Long-Term Care Insurance (LTCI) 

We face a rapidly ageing population.

Since the 1920s, the ratio of seniors over the age of 85 has more than doubled. This number increases into the 2050s will be over age 85.

Who will care for you in your old age? When our health is fine, it is hard to imagine that we may, as many will, lose the ability to manage basic daily activities such as bathing, toileting, walking, dressing, feeding, or moving from our bed to a chair. Many also lose mental faculties that we often take for granted, such as memory, logical or conceptual thinking or referencing dialogue with others. Without assistance, it is near-impossible to function without these capacities.

Long-Term Care Insurance is an insurance contract with an insurer designed to provide care for our chronic illness, disability, or an accident, all of which have a higher potential of occurring as we age.

Some families are incapable of caring for a senior LTCI protects our families from the financial strain of providing long-term care, just as important as life and disability insurance protects the income of younger families. The question is, who will financially support long-term care for you? LTCI is not just for seniors but for those who become similarly incapacitated at any age.

Without a plan, your choices may be limited. It is essential to plan for our long-term care independently because our government healthcare budgets and initiatives are limited. They generally place people in government-funded facilities that have beds available. As we witnessed in the pandemic, many long-term care facilities had difficulty coping with the virus spread.

Most people entirely overlook the enormous expense of paying for a private long-term care facility (some cost up to a quarter of a million dollars for five years). Why are they so expensive? They offer 24/7 high-level nursing care in a highly secure environment. Note: Anyone can call a few private long-term care companies and inquire about their care costs.

Ageing baby boomers retiring will increasingly depend on long-term care insurance, either paid for by themselves, their children or professional health care services.

The need for Long-Term Care Insurance is increasing as medical intervention and medications keep us living longer.

  • Every year, about 50,000 strokes occur in Canada. A stroke is the leading cause of a transfer from a hospital to a long-term care facility.
  • Nearly 10% (1 in 11) of Canadians over age 65 are affected by Alzheimer’s disease or related dementia.
  • An increasing demographic (7%) of Canadians age 65 and over are residing in healthcare institutions.
  • An additional 28% of Canadians age 65 and over receive care for a long-term health problem outside of a healthcare institution.

As the populace ages, more care for the elderly, such as respite care (additional home care services), will increasingly be needed to provide family members with the medical guidance and support they need to continue caring for their loved ones. With this in mind, are our families financially prepared to deal with peripheral costs associated with providing long-term care for loved ones?

  • A study authored by Dr Marcus Hollander and Neena Chappell of the University of Victoria found that approximately $25 billion worth of unpaid care is provided willingly by family members and friends in place of paid care.

What does Long-term Care Insurance (LTC) offer? Long-term care insurance provides money to pay for the care that you both desire and need. With LTC insurance, you have:

  • Broader choices about the quality and amount of care you receive.
  • An increase of options when determining where you receive care and by whom.

Source: Statistics Canada, pre-baby boomer info

Sources: Canadian Institute for Health Information, Alzheimer Society website, Statistics Canada

 

How can indebtedness jeopardize a business?

Business Banking relationships are important. If a business owner who has a good relationship with his bank were to die, chances are the bank may call the loan if the business begins to experience financial duress and defaults on repayment. Many businesses have no option but to acquire a bank loan collateralized by the full value of their assets to survive financially.

  • Avoid collateralizing personal assets. The prospect may not be favourable when the loan equals or exceeds the value of the business assets and/or personal assets.
  • Following established rules, a bank may ask a business owner to collateralize a loan, not just with business assets and land, but with additional personally owned assets, which may encumber a spouse’s co-owned assets.
  • Add to that a possible collateralizing of any assets of a son or daughter (and spouses), who also share in family business ownership.
  •  Family members of small business owners can also lose their financial security if the business defaults on loan repayments.
  • If you own a business, avoid being held financial hostage by the lending institution or forced into liquidation.

Can life insurance reduce the risk associated with family businesses debt? You can solve this to a degree in a family business such as a farm by insuring the oldest and succeeding generations using joint-first-to-die life insurance policies or individual plans. Where there are non-family businesses, each owner/partner should be insured to cover the debt. When the life insured dies, the tax-free life insurance proceeds can be used to pay back loans and essentially win back ownership and discharge any liens of personally owned assets.

