Glen Jackman – Page 16 – Adviceon Library

Why is an estate plan important for retiring business owners

When a business represents the major component of an estate, planning is vital. Entrepreneurs may think about retirement planning, yet not all business owners implement plans to allow them sufficient freedom to follow their leisure dreams. If you ask the owner of a successful small business if he or she plans to retire, you may hear, “I will never retire because I love what I do”, or “I will retire in 10 years or so.”

Why is this risky planning? Those who feel they never want to retire may not have developed retirement investment interests outside of the company aside from RRSPs. However, most believe their company will provide investment capital when sold, or, if passed on to the next generation, a salary or dividend payments.

Are all your eggs in one basket? Therefore, for some, their personal financial stability is riding on the future success of the company. When a business represents the major value of an estate, planning becomes necessary. Yet, many are not convinced that they need to plan their estate or the succession of their business.

Estate Planning is vital to Succession Planning. Despite the financial importance of their business, most business owners do not know what the tax liability would be if both spouses were to die. An estate plan can ensure that these taxes will be paid from one or a combination of the following sources:

Life insurance;
The business, from cash flow or liquid assets;
RRSPs (also taxed when both spouses die);
Non-registered investments.

Consider the following:

Take the time to do some basic estate planning to determine who will take over the company, and where your retirement income will come from. Revise or complete both your will and power of attorney. Review your personal and/or corporate-owned life insurance, disability coverage, critical illness insurance, long-term care insurance and key-person insurance.
Many business owners carry life insurance but miss a very important coverage related to health. Disability insurance and/or critical illness insurance can pay off a buy-sell agreement and provide income.
In some cases, the payment of relatively small life insurance premiums can entirely solve the estate’s future capital gains tax problems, or generate capital to replace the tax that will be payable on your RRSPs when both spouses die.
Life insurance can also eliminate company debt and help a succeeding son or daughter with new business capital. Finally, it can help fairly equalize the division of your estate among all of your heirs.

8 Amazing Advantages of Mutual Funds

Mutual funds offer investors a superior means of accumulating wealth through a broad range of investment solutions based on professional investment principles in a regulated environment.

There are eight benefits of Mutual Funds which the investor appreciates:

Professional portfolio management
Manage risk through diversification
Opportunities for foreign and domestic investment
Oversight by professional managers
Low entry investment amount
Solutions meet a wide range of needs
Easy to buy and sell
Convenient administration

The rapid growth in investor confidence in using mutual funds escalated to over half a trillion dollars. This indicates the validity of using mutual funds in an investment portfolio.

Source IFIC

What special powers do executors have?

Before naming or agreeing to act as an executor, be sure to consider what is involved. Naming co-executors, one of whom is a professional in the field, can be a wise decision.

• An executor carries out the instructions in your will. Co-executors can share the task.

• Provincial laws define what the executor must do, whether they are a friend, relative, professional, or a trust company—however, the will can specify even more extensive powers.

• The executor may have to deal with some or all of the following at an emotional time: funeral homes, beneficiaries, Canada Revenue Agency (CRA), insurance and investment companies, government and business pension departments, real estate agents, lawyers, accountants, appraisers, stock brokers, and business partners.

• They can be empowered to convert the estate to cash or divide assets equally among beneficiaries. They can also make payments to the parent/guardian of a beneficiary under the age of 18.

Where there is life insurance with beneficiaries assigned, monies must be directed as defined in the life insurance contract.

•The executor (especially if inexperienced in legal or financial matters) should know how complex the estate is before agreeing to the task. If necessary, appoint a co-executor who is a professional in this field.

• Have a clear, objective idea of what will be involved before asking someone to be your executor and before agreeing to act as one.

What are the key reasons to review your Will?

Keeping your Will up-to-date is just as important as having a Will. Consider updating your Will for the following reasons.

• Marriage. You recently married, or a marriage ended since you made out a reciprocal (joint) Will. Your Will may be revoked upon marriage, unless it specifically states it was created in contemplation of marriage.

