Optimizing Wealth Through Asset Re-Allocation

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If you are an active investor, your investment holdings probably include many different asset classes. For many investors, diversification is a very important part of the wealth accumulation process to help manage risk and reduce volatility. Your investment portfolio might include stocks, bonds, equity funds, real estate and commodities. All these investment assets share a common characteristic – their yield is exposed to tax. From a taxation standpoint, investment assets fall into the following categories:

Tax-Adverse

The income from these investments are taxed at the top rates. They include bonds, certificates of deposits, savings accounts, rents etc. Depending on the province, these investments may be taxed at rates of approximately 50% or more. (For example, Alberta 48.0%, BC 53.5%, Manitoba 50.4%, Ontario 53.53%, Nova Scotia 54.0%).

Tax-Advantaged

These investments are taxed at rates lower than those that are tax-adverse. These investments include those that generate a capital gain (stocks, equity funds, investment real estate, etc.), or pay dividends. The effective tax rate on capital gains varies depending on province from approximately 24% to 27%. For non-eligible dividends, the range is between approximately 37% to 49%.

Tax-Deferred

Tax-deferred investments include those investments which are held in Registered Retirement Savings Plans or Registered Pension Plans (such as an Individual Pension Plan). One advantage of these investments is that the contribution is tax deductible in the year it was made. The disadvantage is that the income taken from these plans is tax-adverse as it is taxed as ordinary income and could attract top rates of income tax.

The growth in cash value life insurance policies such as Participating Whole Life and Universal Life is also tax-deferred in that until the funds are withdrawn in excess of their adjusted cost base while the insured is still alive, there is no reportable taxable income.

Tax-Free

Very few investments are tax-free in Canada. Those that are tax-free include the gain in value of your principal residence, Tax-free Savings Accounts (TFSA’s) and the death benefit of a life insurance policy (including all growth in the cash value account).

While Canada is not the highest taxed country in the world (that distinction belongs to Belgium) it is certainly not the lowest. (According to the Organization for Economic Co-operation and Development, Canada sits as the 23rd highest taxed country in the world). It is also true that in addition to the taxes Canadians pay while they are living, the final insult comes at death.

Generally speaking, you have three beneficiaries when you die. You have your family, your favourite charities, and the Canada Revenue Agency. They all take a slice of your estate pie. Most people would rather leave more to their family and charities than pay the CRA more than they need to.

As our estates grow, they include funds that we intend to leave to our children and possibly to charity. They also include funds we are likely never going to spend while we are alive.

The secret to optimizing the value of your wealth for the benefit of your estate is to reallocate those assets that you are never going to spend during your lifetime from investments that are tax-exposed to those that are tax-free.

One of the best ways to do this is through life insurance. As mentioned earlier, assets which are tax-free include the death benefit of a life insurance policy. Systematically transferring funds from the tax-exposed investments to, for example, a Participating Whole Life Policy, not only eliminates the reportable tax on the funds transferred, it greatly increases the overall size of the estate to be left tax-free to your beneficiaries – your family and your charities.

Case Study

Let’s consider Ron and Sharon, aged 58 and 56 respectively. They have been told that they have a liquidity need of approximately $1,000,000 which would become payable at the second death. They are also unhappy about the taxes they are paying annually on their investments. They elect to reallocate some of their assets to a Participating Whole Life policy for $1,000,000 last-to-die policy with premiums of $35,000 per year for 20 years.

Over this period, they will transfer a total of approximately $700,000 of investments exposed to income tax to a tax-free environment. If we assume that their life expectancy is 34 years, the Whole Life policy will have grown to a death benefit of approximately $2,630,000*. This represents a pre-tax equivalent yield over this period of approximately 11%. Not only is there more than enough to pay the tax bill but there are funds left over for the family and any charitable donation they wish the estate to make.

In addition, with the transfer from a taxable to tax-free investment, income taxes that would have been paid during their lifetime has also been reduced. Along the way, the Participating Whole Life policy has a growing cash value account which could be borrowed against should the need arise. At the 20th year for example, the cash value of the policy (at current dividend scale), would be approximately $1,071,000.

This case illustrates only one example of how it is possible to optimize the value of an estate through asset re-allocation. By using funds you are never going to spend during your lifetime, you can create a much larger legacy to benefit others while reducing the total cost of your tax bill.

