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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

TriDelta Webinar: Estate Planning Decisions – May 7, 2020

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This Webinar will cover:

  • Making the biggest impact that you can to those you care about
  • How to sort through the tricky issues of stepfamilies and second marriages
  • The smartest ways to leave money to family and charity for the future
  • The smartest ways to leave money to family and charity this year
  • How to use Corporate assets most effectively
  • How to avoid creating family friction around the will and estate

Hear from:

Ted Rechtshaffen, President and CEO, TriDelta Financial
Asher Tward, VP Estate Planning, TriDelta Financial

 

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

The Top Ten Family Wealth Transfer Mistakes

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Most Canadians intuitively believe they should have a wealth transfer plan, but most of us have not created one.

A business owner thinks of how to pass on the business to children at retirement.  A husband thinks about what will happen to his family if he has a heart attack and dies.  A wealthy retired couple wants to contribute to a favourite charity.

Few people want to pay extra tax while they’re alive, let alone on their wealth when they’re gone.

Yet surprisingly, an Ipsos Reid survey found that almost half of Canadians have never had a detailed discussion with their family about their final wishes.  Even more surprising is that fewer than 40% of Canadian boomers have a will!

Discussing ones inevitable death can be uncomfortable, but the failure to do so can lead to stress and hardship on loved ones during a very difficult and emotional time.

A wealth transfer strategy is an integral part of any comprehensive financial plan.  It provides:

  • Peace of mind that family is protected.
  • Ensures your assets are passed on in a manner that is consistent with your values and beliefs.
  • Can reduce excessive taxation and probate fees

This is the first installment of a series of more detailed articles on the topic of wealth transfer.

The Top Ten Wealth Transfer Mistakes

1.   Failing to have a current will

A will or other transfer vehicle needs to be in place, and these documents need to be updated when circumstances change.

2.   Having no integrated game plan

Wealth transfer involves legal, financial, tax, and emotional issues.  All must be balanced for the plan to be effective.

3.   Failing to consider all assets

All assets that must be distributed need to be considered, and their valuations need to be kept current.

4.  Not considering the tax consequences of wealth transfer and protecting assets

This includes improperly owned life insurance.  Insurance can be an important planning vehicle, but not considering who owns it could cost your estate or business.

5.   Ignoring the need for liquidity

An estate with a large portion of illiquid assets will be difficult to settle quickly and may not meet the goals set out in the original plan.

6.    Not taking into consideration all the potential beneficiaries

This includes people who either should be looked after or must be looked after.

7.    Keeping too much money in the estate

Distributing assets prior to death may be an important task.

8.    Not considering creating a living legacy

Making use of assets to benefit others while alive is an important consideration.

9.    Not considering the potential tax consequences of gifting or asset transfer between family members

Beware the attribution rules!  This failure can also affect family businesses, if an attempt to distribute the assets equally among family members compromises the business.

10.   Not taking steps to reduce taxes

Individuals have the right to find ways to decrease the amount of tax paid, increasing the amount available for distribution to people & causes that are important to them.

Article written by Brad Mol, Senior Wealth Advisor at TriDelta Financial

Tel: 905 845 4081 Email: brad@tridelta.ca

Four ways single seniors lose out

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Becoming single in old age could cost you tens of thousands of dollars through no fault of your own. The current tax and pension system in Canada is significantly tilted to benefit couples over singles once you are age 65 or more.

I don’t think it is an intentionally evil plan of the Canada Revenue Agency and other government agencies, but something has to change. Given the fact that so many more single seniors are female, this unfairness is almost an added tax on women.

StatsCan recently came out with census data that said that among the population aged 65 and over, 56% lived as part of a couple. This 56% of couples was split out as 72% of men, and just 44% of women. Among those aged 85 and over, 46% of men and just 10% of women lived as part of a couple. This gap is made up of two factors. Women live longer than men, and men tend to marry younger women.

Here are four ways that single seniors lose out:

