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How can I reduce business owner risks?

Life Insurance. Start-ups and smaller companies are especially vulnerable to potentially devastating financial risk because they often lack considerable company sophistication and in-house risk-control expertise. We will help you gain control of your financial trouble. We help business leaders provide appropriate life insurance to pay off debts and the mortgage, educate the kids, and provide income for a spouse or a disabled dependent.

Disability Income Replacement Insurance. We’ll review your need for income replacement insurance to help replace your paycheque in case you get hurt or sick.

Key Person Insurance. We will assess your need for an insurance policy designed to hire the right person if a key individual becomes sick or dies.

Critical Illness Insurance. A critical illness can wipe out a small business if business owners develop cancer, a heart attack, or a stroke. We have many plans to protect you from such concerns.

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

The time-line of Long-Term Care

The lifetime care time-horizon

Respite care provides temporary relief to those caring for family members who might otherwise require permanent placement in a facility outside of the home. Respite programs provide planned short-term, time-limited breaks for families and other unpaid primary caregivers of adults with intellectual and physical disabilities.

Shared help from loved ones, and government part-time home care services, help relieve the primary at-home caregivers to enable them to maintain their wellness. It allows an ageing population to move gracefully towards the potential need for 24/7 care and a palliative care program when medical care or treatment concentrates on reducing the severity of the symptoms of diseases relating to ageing rather than striving to reverse the progression of the disease. At this final stage of care, the goal is to prevent and relieve suffering for people facing serious, long-term complex illnesses.

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

Broader choices about the quality and amount of care you receive.
Increase of choices when determining where you receive care and by whom.

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.

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

Source: Some of the concepts and information are used with the permission of Patty Randall, who is widely considered a leading advocate on the need for care-years planning in our country. Visit her website: “Aging Successfully with Passion and Purpose and Care-Years Planning”, online at www.longtermcarecanada.com for discussions and ideas and to obtain family materials on this issue.

How do I make financial agreements with my fiscal partner?

When establishing a financial strategy involving other stakeholders, such as paying down a mortgage, develop a written plan that all parties agree on. You can create written point-form agreements for each to sign in investing, registered investment planning, debt repayment, etc.

When determining your goals, it is essential to think positively and avoid language such as, “We will never have enough to retire,” “We can’t seem to get ahead,” or “This debt is killing us.” Statements like this often become self-fulfilling.

Instead, it is essential to design an action plan and start working towards it with all the stakeholders, such as your spouse or partner, referred to as your fiscal partner. Write your goals out regarding financial concerns such as:

Reduce or eliminate debt. One of the encumbrances of investing for retirement is that you may be servicing too much credit card debt, much of which is interest. Both fiscal partners may have credit cards doubling the family debt load and vastly reducing your net worth. Thus, paying down the debt on all credit cards makes sense, starting with those with the highest interest rates first. Aim to be 100 % debt-free of abnormal debt-weighting in your net worth statement where possible (mortgages and car payments are typical).

You and your fiscal partner will appreciate the new clarity and increased financial freedom this gives. Slavery to debt repayment is financial bondage and will increase fiscal-related emotional stress on responsible partners.

You can start or maximise your monthly investment plan. Your plan will depend on your income and expenses. If you are young, begin investing now. Any given sum can frequently double depending on time and interest rate growth. At 6 %, it can double every 12 years; at 4 % every 18 years. Divide the interest rate into 72 to get the years until doubling occurs.

This simple mathematical illustration reveals the importance of beginning to invest while you are young. If you are near retirement, you may ascertain that you need to ramp up your investing, increasingly over the fewer years you have. The average Canadian retires now at age 62. Become aware of your retirement options, choosing agreed strategies with your partner beforehand.

Reallocate assets as you near retirement. A portfolio still invested in nearly 100 % equities near retirement is risky. To reduce stock market risk, a portfolio may have some fixed income (government bonds, corporate bonds, safe mortgages, and real estate)—your partner’s risk tolerance while investing.

Take advantage of tax-saving vehicles. Registered investment vehicles can help you reduce or defer the tax hit. Some plans can offer government grants that supplement your investment contribution to help your children attend post-secondary school. Discuss the viability of tax arrangements using registered investments best suited to both fiscal partners.

