that can last a long time. There have been cases where intended charitable gifts have been overturned because it wasn’t deemed fair to the other beneficiaries.

An old colleague referred to wills as the last words a parent says to a child. If that message leads to questions or misunderstandings, a child will sometimes think it means a parent didn’t really love them, or loved them less than others. This is the foundation of many family fights.

My best advice is to communicate what you are doing and why, and to do so while you can still explain your rationale to your family. If it feels very difficult to do, then imagine the reaction when you are not there.

Put another way, if it seems too difficult to have this discussion now, maybe that is the push to make some changes to your estate plan to make it easier on those left behind.

Reproduced from Financial Post, November 9, 2022 .

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

Financial Post/Rechtshaffen: How wealth advisors provide a significantly higher value service for core clients than roboadvisors

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Advisors know which clients to put on which path to achieve the best big-picture result

Several people have asked me lately about the Questrade TV ads that feature someone in their 30s going to what appears to be their parents’ financial advisor to tell them why they are leaving. My first thought was, “Why did they visit an advisor they don’t like, in one case even bringing their baby, just to say that they are leaving — who has time for that?” My bigger thought was that the ads underscore how different my job is to what services such as Questrade do.

The first thing to remember is that different people have different needs at different stages of their life. Where a good wealth advisor can provide significant value to a 75-year-old couple with decent wealth and a complicated family situation, they may not be able to add nearly as much to a 40-year-old couple who are simply working and putting away a little each month. The best case for all involved is to have an individual with a financial need that fits well with their provider, whether that is a computer, a bank branch, or a highly specialized wealth advisor.

In our business, we find that we provide a good fit for two core groups of people. The first are those who are retired or in a transition from being employed to being retired. Much of the work we do relates to how best to draw on funds when the paycheque ends, being tax efficient and generating sizable investment income along the way (regardless of stock market performance). It would also include developing strategies that start with a likely estate value and working backwards to determine how you best want to live the last major period of your life and what legacy is important to you. This list of issues is very different from the typical experience with a low-fee online brokerage.

The second group are those with high incomes, both employees and those with corporations. There remain a few approaches to truly help these people on the tax front both on an annual basis and for the rest of their lives. Taxation often plays a large role in their investment decisions, and unique strategies are often key to providing them the type of value they are most looking for. Again, these individuals are often missing out on the bigger picture if they are going to simply find the cheapest online provider.

When I think about the areas of greatest value that a good wealth advisor can provide, they rarely relate directly to the best investment returns or the lowest fees. They usually come down to how you can help someone to have a better life because of the advice they receive. These issues come down to four key areas. These will not apply to everyone. Some people are in better financial positions than others, but most still bring some level of financial stress and worry. The four areas are:

Reducing financial worry and stress

This often starts with showing someone what their financial future will very likely look like on an annual basis and giving them the comfort that they will not outlive their money. It may also provide a financial stress test to show that under some less-than-ideal scenarios, they still will likely be OK. This plan will help them answer questions around whether they can help their children and still be in good shape, or whether they can afford to do something that is important to them. Sometimes this will show them the opposite, and will create the need for either lowering expenses, the possibility of finding additional income, or developing some other plan. In cases where there is more than sufficient assets, this foundation often opens the door to the “what to do next” discussion.

Teaching people how to spend their money

For many who lean toward being savers with their money, it can be very difficult to change this habit even if the facts show that they will have a lot of money that they never spend in their life. This can be especially important in changing their lifestyle in early retirement years of good health. Helping people to spend more, do more and take advantage of the maybe five, 10 or 20 years of decent health in retirement can be one of the most rewarding parts of our job. It can also have a big impact on improving someone’s life.

Leaving a clear and structured family legacy that provides peace of mind

This is extremely important for those with a child or grandchild that may not be able to become financially self-sufficient. In addition, there are increasingly families with second and third marriages and myriad stepchildren. Navigating these waters successfully can be crucial to how someone is remembered by family for generations to come. Often, these issues weigh heavily on people’s minds, and having someone who can help them create a plan to look after these issues can be the biggest value an advisor can provide. As one of my older clients recently told me, “I hope I live to be 100, but if I don’t make it and something happens to me now, I know that everything has been taken care of and that I am leaving my family in good shape.”

Leaving a meaningful charitable legacy that enriches a person’s life

For those that are projected to have a larger estate than what they want to leave to their family, charitable giving is often part of their plan. The earlier someone is aware of this scenario, the better they can plan in order to provide the greatest gift for the least amount of after-tax dollars. It also may provide great personal joy and satisfaction from knowing the impact they are having on a charity while they are still alive.

While there are many people who may not be a fit for some or all of the four key areas above, that is OK — they are likely a fit for a different part of the financial world.

However, when someone asks me about whether Questrade and their TV commercials affect my business, I just think about how different the issues I deal with are from what most people want from a roboadvisor or direct broker.

Reproduced from The Financial Post – June 3, 2019.

