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.


 

What options does Buy-Sell Insurance give business owners?

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When a co-owner/partner dies, the surviving business owners usually have five options in dealing with the deceased owner’s business interest:

1.   Buy-out the heirs of the partner with Life Insurance proceeds: This is usually the most preferred option. After all, the surviving owners/partners know how to run their business. It usually makes sense to buy out the heirs who are not engaged in or lack expertise in the business and carry on business from there.

2.  Keep the heirs in the business.  This would only be advisable if the heir was actually involved in the business for some time, or has skills that can advance the cause and profitability of the business.

3.  Take on an outsider who purchases the deceased’s business interest. A good buy-sell agreement can circumvent the need to have an outsider buy into your business if that arrangement would harm the current business partnership or the business. In some cases an outsider may already have an investment in, have expertise in, or a common business goal with your company that would mutually benefit everyone in the business. In this case, advance planning could allow such an individual to be part of buying side of the buy-sell agreement. The same individual may need to be a beneficiary on the insured lives of all the partners, in tandem with being written into the agreement.

4.  Selling to the heirs may be an option. This may be an option when some of the heirs are involved and successful in the same line of business with primary senior family members of the earlier generation who began your business. In this case the considered heirs, should receive funding from the proceeds of a well-planned fund to cover capital gains taxes, and fund operations, and pay for the owners shares.

5.  Liquidate the business or sell it to a third party. If this is the main goal, it is wise to involve discussions with the potential buyer long before one dies. If the business is large you may need to hire a firm that specializes in valuing and selling businesses. It is wise to estimate your capital gains exposure and cover any tax liabilities, as well as redeem business debts with the proceeds of life insurance which can be paid out tax-free.

In most cases, option #1 offers the business owners the best choice, with a small expenditure to buy life insurance that makes a payment to heirs with the use of a buy-sell agreement.

Financial strategies must be organized categorically

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It is critical to take responsibility and save for retirement

In the information age we are inundated with data, to such a degree, we can get distracted from our principal wealth creation goals. Neuroscientist, Dr. Daniel J. Levitin points out in his book, The Organized Mind, with regard to a never-ending stream of social media, news, and career info, that “our brains are hungrily soaking all this in because that is what they’re designed to do, but at the same time, all this stuff is competing for neuro attentional resources with the things we need to know to live our lives”. And one of the key things we need to know is how to get our finances on track for retirement!

Why people fail to plan A recent article in CNN noted after surveying 1,000 people about retirement that “many people spend more time researching which car to buy or where to go on vacation than they spend on their investments — more than half said they had spent five hours or more doing research the last time they bought a car, and 39% said they spent more than five hours exploring vacation possibilities. Meanwhile, a mere 11% said they had spent that amount of time evaluating investment options”. Levitin makes a case for the need for categorical thinking if we are to wade through the information best suited for our lifestyle. Applying his wisdom, the secret is to determine how you break down your financial strategies categorically speaking, and then determine how you prioritize your processes in relation to your goals. By asking how you organize your finances it forces you to look at and list the most pertinent categories with a realistic application for financial survival:

Organize categories as retirement priorities.

There are many factors to consider in the cycle of ongoing, systematic strategic financial organization as you can see in the diagram above. However it is vitally important to apply your powers of concentration to organize strategy in the following key categories, areas within which financial advisors are trained to assist you:

  • Net worth Add up all your assets and subtract your liabilities to get your financial net worth.
  • Retirement income resources Within your assets of your net worth, determine the specific amount earmarked as saved for retirement from which to draw an income for a lifetime. Bear in mind that some of your assets will be fixed (not liquid for cash) such as your residence.
  • Weigh debt interest against investment interest Debt accumulation must be mastered as it will drain any good retirement plan.
  • Expiration potential of income resources Based on how long you might live – your life expectancy – calculate just how much cash the funds can deliver for your lifetime per month. Then based on how much you determine you will realistically need to cover expenses per month, calculate when the money would run out or if you have enough saved to last a lifetime. Add in pension income sources. Income resource planning needs to accommodate reasonably achievable long term goals while considering your risk tolerance.
  • Investment action plan You must have a systematic method of investing in order to beat the ravages of time and inflation.
  • Invest with a mind to save tax Utilize all the tax planning strategies available with the government’s registered accounts.
  • Invest for wealth creation If you have five or more years left you must invest if you haven’t reached your necessary accumulation from which to draw an income. Seek investment advice from a professional advisor.
  • Invest for wealth preservation Once you have accumulated your nest egg, develop strategies to protect against losing capital, yet remain invested in suitable vehicles for your age. The following graph will denote how much money is necessary for a prolonged period of time in retirement.
  • Get good investment counsel Here is the need to use a financial advisor who daily works in the realm of financial calculations while looking at your future income needs. An advisor will review your plans and investment performance periodically to help keep you on track.