If you would like to investigate this concept to determine the value it can provide you and your family, please be sure to contact me. As always, please feel free to share this information with anyone you think would find it of interest.

* Values shown are using Manulife’s Par 100 Participating Whole Life policy assuming the current dividend scale with premiums paid for 20 years.

Donating to Charity Using Life Insurance

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If you are interested in creating a legacy at your death by making a charitable donation, you may wish to investigate using life insurance for that purpose. There are different ways you can structure life insurance for use in philanthropy. The most common are:

Gifting an Existing Life Insurance Policy

If you currently own a life insurance policy, you can donate that policy to a charity. The charity will become owner and beneficiary of the policy and will issue a charitable receipt for the value of the policy at the time the transfer is made, which is usually the cash surrender value of the existing policy.

There are circumstances, however, where the fair market value may be in excess of cash surrender value. If for example, the donor is uninsurable at the time of the transfer, or if the replacement cost of the policy would be in excess of the current premium, the value of the donation may be higher. Under these conditions, it is advisable for the donor to have a professional valuation of the policy, done by an actuary, prior to the donation.

Any subsequent premium payments made to the policy by the donor after the transfer to the charity will receive a charitable receipt.

Gifting a New Life Insurance Policy

In this situation, a donor would apply for a life insurance policy on his or her life with the charity as owner and beneficiary of the policy at the time of issue. All premiums made by the donor on behalf of the charity would be considered as charitable donations.

Gift of the Life Insurance Death Benefit

With this strategy, an individual would retain ownership of the policy but would name the charity as the beneficiary. Upon the death of the insured, the proceeds would be paid to the charity and the estate of the owner of the policy would receive a charitable receipt for the death benefit proceeds. The naming of the charity can be made at any time prior to death. There is no required minimum period that must be satisfied prior to naming the charity as beneficiary.

As long as the life claim is settled within 3 years of death, the executor of the estate has the option to claim the life insurance donation on:

  • The final or terminal return of the insured;

  • The prior income tax year’s return preceding death of the insured;

  • Both the current and prior year tax returns with any excess amount able to carry forward for the next five subsequent years;

  • Any combination of the above.

With this strategy, there are no charitable receipts issued while the insured is alive, only after death when the insurance proceeds are paid to the named charity.

Replacing Donated Assets to the Estate

There may be circumstances where a sizeable donation is made to a charity that would greatly reduce the value of the estate that would be left to family or other heirs. For donors who are concerned that their heirs would receive less than originally intended as a result of this donation, purchasing life insurance to replace the donated asset is a possible solution.

The previous headings represent the ways in which life insurance can enhance or complement philanthropy. As well, life insurance can be a valuable addition to a charitable giving program in that it enables the donor to bequeath a larger donation than otherwise would be possible with just hard assets alone.

If you have been or are contemplating making a significant charitable donation, be sure not to overlook how life insurance can enhance your gifting plans.

Debt Is a Four-Letter Word

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Debt today is so common, you might say it can’t be avoided. Most people are not in a position to purchase a house or car for cash, while those who can buy such things outright may prefer to finance and keep control of their capital.

The truth is, while most of us see debt as a bad thing, any money borrowed to generate income or increase net worth can be considered “good debt.”

If the amount borrowed is invested for an overall gain, the debt is a tool. Borrowing to further your education, for example, is good debt since an education generally increases the likelihood you will earn more in the future. Most often, too, the interest paid on this type of debt is tax deductible.

Examples of Good Debt:

  • Education. Student loans for university, college or trade school education can be good debt. As mentioned, interest rates are usually quite low, and repayment is commonly deferred until after graduation. In general, educated workers earn considerably more than uneducated ones, making the cost of borrowing easier to repay. A student loan is the first experience many Canadians have in borrowing and in managing (i.e., paying back) a large fiscal obligation.

  • Business ownership. Many entrepreneurs start their businesses with borrowed funds. For a person with a strong business plan, good entrepreneurial instincts and a desire to succeed, assuming such a loan can be the best investment an individual can make.

  • Real estate. Whether a primary residence or revenue property, real estate has proven to be a prudent long-term investment.

  • Investing. Borrowing to invest allows you to put more money into your investment in an effort to earn extra returns.

This is not to say good debt is without risk. If you take out a leverage loan and your investment fails, you will find yourself owing the borrowed amount plus interest, regardless. Real estate markets can fall, businesses often fail, and there are no guarantees that an education will result in higher income or stable employment.