Don’t sell suitable investments amidst a volatile market loss. It may be better to stay invested and adjust your portfolio after the market begins to retrace upward, any losses after a market volatility period. If you hold an excellent fund, the stocks within that fund are probably good. Nevertheless, please keep your investment goals in mind, get periodic updates, and review the situation with your fiscal partner. Your financial partner may be unable to handle the stress caused by a volatile market, so plan with this in mind.

Maintain financial accounts with transparency. Total honesty is necessary. Spouses and partners who share mutual financial goals have a right to be aware of the banking and investment accounts and the movement of funds via frequent, transparent discussion. One spouse should only borrow and use credit with the other spouse’s agreement, where funds must be accounted for together in mutual fiscal arrangements.

There should only be personal boundaries where agreed, such as business agreements, risk, or debt and income necessary for solvency. You can set such boundaries in advance, or hard feelings can develop. Business accounts or contracts increasing risk should not co-mingle with personal finance or funds if you are incorporated. Sole proprietors should view business debt as personal debts.

What is Disability Insurance?

Disability Insurance provides a monthly income if you are incapacitated and incapable of working due to an injury or illness. Often called “Income Replacement Insurance”, this coverage is essential for self-employed individuals and those without disability insurance via their employer.

The risks of income loss Your ability to earn income may be compromised through injury or illness if you become disabled. Your ability to pay bills or save for retirement could remain the same. Disability insurance plans are designed to help you meet necessary income requirements enabling you to concentrate on recovering from your disability and returning to an active income-generating life.

Do you know who can be covered? Income protection can provide peace of mind for professionals such as lawyers or doctors, small business owners like plumbers or carpenters, leading business executives, and full- or part-time or home-based workers. You can also supplement the disability coverage you have with an employer or an association such as the Canadian Association of Retired Persons (CARP).

How do you collect disability benefits? Your policy contract determines how soon and for how long you can collect benefits. Generally, disability benefits are received if you can’t perform the duties of your occupation, a similar job in your field, or any job at all.

How are befits paid? Disability insurance benefits are payable every month during a disability for the benefit period of the contract, which can vary. When you recover from a disability, the policy continues, usually payable again for a subsequent or recurring disability.

I’m healthy: why should I be covered? Most people know the importance of life insurance but rarely think about having a disability despite the statistics indicating they are pretty standard. Death is inevitable, while disability is probable at any given age.

Develop your backup plan today! If you are running a business (or work as an employee), you should be covered by some form of disability insurance (income replacement insurance). Such planning is the only way to avoid the financial and emotional stresses resulting from long-term disability.

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

What is the value of good financial advice?

A good financial advisor will not only assess your current fiscal resources. They will also outline a plan to achieve your goal for a sound financial future.

As time passes, so does your opportunity to build a solid financial future. Suppose you are to develop an investment portfolio and a significant net worth. Will you personally determine how to purchase stocks among the international markets, analyse investment funds, and sidestep economic pitfalls as you invest all by yourself? Will your financial stability be based on our government’s pension plan? Did you know that its maximum benefit covers only 25% of the average Canadian’s wage?

Why involve an advisor in your financial affairs?

The majority of Canadians seek specialised professional help. Their work is to guide you towards achieving financial independence. An advisor’s work is to help you systematically achieve your goals and make your life dreams come true.

• An advisor must analyse your current financial resources to define appropriate financial strategies that are best suited to your current and future personal priorities, retirement goals and risk tolerance.

• Calculating your current net worth and cash flow after taxes is also essential. With a net worth statement, a financial specialist can identify any opportunities or problems relating to capital gains, life insurance, disability, and critical illness insurance needs versus your present coverage, investment growth, income taxation, retirement income needs, employee benefits, and potential capital gains tax liabilities for your estate. Parents must also assess educational funding needs and plans for any dependent adult child and special health care such as Long Term Care (LTC) for parents.

• Establishing a written plan sets forth specific solution-oriented recommendations and will enable you to see how ordering your finances can benefit your overall lifestyle.

• To achieve your goals and objectives, acting on the plan’s recommendations will be necessary. Building a solid portfolio of investments tailored to meet your goals and risk tolerance is essential for your future financial independence.

