How do I diversify my portfolio?

shutterstock_15283585By diversifying among carefully selected, different asset classes, you reduce the risk of being over-exposed to any particular asset class.

For example, an investor may hold assets such as bonds, GICs, balanced funds, equity funds, foreign equities, etc.   The adage of “not putting all your eggs in one basket” applies to a diversified portfolio of assets.  Having 10 different equity funds in a portfolio does not mean that an investor’s portfolio is diversified.

Does your business need an Estate Freeze?

If your business assets possess the potential for significant capital gains, and you have children who might take over the company, an estate freeze may be worthwhile considering. An estate plan can assess the fair market value of an estate and the potential tax on the capital gains that will be due.

shutterstock_69171412 MEDIUM SIZEThe company’s value can be reasonably pre-established with your input, as opposed to your executors and lawyers negotiating with Canada Revenue Agency (CRA) after your death. Ask your tax accountant how an estate freeze would affect your business and if this is the most viable option to consider when transferring or selling your business to your heirs.

Estate planning will help you determine who will be the beneficiaries of your estate, who will take over the company, or if you should sell your assets currently.

An estate freeze or a partial freeze is a way to transfer all or a portion of the new growth in the value of the company to the new owner-heirs. You exchange all or a portion of your existing equity for a class of non-growth voting preferred shares. These preferred shares allow for a fixed income in retirement and the maintenance of future control, enabling a fall-back contingency for the freezor to assume a takeover (to save the company from poor management by the new heirs or to sell the company etc.).

Due to the technical complexity of an estate freeze, and potential changes to tax legislation professionals must be consulted when considering this option.

Estate freezes coupled with the intelligent use of life insurance can help reduce the effect of a massive tax-bite on your estate. Such planning can also free up capital for retirement because life insurance can pay the tax bill versus using any money saved for retirement.