The Three Question Fact Find (Part Three)


Part 3 of 3 (For Families)

The third and final question for the family market turns the focus off yourself and on to the people that will be left behind when you die.  If you haven’t been tracking through the first two posts in this series take a minute now to review where we’ve come from.

Question One – Do you have any Debt?  Blog and video.

Question Two – Do you have a plan to sustainably protect and grow your assets?  Blog and video.

 

Question Three – Where do you want your money to go after you die?

 

This one seems obvious.  The answers I receive most often focus around some version of “my family”, occasionally people will name a favourite charity.  That’s all well and good and I never take issue with any answer people might give, it’s your money after all and whatever legacy you choose to leave is up to you.  The answer I have never received however is; “I want to leave a large percentage of my life savings to the government.”  The sad fact is that without proper planning that’s exactly what’s going to happen.

When it comes to your final estate your money will essentially be in one of four buckets.  Registered Investments (RRSP/ RRIF), Non-Registered Investments, Real Estate and Cash.  If you are married or in a common law relationship all your assets can transfer to the surviving spouse relatively smoothly and tax free.  If however, you are unmarried, your spouse has predeceased you or you wish to transfer a portion of your assets to anyone other than your spouse on your passing, the government has stipulated some rules in terms of who can get what and whether or not there will be any taxes to pay first.

Quick disclaimer:  I am neither an accountant, nor a lawyer so be sure to consult an expert in those fields first before you make any final decisions.

For the sake of argument let’s assume you have limited cash and your real estate is your primary residence.  Let’s also assume that your non-registered investments are in the form of common stocks and your registered investments are in the form of mutual funds.

So, what happens when you die?

First, the executor of your estate will want to sell your house.  No problem, the proceeds of that sale transfer to your heirs tax-free.  It’s been said that your home is the only tax shelter you can live in.  If there is any additional property, like a cottage or a rental home then those would generate a capital gains inclusion but that is beyond the scope of this article.

Next, the executor will want to liquidate the rest of your assets and transfer the resulting cash to your heirs.  This is where it can get sticky and the government can really mess with what ultimately ends up in the hands of your heirs.

Your stocks will be sold at whatever the market rate is on that day.  This will result in either a capital loss or a capital gain.  Either way 50% will be considered income (or loss) on your final tax return.  Depending on how long you’ve held the stock this could result in a significant increase to your annual income in your final year of life.  Consider what a few shares of Amazon were worth even just 5 years ago vs today?  The mutual funds in the RRSP/RRIF will also be sold but because you received a tax credit when you originally bought those investments 100% of the value of those assets will be added to your income regardless of whether they have gone up or down.

Now consider this, as of this writing income over approximately $215,000 in any given year is taxed in Ontario at 46.16%.  It doesn’t take long for an individual with a $75,000 annual income and $150,000 in assets when they die to end up paying in excess of $100,000 or more in income tax on their final estate.

Have you picked your jaw up off the floor yet?

Now, there is a way we can fix that, or at least make somebody else pay the government so your heirs receive more of your estate.  By using life insurance to create a fifth bucket of money you can transfer a portion of your assets to a participating, (tax advantaged) life insurance policy while you are living.  Thereby reducing the taxable value of your estate and generating a payout to your heirs that is completely tax-free.  In most cases we can offset a large portion, if not all, of the income tax that will come due on your final estate and preserve your wealth for the next generation.

This tactic works best when your assets are evenly distributed between registered and non-registered money so that the act of transferring funds to life insurance does not attract income tax while you are living.  If that is not possible and you have to pull money from an RRSP to fund the life insurance policy, it’s still better to pay the tax gradually, while you are living, than to generate a massive tax bill on your final estate.  This tactic also works well in the situation of a blended family when you are trying to make sure assets accumulated prior to the second marriage remain with the children of the first marriage.

Of course, this is just one possible scenario, there are many others.  The bottom line is, where do you want your money to go after you die?

For more information or help with your financial plan contact:  lauren.sheil@f55f.com or simply leave a comment below.

Houston – You Have A Problem!


houstonLet me say it again – You have a problem!

Everyone who has ever lived, currently living and will ever live has the same problem.

There is no solution to this problem.

But there is a way to make it seem a little less scary and a little less painful for the people around you, the people you love and the people who depend on you to solve the problem.

What is this unsolvable, 100% unavoidable problem?

 

 

You’re going to die!

Probably not today and probably not tomorrow, hopefully maybe not for a very long time, but the probability that you will die is 100%. There is no cure coming for the end of your life. There are no research labs, no doctors and no scientists working on a cure for death. Sure they are trying to figure out ways to combat certain diseases and we are all living longer but that just creates another problem, the problem of outliving your money.

But one problem at a time.

Everybody dies. That’s a fact.

I cannot solve this problem. No one can. But we can make it a little less painful for you and the people you love.

How?

Insurance!

Life Insurance to be exact. But let’s be clear, you actually don’t need life insurance. You don’t need it because it’s not about you. Simply put Life Insurance is money for your loved ones when they need it the most.

Money when they are hurting, your income suddenly stops, your debts come due and you are no longer there to do all the things you do to keep your family safe and secure.

coupleattableLet’s be honest, money can’t replace everything you bring to this world. It can’t hold your partner’s hand and tell them everything is going to be all right. It can’t drive your kids to hockey practice, give them dating and career advice or make a toast at their wedding. But it can make sure your family gets as close to a normal life as possible if the unthinkable happens.

Money can ensure a measure of stability, help your kids get an education, find happiness and have families of their own.  And that’s the ultimate goal right?

So I’ll say it one last time – You have a problem!

There is no real solution to your problem. But you can at least make it a little less painful for the people you love.