With that in mind, it is important to think about insuring your loans to protect your family and estate from unwanted liabilities if you die, become critically ill, or disabled.

Bad Debt

Unlike good debt – borrowing to acquire assets that are likely to increase in value – bad debt is incurred when we purchase assets that will decrease in value. Some examples:

  • Automobiles. As soon as you drive that shiny new car off the lot, it loses value and continues to do so for as long as you own it. Unless you use your vehicle for business purposes, paying interest on a car loan makes little sense.

  • Credit cards. If you use credit cards to buy clothing, consumables and other goods or services, you are building a balance of bad debt. Credit card interest rates are extremely high, and rewards cards often charge additional annual fees, making any balance you carry a prohibitively expensive liability.

  • Vacations. Travel now and pay later is simply a bad idea. Once the joy of the vacation wears off, the borrower is left with a high-cost travel loan.

In between good debt and bad debt lies the consolidation loan. Although it is used to merge all “bad” debts, it makes the burden easier to bear by lowering interest costs and monthly payments.

Get Rid of Debt!

Two plans often recommended for getting out of bad and consolidated debt are the debt snowball method and the debt stacking method.

Debt Snowball Method

  1. List all of your debts in ascending order from the smallest (by amount owed) to the largest.

  2. Pay the minimum payment on every debt every month.

  3. Determine how much extra you can pay each month; begin paying off your smallest debt with this amount plus your minimum payment.

  4. Continue to pay this amount until your smallest debt is repaid.

  5. Once the smallest debt is paid, add your minimum payment from debt #1 (now retired) plus the extra you were paying on it to the minimum payment due on debt #2, your second smallest amount owing. Each time one debt is paid off, your payment amount “snowballs,” grows larger, as it is added to the next.

  6. Continue doing this until each debt is retired.

Debt Stacking Method

  1. List all of your debts according to their interest rates.

  2. Continue to make all minimum payments on each balance.

  3. Work out how much additional money, over the minimum payment, you can afford to pay each month, and add this to your minimum payment being made on the loan with the highest interest costs.

  4. Once the highest-interest balance is repaid, start paying the debt with the next highest interest rate.

  5. Continue until all bad debt is retired.

Whichever strategy you use, make sure non-deductible-interest debt is paid off before you tackle the “good” debt.

Anyone concerned about debt load is well advised to seek the advice of a qualified financial planner who will help develop an action plan and recommend risk-management steps. As a qualified planner, I would be most happy to assist you in your debt-management efforts. Please feel free to call me at any time.

Basic Planning for Young Families

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As a young family, you will be facing a lot of new challenges that you may or may not be prepared for along the way. Whether it’s children, a mortgage, or unexpected expenses that come up, now is the perfect time to start thinking about all the potential pitfalls that may arise.

In this article we want to share some of the ways that insurance can help you stay ahead of these issues, as well as how to prepare yourself for some of life’s obstacles that you and your family may face.

What Issues Should You Worry About the Most?

Now that you’re starting a family, your life is just one piece of the puzzle. Your spouse and any children are also top priorities, meaning that you should consider what could happen to everyone in a variety of scenarios. Here are some crucial questions you and your partner should discuss;

What happens if one of us dies? – While this question may seem a bit morbid, it’s a necessary possibility to plan for, particularly if you are a one-income household. Even with two breadwinners, chances are that your bills and financial responsibilities are too much for one person, meaning that you need to supplement any lost income as a result of one of you passing away.

What happens if one of us becomes disabled? – Disability can cripple a family unit almost as much as death. Not only do you have to worry about losing income because you or your spouse can’t work, but you will likely have mounting medical bills that will exacerbate the situation.

Even if one of you can still work, is the disabled spouse able to care for the children? Will his or her disability impact their ability to do simple tasks, like buying groceries, picking the children up from school or even changing diapers? If the worst should happen, you need to be ready.

How are we saving for future expenses, like college or retirement? – If you’re like most Canadians, you probably worry about having enough money saved for your children’s post-secondary education and your retirement.

As a young family, you may believe that retirement is an event that’s too far off to consider right now, but the fact remains that when you begin saving for retirement will have a significant impact on how comfortable your retirement will be. Sooner rather than later is advisable for both retirement and university savings. Remember, kids grow up fast and you will want to be ready to help them avoid crippling student debt.