• A change of executor, lawyer, accountant, or guardian. If one of these key players die, or becomes incapacitated, or is replaced regarding your estate plan.

• You want to establish planned giving. You desire to leave monies, for example, to a charity, an art gallery, a religious organization, or a school.

• Birth of children and grandchildren. You want to ensure that they are provided for, perhaps through life insurance.

• Divorce. If your Will has previously named a ex-spouse as executor, this appointment is nullified upon divorce.

• Separation. If you die before a divorce becomes final, your spouse may retain access to your estate assets.

• Change in wealth. If you inherit money, or inherit life insurance proceeds, or your assets decline, consider altering your bequests.

• Special care is needed. A spouse, parent, or child has become disabled and needs future care.

• Change in health. If you anticipate requiring costly long-term health care, you may want to alter the specific bequests in your Will to reflect this new reality.

• Death of executor or beneficiary. Appoint a new executor or revoke a previous beneficiary directive or review your beneficiary designations.

• Sale of business. If your assets become more liquid upon the sale of a business, you may want to pass that benefit along to beneficiaries or charities. If a partner has bought or is buying your business previously bequeathed in your Will you may need to adjust your estate planning.

• When you want to change your trustee, or trust institution. You want to assign others to be in charge of investments within a testamentary trust directive.

• Legislation changes. Federal or provincial budgets have changed legislation affecting your estate planning. The validity of your Will may be affected by changes to laws.

• Taxation of the capital gains on a major asset. When you own an asset that has appreciated in value, such as a cottage or business, make sure the tax payable, will not decimate the estate. Life insurance solutions to pay off your estate liabilities after death, may be a more affordable option.

How can Life Insurance insure Estate Planning tactics?

A testamentary trust is established in a will. It directs a named trustee to manage and distribute assets and income to named beneficiaries of the trust.

You can designate the number of years it will survive, within permissible, legal limits. The trust becomes effective at the time the will is probated. The assets undergo the probate process and are therefore, exposed to creditors’ claims. If your intent is to avoid probate, a living trust would be a more suitable alternative.

Individuals commonly choose between two types of trusts: family and spousal. Family trusts are established to:

Protect the interests of underage children and any family member with special needs.
Safeguard adult children’s assets from creditors or divorce settlements.
Manage funds for spendthrift adult children.
Minimize disclosure of small business assets that could be susceptible to lawsuits or creditors

Spousal trusts are established to provide your spouse with funds. These trusts also:

Protect your children’s assets should your spouse remarry.
Assure the inheritance of children from a previous marriage.
Reduce income tax through income splitting.

Funding trusts
If an estate will have significant capital gains tax due and/or debts, consider using life insurance to cover all liabilities. You can also increase the death benefit to pay off business agreement liabilities (if any) and provide specific trusts with the necessary cash.

What is the mind-set of financial independence?

Establishing the right mindset towards money will eventually show up in your investment portfolio as wealth that can provide a lifetime of income and the eventual achieving of financial independence. This may be impossible, without understanding how attitude affects one’s financial destiny. First, let’s examine a few of the correct attitudes versus erroneous thinking that could block our way.

Agree about money Most people need to consider the input of another person regarding how money is spent, invested, and managed. The problem is, many people never agree to a strategy of investing and stick with it – they’re still broke while arguing or doubting how to invest at age 55. Find a compromise, and stick to an agreed-on plan to invest.

Know the state of your finances Many never reconcile their bank account or organize their financial receipts or statements. They continue to make purchases, but never really know if they can afford them. Financial independence depends on financial management – you will need to establish orderly control. Purchase a filing cabinet, trays for receipts, files for all categories of purchases – a place for everything. Consider using computer software such as Quicken, posting your income and expenses weekly. Reconcile bank accounts and know your balances on a weekly basis, and your financial position, on a quarterly basis.