What if there is a Critical Illness?  Also, for the same reason, consider purchasing a Critical Illness Insurance policy on each principal business owners and key persons. This product could provide a substantial sum of money to pay off debt if one were to experience a major illness such as a heart attack or stroke. If an individual were to be incapacitated, he or she may need to be bought out by a partner or an heir (there should be a buy-sell agreement in place). The risk of a loan being called increases when an owner-manager is critically ill, and the bank manager loses confidence in the stabilizing influence of that owner.

Group Benefits and Employee Addictions

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Ten percent of the Canadian population report symptoms consistent with substance dependency. In the USA, the ratio is similar.

Source: Statistics Canada

Employers may watch for:

  • regular absence patterns
  • late for work
  • poor focus affecting production
  • confused about directives
  • appearing tired or stressed, or lazy
  • not collaborating well with other employees
  • a short temper
  • increased mistakes or wrong interpretations of duties

Have a policy for your employees who may suffer from substance abuse. Employers may have to find ways to approach, address, manage and/or get counsel for an addicted employee. The policy can also advise that your company suggest accessing an organization’s employee assistance program (EAP).

For an employee who suffers from an addiction to be eligible for group benefits, a group benefits plan may require that the employee disabled by addiction be introduced to a treatment program.


 

Group Critical Illness Insurance

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Group Critical Illness Insurance 

News of a critical illness can be very upsetting to a plan member. When you can offer them financial support during a difficult time with a Group Critical Illness Insurance plan, the employee can manage with the extra resources better.

Group Critical Illness Insurance Allows the critically ill to focus on recovery rather than worry about finances. It pays a lump sum amount when a plan member is diagnosed with a covered life-threatening illness.  The insurance benefit payment can be used as the plan member chooses. It is available to plan members and dependants.

Once a claim is approved for someone diagnosed with a covered illness, he or she is paid a lump sum. The money may be used however the person chooses, such as private nursing or medical care, modifications to a home or childcare costs, allowing the person to focus on recovery and managing the illness.

You can offer Group Critical Illness Insurance to plan members and their dependants while giving them an option to purchase additional coverage for themselves and their spouse. Benefits can be structured as either a flat amount (i.e. $25,000 to $100,000) or a multiple of the plan member’s salary.

Covered illnesses

Most standard plans cover these common major illnesses:

  • Heart attack
  • Stroke
  • Coronary artery bypass surgery
  • Cancer

Dependent on the plan, it may cover the illnesses above, plus:

  • Alzheimer’s disease
  • Aortic surgery
  • Benign brain tumour
  • Blindness
  • Coma
  • Deafness
  • Heart valve replacement
  • Kidney failure
  • Loss of independent existence
  • Loss of limbs
  • Loss of speech
  • Major organ transplants
  • Motor neuron disease
  • Multiple Sclerosis
  • Occupational HIV
  • Paralysis
  • Parkinson’s disease
  • Severe burns

Business employee retirement planning

Employee Retirement Plans incorporate the following:

• Analysis of available investment vehicles and associated yields
• Investment tracking and reinvestment alternatives
• Individual financial and investment consulting
• Establishment and management of individual registered and non-registered retirement savings plans such as:

• Self-directed RRSPs, group RRSPs, & RESPs with the following investment alternatives: investment funds, segregated funds, and labour-sponsored funds.

Group Retirement Options

When your employees retire or are approaching retirement, they will need help through this period of change. Professionals are available to educate your employees about all available retirement income vehicles.  We offer the expertise and services to ease the transition to retirement for your retirees:

• Retirement consulting
• Retirement income projections
• Establishment of retirement income vehicles such as RRSPs, RRIFs, LIRAs, LIFs, annuities

Individual Group Investment Products

Whether you are making investment contributions to save for future expenses or retirement, the Group Investment Program allows you to take control of your personal portfolio and achieve your financial goals with peace of mind.

• Lower investment management fees
• No front- or back-end sales charges
• No deferred sales charges
• No minimum investment
• Self-directed RRSPs
• No annual administration fees
• Consolidated statements

The Registered Education Savings Plan (RESP) for Educational Planning

Facts about an RESP

A Registered Education Savings Plan (RESP) is a savings plan registered with the government that can help you save for your child’s post-secondary education.

Money invested in an RESP grows tax-deferred. The government helps contribute to your savings with education grants.

Later in life, as your child enrolls at a qualifying post-secondary institution, you can withdraw the funds for educational purposes. The payments made from these funds are called Educational Assistance Payments (EAPs).