Successful people delegate, so can you

Dr. Levitin points out that “successful people – or people who can afford it – employ layers of people whose job it is to narrow the attentional filter. That is, corporate heads, political leaders, spoiled movie stars, and others whose time and attention are especially valuable have a staff of people around them who are effectively extensions of their own brains, replicating the functions of the prefrontal cortex’s attentional filter”.

In the same way, in order to be successful at retirement planning you may need to engage the help of a professional advisor, someone who often does not charge for his or her services (some advisors are paid via other means), as well as fund specialists and/or investment managers trained to help you achieve financial success.

An advisor can help organize and govern your finances

Again, the logic of The Organized Mind, when applied to finance is simply to get financial guidance – applying the resources of fiscal counsel available. Levitin summarizes this concept of getting someone to handle the daily distractions of life – and unfortunately many view financial organization as a distraction lumped in with all the other media distractions, when it comes down to getting through a basic day, month, or year! Little wonder most people procrastinate when it comes to their finances.

These highly successful persons–let’s call them HSP–have many of the daily distractions of life handled for them, allowing them to devote all of their attention to whatever is immediately before them. Daniel J. Levitan Ph. D. – The Organized Mind -published by Allen Lane

We all want to be successful in our career and workplace as well as in our investment planning. Why not talk to your financial advisor about implementing an organized financial plan – bearing some of the burden to help you get on track – after you study the graph below depicting the capital needed on which to retire. And ask yourself, “is it time that I get help?”

CHART - Capital Needed to Provide Before-Tax Monthly Income

Graph Source: Adviceon

Perspective on how we perceive time to invest

The neuroscientist, Dr Daniel J. Levitan, in his new book, indicates why our time remaining to invest may pass by faster as we age compared to when we were younger. He explains, “that our perception of time is…based on the amount of time we’ve already lived.” The Organized Mind, (Penguin Canada Books, Toronto, 2014)

Time from a financial perspective

Dr Levitan’s observation may apply mainly to the anxiety people can experience, as they age. As the time to retirement shortens, some may begin to fear that they might not have saved enough for retirement. Procrastination takes its toll on compounding investment gain potential. When looking at an average retirement age of 65, the two tables in this article reveal the serious truth about dwindling of time and the shrinking opportunity time remaining to invest as we age year by year.

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Graph Source: Adviceon©

Time offers the opportunity to create wealth

We need to sincerely acknowledge the fantastic opportunity that investment time provides the investor. Most people have had lots of time within which to invest. At age 35 we cross over the halfway mark of the time remaining to invest our hard-earned income the age of 65; at age 45 approximately only one-third of our time is left! Look at the shrinking opportunity of time in the second table, revealing how as time passes, the availability to have compound gains working for you dramatically decreases.

Some parents begin wisely investing for their children right after they are born and get time working on their side early.

shrinking-opportunity-time

Graph Source: Adviceon©

Why does investment opportunity time get lost?

Greed and fear work against investing. Many people get caught up timing the market when influenced by either of the two emotions, greed or fear. Here’s why this never works. First greed compels people to buy when the stock market (and potentially a fund unit value) is higher. Conversely fear causes many to sell when the stock market’s value (and possibly a fund’s unit value) is lower.


When you can’t seem to begin investing, make regular investments in good companies to benefit from a method referred to as dollar-cost averaging (DCA) to level out the peaks and valleys of the market by purchasing at regular intervals of time. If the value of shares in a fund, go down, you buy more units. Conversely, if they go up, you buy less. It is time spent invested in the market, not timing the markets, that counts.

Don’t just look at an investment fund’s most recent performance. Instead look for long-term investment performance over one, three, five and ten-year periods. Moreover, make investment decisions with the help of a professional advisor who has access to investment managers.

Can life insurance collateralize business bank debt?

How banks view lending money to business owners.

Banks follow established rules, which include asking a business owner to collateralize a loan, not just with business assets, but also with personally owned assets, such as a principal residence and cottage. Collateralization can include requesting a spouse’s co-owned assets to be collateralized, even if the business is incorporated.

Add to that a possible collateralization of any assets of a partner or adult child (and their spouses) who also share in ownership. Small business owners can lose their shirts if they default on a loan.

What if an owner dies? It is unwise to assume that a good relationship with the bank will continue if the heir of a small business, or a partner, is not in favour with the bank manager. Bank managers can change or apply strict policies while reassessing leniency shown to previous owners or administrators.

