Having Your Cake and Eating it Too

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Having Your Cake and Eating it Too: Seg Funds in an Uncertain Market

Investing in an uncertain stock market is not for the faint of heart. However, fortunately for Canadians, Segregated Fund products offered by many life insurance companies provide a safety net for nervous investors.

Fund products present some interesting opportunities for people looking to get more security in their investment portfolios without sacrificing their potential for growth.

100% Maturity and Death Benefit Guarantee

While many companies have reduced their guarantees to 75%, a few companies still offer 100% guarantees for both maturity value and death benefit. The 100% guarantee offers these advantages:

  • At the maturity date, the value of the investment will be the greater of the market value or 100% of the sum of deposits less any withdrawals taken. In other words, at maturity (minimum 15 years), your worst-case scenario is receiving full value for all of your deposits.

  • At death, the 100% guarantee will ensure that your beneficiary receives the greater of the market value of your Segregated Fund or the sum of all your deposits less any withdrawals taken.

Reset Feature for Maturity and Death Benefit Guarantee

Resets can have significant value in a volatile market. With this feature, you have the ability to:

  • Reset the maturity guarantee value (usually more than once per year). Accordingly, you can lock in your investment gains at maturity. With each reset, you also have the option of designating a new maturity date.

  • Automatically reset the death benefit guarantee, locking in your investment gains at death. (The frequency of the reset varies by company).

How Significant are Reset Options? You Decide.

  • In 2004, John invested $500,000 in a segregated fund and selected a first quartile but highly volatile equity fund as the investment choice.

  • Over the next few years, John’s fund performed very well and his investment grew to $750,000.

  • In late 2007, John exercised his reset option.

  • The market collapse of 2008 saw John’s investment value fall to $380,000.

  • This same collapse devastated many investors. Meanwhile, John was able to recover not only his original investment but also the full $750,000 at his maturity date.

As you can see, reset options give you the ability to lock-in gains. Implementing a reset when prices peak, the guaranteed amount of your seg fund will be increased.

Designation of Beneficiaries Enables Protection

One fact about Segregated Funds that is often overlooked is that as a product of a life insurance company, you can name a beneficiary for the proceeds at your death. This creates the potential that your segregated fund investment may be free from the claims of creditors or potential litigants.

Investing Using a Balanced Portfolio Close to Retirement

Volatile investment markets create a significant amount of stress and emotional turmoil, particularly amongst older investors. The closer you get to retirement, the higher the stakes. Therefore, many investors have forsaken the potential of higher returns for a significant portion of their portfolio. While this does reduce risk, it probably will result in lower returns.

By using Segregated Funds and taking advantage of the 100% Maturity Guarantee and reset options, one could achieve balance in their portfolio without necessarily locking in low yields.

Estate Conservation for Mature Investors

The 100% death benefit guarantee means that you can remain invested in an equity portfolio while not risking the estate value of your investment portfolio. Regardless of what happens in the market, your investment fund is totally guaranteed at your death. This guarantee is available for deposits made p until age 90.

By naming a beneficiary, upon your death, all of your segregated fund investments will flow to your beneficiary without any probate fees, administrative costs or risk of any Wills Variation Act litigation.

Capital Protection

Market downturn is not the only risk to which capital can be exposed. For many professionals and business owners, there are situations that may involve litigation either by creditors or other parties who feel they have a claim against your personal and business assets. By naming a preferred beneficiary, this risk is potentially eliminated.

Complicated Estate Protection

For domestic situations involving previous marriages and the desire to protect capital for present or previous family members, the beneficiary designation could be made irrevocable. The irrevocable beneficiary designation confers rights and protection on the beneficiary, which would not be as enjoyable through the “primary beneficiary” title.

Another advantage of Segregated Funds is that the use of named beneficiaries allows for a confidential transfer of wealth at death. In uncertain times having the comfort of a maturity and death benefit guarantee provides investors with a significant safety net.

Let’s connect to discuss if Segregated Funds will complement your current investment strategy. As always, please feel free to share this article with anyone you think would find it of interest.

Copyright © 2021 FSB Content Marketing – All Rights Reserved

Have You Overlooked Assets in Your Estate Planning?