Invested income and government grants received when withdrawn from the RESP are taxable. You do not pay tax on the contributions you made using your own money. Then these amounts are taxed in the tax return of the student – usually with little or no tax payable as students generally will be in the lowest tax bracket.

How do RESPs help my money accumulate?

  • Starting to use an RESP for your child early, while they are young, gives you more time for your contributed funds to grow.
  • The Canada Education Savings Grant (CESG) will match 20% of annual contributions, up to $500 per year
  • These contributions can continue until you reach the lifetime limit of $7,200 per child
  • Investing your Canada Child Benefit can assist you while saving enough to qualify for the maximum CESG amount

Federal Government-funded education grants

The Government of Canada supports saving for a child’s education by offering grants to a child’s RESP – offering you additional funds to accumulate educational savings.

The Canada Education Savings Grant (CESG)

The basic Canada Education Savings Grant (CESG) increases your year by year contribution by 20%, up to $500 per beneficiary each year to a lifetime limit of $7,200 per beneficiary. Additional CESG grants may be available, depending on your income.

Please talk to us for more information about the RESP and the CESG grant as it applies to your province.

Source: CRA

Education’s effect on future income

How parents help shape the financial future of their children

In Canada, the government allows a welcome tax break when you save for your child’s education. As parents, we need to consider the effect that education will have on the future income and lifestyle of our children.

The Internet is bringing many changes quickly: Amazon is replacing many of our once-renowned retailers. Google sweepingly controls business success: who gets to view your website and consequently buy your services is based on paying for Google AdWords. The world has moved into one of the most profound eras of change in human history. Our children, for the most part, are just not prepared for this new reality. The gap to accessing a secure income, or obtaining a job with a substantial retirement pension is widening.

Parents who can see the chaos, the economic uncertainty, the stress and the complexity in the world, know intuitively that the new wave of robotics and artificial intelligence (AI) call for an educational revolution. Our children must be able to get a post-secondary education while aiming for higher accreditation in a career known to provide substantial income that keeps up with inflation. Serious financial planning can provide significant funds to go to university or college. The Financial Comfort Zone Study found the following:

“Canadians who establish registered education savings plans (RESPs) for their children are setting their kids up for financial success later in life because there’s a direct correlation between having post-secondary education and wealth”.1

The study revealed the following:

• Among those holding a postgraduate degree (the highest level of education), 23% have investible assets of $500,000 or more, whereas approximately only 11% if the schooling is at the post-secondary level.

• Of those with only a high-school diploma, only 8% have investible assets of $500,000 or more, while 72% have investible assets of $100,000 or less.

Parents can influence the education of their children by fostering the right attitude toward the need for educational training for a financially sustainable future.

“Among parents who gave education a high rating of importance and who had one or more children living at home, 49% indicated they had established an RESP for their children. Similarly, 45% of parents who gave education a medium rating of importance and who had one or more children living at home indicated that they had established an RESP for their children. In contrast, only 15% of parents who gave education a low rating in terms of importance and who had one or more children living at home had established an RESP for their children.” 2

What ways can we plan for our Child’s education? Consider using both the traditional Registered Educational Savings Plan (RESP) and the Tax-Free Savings Account (TFSA) as an educational savings vehicle. A TFSA offers parents another tax-efficient method to provide for education planning.

1 Credo Consulting Inc. and Investment Executive

2 ibid

Is your RRSP ready for you to retire?

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The Canadian government regulates the Registered Retirement Savings Plan (RRSP) program, allowing it to have unique tax benefits as you save for your retirement. Annual RRSP contributions can reduce the amount of income tax you pay in the year of your contribution. These monies invested annually grow on a tax-deferred basis, and tax is only paid at the time of withdrawal. RRSP Planning is a very integral part of your investment planning.

Have a look at the graph below to see how RRSP money accumulates over time based on a maximum annual investment.

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Your investments grow tax-free Your RRSP investments accumulate within the plan tax-free, as do any addition to your contributions, including capital gains, interest, dividends, and any other growth via dividends or distributions paid out on an investment fund. The longer your money stays sheltered from the taxman, the greater the tax-free accumulative earning power of your investment. However, taxation occurs once income is withdrawn from your RRSP.