• Appropriate life and disability insurance coverage will ensure your plan meets family income needs, business debt or buy-out payments, and any tax liabilities for your estate.

• Finally, an advisor will establish a periodic review to monitor and refine your plan to accommodate birth, marriage, illness, or retirement events.

How can I get serious about successful investing?

There are four basic types of people, each with differing mindsets when they approach investing; the Sideliner, the Gambler, the Hobbyist, and the True Investor. If you want to be a serious and successful investor, you must mindfully recognise the erroneous attitudes of the Sideliner, the Gambler, and the Hobbyist.

The Sideliner Sideliners are fearless in taking action as long as they are in the audience and won’t ever get bruised. They shout, stand, and clap, loving the action of a bystander. Sideliners love the excitement of stock market news and the investor’s game. They often look at how the indices, a stock, or a fund performed. Observation alone never gets you in the game of investing. Sideliners may feel it is dangerous in the arena of the investor.

The downside Sideliners are analytical and love running numbers hoping to reduce most risk by comparing return percentages. Yet, out of the paralysis of information, fear sets in, and they make minimal purchases to play it safe. The sideliner is a silent observer possessing discernment for weighing facts, yet witnesses other people’s investment success without taking action to enjoy investing personally.

The Gambler These people are confident thrill seekers who enjoy the casino, horse race, or scratch-and-win tickets, unlike the Sideliner. They confuse play gambling with risk tolerance, spend recklessly, consider that investment principles are for misers, and don’t seek the guidance of an advisor and consequently have a retirement portfolio that looks broke.

The downside The Gambler is comfortably numb and usually gets punished with frequent losses for taking above-average risks. They might buy an investment based on listening to the talking heads in the trading media, buy penny stocks, or low-priced failing company stocks — all based on uncredentialed hearsay. Because they think they might make some fast money, they believe they are investing but are not. Rarely does a Gambler stay invested for the long term.

The Hobbyists They buy things and investments based on their emotional value more than on investment value. As collectors, they buy for popularity status, notions of status, aesthetic gratification, and pleasure.

The downside Hobbyists, when excited, may jump to buy anything referred to them by word of mouth or a talk show host. They may own all the British Royal plaques on a wall or the top “500 must-see movies before you die”. Financial perspective gets lost because several investment funds may be bought by virtue of historic popularity instead of the potential for future gains. Because collections have been known to go up in value, they think they are investing. They do not understand the old Latin proverb “Non Quantum Sed Quale”, meaning it is not the quantity but the quality that counts.

The True Investor Utilizing an advisor’s wisdom, they buy suitable investments. Unlike Sideliners, they act. Unlike Gamblers, they minimise risk. Unlike Hobbyists, they buy based on investment value.

Investors are defined by their knowledgeable expectation for financial gain employing a principled process to minimise financial risk. Many also make it their practice to utilise professional managers and advisors when investing.

Actual investors act with a vision to achieve excellent returns on their investments while exposing themselves to mitigate the risk that suits their investor profile while enjoying the actions that lead to real financial success. It all comes down to how you think and whether you’re considering investment action.

What powers do you assign to an executor?

Consider what is involved before naming or agreeing to act as an executor.

• An executor carries out the instructions in your will. Co-executors can share the task.
• Jurisdictional laws define what the executor must do, whether they are a friend, relative, professional, or a trust company—however, the will can specify even more extensive powers.
• The executor may have to deal with some or all of the following at an emotional time: a funeral home, beneficiaries, past or ongoing taxes, insurance and investment companies, government and business pension departments, real estate agents, lawyers, accountants, appraisers, stock brokers, and business partners.
• They may also be empowered to convert the estate to cash or divide assets equally among beneficiaries. They can also make payments to the parent/guardian of a beneficiary in most cases.
• The executor (especially if inexperienced in legal or financial matters) should know how complex the estate is before agreeing to the task. If necessary, appoint a co-executor who is a legal and accounting professional.
• Have a clear and objective idea of what will be involved before asking someone to be your executor and agreeing to act as one.

Discuss the parameters of an executor with your lawyer, before enabling one, or taking on the responsibility if given or offered to you.

How does Disability Insurance protect a Buy-Sell Agreement?

Disability Buy-Sell Agreements

A detailed look at two ways to guard against potential liabilities when a significant shareholder becomes disabled.

