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Don’t Wait to Communicate Your Estate Plan
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By iA Private Wealth, July 8, 2024
As the old saying goes, the only certainties in life are death and taxes. Given this reality, it’s beneficial to have an up-to-date estate plan that reflects your wishes for potential care needs and distributing your assets to loved ones, while also minimizing your estate’s tax liability to help facilitate an effective transfer of wealth.
While creating a comprehensive estate plan is important, it’s equally important to communicate your plan to family members – as well as your specific expectations of them. Why? Here are three common reasons:
Gain clarity. If you don’t share key details of your estate plan with family, they won’t know your wishes or how they’ll be impacted. It’s better to gather your loved ones now to explain elements of your estate plan and why you made certain decisions (e.g., your choice of estate executor).
Failing to discuss your plan could cause confusion or uncertainty down the road, at a time when family is already grieving. As well, by communicating your wishes and values, and allowing loved ones to ask questions, everyone will be equally informed about your plan and desired legacy. This alignment may help avoid family conflict, disagreements or perhaps even legal action later.
Get organized. People have different levels of complexity in their life, but it’s safe to say almost everyone has a number of accounts, passwords, assorted bills and documents, etc. that would be challenging to identify or track down without a formal estate plan that provides the required direction.
You don’t want your family to scramble when their emotions are already frayed, searching for information and paperwork needed to make critical decisions. Since your financial institutions, advisor, lawyer, accountant, etc. will likely require certain info – including your will and powers of attorney – it’s valuable to prepare trusted family members to protect your privacy and share specific info on an as-needed basis. Some people may ask their estate planning lawyer to securely store their “master list” of vital information.
Undertake wealth planning. Not only does your estate plan cover important aspects of your financial affairs, but it also affects your heirs and their financial life. An open discussion allows you to explain how you’ve decided to allocate your assets. This could be the first detailed exposure your family has regarding the extent of your wealth. Empowered by having an idea of what their inheritance might be, they can begin thinking about incorporating it into their existing wealth plan (or it could encourage them to get started with wealth planning).
If you own a business, communicating your estate plan also lets loved ones know whether you intend for the business to be sold or for family members to take over. If you’re part of a blended family, have dependent children or ones with special needs, an estate plan can address these complexities upfront. Talking about your plans now should help your heirs be more financially prepared so they can handle their inheritance responsibly.
Obviously, communicating estate plans can be uncomfortable given the sensitive subject matter, but doing so may offer meaningful financial and personal benefits to you and your family. It’s good to talk about your estate now instead of waiting for a time of crisis when people tend not to think clearly or logically. If you’d like some professional support, your advisor, lawyer or accountant have the relevant experience to help you hold a constructive, honest conversation that may offer you peace of mind and position your heirs well for the future.
Succession Planning for Your Family Business
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By iA Private Wealth, May 8, 2024
If you’re like most entrepreneurs, your family business isn’t just a job – it’s your passion. That’s why you’ve invested so much time and effort into growing your business. Now that retirement is on the horizon (or no longer an abstract, way-in-the-future thought), you’re turning your attention to next steps. More specifically, it’s time for a succession plan.
Succession planning is complex and the transition process could take years. Let’s look at some key considerations so you can begin strategizing now and construct a plan that’s right for you, your family and your company.
All in the family
For a minute, we’ll put aside the business aspect of succession planning and focus on the family aspect. Mixing work and loved ones can be tricky, especially when it comes to naming a successor to the family enterprise. Among the next generation, who gets the inside track to lead your business? Is it, by default, the oldest child? The one who exhibits the best leadership skills? The one who’s most interested in your business or is in a certain role that lends itself to taking over?
There’s no automatic “right answer” since all family and business situations are different. What’s universal, however, is the need to give everyone their say and then, once you’ve arrived at a decision, communicate it clearly and logically. You might not achieve consensus – and some feelings could get hurt – but you’ll earn respect for transparency. While family harmony is desirable, of course, you’re also wearing a business owner’s hat and must ensure the continued strength and viability of your company.
Going outside the family
Don’t assume a family member will take over the business. Maybe none of the next generation works in your business, is interested in leading it, or is qualified to take over. Another option is for a current employee to lead the company. Once you’ve identified a good candidate, be sure to let them know – in as much detail as possible – what the leadership role entails. Again, explain this decision to your family and encourage questions. Every step of the way, open communication can align everyone’s interests and expectations, and helps minimize conflict.
Regardless of whether the leader-to-be is a family member or other employee, build a comprehensive, goals-based development plan to position them for success. Document the key responsibilities you face (both regularly and ad hoc), and train the future leader to handle those duties. Be open minded and seek input on where they see potential for improvement in organizational processes, business culture, company structure and avenues for growth. Everyone has different perspectives, and fresh insights could take the business to the next level.
