Life Insurance – Page 4 – Adviceon Library

How can I reduce Probate or Estate Administration fees?

After the death of an individual, every estate must file a final (or ‘terminal’) tax return. All assets are deemed to disposed of at the time of passing, and this can trigger probate fees and other expenses.

A certificate of appointment (“Probate”) or Estate Administration Tax (EAT) is not always necessary to actualize the transfer of certain assets. Much depends on how the asset is held during one’s lifetime, and the value of the asset transferred. Some institutions will not require probate for assets under a certain amount. Concerning jointly-owned real property, and bank or investment accounts, these assets will pass to the surviving joint tenant by right of survivorship. In cases where joint ownership of assets is considered for estate planning purposes, it would be prudent to obtain legal advice.

Life Insurers offer life insurance policies, segregated funds, and term funds, which may designate one or more primary beneficiaries, and further contingent (secondary) beneficiaries, allowing probate/EAT to be circumvented entirely, enabling direct access to those funds without joint ownership or survivorship of a joint tenant. Segregated funds and term funds are classified as deferred annuity policies, and as such, these assets can help lessen the overall fees charged on your estate. Monies pass privately and directly to your beneficiaries, outside of your estate and the probate process.

Concerns for Estate Planning

In Ontario, Probate fees were the forerunner of the new Estate Administration Tax (EAT), which is to shift to the Minister of Revenue. An Executor/Trustee will now have to file a detailed summary of assets that are distributable under the will. The Ministry reserves the right to take up to 4 years to assess, or the right to reassess, making the Executor/Trustees responsible for that reassessment. Executors and beneficiaries may face liabilities if estate assets distribute before assessment or reassessment. How does an Executor reclaim assets already distributed?

Assessment powers are not minor With the introduction of the estate administration tax (EAT), the government has given the Minister of Revenue audit and verification powers patterned after the federal Income Tax Act, thus giving the Minister of Revenue the right to assess an estate in respect of its EAT liability.

Estate trustees may be personally liable for the claims of creditors that cannot be paid as a result of an improper estate distribution. It will be an offence for an estate trustee to fail to make the required filing with the Minister of Revenue or where anyone makes, or assists in making, a false or misleading or omitted fact in connection with the estate trustee’s filing. Because offences are punishable by fine, imprisonment or by both, errors and omission insurance may be needed by executors handling larger estates.

Potential Legal Issues for Estate Trustees and Executors
Imagine if you are a personally chosen friend of a deceased person with $1.5 million in assets, who previously selected you as Executor/Trustee of his or her estate. Though duty-bound, you may feel that the risk is now very high if an error occurs. Consequently, you may want to off-load the potential liability to a professional accountant and lawyer to present all the documentation for EAT.

Consider that the costs of such a transfer of liability could rise to the maximum of 6% per professional (two professionals would mean 2 x 6%) of the value of the Estate. This could bring the total cost of dealing with EAT to a maximum of 13.5% of the estate value. In the above case, fees could cost upwards of $202,500.

Segregated and Term funds may offer investors an edge over other investment products in the province of Ontario when it comes to planning someone’s Estate. Segregated and Term funds also offer estate privacy of the distribution of money under the insurance act.

Note: Not applicable in Québec as notarial wills do not need to be probated by the court and, for holograph wills and wills made in the presence of witnesses, probate fees are minimal.

How do I care for my aging parents?

Here are some tips to help you lighten the load of Elder-Care:

• Plan your caregiving carefully. Don’t be ashamed to ask for and get help from your siblings or others when caring for a family elder—let others share the load—tell them how they can help, and let them know you expect it! They can clean, cook, take them to the doctor, shopping, or church, and take them to their home for a little break/holiday, etc.
• Be honest about what you can truly handle. Be honest about your time when you are home and what you can realistically achieve. Don’t let your housework stay undone due to your over-commitment to the elder. That isn’t fair to you or your family.
• Assess government and public resources. Find out what services are free or available as paid-for services—learn what your community offers in senior care.
• Prioritize your to-dos. In this way, you’ll know what needs immediate attention, such as their physical comfort and safety. Determine if any problems, such as a lack of heat or air-conditioning, water leaks, or mould accumulation in the elder’s environment, needs attention. Delegate help to family members or friends concerning their skill set, career, or financial ability to help.
• Assign care tasks to the elder that they can do. List the jobs to define what they can and can’t do. Involve the elder as far as possible in the plan, if they can cook their meals and bathe themselves, and let them know this is henceforth expected of them.
• Outsource where needed. Discuss who you might hire with the elder, and where applicable, expect their input in the decision. Maybe you must bring in a house-cleaner weekly and hire a handyperson.
• Let the elder assist you financially. You may be putting them up in a space in your home, and they might use your resources, so it is not out of line to ask them to help pay your bills (perhaps via rent). The elder is now retired, so they ought to reach into their investment income (if they have wisely invested or have gained other assets) or pension income to share in the expenses and perhaps buy and prepare their food.
• Decide to make informed decisions. Don’t procrastinate to make the necessary changes and improvements because years of frustration may accrue as “things unattended only to get worse”.
• Meet with a lawyer and financial advisor. If the relative increasingly depends on you to help in their estate planning, employ a good lawyer they can trust; write an up-to-date living and testamentary will.
• Review to determine if there may be life insurance needs for the funeral and burial expenses ahead of time. If there is, consider buying a policy and have siblings or heirs split the premium.
• Assess any tax and debt liabilities. Assess retirement savings, investment holdings, other assets and all liabilities to create a mini net worth snapshot to determine the potential net need for life insurance. Then select the amount necessary. Check if any cash values can make current cash income while maintaining an old policy the elder may own. Determine who will be the Power of Attorney (PA).
• Become an advocate. Don’t be afraid to take the elder’s side. Many are not used to today’s current culture and need kind understanding. So speak up for their rights and causes; never bully them or ignore their cries for help or justice as they face our healthcare system, unfair medicinal prescription fees, or rude gestures from others. Dialogue with physicians (and get second opinions) when necessary for their well-being.
• Maintain a happy attitude. If you keep your good humour and remain positive, you’ll lessen the stress factor. Caring for elders can tip your emotional scales, so laugh a little, even at yourself!
• Review and respect their historic life’s excellent and fun aspects with you. One day your elder won’t be around to show your appreciation and love for their positive role in your life. Tell respectful stories about their hero or heroine qualities. They probably did rescue you by overseeing your younger days while feeding and clothing you. Don’t put them down for failures—forgive them. They may have “been there” for you, so recall the best days of their life to realise they were needed, appreciated, and loved for who they are.
• Maybe write a book on their story. Why not review their life story in a journalised small book of their history—to leave a legacy to your family to show appreciation and take your mind off the stressful negatives? It may reveal redemptive qualities; to teach your younger generation by example—to impress the younger generation by the elder’s influence, such as perhaps: their character developed by war, or persistence during poverty, or a corrective life-change, their hard work that led to business success, or a healed relationship via forgiveness, or their involvement in charitable giving, or their volunteer work to help others, etc.
• Stay ahead of burnout. Get some rest and exercise weekly to protect your mental and physical health. Fulfil all your responsibilities, and maintain all your meaningful relationships. Be sure to get the R&R you need to stay graceful, strong and vigorous as your elder ages and becomes more dependent on you.
• Find unanimity in an elder-care support group. They can share their ideas and help you make decisions, help you not to feel alone, and help you face stresses and problems as they relate their wisdom obtained by experience. Getting ideas and compassion from other caregivers caring about you doesn’t hurt.

Caring for an older adult is not a job that comes with training or gets a lot of thanks—it is something you take on, usually out of love. It can be an unappreciated Herculean effort—but at least you’ll know you did your best at the end of the day. Your love is what counts.

Every so often, you can take a self-inventory and restate your primary purpose in caring for an elder. This will help you overcome the temptation to complain, throw in the towel, or send the elder to a rest home too early.

You may want to consider Longterm Care Insurance for yourself or your loved ones, which helps pay for services the family members may not be able to provide. Talk to your advisor about the life insurance policies available for these services.

How do I protect the finances of the Successor of my Business?

Here are ways to protect your successor financially.

Allow the potential successor to get involved in managing important team projects. Try to increase the successor’s financial insights and general responsibilities over time. Allow independence while ensuring that the right professionals assist the successor, such as a good accountant and insurance agent.
Consider visiting other family businesses that have transferred their business through continuity planning.
Establish mentors and advisors for the successor. Consider setting up a board of directors if one is not in place. Implement leadership training programs.