Buy only essentials on sale Sale signs are everywhere – the consumer can get up to 70% off in some cases. Those who sell goods know that sale signs encourage people to buy. Consumers legitimize the purchase in their minds, on the basis of saving a few dollars on an item. The problem is that over time one may buy many items on sale, despite the fact that he or she is spending above the household’s discretionary income, and may max the credit cards. While overspending this way, unmanageable debt is created. Instead of using discretionary income to invest; it all goes to paying down escalating credit card bills and high interest. In order to break free of this habit, save money first, and buy based on true needs. Stay clear of malls until the habit is broken. Be careful not to go to the other extreme and become a scrooge, ruining life’s enjoyment for others. Save money first, and buy based on true needs.

Limit need-for-prestige spending Many people buy more expensive computers, stereos, cars and gadgetry in order to impress the neighbours – yet these items depreciate in value over time. Add to that, countless upgrades when we become discontented, comparing new arrivals on the market. Such buying behaviour may create a false sense of prestige, negating one’s future retirement security. Income may drop or disappear all too soon, leaving many unpaid liabilities. Invest in assets that appreciate in value, such as a home, equity investment funds, or segregated funds, while not spending more in relation to increased income.

Eliminate procrastination based on fear What occurs in the U.S. or the Euro zone affects us all collectively, only insofar as how the markets that you invest in respond. Over 50 years, we find that the U.S. markets initially declined in a crisis, yet each recovered in a remarkably short period of one week. After the Suez Canal crisis: markets down 1.5%, gained 4%. The arms blockage in Cuba: down 2%, climbing back 4%. President Kennedy’s assassination: a decline of 3%, rising again within one week, 6%. The financial crisis of 2008 ruined many people’s investment retirement portfolio if they sold their funds or stocks. Those who were patient saw most of their funds and stocks climb to much higher values than before the crisis began.

How do individuals or families accumulate wealth?

They save by moving money received as income into a separate account before they spend it. It doesn’t matter if you have received an inheritance or won a lottery – the rule is the same. Save, and then invest before you spend.

Here are some excellent reasons for investing.

It gives us a sense of financial security, earned by continued discipline and adherence to the principle of saving, which adds to our sense of personal dignity.
We are eventually rewarded by seeing money make more as it works for us, gaining and compounding.
Saving paves the way for the actualisation of our goals and objectives in life, such as acquiring a home, making significant purchases, travelling, putting children through college or university, or going back to school ourselves.
Accumulated assets will increase our net worth and bring us financial independence. Such control and flexibility are within our reach if we start now.

Stumbling blocks to saving. Don’t defer to only saving what’s left at the end of the month or waiting until “things get better”. Usually, nothing is left at the end of the month, and things rarely improve because the philosophy has stayed the same – spending above income continues, and debts increase. Except for a home mortgage or loans for motor vehicle transportation, and in some cases for investing, debt is a deterrent to financial independence. Commit to a strategy to pay down all household debt and save at least 10-20% of your monthly income.

Inflation is a constant battle. Over the years, inflation has reduced our buying power. When increasing to reduce inflation, interest rates also increase our debt repayment load as a percentage of income.

Planning for your dependants. Ensure you have sufficient life insurance to pay off your debts, such as credit card balances, car loans, IOUs, and any business-related debt. Incorporate this with enough coverage to provide future income for your dependents. This is especially necessary if your debt exceeds your annual income, as it does for the average household where debt runs at 150% or more of income.

How can I assess the expense of leasing or buying a car?

The rising cost of driving.

The rising cost of fuel is making many consumers change their thinking with regard to driving expenditures. On May 5, 2011,the following was reported:

“General Motors Co. (GM-N) reported its highest quarterly profit in more than a decade, helped by fuel-efficient cars and smaller SUVs that were in demand as gas prices marched higher. The biggest U.S. automaker said Thursday that it earned $3.2-billion, or $1.77 per share, in the first quarter. It was a great start in a challenging climate that would have sunk the company just a few years ago when it was too reliant on gas-guzzling pickups and SUVs for profit.”

On average you will need to work 30 weeks to pay for your vehicle (not counting fuel or repairs). Because driving a car is one of the largest expenses in an individual’s budget, plan this expenditure carefully. From the graph you can see that expense accumulate given a payment of an average vehicle payment of $500 per month plus gas.

