Simple Steps to Estate planning

An incomplete will or a careless legacy can hurt feelings and divide families. Here’s how to ensure that doesn’t happen to you:

On paper, an estate plan consists of four documents. The first is a will that details how your property will be divided. The next two documents are powers of attorney — one for property, one for personal care — that spell out who can make decisions for you if you’re incapacitated by illness. The final piece of paper is an insurance policy. This isn’t required, but it is a good idea if you’re leaving behind young children or a substantial tax bill.

What should unite all of these documents is an understanding of your family’s feelings. Experts can advise you on tax and legal matters, but no one knows your loved ones better than you do. A small amount of time spent communicating your intentions now can avoid leaving your kin with an eternity of questions. Just ask my family.

Organization

Your very first step toward an estate plan can be accomplished in an hour or even less. It requires nothing more than finding the documents that show what you own and what you owe. For starters, look for RRSP statements, pension plan forms and the title deeds to any property that you own. List any loans, mortgages or lines of credit you have outstanding as well as your credit cards. If people owe you money, note this, too. And, if possible, try to find documents that show what you originally paid for the stocks, bonds or other securities in your portfolio.

Talk to a Financial Advisor & Your Accountant

If you have any amount of wealth, it pays to spend an hour or two with an advisor and an accountant who specialize in estate planning. You might think that these professionals do nothing more than crunch numbers and calculate tax, sell insurance or set up RRSPs, but they are very good at giving advice about your options — options you may not even know you have — and often they take the lead in developing an estate plan.

One of the goals of any good estate plan is to minimize taxes. When you die, the tax man attempts to treat your registered assets — in other words, your RRSPs and your RRIFs — as though you had cashed them in and taken all the resulting money as income. You can avoid the tax damage on registered assets by leaving them to your husband or wife. You can also sidestep the tax hit by leaving these assets to a financially dependent minor child or grandchild, or to a financially dependent handicapped adult child. Otherwise, your estate has got to take the hit, and it can be a blow, erasing as much as 48% of the value of your registered assets.

See a Lawyer

By some estimates, fewer than half of adult Canadians have a will. This is shocking. If you die without a will, your property may languish in trust for months before your heirs can touch a penny of your money. Your wealth will ultimately be divvied up by the government according to a strict formula that apportions your possessions to your nearest relatives. Your wishes about who should get what, even if you expressed those desires frequently in past conversations, won’t matter.

In most cases, all that drawing up a will requires is an hour or so of your time and a couple of hundred dollars in lawyer’s fees. He or she can open your eyes to questions you may never have considered.

Update

No matter how thoroughly you plan your estate, situations change. Children are born, relatives die, marriages begin and end, property fluctuates in value. For all those reasons, you should dust off your will at least every three years and make sure it’s still up to date.

I have secured relationships with some very capable and trustworthy professionals who can assist you in these matters. Please call me if you are interested in seeking professional estate planning advice from and advisor, accountant or lawyer.

Critical Illness Thought Piece

Lot’s of info on Critical Illness here and please contact me if you have any questions. This is the most important insurance you can buy!

Finding your Income Replacement Ratio

Many high earning executives and self-employed professionals often have inadequate coverage for their current income.

Did you know there are over 4.4 million Canadians suffering from a disability*? At age 45 earning $110,000 a year potential earnings to age 65 are $2,809,912**.

This review can be achieved in a minimal amount of time.

• From last year’s T4 slip (line 14), note your income e.g. $110,000 annually.
• From your employee benefits booklet or individual disability insurance policy, note your monthly disability benefits e.g. $3200/month.
• Then calculate your Income Replacement Ratio 3,200 x 12 x 100 / 110,000 = 35%

The Income Replacement Ratio would be 35% of today’s income, could you live on that?

The solution is finding a way to supplement that disparity. Please contact me or your advisor to find out how this can be done.
Email Trent or 902.209.0425

*FUMSI: Disability Statistics Challenges and Sources
**Assuming 2.5% increase every year.