We do not suddenly become what we do not cooperate in becoming.— William J. Bennett

Protect your assets during Succession in the following ways:

Cover your key persons. Use life and disability insurance to cover the cost of replacing an owner, successor, contingent successor, or a key executive in the event of death or disability.
Ensure debt redemption. Life insurance proceeds can pay off bank loans and other liabilities—paid at the owner’s death. Also, consider critical illness insurance, which would pay up to $2,000,000 if the proprietor were to become critically ill.
Provide income replacement insurance. Disability insurance benefits can provide income to an owner, successor, or key executive if disabled over specific periods. The payment paid as a benefit to a disabled insured, places less payroll burden on the company.
Fund a buy-sell agreement. Life and disability insurance proceeds can fund a buy-out upon death or disability, where two or more owners are in business (effective for current or succeeding generations).
Fund a stock redemption. When other members of the family own stock, you can buy life insurance for the owner and make the successor the beneficiary. This will provide cash upon the owner’s death to allow the successor to buy the stock of, say, sisters or brothers, based on a pre-determined formula related to equalizing the estate.
Fund capital gains tax liabilities. If significant capital gains will impair the company, reduce personal assets, or disallow a legacy of a cottage or other asset, use a permanent life insurance product designed to pay off all capital gains liabilities.
Create capital to equalize your estate. In the future event where one child will inherit the company, life insurance can be purchased by the owner or spouse to pay the non-involved children a tax-free cash benefit in predetermined amounts, clear of probate. To avoid resentment, you can inform these children that they will be treated fairly in the overall estate.

Let him, who would move the whole world, first move. — Socrates

Maintain relationships during succession

Keep your banker informed. What would your banker do if something happened to your firm’s current owner? Who else knows of the company’s loans or actual financial status? Introduce your successor (and the succession plan) to your banker and review all the company liabilities. Reveal your life insurance planning to the banker that can offset liabilities in the balance sheet.
Sustain client relationships. Introduce your successor early on to your key clients. Perhaps host client appreciation events.
Harmonize the successor with the constituency. The key players will help the company survive, including critical suppliers, influential families within and without; shareholders you hope will seek minimal dividends instead of future growth; employees, especially those holding company stock; and the key executives.
Diversify sources of retirement income. Keep your retirement investments separate from your business. Consider purchasing segregated funds, separating your assets from the company while reducing exposure to creditors. Avoid investing your profits into the business without developing your independent retirement resources. Thus, you will not need to rely on the company to create an ongoing retirement income, though you may receive dividends and income from the business.
Move towards financial independence of your business. Though you leave a legacy to your successor(s), you can ensure that the inheritance will have sufficient funds to survive during and after the succession. Drawing from your retirement savings can reduce dependency on business income (or dividends).

Invest by paying yourself first

Some people never pay themselves first.

After most people have paid for their necessities, there seems to be little left over for investing.

Determine your perspective on investing. Always spending and never investing is a serious dilemma often based on a certain mindset that can easily change for the better. Do you view yourself as a consumer or an investor?

If you see yourself as a “consumer”, you may experience that there is never enough paycheck left at the end of the month for investing. However, is this caused by a lack of income or your own spending patterns? The first barrier to investing is a “perceived lack” of investment capital, often not reflecting reality. Unfortunately, what we think often becomes our reality.

Investors have personal discipline Conversely, “Investors” take an honest mathematical look at their expenses, separating discretionary income from what one needs to live on, knowing that impulsive buying decisions, even to purchase many small things on sale can add up.

This disciplined viewpoint allows them to have money to invest. Once paid, the first “consumption” decision can be to purchase an investment suitable to their goals and objectives. The rest of their paycheck is then spent with no worries on required consumption for the rest of the month.

Investors get good advice, and then act. Many people are impatient or confused when it comes to the science of investing. True “Investors” all have a key characteristic that makes for success — taking the right action with professional advisory assistance. They also understand that without experience and knowledge, investments decisions can be made in haste, and potentially destroy an otherwise good investment plan.

What are the 5 Laws of Wealth Creation?

Here are five wealth creation principles that will remain true forever.

1. You must get time on your side by investing early in your lifetime. Time adds value to money. Delayed investing shortens your time, which increasingly requires the compensation of higher and higher returns to meet your retirement goals. Examine the following graph to see how time affects your investment growth.

Source: Financium

2. Your investment growth must exceed inflation. If you earn 8% on a $10,000 investment per year, over 20 years with inflation at an average 4% your actual investment will grow to $457,620, but your actual buying power in the future will only be $208,852 (while your money is growing, inflation is increasing the cost of goods). The graph below indicates how inflation might affect your investment’s future buying power.

3. Algebraic factors apply to investing. You can indicate your multiple on capital invested by applying mathematical rules, factoring in both time and rate of return.

· Double Your Money: Rule of 72. To find out how many years it will take to double your money, divide 72 by your average annual rate of return.

· Triple Your Money: Rule of 113. Divide 113 by your average annual rate of return to see how many years it will take to triple your invested money.

4. Taxation can reduce your investment returns.

Every dollar of tax retained through tax-planning is a dollar earned.