Kilometres are presented as the average busy driving use per vehicle as promoted by vehicle manufacturers of 24,000 km per annum. Both monies spent on a car payment and for fuel are added in the final column. Adviceon does not claim accuracy for the numbers represented as extrapolations in the table, and uses them only for illustration. Errors and Omissions are excluded.

Reduce your debts and increase your financial security

In 2008, escalating mortgage debt caused a financial crash that decimated the retirement income of many. Debt control is becoming a critical issue.

Credit interest eats away at wealth. Every household has a budget and must live within its means and save for the future. We each must be careful not to allow debt interest repayment to reduce our ability to live comfortably or retire with financial security.

Interest on the debt except for investment or business debt is paid with after-tax income. It reduces our capacity to pay down the principle on our mortgages or increase our investments for retirement.

Shift your financial paradigm away from debt The fact that so many people act without discretion while increasing debt shows that consumers need a more mature view of finance. We need to examine our genuine need for each purchase and consider the effect on our family’s income-creating ability before giving in to the temptation to buy more of what we cannot afford.

To avoid debt, we need to govern our response to each desire to have what we cannot afford. How do we do this? Work at not buying what you cannot afford, meaning living by a responsible paradigm of fiscal temperance. Learning to say to yourself, “No. I will survive without this item and will be better off debt-free!”

“If worst comes to worst, meet poverty halfway by retrenching expenses. That is what I am striving to do and reform before poverty forces me to do so. Furthermore, I have established enough levels in my soul where I can get along with less than I have; get along contentedly, I mean, Not by the calculation of our income, but by your manner of living and your culture, is your wealth really to be reckoned”. Montaigne

Reduce debt for societal justice Good financial discernment directs our actions when considering taking on debt. If a man, for example, has borrowed fifty dollars from a friend to go to a concert with his girlfriend, the goal of fiscal justice is to pay his friend back what is due to him. In conformity with the right reason, Justice demands that the fifty dollars be paid back. But how and when shall it be paid back? An imprudent man might never pay it back, so he would fail to observe the rule of social justice in finance.

Develop a strategy to pay back debt To pay back debt requires the resolution to set aside a small sum from our income each week or month until we have allocated repayment of our obligations. Look at all of your debts and begin to pay down the higher interest-bearing debts first. Another approach would be to pay off the smaller loans and credit cards first to achieve victories sooner while creating the habit of debt reduction.

What is your financial viewpoint? We must be determined to be directed by wise discretion regarding how we use credit to attain financial goals. This is for the good of all – family and society. Your financial advisor can guide you to reduce debt and increase your investment portfolio.

How does aging affect Critical Illness and Long Term Care?

The majority of the population of North America is approximately 50 years or older. This demographic truth increases the need for two specialized types of insurance: Critical Illness and Long Term Care.

Critical Illness Insurance Critical Illness Insurance protects your dependent(s) in the event that you suffer a disability due to a major illness such as heart attack, coronary bypass surgery, stroke,terminal cancer, blindness, paralysis, or kidney failure. It pays out a tax-free lump-sum benefit. You could clear outstanding debts such as the mortgage, finance home renovations to meet changed living access needs, or pay for specialized medical treatments not covered under your health insurance such as certain chiropractor or masseur fees. There are no restrictions on how you use the lump sum benefit. It is not based on your ability to work, even if you fully recover. Collecting the benefit will require a doctor’s statement regarding your health, and confirming that you have survived the critical illness, generally for at least 30 days.

Long Term Care Insurance Long Term Care Insurance will pay for the cost of long-term care associated with a disability or chronic illness. It covers relocation to a long-term care facility or in-home caregiver assistance. Usually, the available benefit consists of a fixed tax-free amount up to several hundred dollars per day to pay for long-term or other healthcare. As the policy’s issue age for this coverage increases, the premiums for this insurance also increase. Look for policies renewable for life that will include coverage for skilled care, intermediate care, rehabilitation centres and nursing homes. Ask if conditions such as Alzheimer’s are covered and if extended care at home is an option.