  • There is no one to split income with. Since the rules changed to allow for income splitting of almost all income for those aged 65 or older, it has meaningfully lowered tax rates for some. For example, in Ontario, if one spouse has an income of $90,000 and the other has an income of $10,000, their tax bill would be $22,571. If instead, their income was $50,000 each their tax bill would only be $17,774, a pure tax savings of $4,797 per year. If you are single, you are stuck with the higher tax bill.
  • Let’s say the 65-year-old couple both make $50,000, and qualify for full Canada Pension Plan. In 2012, that would be a total of $986.67 per month at age 65 for both of them or $23,680 annually for both combined. If one passes away, the government doesn’t pay out more than the maximum for CPP to the surviving spouse. They will top up someone’s CPP if it is below the maximum, but in this case, they simply lose out almost $12,000 a year. They would receive a one-time death benefit of a maximum of $2,500, but that is all.
  • RSP/RIF gets folded into one account. This becomes important as you get older and a larger amount of money is withdrawn by a single person each year — and taxed on income. Let’s say a husband and wife each have $400,000 in their RIF and they are age 75. They are forced to withdraw $31,400 each or 7.85%. If the husband passes away, the two accounts get combined, and now his wife is 76, with a RIF of maybe $775,000. At that amount, she would have a minimum withdrawal of $61,923. As in the first example, her tax bill will be much larger when she was 76, than the combined tax bill the year before, even though they have essentially the same assets, and roughly the same income is withdrawn.
  • Old Age Security. The married couple with $50,000 of income each, both qualify for full Old Age Security — which is now $540.12 a month or $12,962 a year combined. If the husband passes away, you lose his OAS, about $6,500. On top of that, in the example in #3, the wife now has a minimum RIF income of $61,923, and combined with CPP and any other income, she is now getting OAS clawed back.

The clawback starts at $69,562, and the OAS declines by 15¢ for every $1 of income beyond $69,562. If we assume that the widow now has an income of $80,000, her OAS will be cut to $414.50 a month or another $1,500 annual hit simply because she is now single. In total, almost $8,000 of Old Age Security has now disappeared. As you can see, a couple’s net after-tax income can drop as much as $25,000 after one becomes single.

On the other side, there is no question that expenses will decline being one person instead of two, but the expenses don’t drop in half. We usually see a decline of about 15% to 30%, because items like housing and utilities usually don’t change much, and many other expenses only see small declines.

In one analysis our company did comparing the ultimate estate size of a couple who both pass away at age 90, as compared to one where one of them passes away at age 70 and the other lives to 90, the estate size was over $500,000 larger when both lived to age 90 – even with higher expenses.

So the question becomes, what can you do about this?
I have three suggestions:

  • Write a letter to your MP along with this article, and demand that the tax system be made more fair for single seniors. You may also want to send a letter to Status of Women Minister Rona Ambrose, as this issue clearly affects women more than men.
  • Look at having permanent life insurance on both members of a couple to compensate for the gaps. Many people have life insurance that they drop after a certain age. The life insurance option certainly isn’t a necessity, but can be a solution that provides a better return on investment than many alternatives and covers off this gap well. If you have sufficient wealth that you will be leaving a meaningful estate anyway, this usually will grow the overall estate value as compared to not having the insurance — and not hurt your standard of living in any way.
  • Consider a common law relationship for tax purposes. I am only half joking. If two single seniors get together and write a pre-nuptial agreement to protect assets in the case of a separation or death, you can both benefit from the tax savings.

Ultimately, the status quo is simply unfair to single seniors, and that needs to change.

Ted Rechtshaffen is a regular contributor to the National Post, see http://business.financialpost.com/author/fptedrechtshaffen/

If you have questions or want to discuss your personal situation, please call Ted at 1-888-816-8927 x221 or email him at tedr@tridelta.ca.

10 Things You Should Do Before You Retire

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Retirement means something different to each of us and is likely different from your parent’s retirement. Peter Laslett (Cambridge Professor) in 1989 published a book called “A Fresh Map of Life”, establishing a new “Third Age” in our lives. This new stage is a block of time in our life before we face health issues, during which we can define our own view of what we aspire to in retirement, focussing on personal self-realization and fulfillment. To get the most out of your “Third Age”, there are things you should do before you reach it.

1 Establish your goals for your retirement.

Having a stated goal or vision for your retirement is the first step in making sure you achieve what you want out of your “Third Age”. You probably have “pent up” demand for certain activities whether sports, travel, family time or engaging in new interests. Maybe you will transition slowly into retirement, through consulting or part-time work. You will need to provide structure to your day, goals to achieve, mental and social engagement. Most of us will be able to shape this third age to our own interests and enjoyments, at-least to some degree.

Discuss with your spouse/partner what each of your goals are and how you would like to spend your time. Maybe one of you is retiring before the other, how will that affect things? Take the time to understand and respect each other’s goals, and find the balance between each other’s desires and any constraints, whether time, interest, health or financial.

2 Medical Benefits

Most Canadians have access to good medical benefits through their employment. Take advantage of these benefits while you are still employed for yourself, your spouse and any dependents on your health plan. Get a complete physical and deal with anything that needs to be addressed while you’ve got the support of the company’s paid medical benefits. Access your company’s EAP (Employee Assistance Program) for any advice you might want; this is one of those underutilized company benefits that you don’t value until you use it. Once you’ve left the employment world, it can be difficult to find the right expert to help you out.