· Deduct what you can against your income. Business owners have the advantage of deducting many operating expenses from their revenues.

· Contribute to registered investments. For both business owners and employees, registered investments may allow deductions against earned income and may offer tax-deferral.

· Defer as much taxation as possible. The beauty of registered investments is that they allow some tax planning benefits depending on your income, and capital available to invest.

5. Become an active investor. It is important to begin investing early in life when you get your first job or begin your career. By beginning early, you can have the above stated mathematical laws of doubling and tripling your money working for you. Many wait far too long before investing and lose the value that time can add to a good investment portfolio by increasing the future accumulation of investment money.

The following table will let you know just how much you will need to invest to accumulate one million dollars.

Source: Financium

What is a Power of Attorney (POA)?

If you were to have a stroke, heart attack, or severe operation—a disability to which you could not take care of your affairs, who would take over? What if this was the last day you could make a mindful decision on your behalf?

You transfer directorial powers over your affairs to a Power of Attorney

In such a situation, a Power of Attorney (POA) allows people you trust to manage the prescribed affairs of your life.

Without a POA, your family though ready to pay your bills, and help manage your bank account and your investments, for example, may need special court approval to act for you. They could face a bureaucratic nightmare to acquire authority to pay your bills (from your provincial public trustee).

• Clarity can be defined. A POA leaves no room for misunderstanding the range of authority over your assets. You may need to set restrictive clauses in a POA that addresses your unique concerns.

• You will give up the powers of your signature The POA relinquishes the control of your signature and all the authority associated with it. Unless it states otherwise, the attorney may use a POA immediately upon signing.

• It must be witnessed. Improper witnessing annuls legal completion and sets the POA up for contention. Thus make sure the document is witnessed correctly.

• Be careful of restrictions you may not want to be included. Some broad-form POAs include optional clauses often left included, whereas they may not be applicable. These may have regulations on the attorney you may not want to impose.

• You may want to restrict beneficiary changes. If you want the attorney to have power over changes of beneficiaries to life insurance or investment assets, make that clear. If not, clearly restrict the right to change beneficiaries.

A warning which may or may not apply to you

Unfortunately, once authorised with your directive powers, an attorney could feel it is their privilege to become an “empowered benefactor” of your (you, the donor’s) estate once they lose capacity. So, having a lawyer articulate your specific wishes in your Power of Attorney documentation is a good idea.

To empower and entrust another with your authority, may be the last time you can make a responsible decision on your behalf, so make it carefully.

Where significant wealth is involved, consider a POA explicitly designed to give powers to assist in governing your financial affairs.

Why do segregated funds have higher management expenses?

What the higher expense pays for

The insurer holds a reserve in relation to the several guarantees provided in the policy contract. Due to market fluctuations, it is especially important that actuaries calculate and hold reserves needed to pay any future liability due to a capital loss.

Guaranteed Capital Protection Because of the need to assess and insure the portion of capital guaranteed, insurers must be involved. A slightly higher management expense ratio (MER) pays for these capital-conserving features.

Retirement planning advantage Some segregated fund policies allow for additional insured security, promising that a pre-established monthly payment of segregated fund premiums (i.e., investments) will continue on your behalf in the event of a disability. Consider how valuable this pledge would be to your retirement if you could no longer work.

Business plans must include retirement planning

Many business owners focus on their business and must remember to invest seriously for retirement.

The Retirement myth of the Entrepreneur: Most business owners believe their company will provide investment capital when sold, or if passed on to the next generation, a salary or dividend payments. For some, their financial stability rides on the company’s future success.

Make hay while the sun shines. Don’t be overly optimistic that your company will succeed and create good revenue forever. Planning becomes necessary when a business represents an estate’s significant value. You may make hay while the sun shines, but be sure to stack a lot of it away for future use.

Many are not convinced that they need to plan their estate or the succession of their business. Despite the economic importance of their business, most business owners are still determining the tax liability 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
RRSPSs/RRIFs (taxed when both spouses die)
TFSAs
Sale of real estate or a significant asset.
Non-registered investments

We are all ageing despite our business successes. Please take the time to do some essential estate planning to figure out who will take over the company and where your retirement income will come from. Review your personal and corporate-owned life insurance, disability coverage, and key-person insurance. Revise or complete both your will and power of attorney.

In some cases, paying relatively small life insurance premiums can entirely solve the estate’s future capital gains tax problems or generate capital to replace the tax that may be payable in your estate. It is essential to purchase insurance currently versus when older or health declines. If your health is a concern, ask your life insurance specialist if he can search the market for you.