Making An Informed Decision About Permanent Life Insurance

A lot of people think they’re getting a good return on their life insurance policy, enough to warrant keeping it, even if they don’t have heirs who need the death benefit.

I spoke recently with a gentleman who owns a life insurance policy with a cash value of about $22,000. He’s receiving about $800 a year in dividends and, as a result, thinks the investment is a good return.

But wait a minute … if you’re making $800 a year in dividend income on a policy that has a surrender value of $22,000, that’s the same as investing $22,000 in a GIC and getting a 3.6% annual return. That doesn’t strike me as exciting. By cashing in the policy and investing the $22,000 elsewhere, you could produce a much better return than 3.6%.

Yet people often rationalize why they should keep such poor investments. “Well, gee, when I die, my kids will get the $22,000.” But they’d get the GIC, too, if the money were invested there. So that’s not a good enough reason to keep the insurance.

Sometimes, people say the policy is worth keeping because “it’s not costing me anything.” Although you might not be paying premiums to keep the policy in force, it doesn’t mean it isn’t costing you. It is: in the form of opportunity cost. By earning only 3.6% per year, you’re “spending” the money you could have earned in an alternative investment. The “cost” is the lost income from not investing elsewhere.

So if you’ve got an old policy with a small death benefit, think hard whether it’s worth keeping.

Term life or permanent insurance — which is best for you?

What’s the best life insurance to buy? The simple answer is: it depends on your short- and longer-term needs and preferences for flexibility and risk.

There are two kinds of life insurance – term life insurance and permanent insurance. They are two very different kinds of protection that satisfy very different life insurance needs.

Term (which covers you for a specific period of time) may be all the insurance you ever need, or it may be used as an interim step before purchasing permanent life insurance (which protects you for a lifetime). Possibly a combination of term and permanent in the same policy may be the best solution for you.

Let’s look at the strengths of each, and their differences.

Term insurance

Here are some things to consider about term insurance:

Young family with a limited budget: You have a young family and need life insurance, but your current budget does not allow much for premiums. Term insurance is well suited to meeting high, short-term protection needs for the lowest initial cost per $1,000 of benefit.

Temporary needs: You’re looking to cover a temporary need, such as a mortgage or business loan. Term insurance can cover most debt in a cost-effective way.

Your needs will change: You’ve identified your immediate financial security goals and needs, but anticipate that they’ll change in the future. Many term insurance plans do a good job of meeting immediate needs and give you the freedom to later move or “convert” to a permanent product. However, this ability to convert to permanent life insurance often expires at age 65. It’s important to understand any conversion restrictions when purchasing term insurance in anticipation of changing insurance needs.

Your child’s future: You want to provide the necessary resources for your child’s future. Term insurance is an inexpensive way to put a foundation of insurance in place for your child. Term insurance often offers the flexibility to convert to a permanent policy. You can also choose an option that guarantees the child the right to buy additional life insurance in the future, regardless of the state of his or her health.

Business partners’ planning: You’re in business with a partner and would like to ensure that you have the funds to buy that partner’s interest at death or retirement. Term insurance will work in the short term in the event one of the partners dies. However, term insurance can’t provide funds for a buyout at retirement.

Paying estate taxes and leaving a legacy for heirs or a favourite charity: You’d like to ensure that taxes owing on your estate are paid, leaving your assets intact for your heirs. Or perhaps you’d like to leave a legacy for your favourite charity. Term insurance provides coverage only for a specified period, often only until you reach age 75 or 80, so it’s quite possible you will outlive your insurance. Therefore, term insurance should generally not be used for protecting your estate or leaving a legacy for your heirs or a favourite charity.

Supplementing retirement income: You’d like a tax-effective way of supplementing retirement income for you and your spouse while providing insurance protection to transfer your estate intact to your heirs. Most term insurance does not contain cash values, and therefore, it cannot meet this need.