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

Give More, Spend Less: The Strategy for a Financial Donation

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major-charity-contribution-giftThis is a story about a couple that wanted to make better use of their hard earned money by leaving a significant legacy to the Alzheimers Society. They came to us for advice on how to execute their charitable contribution strategy, so we devised a plan. Let’s call them Joe and Susan.

As the retirement phase approached, Joe and Susan had some concerns to consider. They traveled frequently and wanted to maintain their lifestyle in retirement without fear of running out of money. At the same time, they wanted to pay as little tax as possible and help advance Alzheimer’s research to rid the world of this cruel disease.

We told them:

  • They have lots of financial flexibility to travel.
  • They will not outlive their money, but would likely have a $2 million Estate and a lifetime tax bill of $530k.
  • The $530k in taxes can be cut significantly with proper planning.
  • A good part of the tax savings can go towards charitable causes like the Alzheimer’s Society with the right strategy.
  • They can even afford to retire earlier, and potentially spend more time volunteering.

The strategy:

Joe & Susan already contributed $5,000 a year to charity, but after learning how efficient we could structure their situation, they felt they could afford to give more, and wanted to. We showed how they could substantially increase donations without it costing them much more than they had already been contributing. The Alzheimer’s Society would benefit greatly from this decision.

What we did:

  1. We set up a joint insurance policy that will pay out when they both pass away.
  2. Fund the policy with $11,000/year for 20 years. After 20 years, the policy will be fully paid for and their favourite charity will be the beneficiary of the policy.
  3. Because of the structure, Joe and Susan will receive a full donation tax credit every year of $4,400, so their net cost is just under $6,600 a year.
  4. As a result, the charity will receive a $1 million benefit!
  5. Essentially, Joe and Susan put $6,600/year in for 20 years, a total of $132,000, and the total benefit to their favourite charity will be $1 million.
  6. If Joe and Susan live to full life expectancy, the AFTER TAX rate of return on this charitable investment will be over 10%, guaranteed. There is not likely a better investment return available – especially given the low level of risk.

Joe and Susan can still give roughly $9,000 a year to charity – either through cash or stock – and help make a more immediate impact. You don’t need to donate $11,000 for this to work for you. The strategy is scalable and can be structured to match your particular situation.

To get a quick sense of your financial possibilities and what you can afford to give, use our free online calculator. Be sure to connect with us on Facebook or Twitter. This article was written by Brad Mol, Senior Financial Planner

Give More, Spend Less

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The following is a story about creating unbelievable value with charitable contributions by simply structuring it efficiently. In our case study below we demonstrate how the charity of your choice can receive $1 million donation that will only cost the donors a fraction of this.

We have changed names, but detail a real life example of a charitable contribution strategy we implemented with a client recently.

Joe and Susan were able to make better use of their hard earned money and leave a significant legacy to the Alzheimers Society, here is their story:

The circumstances:
Joe and Susan were heading into a new phase in their life as retirement approached. Their goals:

  • 1. Maintain their lifestyle in retirement without fears of running out of money.
  • 2. Travel frequently.
  • 3. Pay as little tax as possible.
  • 4. Help advance Alzheimer’s research to rid the world of this cruel disease.

They approached us to devise an efficient plan, which revealed a few key points:

  • They will not outlive their money, but would likely have a $2 million Estate and a lifetime tax bill of $530k.
  • They have lots of financial ability to travel.
  • The $530k in taxes can be cut significantly with proper planning.
  • A good part of the tax savings can go towards charitable causes like the Alzheimer’s Society with the right strategy.
  • They can even afford to retire earlier, and potentially spend more time volunteering.
major-charity-contribution-gift

The Strategy:
Joe & Susan contributed $5,000 a year to charity, but after learning how efficient we could structure their situation, they felt they could afford to give more, and wanted to.

We showed how they could substantially increase donations without it costing them much more than they had been contributing. The Alzheimer’s Society would however benefit significantly more with the new strategy.

Highlights:

  • 1. We set up a joint insurance policy that will pay out when they both pass away.
  • 2. Fund the policy with $11,000/year for 20 years. After 20 years, the policy will be fully paid for.
  • 3. Their favourite charity will be the beneficiary of the policy.
  • 4. Because of the way it is structured, Joe and Susan will receive a full donation tax credit every year. In their case, every year they get $4,400 back, so their net cost is just under $6,600 a year.
  • 5. The charity will receive a $1 million benefit!
  • 6. Essentially, Joe and Susan put $6,600/year in for 20 years, a total of $132,000, and the total benefit to their favourite charity will be $1 million.
  • 7. If Joe and Susan live to full life expectancy, the AFTER TAX rate of return on this charitable investment will be over 10%, guaranteed. There is not likely a better investment return available – especially given the low level of risk.

Joe and Susan can still give roughly $9,000 a year to charity – either through cash or stock – and help make a more immediate impact.

You don’t need to donate $11,000 for this to work for you. The strategy is scalable and can be structured to match your particular situation.

To get a quick sense of your financial picture and what you can afford to give, use our free online calculator.

Written by Brad Mol, Senior Financial Planer

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