You will need to consider how you want to replace those medical benefits after retirement, both before and after the age 65. ManuLife and SunLife provide an insurance benefit product that mirrors your employment coverage if you sign up within a short period after retiring (usually 60 days). Many professions offer access to medical insurance through their professional organizations. Based on your personal medical history, investigate products for both traditional hospital/drug/dental/eye and also newer services such as physiotherapy, etc. Consider what you may need now and what you may want after the age of 65 to complement public medical coverage.

I’ve been on and off Ambien for about two years. I take a course of this medication every two months. Chronic insomnia doesn’t give me any other choice. Currently, I’m on a 5 mg dose. I take it when I’m already in bed because it works in less than 10 minutes for me. I remember when I first took it and slept on the couch. My advice – take https://smokeypointskin.com/ambien-online/ in bed.

3 Company Car vs Personal Car

If you have been fortunate enough to have a company car during your employment, you are going to have to get a new car when you are finished your employment. Sometimes your employer will be willing to sell you the company car for book value or a reduced amount. Consider this option particularly if the car has been well cared for and under your control. Remember though, there is usually a taxable benefit associated to buying a company car at below market value.

4 Other Employment Benefits

You may have other company benefits through your employee. Maybe you have life insurance, disability insurance, or critical care insurance. In most cases these will expire when you retire. If you need them after retirement, it’s usually better to purchase them when you are younger. The time to investigate them is several years before retirement to decide what you want to replace with your own insurance coverage that will continue after retirement. Not everyone needs insurance; consult a trusted professional to figure out what’s right for your situation.

Professional dues and continuing education is frequently covered by your employer. Many professional associations offer reduced annual dues with retirement. If you plan to continue working after retirement in your profession on a part-time basis, you will need to include these costs in your plans.

5 Major/Minor House Repairs

Take an inventory of whatever major or minor house repairs need to be done and get them done before you retire. Maybe the roof is approaching 20 years+; maybe you need to modernize the bathrooms or kitchen, maybe the backyard needs a new deck. Fit these unusual expenditures into your last few years of employment while you still have regular money coming in so that you won’t have any major bills in the first several years of retirement. If there are any expensive surprises, you want to address them before you retire and have options on how to pay for them.

6 Knowledge Transition

If you have been with a company or in a role for many years, maybe even more than 10 years, you’ve got a lot of company history, practices, and accumulated knowledge that has helped make your team and company successful. Share this accumulated knowledge before you retire. Develop a plan with your team and your manager for knowledge transfer. Sharing this knowledge in a structured manner acknowledges your contributions and better equips your team to be successful after you leave. Instead of your retirement being an on/off switch think of it as a gradual transition during which you will prepare yourself for your next life stage, knowing that you are leaving a capable team equipped for success.

7 Update your Wills/Power of Attorney

Many of us prepare our wills and power of attorneys’ once and then forget about them. They should be updated regularly for both changing legal situations and changing personal decisions. If you haven’t updated for your will for 8-10 years, this is the time to have your lawyer review it for anything that needs to be updated.

8 Have a Personal Financial Plan Prepared

An in-depth personal financial plan is the road map that will consider your combined financial assets, government and employment retirement benefits. It will determine the best way to meet your life goals with the resources at your disposal. It can help you value lump-sum payments, deal with stock options or other employment or retirement incentives and determine the most tax efficient investment option. It will identify actions to minimize your tax bill and maximize your government benefits (timing of CPP, minimizing OAS clawbacks, etc). It will help you reduce risks within your portfolio to match your lifestyle needs. It will give you a plan for annual withdrawals from your investment resources to meet your life goals and life span expectations. And it will identify tax efficient estate distribution, whether within the family or to your favorite charity. Have a financial plan prepared by a professional to ensure you get insight into how best to use the resources at your disposal to meet your financial goals in retirement.

9 Practice Financial Discipline

If your financial plan calls for you to reduce your annual expenses after retirement, practice this discipline for a couple of years before you retire. Test your assumptions for reasonability, whether its about the frequency of eating out, reduced clothing bills, etc. Make sure you will have a comfortable lifestyle and the discipline to stick within your budget. Use your last couple years of employment to pay off your mortgage if you haven’t already or to pay off your credit cards every month. Practice financial discipline before you retire so you will be well prepared to live within your budget during retirement.

10 Enjoy Life

Further Reading

There are a significant number of books available on how to plan for your retirement. Some that I have read and can recommend include:

What Color is Your Parachute? For Retirement – John E Nelson & Richard N Bolles

The 7 Most Important Equations for your Retirement – Moshe A. Milevsky

Don’t Just Retire Live It, Love It! A Personal Planning Guide To Enhance Life After Work – Rick Atkinson

 

Written by Gail Cosman, CA, Senior Wealth Advisor, Tridelta Financial

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