Permanent life insurance

Permanent coverage can work very well when you expect to have an ongoing or lifetime need for insurance. Permanent coverage offers considerable flexibility and options during your lifetime. Some permanent policies have cash values that may accumulate over time. These cash values may be used to help finance a business opportunity, a sabbatical, or retirement. Some permanent policies offer more flexibility than others.

Providing for an estate: The proceeds from a permanent life insurance policy can provide your heirs or estate with the liquidity needed to pay final taxes, capital gains and settlement costs, preserving as much as possible of your estate (cottage, family business, investments, etc.) for your heirs.

Coverage that grows with your child: A permanent life insurance policy provides an asset and flexibility that grows along with your child. The relatively low guaranteed premium that starts your child’s insurance program can be maintained throughout adulthood. You can help protect your child’s ability to enhance his or her insurance program by including an option in the policy that guarantees your child the right to buy additional life insurance in the future, regardless of your child’s state of health. Later, when your child takes control of his or her own financial planning, ownership of the policy can be transferred to the child on a tax-deferred basis, creating potential tax advantages as well.

Creating a tax-advantaged asset: Purchasing a permanent life insurance policy using excess income or cash is an ideal way to create a tax-advantaged asset while you are alive. It also enables you to leave a meaningful gift, outside your estate, to your heirs or a favourite charity. By naming the charity as both owner and beneficiary of the policy, the annual premium is eligible for a tax receipt as a charitable donation each year.

Small-business succession planning: Permanent insurance not only provides benefits at the time of your death, but it can also provide a source of income during your lifetime. The death benefit can be used to provide funds to buy out the partner’s interest at the time of death. The cash value that may accumulate over time can be used to buy out a partner’s interest upon retirement. The cash value that may be available depends on how the policy is funded and on tax laws in effect at the time funds are withdrawn from the policy.

Supplementing retirement income: A permanent life insurance policy may be used in two ways to supplement your retirement income. The cash values can be accessed for retirement income through a policy loan or partial surrender, or you may be able to use the policy as collateral for a consumer loan.

I can help you determine your needs and decide which product is best for you, I look forward to this opportunity.

Formula for the Best in Mortgage Protection

Your home purchase is probably the most significant investment you’ll ever make. When you arrange your mortgage with a financial institution, they must ask you if you want to insure your mortgage through them. But mortgage insurance from your bank or mortgage lender may not be your best alternative.

Life insurance gives you more options and greater control over your mortgage protection.

Compare these advantages to what happens when your mortgage lender insures your mortgage:

Mortgage insurance	Life insurance
Your insurance covers only your mortgage balance.	You can choose from different types of insurance (i.e. term or permanent) with a death benefit to cover more than just your mortgage.
Even though your mortgage debt reduces over time, your premiums remain level and the cost increases as you age.	Your coverage amount does not decrease over time unless you choose.
When you die, only the outstanding balance on your mortgage is paid off.	When you die, the death benefit is paid to your beneficiary who can use it as they see fit, not just to pay off your mortgage.
The mortgage lender is automatically the beneficiary.	You name the beneficiary.
If you transfer your mortgage to another company, you may lose your existing mortgage insurance and may not qualify for new mortgage insurance.	If you transfer your mortgage to another company you keep your existing insurance.
You lose all your coverage when your mortgage is repaid, assumed or in default.	As long as premiums are paid your coverage remains in place, even if your mortgage is repaid, assumed or in default.
You have no flexibility to change your coverage as your needs change.	If you decided you need coverage until your mortgage is repaid and later realize you require coverage for other needs, you can convert your insurance to a permanent plan or extend the term.

Buying or selling a new home?

When you’re considering a new home it’s also a good time to look at both your insurance coverage and your investment strategy.

Your home is probably the most significant investment you’ll ever make. We can help you protect that investment with enough life insurance to cover your debts and provide for you family.