How Insurance Can Help

Worrying about the future can be stressful, which is why it’s imperative that you and your spouse put a plan into place. Thankfully, insurance policies can help create peace of mind for both of you, so let’s look at some of the options available;

Life Insurance

Regardless of your current financial situation, if you or your spouse dies suddenly, it can derail your plans, and it could put your family at risk of accruing debt. When discussing life insurance plans, here are a couple of things to consider;

The Differences Between Term Insurance and Whole Life?

Term Insurance

  • With term life insurance you pay premiums for a specified duration (i.e., 20 years).

  • Your monthly payments are relatively inexpensive.

  • The policy either terminates or renews at a substantial cost at the end of the term period.

  • This kind of policy is excellent if you want peace of mind while the kids are still young

  • Or if you want to avoid high initial premium prices.

Whole Life Insurance

  • Whole life insurance is a permanent plan that can provide protection for as long as you live.

  • Some Whole Life policies become paid up (e.g. 20 pay Life) and stay in force until death or the policy is surrendered.

  • With this type of coverage, you could have a policy on which you have not paid any premiums for decades and when you die your family will receive the death benefit.

  • Another advantage of whole life insurance is that you can contribute money that can also help with retirement. Should you require funds while you are alive, you can borrow against the cash value of your policy or cash surrender the policy in the unlikely event you don’t need it.

Disability Insurance

As we mentioned, a disability can hurt your family as much as a death can. Depending on your employer, you may be eligible for disability insurance through a group plan. One thing that you don’t want to solely rely on, however, is government benefits such as the Canada Pension Plan. Unless you’ve been paying into CPP for many years, your disability benefits most likely would not be enough to cover expenses and lost wages.

Instead, it’s probably best to get an individual disability insurance policy so that you know you’re covered and won’t face any financial shortfalls.

Investing in Your Family’s Future

University education and retirement are two massive expenses for which you should be prepared. Also, if you don’t have a house yet, you should plan on paying a mortgage for up to 30 or 40 years as well. Here are some tips to help you save money for these life events;

Start Early

You may think that saving for these things means that you have to put most of your paycheck away each month. However, even if you save $25 a week, that’s better than nothing. Over time, the money will grow and earn interest, meaning that you can wind up with a significant amount when the time comes.

Open a Registered Educational Savings Plan

When it comes to planning for post-secondary education, an RESP is an excellent way to put aside money for your children. The government will also pay a bonus of up to $500 per year (to a maximum of $7,200) on eligible contributions. There is no annual maximum contribution limit, but the lifetime maximum is $50,000.

Contribute to an RSP (if no company pension plan)

Registered Savings Plans allow you to invest for your retirement and deduct your deposit from your income for income tax purposes. Usually, the maximum allowable contribution is the lesser of 18% of your previous year’s earned income or the maximum contribution amount that changes each year. The maximum contribution for 2023 is $30,780.

Open a Tax-Free Savings Account

Perhaps even before starting an RSP, consider opening a Tax-Free Savings Account.

  • An individual aged 18 and older may contribute up to $6,500 to a TFSA. This can be done every year with the maximum limit adjusted for inflation and rounded out to the nearest $500.

  • Funds contributed to a TFSA are not tax-deductible, but the growth and any withdrawals are tax-free.

  • If you have not contributed to a TFSA, you have been accumulating deposit room for the years you did not contribute. As of 2023, that deposit room has increased to $88,000.

There is an old saying, that people don’t plan to fail, they fail to plan. The sooner you start that planning the more effective it will be.

As always, please feel free to share this information with anyone you think would find it of interest.

What the Wealthy Know about Life Insurance

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If you have ever thought that life insurance was something you wouldn’t need after you reached a certain level of financial security, you might be interested in knowing why many wealthy individuals still carry large amounts of insurance. Consider the following:

  • A life insurance advisor in California recently placed a $201 million dollar life insurance policy on the life of a tech industry billionaire;

  • Well-known music executive David Geffen was life insured for $100 million;

  • Malcolm Forbes, owner of Forbes Magazine, was insured at the time of his death in 1990 for $70 million.

While life insurance is most often looked upon as a vehicle to protect one’s family or business, the question that springs to mind is why individuals with wealth need life insurance?

The most common factor connecting people of wealth is that they have a substantial amount of deferred income tax that must be paid upon death. In addition, they often have a strong desire to make a substantial donation to a favourite charity or educational institution.