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Have You Overlooked Assets in Your Estate Planning?

We have bad news for all the Luddites out there: Technology is here to stay. That means computers and cellphones, and all the software and apps that come with them, are going to become more and more prevalent in the future. 

Technology has infiltrated our daily lives on such a granular level that most of us don’t even realize how much we rely on technology in our day-to-day activities. COVID-19 has made it more difficult to see loved ones in person and even trips to the grocery store carry risks of infection, so many of us have taken to Zoom-happy hours with friends and ordering our groceries online. Whether it is our work meetings, completing tasks and chores, and even social gatherings, technology is everywhere.

How we use technology will continue to expand in the future, but what does that have to do with your estate? Well, as it turns out, a lot. Before we get into the details, let’s discuss what digital assets are. 

Digital assets are essentially anything that has inherent worth that is also in digital form. What establishes their status as an asset is the fact that they come with a “right to use” (e.g. a password). Without a right to use, they are just considered data. Digital assets could include family photos, air miles, hotel rewards, grocery store points, and especially cryptocurrency.

In estate planning, you would keep a list of all your valuable physical assets and you would also consider what would happen to these assets upon your death. Your executor would know these details and would be able to locate these items in your home or safety deposit box and ensure that they are passed on to the right people.  

The same holds true for your digital assets. In your estate plan, you should make a list of all your assets, including your digital assets, and ensure that your executor knows what digital assets you own, where to find them, and how to access them. Remember to include your username and password to all of your accounts on the list, and update that list frequently as your passwords are going to change from time to time.

Additionally, when you are considering your estate and your legacy, you need to decide what you would like to do with your social media profiles. Perhaps you have become a prolific tweeter through your Twitter account, or maybe you use Facebook to remain connected to your long-distance friends and family. Either way, your social media profiles could remain online forever, or they could be deleted per your wishes. Make a decision now about what you would like to do with your social media accounts so that there is no ambiguity regarding how your family should handle them when dealing with your estate. 

Digital assets have been overlooked in the past to the frustration of many estate executors. But as the world continues to evolve, people will rely more and more heavily on technology. This means that people’s wealth and valuables may be held digitally, and therefore, these assets should be included in your estate planning. 

If you are not sure where to start, talk to your trusted executor and write down some notes related to the following information:

  1. What are your digital assets?

  2. Where can your executor find them? 

  3. Update your usernames and passwords regularly. 

  4. Share this information and any updated information with your executor.

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

Stop Living Paycheque to Paycheque and Start Living

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We are now living in a gig economy as a result of wage stagnation and increased globalization. While previous generations have usually worked one full-time job, often with a pension plan, today more and more Canadians are working for several different companies as independent contractors.

While this type of work does offer much-needed flexibility for some, it also creates financial instability for millions of Canadians. A recent survey of all working Canadians by the Canadian Payroll Association suggests that 43 percent of workers were living paycheque to paycheque prior to COVID-19. That statistic does not take into account COVID-19’s impact on the workforce.

Regardless of how we got here, the fact is that income volatility is a huge problem for almost half the country. Not knowing when or where your next paycheque is coming from can create a multitude of issues that can have lasting effects on both your health and your finances.

The Effects of Income Volatility?

A survey conducted by the Canadian Payroll Association in 2019 found that 40 percent of the Canadian population are so stressed about finances that it affects their performance at work.

The survey also found that 40 percent of Canadians said they were overwhelmed by the amount of debt they owe. And a whopping 75 percent of Canadians are saving less than 25 percent of their retirement goals.

Knowing that the problem exists is one thing, but if we want to understand the gravity of the situation, we need to know the implications of living paycheque to paycheque. Below are a few of the most substantial effects.

Financial Stress Can lead to Poor Health Outcomes

Living paycheque to paycheque increases financial instability and exacerbates stress, which can impact the cardiovascular system, degrade your mental health and other bodily functions. Worse, it can become a vicious cycle: You become stressed, so your health deteriorates, which causes you more stress, etc.

Conditions like depression and anxiety can go into overdrive when you experience financial instability, meaning that you have to work harder just to make it through each day.

