There are basic uses for the Tax-Free Savings Account (TFSA) for investment planning purposes. Some may have advantages for your planning:
1. Retirement planning. TFSAs can benefit individuals who are looking to invest in their retirement but are unable to contribute to RRSPs for various reasons.
2. Education planning. Consider using both the traditional RESP and the TFSA as an educational savings vehicle. A TFSA offers parents another tax-efficient method for this investing.
3. Income splitting with spouses and children (over 18).TFSAs go beyond normal attribution rules, which offer income splitting to high-income spouses and partners and children over 18 years old.
4. Estate planning. Individuals can name surviving spouses and partners as successor account holders, ensuring the tax-free status of a TFSA will continue after death. The TFSA may allow funds to be rolled over to the successor annuitant, up to Dec. 31 of the year following the year of an annuitant’s death. Talk to your advisor as legislation can change with regard to registered plans.
Careful estate planning can untangle an estate from costly government inspections or the application of their administrative taxes and/or fees. Probate fees are calculated on assets, regardless of liabilities, at predetermined rates by the government. Methods of reducing the need for probate can save you money.
‘Estate’ is the legal term. When used in connection with probate proceedings, the term encompasses the total property that is owned by a deceased person prior to the distribution of that property in accordance with the terms of a will, or when there is no will, by the laws of inheritance in the jurisdiction of residence.
When an individual dies, his or her last will and testament is read. Because financial matters need tending to, your will should outline how you want your assets divided, your debts paid, and where applicable, define the management of these assets using established trusts for your heirs.
Family members may read a will if it is in their possession. Next, the will must go to the executor, who then assesses it, to see if it needs to be probated. Probate is a court assessment that may require government approval to settle your estate and transfer the ownership of your assets.
Probate is generally necessary in cases when:
• A bank, trust company or financial institution insists on the will being probated to prove that the executor has the authority to act.
• The assets include shares owned in a private company.
• The executor needs to sue an individual owing the estate money.
• Creditors are owed money from the estate.
• A will’s terminology is unclear, ambiguous or certain provisions are not stated. (For example, if there is no provision to pass assets to another heir where a spouse has predeceased you).
• A will is improperly witnessed.
Is probating an estate expensive?
It is a significant job for the executor to probate a will. The original will must be submitted with an inventory listing the estate’s assets recorded at their fair market value to the court in the jurisdiction where the deceased last lived. There may be increased fees if a lawyer is retained to cross-examine the asset list or if the executor charges a percentage of the asset base to do the work.
Life Insurance can solve estate tax problems. If you have not paid taxes on your capital gains which have accrued in a business or on an investment asset, or on a cottage, you may face estate taxes that are not affordable for the estate which may minimize the heirs assets or make it impossible to retain an asset such as a cottage. By planning for probate, you can use life insurance to pay off potential estate taxes due in the estate.
Note: In Ontario, the Estate Administrative Tax (EAT) will assume the process of probate. In Quebec, probate is not needed when a notary under seal prepared the will.
A comprehensive estate plan includes a will, a plan to minimize the capital gains liability and provide for any family income needs. This often involves life insurance which is an effective tool to maximize the size of your estate and pay any tax liability cost effectively. I will design an estate plan tailored specifically for your situation because every person is a unique individual.
Providing both personal and business insurance solutions to protect your financial security.
Business Insurance solutions:
• Partnership insurance
• Buy/Sell agreements
• Key Person insurance
• Business disability insurance
• Business/office overhead
• Collateral loan insurance
• Group health benefits
Personal Insurance solutions to protect you and your family:
• Life Insurance
• Critical Illness Insurance
• Long-term care insurance
• Estate Preservation
• Individual health and dental plans
Estate planning is a process that allows one to determine how their assets will be distributed upon death. As we prepare to pass our lifetime assets to our heirs, there are key components of an estate plan that should be given careful consideration.
The fundamental component of any estate plan is the Last Will and Testament commonly referred to as the will. It is also important that an individual maintains and updates their will and two powers of attorney documents: 1) for property such as real estate, bank accounts, and investment assets, and 2) a power of attorney for personal health care.
Review your estate planning documents
Life changes can affect the integration of each of the above strategic solutions. Therefore, it is important to review the above aspects of an estate plan every three to five years. For example, there may be a change in family structure, so beneficiaries may need to be reviewed. Or, if you remarry, your existing Will may automatically become nullified.
Your net assets can change Keep an eye on your net worth. Other life changes that require updating your estate plan include changes in your net worth, or if the value of your residence or investment changed. If you have significant changes in net worth, have your accountant make sure that the best tax arrangements are in place.
Business strategies to protect your net assets If you are the shareholder of business assets, make sure that a buy-sell agreement is in place in the event of your death or disability, assuring that every owner is covered with life and disability (income replacement) insurance.
An estate plan may benefit from using formal trusts to reduce taxes. Life insurance products such as segregated funds and term funds can also be used to circumvent or minimize probate or government estate administration taxes (EAT) or attending legal fees. In most cases when a beneficiary is named in a life insurance policy, proceeds will pass and the capital in most cases will transfer on a tax-free basis to beneficiaries, thus avoiding probate or EAT scrutiny.