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Planning Together – Spousal RRSPs and Tax

A spousal RRSP allows a couple to place assets in the lower-earning spouse’s registered account. The benefit of this manoeuvre enables the account owner to withdraw more in retirement at a lower tax bracket while retaining spousal RRSP ownership, controlling the choice of the RRSP investment vehicles. The owner also governs when withdrawals are made and pays the income taxes upon withdrawal (if the funds have been in the account for three years).

What happens when the RRSP account holder dies?

For estate planning purposes, upon the decease of the account holder, the RRSP is paid out to the beneficiary designated for that account.

How Much can you contribute to your RRSP?

Your Contribution Limit To find out your allowable  RRSP contributions you are allowed to deduct for your income taxes, check Last Year’s Deduction Limit Statement on your latest Notice of Assessment or Notice of Reassessment. Canada Revenue Agency (CRA) establishes guidelines for the minimum and maximum overall yearly amount a person is eligible to contribute to their RRSP. The basic formula used to determine a taxpayer’s eligible contribution is as follows: 18% of earned income minus any Pension Adjustment = the eligible contribution amount.

Who can contribute to an RRSP? All Canadian taxpayers with “earned income” in the previous tax year, or those having unused contributions carried forward from previous years can contribute to their RRSP. A person is eligible to make contributions to their RRSP until December 31 in the year they reach age 71, provided that they have contribution room.

Two methods of contributing to your RRSP You may invest by purchasing a lump sum investment prior to the deadline. The alternative is to invest on a monthly basis using dollar-cost averaging. You can always top up your RRSP contribution (up to the allowable limit), just prior to the deadline year by year.

The RRSP limit Table

Source: CRA

Revised: January 2021

Plan your RRSP Ahead to Reduce Taxable Income

It pays to plan your RRSP contributions before the end of the year to reduce your taxes that will be due on the current taxable year. To achieve this, assess your income and calculate how you can optimise the use of an RRSP to reduce your taxable income.

You may have Carry-forward Contribution Room

If you have not previously invested up to your maximum RRSP contribution limit, CRA allows you to carry over unused contribution room into future years for an indefinite period. Look on your Notice of Assessment.

What can you deduct on your tax return?

You can claim a deduction for:

  • contributions you made to your Registered Retirement Savings Plan (RRSP), Pooled Registered Pension Plan (PRPP) or Specified Pension Plan (SPP)
  • contributions you made to your spouse’s or common-law partner’s RRSP or SPP
  • your unused RRSP, PRPP or SPP contributions from a previous year

You cannot claim a deduction for:

  • fees charged to buy and sell within a trusteed RRSP
  • amounts you pay for administration services for an RRSP
  • the interest you paid on money you borrowed to contribute to an RRSP, PRPP, or SPP
  • any capital losses within your RRSP
  • employer contributions to your PRPP

What is the deadline to contribute to an RRSP, PRPP, or SPP for the purpose of claiming a deduction on your tax return?

The Income Tax Act sets the deadline as “on or before the day that is 60 days after the end of the year”, which is March 1st except in a leap year, when it will be February 29th; or where the deadline falls on a weekend, it may be extended.

Can contributions be made to a deceased individual’s RRSP, PRPP, or SPP?

No one can contribute to a deceased individual’s RRSP, PRPP or SPP after the date of death. But, the deceased individual’s legal representative can make contributions to the surviving spouse’s or common-law partner’s RRSP and SPP. The contribution must be made within the year of death or during the first 60 days after the end of that year. Contributions made to a spouse’s or common-law partner’s RRSP or SPP can be claimed on the deceased individual’s tax return, up to that individual’s RRSP/PRPP deduction limit, for the year of death.

What is not considered an RRSP, PRPP, or SPP contribution?

The following are not considered to be an RRSP, PRPP, or SPP contribution for the purpose of claiming a deduction on your tax return. We can point out the special rules that apply if you:

  • repay funds that you withdrew under the Home Buyer’s Plan
  • repay funds that you withdrew under the Lifelong Learning Plan

Note: It is recommended that you get more information on this subject by calling our office or your accountant.

How is your RRSP/PRPP deduction limit determined?

The Canada Revenue Agency generally calculates your RRSP/PRPP deduction limit as follows:

The lesser of:

  • 18% of your earned income in the previous year, and
  • the annual RRSP limit

Minus:

  • your pension adjustments (PA)
  • your past service pension adjustments (PSPA)

Plus:

  • your pension adjustment reversals (PAR), and
  • your unused RRSP, PRPP, or SPP contributions at the end of the previous year

Source: CRA

Revised: Jan 21