How to Avoid Financial Stress in the Gig Economy

Make a Plan – This plan can be for six months, one year, or 10 years – whatever you want. The plan should include budgets, saving potential and job improvement. If you’re making incremental steps forward, that should help you relieve some anxiety about the future.

Save Anything – Whether it is $5 or $500, every dollar counts. You may not think it’s much, but it will add up overtime.

Avoid Accruing More Debt – Although this plan is easier said than done, it is sometimes better to pay less on your debt and save more money so that you don’t borrow more when something unexpected happens.

Invest in your Future – Start investing. Nowadays, there are many different options to consider when you think about investing your money. Whether you are a new or a seasoned investor, it is a good idea to make your money work for you.

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

Copyright © 2021 FSB Content Marketing – All Rights Reserved

Highlights of the 2020 Federal Fall Economic Statement | Additional $20,000 CEBA loan available now

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On November 30, Finance Minister Chrystia Freeland provided the government’s fall economic update. The fall economic update provided information on the government’s strategy both for dealing with the COVID-19 pandemic and its plan to help shape the recovery. We’ve summarized the highlights for you.

Corporate Tax Changes

Information on several subsidy programs was included in the update. These changes apply from December 20, 2020 to March 13, 2021.

  • The government has provided an increase in the Canada Emergency Wage Subsidy (CEWS) to a maximum of 75% of eligible wages.

  • If you are eligible for the Canada Emergency Rent Subsidy (eligibility is based on your revenue decline), you can claim up to 65% of qualified expenses.

  • The Lockdown Support Subsidy has also been extended – if you are eligible, you can receive a 25% subsidy on eligible expenses.

Also, there were two other significant corporate tax changes:

  • Starting January 1, 2022, the government plans to tax international corporations that provide digital services in Canada if no international consensus on appropriate taxation has been reached.

  • The tax deferral on eligible shares paid by a qualifying agricultural cooperative to its members has been extended to 2026.

Personal Tax Changes

The following personal tax changes were included in the update:

  • The update confirmed the government’s plan to impose a $200,000 limit (based on fair market value) on taxing employee stock options granted after June 2021 at a preferential rate. Canadian-controlled private corporations (CCPCs) are not subject to these rules.

  • If you started working from home due to COVID-19, you could claim up to $400 in expenses.

  • The Canada Child Benefit (CCB) has temporarily been increased to include four additional payments. Depending on your income, you could receive up to $1200.

  • Additional modifications were proposed to how the “assistance holdback” amount is calculated for Registered Disability Savings Plans (RDSP). The goal of these modifications is to help RDSP beneficiaries who become ineligible for the Disability Tax Credit after 50 years of age.

Indirect Tax Changes

GST/HST changes impacting digital platforms were included in the update. They will be applicable as of July 1, 2021:

  • Foreign-based companies that sell digital products or services in Canada must collect and remit GST or HST on their taxable sales. Also, foreign vendors or digital platform operators with goods for sale via Canadian fulfillment warehouses must collect and remit GST/HST.

  • Short-term rental accommodation booked via a digital platform must charge GST/HST on their booking. The GST/HST rate will be based on the province or territory where the short-term accommodation is located.

And some good news on a GST/HST removal! As of December 6, and until further notice, the government will not charge GST/HST on eligible face masks and face shields.

The Takeaway

A lot of changes came out of the fall update – and you may be feeling overwhelmed. But help is at hand!

Contact us to learn more about how these changes could impact your personal and business finances.

Canada Emergency Business Account (CEBA) $20,000 expansion available now

The Government of Canada website has been updated with the new CEBA requirements and deadlines:

  • As of December 4, 2020, CEBA loans for eligible businesses will increase from $40,000 to $60,000.

  • Applicants who have received the $40,000 CEBA loan may apply for the $20,000 expansion, which provides eligible businesses with an additional $20,000 in financing.

  • All applicants have until March 31, 2021, to apply for $60,000 CEBA loan or the $20,000 expansion.