“Life insurance is an efficient way to transfer money to your heirs.” – Malcolm Forbes

In Canada, individuals are deemed to have disposed of all their assets at fair market value when they die, which often results in taxable capital gains and other deferred taxes coming due. Paying premiums for insurance that will cover these taxes is almost always less expensive and more efficient than converting assets.

When allocating your investment dollars, it is helpful to understand what investments have the highest exposure to income tax.

Fully Tax Exposed

Investments which are taxed at the highest rate of income tax:

  • Interest-bearing instruments such as bonds, savings accounts and guaranteed investment certificates;

  • Rents;

  • Withdrawals or income from registered plans such as RSP’s or RPP’s.

Tax-Advantaged

Investments which are taxed at lower rates of income tax:

  • Investments which are taxed as a capital gain;

  • Dividends;

  • Flow through share programs;

  • Prescribed annuity income.

Tax-Deferred

Investments on which income tax is deferred until the asset is disposed of or the investor dies:

  • Registered Savings Plans;

  • Individual and Registered Pension Plans;

  • Investments producing deferred capital gains.

Registered plans, in addition to having the growth tax-deferred, also have the added advantage of the contributions being tax-deductible.

Tax-Free

Certain investment assets are totally free of income tax:

  • Principal residence;

  • Tax-Free Savings Accounts;

  • Death benefit of life insurance policies.

Life Insurance as an Investment

While the death benefit of life insurance policies is tax-free, it is important to recognize that this also includes the investment gains made on the cash value portion of the policy. With this in mind, many investors have discovered that by allocating a portion of long term investments to a Universal Life or Participating Whole Life policy, the results can be significant when compared to tax exposed or tax-advantaged investments.

Life Insurance for Estate Planning

One of the main objectives of estate planning is to maximize the amount we leave to our families or bequeath to our favourite charities. What many wealthy families have learned is that one of the easiest ways to accomplish this is to reduce the portion of the estate which is lost to the government to pay taxes at death.

While this helps explain why many individuals of wealth maintain life insurance, it also underscores the advantages of life insurance to anyone who will have taxes or other liquidity needs at death. In addition, using life insurance as part of a charitable giving strategy can provide significant benefits to both the donor and the charity.

As Malcolm Forbes alluded to, for providing capital to protect your family’s future financial security, paying taxes at death and creating a charitable legacy, nothing is more efficient or effective than life insurance.

Please feel free to share this article with anyone you think would find it of interest.

Copyright © 2020 FSB Content Marketing – All Rights Reserved

Protecting Your Family

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Let’s face it, raising a family today can be financially challenging. The cost of living continues to increase, housing costs are rising along with education and extra-curricular activities for our children. It is tough to make ends meet and still have something left over at the end of each month.

Most families today require both parents to work to afford the lifestyle they enjoy. Losing one of those incomes through premature death, illness or a disability is a real risk that many families would have a difficult time facing emotionally and financially.

How do you protect your family?

  • Life insurance is designed to protect your family by providing the resource to replace income, pay off debt, and fund future education costs in the event that one of the parents dies.

  • Disability, or income replacement insurance, is designed to replace lost income if an individual is not able to work due to accident or sickness.

  • Critical Illness insurance will pay a lump sum benefit in the event of a diagnosis of many major illnesses.

If you and your spouse work for a company that provides employee benefits, you may already be insured for both life and disability insurance and in some cases critical illness. Be aware that for the most part, employee benefit programs provide only a minimum amount of life insurance, usually based on one or two years of income. If long term disability coverage is provided it may be enough for personal needs but that is not always the case. Each situation is different, so it’s important that you and your spouse review your respective plan information to ensure that you have sufficient coverage in place. There are options to top up your coverage either through your group insurance or individually.

How much life insurance do you need?

If you or your spouse dies, the family will require a lump sum of capital to replace earned income. You should aim to have enough cash for the following needs:

  • insurance to pay off any outstanding debts and mortgages

  • enough income from the invested capital to replace the lost income

  • an amount to cover future education costs

Think life insurance premiums are too expensive?

Term insurance is an affordable solution for a growing family with a tight budget. A 35-year-old non-smoking male can purchase $1,000,000 of ten-year renewable term insurance for less than $40.00 per month. A non-smoking female of the same age would pay less than $30.00 per month for the same coverage. A relatively small cost to protect a family for a total of $2,000,000 of tax free benefit in the event of an untimely death.

