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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

4 Challenges to Planning Your Parent’s Retirement

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Are you a baby boomer? Have you had the conversation with your parents? Now is the time to plan their retirement (image/istock)

The Baby Boomers are doing some serious retirement planning these days.

Just one problem. They forgot to plan for their parents.

They may be 55, but their parents now need their children more than ever before.

I have many clients that have at least one parent with Alzheimer’s disease — often in their 80s or 90s. The Boomers face many social, physical and mental challenges with their parents. These can be very difficult on their own.

In addition, there are several financial challenges that arise that must be faced and in every case, intergenerational or cross-family financial discussions are the key to a positive outcome. Here are four challenges to deal with and possible solutions:

1. We saved for our retirement, but didn’t plan on paying for everyone else’s as well.

Every retirement planning discussion should include the following question: “Are your parents and in-laws likely to be a financial burden, fairly independent, or are you expecting a meaningful inheritance?”

While many people have a hunch about it, they really need to have a better handle on it, as it is key to their own retirement plans. In my firm, we recommend that, if possible, they have a conversation with their parents that starts with: “We are doing some personal retirement planning, and we were asked a question about our parents. We don’t need to get into huge detail, but we wanted to have a discussion about whether we might need to provide some financial support to you or whether we thought there would be a meaningful inheritance. (Wait for laughter to stop.)”

It is possible that this question will have a pretty short response and won’t go further, but in most cases it does open the door to a more complete discussion.

2. Why are we responsible for Mom and Dad? What about your brothers?

Sometimes life isn’t fair. There is always someone who shoulders  more of the load. It doesn’t stop just because Mom is getting old and needs support.

Support for older parents is both in terms of time and energy, and also can be in terms of money.

In many cases, women in particular have to retire early and give up an income to look after parents. This in itself could affect their retirement plan. Should they be entitled to get paid by the parents? Should they get a larger inheritance?

In an ideal world, the child that provides most of the caregiving is not in need of any compensation, and the parents can pay for any needs that arise.

In the real world, sometimes there does need to be some financial compensation for all of the time that one child puts in. With siblings, you will likely never get full agreement on these arrangements. It is usually something that should be co-ordinated between the caregiver child and the parent, and other siblings should be notified of the facts. It isn’t a vote.

3. We should have had the insurance discussion sooner.

If you are 45 years old, do you know what insurance coverage your parents have? Do they have critical-illness insurance, long-term care insurance, individual life insurance, joint first-to-die, joint last-to-die life insurance? Did their insurance coverage expire at 65 or 75?

The reality is that this is your business. All of these insurance policies, other than joint last to die, will have an impact on your parents’ financial well-being. They may mean the difference between them being able to look after themselves financially or require your financial support.

This conversation is also a good eye-opener for the 45-year-old — and it may raise some opportunities.

Opportunity No. 1: It may be too late for your parents to be properly set up due to health issues, but now is the time that you should be ensuring that living benefits like critical-illness insurance, in particular, is explored.

Opportunity No. 2: If one of your parents is in reasonably good health — even if they are 75 years old — taking out a life insurance policy on a parent may be an important part of your retirement plan. I know this may not seem right at first glance, but if the 45-year-old is going to have to look after the parents financially, it can impair his personal retirement plan. If his insured parent dies in 20 years, the son will receive a tax-free insurance payout at age 65 — a perfect time from a retirement perspective. In many cases, the return on investment of this type of insurance policy can be 7%+ on an after-tax basis.

4. Do Mom and Dad have powers of attorney in place? What about their will?

Once again, what might not be considered your business can quickly become your most important business. They should have a power of attorney over personal care. This provides guidance on who can make medical decisions on the patient’s behalf, if he is unable to make his own decisions. It usually deals with items like whether you want doctors to make ‘heroic efforts’ to save your life, or not.

There should also be a power of attorney over property. This gives someone the ability to sign documents on another person’s behalf. Without it, many necessary financial transactions and decisions will happen at a snail’s pace.

As for their will, do you know where to find it? Has it been looked at in the past 20 years? Are the executors of the will up to date? Have the named executors died 10 years ago? These issues could become a nightmare for the survivors if they aren’t reviewed and clarified.

I believe the most important issue here is opening up the lines of communication with older parents. It is important to position the conversation in terms of your own personal planning, and addressing questions that you need to answer to complete your plan.

As the Baby Boomer children, you need to have these conversations with your parents. It will benefit everyone in the long run — and there is no day better than today.

This article was originally published in National Post. You can follow him on Twitter for more financial advice.

Click here to download our 2012 Retirement Income Guide

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