You may also want to think about insurance coverage in case you become disabled or experience a serious illness. Disability insurance provides a stream of income that allows you to continue to meet your mortgage payments while Critical Illness insurance can provide a lump sum payment to keep your finances healthy (if you need to recover from a life-altering illness.)

Should you pay off your mortgage or contribute to your retirement savings plan? Answers to these and many other questions are available to you when you review your affairs with an advisor. The advisor will provide you with suggestions and options that may help you balance your current obligations while still preparing for the future.

Financial Freedom?

In speaking with a person yesterday I realized just how different our ideas of the term “Financial Freedom” can be. This individual is truly happy with having their needs met at a very basic level, they want food on their table and a roof over their head. The ironic thing is that the people who think this way and have these goals typically will end up with more in the end given they had the same means to begin with. I think it is obvious why this happens, but the question it forces the rest of us to ask is it more important to have stuff now or later.

I am in the later group myself and often wonder if I am preparing enough for tomorrow or focusing too much on today. Realizing only 17% of those employed outside government entities can expect to receive traditional pension in retirement puts the onus on us alone to determine our financial future. Nearly 80% of employees participate in their work-based retirement plan which is a great start. The ability to save with an automatic match provides you a fool proof method for immediate growth.

Depending on your debt balance the rest of the formula can be tricky, I typically work with a specific model to see if people are on track.

• If you are married will your debt be covered off by some form of insurance? This will prevent your partner from being wiped out in the event something happens. Ideally having enough insurance to do more than just cover debt should be considered.
  
• If your debt is managed and you have insurance in place and there are kids involved are you saving for school via RESP? No brainer as well due to our gov’t supplementing this savings through the education grant of 20% is impossible to guarantee in any other form of investing.
  
• Having your debt managed and your children’s future protected via both insurance and an RESP how much should you save for the future. This is the part of the equation where the now versus then argument comes into play and it is less about making sure current situations are secure and more about what are your expectations for the future.
  

I fall into the middle of the scale of the now vs. then scale where I do not want for anything realistic today and I am saving some for the future. Will I be able to live comfortably into retirement? Well again, this brings up another question, when are you planning to retire? In my situation I plan on working well into my “slow down” years so I know I will be maintaining an income well into my 60′s.

I guess you can see where this leaves us…no formula for success. There is no x+y=z here and there never will be for you. Why not? Because every person has different needs and all the factors that make up their situation vary slightly so in turn change what that formula would look like for them. So stop worrying about what the future will look like because the first and most important step is making sure your current situation is protected and is the priority. This brings me back to the example of the person I referred to earlier, they were saving a lot but had no protection in place so risked losing everything if any number of scenarios were to happen i.e. death of spouse, critical illness etc. So this answers the now or later question, sort of, because without taking care of today we have no tomorrow, or at least not the one we imagined.

Where is your priority?

Is Your Estate (Or Your Parent’s) Waiting To Explode?

When you die, you can transfer your assets tax-free to your spouse. But when your spouse dies and the assets are passed on to other heirs, 50% of the increase in the value of some assets will be subject to tax. So, assets like your cottage, stocks, company shares, and other investments left to your heirs may be subject to capital gains tax – a tax must be paid before your heirs get anything!

Most people don’t know about this devastating time bomb. But a simple plan can help you protect more of what you’ve worked for. What are your options?

Creating an effective estate plan means ensuring your beneficiaries are looked after. There are a number of ways to help pay for this tax, but which one is best for you?

Some choices:

• You or your family can start saving today.
  
• Your heirs can borrow the necessary funds from the bank.
  
• Your estate can sell the assets.
  
• You can purchase life insurance to cover the growing liability.
  

The best solution…

Life insurance can be the most effective estate-planning tool to fund the tax liability. You can design a plan to provide you with tax-free cash exactly when it is needed to pay the future tax obligation. It guarantees that your heirs don’t lose their inherited assets because of a large tax bill. What you get is peace of mind and your heirs get the property you intended them to receive.