Two strategies protect shareholders against the liabilities of another significant shareholder becoming disabled.

Criss-Cross Buy-Sell Agreement

The agreement provides for a mandatory sale and purchase of an interest in the corporation once a shareholder has been disabled for a specified period.
Shareholders own disability insurance on each other to fund the purchase.
The agreement guarantees to purchase the disabled partner’s business interest throughout the policy’s payout period.
Premiums are paid with after-tax income.
Policyowners receive tax-free disability benefits.
An allowable reserve can offset capital gains on the asset’s sale for a time if the entire proceeds are not collected upfront.
Personally owned income replacement insurance is generally purchased in addition to the above coverage to provide an income (in addition to the buy-out benefit) to the disabled shareholder.

Corporate Share Redemption

The agreement provides for the mandatory redemption of the shares once a shareholder has been disabled for a specified period.
A taxable dividend, equivalent to the total amount of the purchase price, less the paid-up capital value of those shares, is deemed to have been received in the year in which the redemption of the shares takes place.
The dividend is subject to the Dividend Tax Credit and the Alternative Minimum Tax rules.
A lump-sum disability insurance contract owned by the corporation covers the funds required for the redemption.
The corporation could pay out an amount in addition to the redemption value to cover taxes payable by the disabled shareholder.
A promissory note can cover shortfalls in payment

How do individuals or families accumulate wealth?

They save by moving money received as income into a separate account before they spend it. It doesn’t matter if you have received an inheritance or won a lottery – the rule is the same. Save, and then invest before you spend.

Here are some excellent reasons for investing.

It gives us a sense of financial security, earned by continued discipline and adherence to the principle of saving, which adds to our sense of personal dignity.
We are eventually rewarded by seeing money make more as it works for us, gaining and compounding.
Saving paves the way for the actualisation of our goals and objectives in life, such as acquiring a home, making significant purchases, travelling, putting children through college or university, or going back to school ourselves.
Accumulated assets will increase our net worth and bring us financial independence. Such control and flexibility are within our reach if we start now.

Stumbling blocks to saving. Don’t defer to only saving what’s left at the end of the month or waiting until “things get better”. Usually, nothing is left at the end of the month, and things rarely improve because the philosophy has stayed the same – spending above income continues, and debts increase. Except for a home mortgage or loans for motor vehicle transportation, and in some cases for investing, debt is a deterrent to financial independence. Commit to a strategy to pay down all household debt and save at least 10-20% of your monthly income.

Inflation is a constant battle. Over the years, inflation has reduced our buying power. When increasing to reduce inflation, interest rates also increase our debt repayment load as a percentage of income.

Planning for your dependants. Ensure you have sufficient life insurance to pay off your debts, such as credit card balances, car loans, IOUs, and any business-related debt. Incorporate this with enough coverage to provide future income for your dependents. This is especially necessary if your debt exceeds your annual income, as it does for the average household where debt runs at 150% or more of income.

Can you pay your bills if disabled?

Disability insurance (DI) can be purchased from a life insurance company to cover up to 80% of your regular income (or more) if you become disabled. This coverage is referred to as “income replacement” insurance.

If you work for a corporation, your employer may offer a group plan with short-term disability (DI) coverage. Could you review it to determine the coverage period and ensure it meets at least 60% of your current income for longer than three months?

Additional DI can be purchased (and owned privately) to extend the income payment period and increment payments to the increasing cost of living. Some policies increase paycheques according to the consumer price index (CPI).

If self-employed, If you have dependents, it is essential to ensure that you have income replacement insurance to pay your expenses until age 65. Caring for your own needs is also wise if you are single.

Consider the following questions about where the money might come from if you could not earn a living for a month, a year or forever.

Would withdrawing part or all of your retirement savings and money on deposit at the bank to use as income when convalescing affect your retirement?
If you need to access the equity or your home to create an income, will this deplete your net worth?
Could you borrow money if your banker knew you might never work again?
Could you live on your spouse’s income?
Could you ask a parent, sibling or friend to loan you money? How would you repay it?
Would you rely on the government to pay a disability income that lasts until you retire?
Would you want to sell your house or cottage?

Note: Life insurance taxation varies 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.