Apply online at the financial institution your business banks with:

To get the full details:

CEBA Loan Details

Preparing Your Heirs for Wealth

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If you think your heirs are not quite old enough or prepared enough to discuss the wealth they will inherit on your death, you’re not alone. Unfortunately, this way of thinking can leave your beneficiaries in a decision-making vacuum: an unnecessary predicament which can be avoided by facing your own mortality and creating a plan.

Avoiding the subject of your own mortality can also be an extremely costly to those you leave behind.

If you have a will in place you are ahead of the game. However, authors of the 2017 Wealth Transfer Report from RBC Wealth Management point out that a will is only a fundamental first step, not a comprehensive plan.

“One generation’s success at building wealth does not ensure the next generation’s ability to manage wealth responsibly, or provide effective stewardship for the future,” they write. “Knowing the value (alone) does little to prepare inheritors for managing the considerable responsibilities of wealth.” Overall, the report’s authors say the number of inheritors who’ve been prepared hovers at just one in three.

Two thirds of the survey’s respondents say their own wealth transfer plans aren’t fully developed – a critical barrier to having this discussion in the first place.

While the report focuses on wealthier beneficiaries in society, the lessons remain true for most: to make the best decisions about your wealth transfer, there needs to be planning and communication with your heirs.

1. Recognize that action today can help you create a better future

First, it’s important to acknowledge that creating an estate plan means contemplating your own death – an inescapable element of the process. It can also involve some awkward conversations, particularly if you’re not in the habit of talking about money with family and loved ones.

Without planning the outcome you leave may not be the one you would choose:

“Despite their efforts, parents don’t always succeed in translating good intentions into effective actions. They tend to resort to the informal, in-house learning methods they received in childhood,” say the RBC report’s authors. “Without intending to, parents repeat the lessons that contributed to the weaknesses of their own financial education. In the end, they are not equipping the next generation with the right skills to build lasting legacies.”

2. Understand the tax implications early.

To many, the taxes due on death will almost certainly come as a shock. In many cases, the single largest tax bill you will pay could be the one that your executor handles for you.

In Canada, leaving your assets to your spouse will defer these taxes until he or she disposes of the property or dies. However, if a spouse is not inheriting your assets and real property, planning for this “deemed disposition” is needed to allow your heirs time to make appropriate decisions about your property and legacy.

You may want to consider strategies that will greatly reduce the impact of the taxes to your estate. These strategies could include the use of joint last to die life insurance.

To illustrate how the growth in value of property can result in taxes payable at death, consider an asset which many Canadians own and enjoy – the family cottage.

Recreational real estate in many cases has “been in the family for years.” It often will have appreciated in value significantly since its purchase. Say you purchased the family cottage for $100,000. If the property is now worth $500,000, half of that gain – $200,000 is added to your income and taxed as such in the year you die. That will result in a tax bill of approximately $100,000.

If your family does not have the liquid funds available to pay this bill, the cottage or some other asset will need to be sold to pay the Canada Revenue Agency. Purchasing life insurance to pay the taxes due at death is one way to bequeath the family cottage to heirs. This will allow your children to continue to enjoy the property without having to raise the money to pay the taxes.

All capital property – except your principal residence and investments held as a Tax-Free Savings Account – is dealt with in a similar manner. If your stocks, real property, and other assets have appreciated in value since you first purchased them, half of that amount will be added to your taxable income in the year you die. If your assets included commercial or rental property against which the Capital Cost Allowance has been claimed, there may also be a recapture of depreciation. Again, deferral is available when assets are left to a spouse but if they are left directly to children or other heirs, the taxes become payable when you die.

As if this is not bad enough, the full value of your RRSPs or your RRIF must also be deregistered and included on your final tax return if the RRSP or RRIF is not left to a surviving spouse.

3. Get help to build your plan, then share it with those who matter.

Estate planning typically isn’t a “do-it-yourself” project. Instead, you’ll probably need to rely on a network of professional advisors who can bring their expertise to different parts of your plan.

Once you have your plan in place, it’s time to ensure that the people who are impacted by it are aware of your wishes.

Members of your professional network can help explain your plan to beneficiaries and help those who inherit your assets to understand your preferences and the decisions you’ve made.

Let’s get together to review or create your wealth transfer plans and discuss how you can get assistance in communicating those plans to the people who matter the most.

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