Life insurance can eliminate company debt and help a succeeding son or daughter with new business capital. Finally, it can equalise the division of your estate among all of your heirs.

Note: Life and disability insurance taxation vary in accord with the strategies used by the life insurance specialist, changing legislation, and hiring an accountant to guide effective business strategies relative to succession or an estate.

Financial strategies affect your net worth

To know the state of your fiscal health, you must have a personal financial health check up. Your financial advisor will help put perspective on your diagnosis and how in shape you are for retirement.

Strategies can be designed to form a comprehensive plan to enhance your net worth as you move towards financial independence, secure in the knowledge that a retirement can become a reality secure with sufficient income.

Your annual net worth statement is the benchmark measure of your ability to become financially independent. Net worth means the same as net assets – the assets you have left after you subtract your debts.

Why do this annually? Time waits for no one. Retirement approaches faster than most people admit. Consider how quickly the last five years has passed. Double this time back ten years to the 2008 financial crisis which woke the whole world to the need for financial guidance.

How can I know my net worth? Simply add up your liabilities compared to your assets. Subtract your total liabilities from your total assets to give you your net worth.

You gain awareness of your debts. Debt totals warn against spending beyond our means. Compound interest on a growing credit card debt at 18 to 28% can strain your cash flow. Always set goals to reduce debt.

Investment planning results become evident. Your net worth statement reveals all of your accumulated assets, including your RRSP, TFSA, and non-registered investments, putting them all into perspective. You may find that you need to rebalance your investments. You will also see which are performing well, suited to portfolio growth. While employed, this gives you a retirement metric concerning your future income goals to help you see how close you are getting each year.

It reveals opportunities for further financial solutions. Picture each financial need in contrast to your net worth snapshot. What have you saved for each future goal? Where has your income been going? Do you have home equity built up or do you still have a large mortgage? Is a Home Equity Line of Credit (HELOC) eating away at your assets? It can reveal the importance of keeping your credit cards paid monthly.

Estate & Tax Planning can affect your final net worth. To draft a will, you need to know your ultimate potential net worth inclusive of business assets. Identify capital gains tax liabilities or tax on a vacation property. Your registered monies (RRSP/RRIF) will be fully taxed after the death of the second spouse (in most cases). Assess the final estate tax liabilities on your assets now. Consider that life insurance offers the easiest solution for projected estate related tax debts.

Business planning can be enhanced. Succession planning simplifies the transfer of a family’s business assets to the next generation. Often a simple life insurance planning manoeuvre can ease the effect of capital gains tax or provide for a future buy-sell agreement upon the death of the principal business owner.

Why is succession planning integral for business owners?

Getting into business is a lot easier than getting out. Many successful family businesses have accrued capital gains in the millions. The tax payable is so high that the business cannot afford the liability once the owner dies at least without liquidating.

One way to cover the tax liability is to save for it. The problem arises if the owner dies too soon, or the money gets used for an emergency or a new opportunity, or if the savings goal is impossible for the company to achieve.

A business owner’s retirement may depend on an estate plan.

Many business owners base their personal financial stability 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.

Find out what your tax liability will be. Despite the financial importance of their business, most 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.

Frequently review your capital gains tax liability. In some cases, the payment of relatively small life insurance premiums can entirely solve the estate’s future capital gains tax problems, and/or generate capital to replace the tax that will be payable on your RRSPs when both spouses die.

When you buy life insurance it immediately covers the entire estimated liability risk, which is due. The benefit is paid upon the owner’s death (or the death of a surviving spouse).

Put succession planning on your agenda. Consider taking the time to do some succession training when you are active in the business, passing on what you know, while unifying current action with your estate plan. Sometimes successful business owners, while waiting for the perfect person to take over, run out of time.

Determine who will take over the company. If you are a family member, an employee, or a competitor, you will need to begin negotiating with your successor(s). Income from a good succession plan may nicely increase your retirement income. Therefore, it is good to know where it will come from.

Keep your legal documents current. Revise or complete both your will and power of attorney. Review your personal and/or corporate-owned life insurance, and disability coverage.

Establish or update your buy-sell agreement. Make sure your buy-sell and key-person agreements and applicable life insurance, is current and sufficient to cover your succession plans.

Other uses of new business capital offered by life insurance. A sole owner may buy enough life insurance to add capital to offer additional financial stability where a wife, son, or daughter goes through the transition to actually run the business. Insurance can also eliminate company debt to give a succeeding son or daughter a fresh start. Finally, it can fairly equalize the division of your estate among all of your heirs.