My name is Lauren C. Sheil. I’m a Financial Security Advisor. And my mission is to help you solve your money problems. I want to help you live life to the fullest, even though all good things must come to an end, and to teach you live debt free, build wealth and leave a legacy.

Call or text me today for a FREE, no obligation consultation: 613-295-4141

Let’s solve some problems.

Will You or Won’t You?


Whenever I sit down with a new client and start to build out the file there is a question that get’s asked that always draws a few quizzical looks.

I always start with a new client by explaining my mission:

I am here to help you reconcile your relationship with God (your values) and Money (the value store) through Education and Empowerment. To teach you to live Debt Free, Build Wealth and Leave a Legacy.

I then say that in order for me to do that you first have to educate me about where things stand for you right now and what brought you to my conference room or the kitchen table in the first place. We then play a game of 20 questions (it’s actually a lot more than that depending on the answers) and question number 5 (or somewhere in the first few questions at least) is; Do you have a Will?

will

I’ve been doing this for a long time and I am continually shocked by the number of people, especially young people with debt out their ears and young families who say no. But the statistics don’t lie and they don’t discriminate across ages either. Money Magazine, a publication of Time Magazine, recently published the results of a survey which showed that over half of Americans between ages 55 and 64; the last ten years before traditional retirement age STILL haven’t made a will!

Although those are American numbers, statistics in Canada aren’t much different. With recent changes to the Ontario Probate system (and the continuing aging of our population) it has never been more critical for people to have a legal and enforceable will.

Most people don’t want to think about getting a will. I get it, it’s the same reason most people don’t want to think about buying Life Insurance; nobody wants to talk about death. But I am here to pour a little bit of cold water on your life and tell you flat out, you have too. Dyeing without a legal will, that everyone involved knows about and understands, is just rude! You’re not doing anyone any favors and the last memories people will have of you won’t be about love and honor or respect, they will be about how much work it was and how much it cost to clean up the mess you left behind.

graveside

For instance, In Ontario if you die intestate (i.e. without a will) the government will appoint a trustee to administer your estate. That trustee will usually be a law firm that specialized in this type of thing and charges the estate a hefty fee, all assets will be collected into an estate account, a large portion will be lost to tax, another large portion will be lost to legal fees and what is left, if anything will then be divided among your heirs as the judges and lawyers see fit. If your estate is quite small, or very large, this may not be a big deal but what about the care of your minor children? Or giving to your favorite charity?  Do you really want to leave those decisions to a lawyer you have never met?

I’m not a lawyer. I am not qualified to give any advice on how to go about setting up a will or even on what to put in it. But it is my mission to educate and empower you to do the right thing when it comes to your estate.

So here it is, my best advice for anyone with any kind of debt, assets or family to protect.  (And that is everyone if you’re paying attention.)

Ready?  Here goes –

Everybody dies – get used to and get a will!

It’s the only way you can ensure that the legacy you are building will even happen, let alone last beyond your time on this earth.

 

It’s a Wonderful Invention


How Joint Accounts Help Maximize Deposit Insurance

I don’t have your money. It’s in Tom’s house… and Fred’s house. [George Bailey, It’s a Wonderful Life]

i don't have your money

In order to stimulate the economy and drive new home sales and other large purchases banks have always been encouraged to lend money. When you really get down to it lending money at interest is the only way to expand the economy, otherwise the amount of money in the world is finite and simply exchanging goods and services for dollars would never amount to any kind of growth. See my archived post “How to Make Money from Thin Air”.

But what happens when everyone tries to take their money out of the bank all at once? That’s the catalytic event that forms the plot of the 1946 classic film, “It’s a Wonderful Life”.

In the 1940s there was no way to insure your deposits at a bank or credit union. In fact it wasn’t until the 1960s that the government of Canada created the Canadian Deposit Insurance Corporation (CDIC) to protect the bank deposits of its citizens. Up until then the kinds of events that drove George Bailey to consider suicide were all too common. If there were ever a run on the bank people could be ruined, in order to fund a bank run houses could be foreclosed on and personal savings wiped out in a matter of minutes for no other reason than the bank needed the cash.

Today the CDIC and other similar vehicles throughout out the world use premiums paid through bank fees and taxes to ensure that up to $100,000 of deposited money is protected from catastrophic loss and bank failure. In short, your deposits are guaranteed. But what if you have a joint bank account, as about 64 percent of married couples do?

It is not commonly known but the insurance on a bank account is individually held. What that means is that if you have a joint bank account with your spouse your deposits are doubly insured, up to $200,000. And here’s the kicker, according to information published by the CDIC in the fall 2014 issue of Forum (The Official Magazine of the Financial Planning and Life Insurance Industry), if one spouse dies and the bank records are not updated they will still insure both spouses deposits. To quote the CDIC’s own documentation;

The joint deposits would still be insured separately from any accounts registered only in the surviving spouse’s name. If the bank’s records were not updated before its failure, any payment by CDIC would still be made to the set of joint owners.

So the point here is this. Not only does it make good sense from a personal budgeting and convenience point of view for a married couple to maintain a joint bank account. It also creates a greater amount of security for your savings and when one spouse dies you should still keep their name on your accounts so that you can maximize the insurance coverage for your money.  Yes you may incur some legal fees in order to get at that extra money, it will be payable to the deceased spouse’s estate, but that’s a small price to pay for a doubling of your insurance.

George Bailey would have been a lot happier if this kind of insurance had existed in the 1940s and the movie “It’s a Wonderful Life” would have been a lot shorter. Seriously how long is that thing? It must be close to 4 hours!  I guess the downside would have been that Clarence would have had to look elsewhere to get his wings, but he was a smart guy, I’m sure he would have figured it out eventually.