For an estate plan seeking to transfer large capital assets to named heirs, it would be wise to discuss these capital-transfer techniques with an accountant and/or tax lawyer.
You may want to replace the income of the life insured—either you or your spouse. Ask your advisor to do a capital needs analysis. It is easy to calculate the capital needed over any short or long period of time in any situation if the life insured were to die. Many professional calculators allow advisors to prepare accurate life insurance assessments.
It may be time to review your Life Insurance at these life junctures:
After you have finished your career training and begin a new job, you will want to buy life insurance as you start the foundation of your goal-setting strategy to gain financial independence. Life Insurance proceeds can pay off any OSAP or car loans so that the family has no financial burden should you predecease them.
If you have recently married or are engaged, your finances take on a new scope of responsibility for spouses jointly planning to protect one another’s financial security. Also, review your Life Insurance needs together to protect your income if one of you die or become disabled. This is a key foundation for developing a sound financial strategy when you are young and newly married.
If either of you had a will, it might be revoked upon marriage unless it specifically states it was created in contemplation of marriage. When planning your Life Insurance together, consider how to set up your beneficiaries carefully. Often it is best to do so outside of a will.
If you work at a trade, make sure that you have Disability Insurance. This insurance is also called Income Replacement Insurance because it provides a paycheque if you become disabled. Your children and spouse are dependent upon your income. What if you became disabled – will that source of income dry up or become minimal?
When you have children, Life insurance is purchased to provide capital if one of the parents should die. A young mother would not be forced to work, reduce her lifestyle, or leave her children cared for by others.
When children go to college, many of us tap into our savings to help meet their tuition and housing expenses. We may purchase a child’s first car or provide an income for one or more years. If you die without providing continuing support, your young adult child may need to quit seeking a higher education due to a shortage of funds.
Suppose you have a change of executor, lawyer, accountant, or guardian. If one of these key people dies or becomes incapacitated, or is replaced regarding your estate plan, it is wise to review that aspect of your plan, which may include an entire rewriting of your will as you appoint new people.
If you want to establish planned giving, Life Insurance works well. If you desire to leave money, for example, to a charity, church or religious organization, an art gallery, or a school, you will need to do some estate planning. Consider using advanced life insurance planning. Life insurance can assign a beneficiary, allowing the monies to go directly to the charity or foundation. Consider that your will may need to be changed if you use Life Insurance to circumvent your will.
If you have grandchildren, you may want to ensure that they are provided for, perhaps through life insurance planning.
If you have experienced a significant change in your level of wealth, replanning may be important. If you inherit money or inherit Life Insurance proceeds, you may want to talk to your advisor about implementing Life Insurance in your own estate planning. Also, look at Disability Insurance and Long-term Care Insurance to see if financial risks can be insured to protect or enhance your wealth. If your assets decline, consider altering your bequests and newly establish this in your will.
If special care is needed for a loved one, make sure to plan. When a spouse, parent, or child has become disabled and needs future care, consider: Long-term Care costs are very high if you want a private room or special personal attention (such as defining when you want to take a nap or go to the washroom or bath, versus a strict schedule), for yourself, your parent, or another.
If you personally anticipate requiring costly long-term health care, you may want to alter the specific bequests in your will to reflect this new reality.
If you appoint a new or revoke a previous beneficiary, review your beneficiary designations with your Life Insurance representative and your beneficiaries.
If you have sold or will sell a business, your Life Insurance will need a review. If your assets become more liquid upon the sale of a business, you may want to pass that benefit along to beneficiaries or charities; or enhance your retirement. If a partner has bought or is buying your business previously bequeathed in your will, you may need to adjust your estate planning while using advanced life insurance planning for business-related solutions.
Replanning your Life Insurance may be necessary when you want to use or change a trustee or trust institution. You may, at some point, want to assign others to be in charge of investments within a testamentary trust directive.
A change of legislation can affect your plan. Changed government legislation can affect your estate planning. The validity of your will may be affected by changes such as estate taxation or probate laws.
Capital gains taxation on a major asset will eventually come due. When you own an asset that has appreciated, such as a cottage or business, or equity investment, make sure the tax payable will not harm the estate. Affordable Life Insurance solutions can pay off your estate liabilities after death.
Estate planning provides some ability to minimize the obstacles that loved ones might encounter in the event of an unexpected death such as:
Fear of losing your money by erosion of capital that might come about with poor investments.
Delays during the settling an estate can be a lengthy process.
Legal and accountancy costs, probate fees, and taxes.
Potential liabilities for Executors and Trustees in Ontario re the new administration of probate/EAT in 2013.
Lost privacy due to your will becoming public during the probate process.
Ability of your beneficiaries to handle money as some children are less capable than others of handling large amounts of money
How can the use of Segregated Funds and Term Funds help?
Ability to invest in diversified funds that have professional money management to help your clients preserve their capital.
Segregated funds and Term funds with named beneficiaries can avoid probate, making payout quicker.
By avoiding probate, your wishes are kept private.
There are excellent estate planning concepts such as the Gradual Inheritance concept that can help you better plan the allocation of money to your children (eg., buying an annuity or deferring payout until the child turns a certain age)