Eliminate any doubt in a family business, such as a farm, by insuring the oldest owners and succeeding generations using joint-first-to-die policies or individual life insurance policies. In the case of a non-family business, each owner/partner should be insured to cover the company’s 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? For the same reason, small business owners should consider purchasing a critical illness (CI) insurance policy on each of the principal business owners and key persons. CI insurance could pay off a considerable bank debt if one were to experience a major illness such as a heart attack or stroke. One could end up incapacitated and 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 sick and the bank manager loses confidence in the stabilising influence of that owner.

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 how much time you really have 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 terms of geriatric 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, or water leaks, or mold accumulation in the elder’s environment needs attention. Delegate help needed to family members or friends in relation to their skill-set or career or financial ability to help.
• Assign care-tasks to the elder which they are fully capable of doing. List the tasks to define what they can and can’t do. Involve the elder as far as possible in the plan, if they can cook their own meals and bath themselves, and let them know this is henceforth expected of them.
• Outsource where needed. Maybe you need to bring in a house-cleaner weekly and/or hire a handyman. Discuss who you might hire with the elder and where applicable, expect their input in the decision.
• 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 own 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 to, only get worse”.
• Meet with a lawyer and financial advisor. If the relative is increasingly dependent on you to help in their estate planning, employ a good lawyer that 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/or 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 determine the amount necessary. Check if any cash values can create 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 the current culture of today, 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 health-care system, unfair medicinal prescription fees; or discourteous gestures from others. Dialogue with physicians (and get second opinions) when necessary for their well-being.
• Maintain a happy attitude. Caring for elders can tip your emotional scales; so laugh a little, even at yourself! If you keep your good humour and remain positive, you’ll lessen the stress factor.
• Review and respect the good and fun aspects of their historic life with you. One day your elder won’t be around to show your appreciation to, 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—just forgive them. They may have “been there” for you, so recall the best days of their life so they can realize they were needed, appreciated, and are loved for who they are.
• Maybe write a book on their story. Why not review their life story in a journalized small book of their life history—to leave a legacy to your family to show your 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 a 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 relaxation and exercise weekly to protect your mental and physical health. Fulfill all your responsibilities; and maintain all your important 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; help you face the stresses and problems as they relate their wisdom obtained by experience. It doesn’t hurt to get ideas, and compassion from other caregivers who also care about you.

Your love is what counts. 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 at the end of the day, you did the very best you could.

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

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

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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 his or her 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 time of 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 certain periods of time. The income 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 there are two or more owners in business (effective for current owners or succeeding generations).
  • Fund a stock redemption Where other members of the family own stock, you can buy life insurance on 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 Where large capital gains will impair the company or reduce personal assets, or disallow a bequest 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 Where one child will inherit the company, life insurance can be purchased on the owner and/or spouse, to pay the non-involved children a tax-free cash benefit in predetermined amounts, clear of probate. Avoiding 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 himself. — 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 loans or the true financial status of the company? Introduce your successor (and the succession plan) to your banker and go over all the liabilities of the company. Reveal to he banker your life insurance planning 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 key suppliers; influential family within and without; shareholders whom you hope will seek minimal dividends in lieu 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 Avoid investing all of your profits into the business with disregard to developing your own independent retirement resources. Thus, you will not need to rely on the company to create an ongoing retirement income, though you may indeed receive dividends and income from the business. Consider purchasing segregated funds, separating your personal assets from the company, while reducing exposure to creditors.
  • Move towards financial independence of your business Though you leave a legacy to your successor(s), you can ensure that the legacy will have sufficient funds to survive during and after the succession. Drawing from your retirement savings can reduce the need to depend 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.

Graph

· 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)?

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If you were to have a stroke, heart attack, or serious operation—a disability to the degree you could not take care of your own affairs, who would take over? What if this was the last day that could make a mindful decision, on your own 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 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 be forced to face a bureaucratic nightmare just 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 power of your signature and all the authority associated with it. Unless it states otherwise, a POA may be used by the attorney immediately upon signing.

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

• Be careful of restrictions you may not want included Some broad form POAs include optional clauses that are often left included, whereas they may not be applicable. These may include restrictions on the attorney that 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, an attorney once authorized with your directive powers could feel it is their privilege to become an “empowered benefactor” of your (you, the donor’s) estate once they lose capacity. Therefore, it is wise to have a lawyer articulately document your specific wishes in your Power of Attorney documentation.

To empower and entrust another with your own authority, may be the last time you have the healthy capacity to make a responsible decision on your own behalf; so make it carefully.

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