Let’s have a discussion about how we can build a program of protection specifically designed for your needs and circumstances. Knowing what the needs are and what protection is in place goes a long way to providing peace of mind.

Copyright © 2023 FSB Content Marketing Inc – All Rights Reserved

Thinking of Cancelling Your Life Insurance?

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Have you found yourself wondering if you really need that life insurance policy you pay for every month? You are not alone.

As time goes on we often forget the reasons behind purchasing the amount and type of coverage we did. For this reason, it is advisable to have regular reviews to make sure you are adequately protected.

Perhaps you are having trouble making ends meet and are looking to trim expenses. Maybe you simply don’t think you need it because the kids are getting older and your obligations to them have diminished. Some may feel that they have enough assets accumulated that insurance is no longer necessary and even a waste of money. Before you make the decision to cancel your life insurance policy, consider these compelling reasons to keep it.

Can no longer afford the premiums?

The most common reason people cancel their insurance is affordability. In times of financial stress, many people start eliminating unnecessary expenses. Consider this – if you think you are having trouble making the life insurance payments each month now, think how difficult it will be on your family if you were to die prematurely, without it.

Will your family be able to pay the necessary living expenses such as; housing, food, transportation and education without your salary?

In times of financial instability, make insurance the last thing to go, not the first. Think of switching to a lower cost plan such as term insurance to get you over the hump. You have to qualify medically to make this change but if you find yourself uninsurable, this is definitely not the time to consider getting rid of it.

So when it comes to trimming expenses, perhaps get another year out of your cell phone, skip dinner out once a month or even take the drastic step of skipping your morning Starbucks. You will sleep better at night knowing your family is protected.

Don’t feel you still have a need?

Are there any lingering debts, unpaid taxes, mortgages or outstanding loans that should be paid off should you die prematurely? The last thing you would probably want to do is to leave your family the financial burden of your unpaid debts.

Or perhaps, your parents are still living and are somewhat dependent on you for financial support. Who would be responsible for them should you die and would there be enough resources?

Your children may have left home to start their lives but the unforeseen does happen and they may return as members of the boomerang generation. Should that happen, and you find yourself with financially dependent children living at home once again, you may want to consider keeping or reducing the insurance to an amount that matches your new requirements.

Will your estate require liquidity when you die?

Even the wealthy may have a need for liquidity in their estate. Often, there may be taxes arising from capital gains, recaptured depreciation, administrative fees and last expenses. Assets may need to be liquidated in order to pay some of these costs but that may take time, or it may not be the right time to sell those assets. Life insurance is the most cost effective way to provide this needed liquidity allowing families to make decisions to sell assets if and when the time is right

Do you want to leave a legacy?

Life insurance has long been a method for charitable minded individuals to leave a legacy to a charity or institution of their choice. Not only does this benefit the recipient but it provides a tax deduction in the amount of the gift to benefit the estate.

What about the adult children?

There is no doubt about it, the next generation are having a lot harder time financially today than at any other time. Rising house prices and education costs not to mention today’s cost of living make it necessary for adult children to depend more on their parents than previous generations.

If you are not in a position to leave a large inheritance to your children, life insurance can certainly be the answer. While continuing to pay the premiums may not be life changing for you, the insurance proceeds when received may certainly be life changing for them. This generosity will likely help your grandchildren be raised and educated at a higher standard than their own parents could reasonably afford.

If you can’t afford the policy yourself as you head into retirement, perhaps your children would be in a position to take over the premiums. It’s important to include your adult children in these discussions as you enter your retirement years.

What about survivor benefits in retirement?

If you and your spouse are soon to retire or have retired already, you understand the risks in outliving your income. Backing up your retirement nest egg with life insurance to protect a surviving spouse is one way to manage risk in retirement when safe investments are yielding lower returns.

Do you have the right type of Life Insurance?

If your renewable term insurance coverage is up for renewal, the substantial premium increase may be causing you to rethink the need for insurance. Renewable term insurance does renew at increasingly higher premiums and will ultimately expire at age 80 or 85. It may be time to consider changing or converting some of your life coverage to a permanent form of insurance that has a level premium for life.

As you can see there are many reasons to keep your insurance for your lifetime. Let’s have a chat to determine if you have the coverage that makes sense for your family’s needs or if some adjustments to amounts or insurance plan are necessary at this time.