If you are the child with a parent in the above scenario this may be something you want to discuss with them. Not a fun topic, but a conversation one should have in the event something does happen and you are the one left with a sizable tax bill.

Personal Attention

Some of the common responses I get when I ask people about why they have their RRSP invested though one of the larger banks…although good points there are some things to consider as well.

Security – does your bank offer a stock market guarantee that guarantees the maximum value of your RRSP up to 10 yrs prior to your maturity date? Our providers can get you that! Companies that deal primarily with investments know that to compete with the perceived convenience of the larger banks they need to offer a wider variety of versatile and more secure investment opportunities. Primarily working within the insurance act also affords more security than working within the bank act.

Convenient – If going into your branch to deal with your banking representative means convenient I can understand that, it is convenient…if you are going to the bank. What if you want to go over your portfolio and you are busy, the convenience of an independent advisor is nice. Someone such as myself can come to your office, home, lunch, anywhere, anytime to meet and go over your information with you.

I will also not leave my job at the bank forcing you to become reacquainted with another representative.

I have my mortgage with them or “They are a bank, who better to handle my money?” – As an independent advisor I have the ability to find the best company for you to invest with, based on what your goals are. I provide options; I don’t try and sell you one line of products with no competitive options offered whatsoever. I will work with you through the investment process to find the ideal situation with your specific goals in mind. My ultimate goal is to make you happy and have you as a long-term client. Wouldn’t it be nice to know the person you are dealing with today will still be here working with you 20 yrs from now.

Try to think of this in simpler terms, do you buy your groceries at Walmart? Why not? Do you buy all your furniture at the Superstore? Yes these companies offer these services, yes they are convenient, but are they this company’s primary business? No, to get the hands on service and the comfort you need when making major decision regarding your future why go to someone who does not provide you a market of options, may not be there in 6 months, gets paid regardless of the results they provide.

I am not saying all banks are bad, what I am trying to illustrate is that if given the option to deal with one person who has only one goal in mind and that is securing your investment and your long-term happiness with your investments, why not choose that option.

Be a tire kicker! Give me a call and I will let you know what I can do for you, nothing more. Your decision…give yourself some options.

How Important Is Having An Advisor?

Insurance advisors may have a less-than-golden reputation as a group, but when you think about it, this stereotype is mostly based on sales practices. Nowadays, with Internet resources at your disposal, you can educate yourself to avoid shady sales practices and select an advisor that offers real value. It comes down to personal preference.

Term life insurance is cheap and simple enough that most people can make an educated purchase, start to finish, on the Web or by phone from a direct insurance provider. Ideally you would want to work with an advisor who has a “complete picture” perspective of your needs and can assist you in this process. Also long-term care insurance is about as new, complicated, and expensive as it gets. Even after extensive Web research, many people will still benefit from the services of an independent financial advisor, particularly one with experience in long-term care issues.

In addition to the traditional insurance agent, there are a few other options. An independent insurance advisor represents a number of insurance companies and can more objectively weigh pluses and minuses across many companies and types of insurance.

Although we tend to be stubborn about doing it ourselves, a good financial advisor can build insurance into your overall financial plan. The key here, again, is independence. Work with a fee-only financial advisor. Many insurance salespeople masquerading as financial advisors will be all too happy to help you out, up to the point where you decide you’re not interested in the product they’re pushing.

An advisor can also help you with an annual insurance review. As your life situation changes, so do your insurance needs. Probably the simplest example is life insurance. The bottom line is that most people need less life insurance every year, as they build savings and approach retirement. On the other side of the coin, most people don’t need any life insurance until the baby arrives. You might want to drop collision and comprehensive insurance when your car reaches “licensed battering ram” status. And so on.

So, even if you’d prefer not to sit down with an advisor, an annual insurance self-review is a good idea. Drop me an email for some helpful tips on how to carry this out or if you want a second opinion.