As always, please feel free to share this information with anyone you think will benefit from it.

Can Probate be Avoided?

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Executors often find that the probate process can be both time-consuming and expensive. Planning strategies exist that may eliminate or reduce the requirement of having assets probated.

What is probate?

Probate is a legal procedure that validates a deceased’s will and confirms the executor’s authority to carry out the testator’s wishes. This provides assurance to third parties such as financial institutions and land registry offices that the executor has the power to deal with assets according to the will.

Are all wills subject to probate?

There is no requirement that every will must be probated. Proper planning can eliminate the need for probate and also, the type of asset involved will generally dictate whether or not probate is required.

What is the cost of probate?

  • This will depend on the province. At the low end, Alberta has a flat maximum fee of $400, while at the upper end Ontario has a levy of $15 per thousand on estates valued in excess of $50,000. British Columbia has fees of $14 per thousand (estates over $50,000) plus a filing fee;

  • Property which is owned in another province may attract fees based on that province’s fee schedule.

What are advantages to probate?

  • When Letters of Probate are obtained, financial institutions, transfer agents, land registry offices and other third parties can safely transfer the assets to the intended recipients;

  • The time frame for any court challenges to the will or estate is usually measured from when the probate was granted. This limits the period of when legal action might be taken.

What are the disadvantages to probate?

  • The process can be time consuming and complex;

  • Depending on the jurisdiction the cost of probate along with the legal fees can be expensive;

  • The process is open to public scrutiny so information about the estate distribution is made public.

7 Tips to avoid probate

There are a number of strategies to, if not avoid probate entirely, reduce the value of the assets that would otherwise be exposed to probate.

  • Make sure you have a will – Probate fees will be applied automatically if you die intestate (without a will);

  • Gifting prior to death – this can reduce the value of the estate, so it has to be done with care. It is important that all control over the gift must be relinquished. Be careful as there may be income tax considerations, (capital gains etc.), as well as possible property transfer taxes;

  • Use named beneficiaries whenever possible – moving assets to vehicles such as life insurance, annuities, and segregated funds is a great way to avoid probate. The bonus here is that it also allows the proceeds to be paid quickly and directly to the beneficiary. This also applies to registered investments such as RRSP’s, RRIF’s, TFSA’s and pensions;

    To avoid the unintended future inclusion of these assets in your estate if the named beneficiary dies, you should consider naming a successor (contingent) beneficiary;

    Named beneficiaries also provide a confidential transfer. The exception to this is in Saskatchewan where probate rules dictate that beneficiaries to insurance products be listed even though the proceeds are not subject to probate;

  • Use of Joint Tenancy – Holding assets in joint tenancy with a spouse, child or other family member will avoid probate as the asset passes automatically upon death to the other individual. Using joint tenancy to avoid probate fees should involve careful consideration as there will be a loss of control once it is jointly held and the asset will be exposed to the joint tenant’s creditors;

  • Use of Trusts – Transferring assets to a trust will remove the asset from the estate. The use of an alter-ego or joint spousal trust can be very effective for this purpose. Be careful of appreciable assets that may attract a taxable disposition upon transfer;

  • Transferring assets to a corporation – Except for outstanding mortgages on real estate which are deductible, generally probate fees are charged against the gross value of an estate asset. If an estate asset was purchased with borrowed money, it may be beneficial to transfer that asset to a limited company. This will reduce the value of the estate and the company share value will be the asset less the debt used to acquire it;

  • Multiple Wills – Not all assets are subject to probate. It is becoming popular to have two wills – one for those assets that are probatable and one for those that are not. For example, someone who owns private company shares may wish to use a second will to transfer those assets as private company shares are not subject to probate. If assets are held in another province with lower probate fees there may be an advantage to have a separate will dealing with those assets;

    The strategy of multiple wills is not available in all provinces and the use of multiple wills may create problems with the new Graduated Rate Estate tax with respect to testamentary trusts.

Please note that legislation governing probate and the fees that are levied vary by province so not all the ideas presented here will apply to every province. This article does not apply to the province of Quebec. Careful planning is advisable with all estate planning considerations and it is important to seek professional advice when considering these strategies.

We are here to answer any questions you may have on this complicated issue. As always, please feel free to share this article with anyone you think may find it of interest.

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