Navigating finances
The financial side of succession planning can get complicated if you have more than one child, each with varying degrees of involvement in the company. If the family business spans generations and also involves extended family (e.g., cousins, nieces, nephews), the complexity increases. The owner(s) must determine the best – and most fair – way to transition the business and allocate assets. When selling to a third party, will family members remain involved in the business? If so, in what capacity?
Whether the business is sold to family members or a third party, your selling price should reflect fair market value. For many owners, their business represents their largest investment and biggest source of retirement income. Don’t shortchange yourself by discounting the sale price – even if selling to your own children.
Given the challenges of succession planning, it’s typically wise to consult regularly with your advisor and related professionals, such as a lawyer, business exit strategist, and tax and estate specialist.
What Are the Financial Implications of Divorce?
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By iA Private Wealth, May 1, 2024
Any way you look at it, divorce is challenging. Aside from the emotional strain of ending a marriage – especially if you have kids – your finances could be affected significantly. Let’s look at four common steps that can help safeguard your wealth.
Get a good grasp of your financial situation. Many people have an idea of their overall finances, but when divorcing you should examine bank and investment accounts, credit cards, mortgage statements, loans, lines of credit, etc. to know where you stand financially. Of particular importance is scrutinizing joint accounts ahead of divvying assets. Consider an agreement with your soon-to-be ex (who, for simplicity’s sake, we’ll refer to as “ex”) to continue paying joint expenses, but to avoid new borrowing charges pertaining only to one of you. If either has co-signed a loan or line of credit, request the financial institution remove the co-signer and rework this debt so the appropriate party is solely responsible.
If you don’t have your own savings or chequing account, arrange for it. Also obtain a credit report to find out your current score. Link to your individual account any direct deposits beyond what you need to meet your share of expenses in the joint account. Regarding credit cards and loans, neither divorcing partner should deal with creditors or be liable for debt they didn’t incur. If you and your ex can pay off joint account balances, agree to close those accounts. Everyone’s heard stories of vindictive exes racking up large bills, so monitor your accounts to keep your assets protected.
Update policies and beneficiaries. Divorce may change your insurance needs. For instance, if you become critically ill or disabled and need assistance paying bills, you may require more coverage as an individual compared to having a spouse’s income to cover expenses. Similarly, assess your life insurance needs as an independent policyholder and ensure you’ve got adequate coverage. Permanent life policies often have cash value, so if one exists, include the cash value when dividing joint assets.
It’s also crucial to review beneficiaries named on financial accounts and registered plans like RRSPs, TFSAs, RRIFs and workplace pensions, and amend accordingly. If you’ve named your ex as beneficiary in your will or as holding certain powers of attorney, you’ll probably want to change that. An estate professional can help you implement planning changes brought about by divorce. If you’re on your ex’s workplace benefits plan (or vice versa), a divorce might lead to rethinking benefits to ensure adequate coverage persists.
Deal with the family home. This one may have emotional repercussions as well. Discuss whether one of you wants to remain in your home and has the financial ability to do so. Both partners could be making mortgage payments, so the absence of one income may make the existing mortgage unmanageable, requiring renegotiated financing for the ex who’s staying put. You may choose to sell the family home and split the proceeds, or the remaining homeowner can buy out the other’s share for the amount of equity they’ve invested into it. If young children are involved, keeping them in the family home could help reduce the disruption in their lives that a divorce inevitably causes.
Work closely with your investment advisor. Getting professional advice is especially valuable in divorce. An advisor can help identify your assets and liabilities, and calculate your personal net worth. They can also adjust your budget and wealth plan based on new life circumstances, including recalculating the money earmarked for retirement and revising your goals to put you in the best possible position for financial success. If you need to save and/or invest more (or in a different manner) to achieve your long-term objectives, an investment advisor can work with you to make it happen. Your income may also be impacted by child or spousal support, whether you’re paying or receiving. It’s practical and comforting to assemble a team (e.g., investment advisor, tax consultant, estate planner, divorce lawyer, accountant) that can help you get through a divorce with financial independence and a sense of clarity moving forward.
HBP or FHSA: Which One Should You Use?
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By iA Private Wealth, April 19, 2024
While many people want to purchase a home, it’s become a greater challenge in today’s economic environment. Consumers are financially stretched by high inflation that’s lifted the price of food, fuel and just about everything else. On top of that, central banks have raised interest rates to help control inflation, leading to soaring mortgage rates. Never mind that real estate valuations – while largely off their peak – remain high, especially in large urban centres. What’s a prospective homebuyer to do?
In addition to sensible actions like watching your spending and trying to put away more of your earnings, the federal government also helps Canadians pursue home ownership via two targeted programs: the Home Buyers’ Plan (HBP) and Tax-Free First Home Savings Account (FHSA).
How the HBP works
This plan lets you withdraw, on a tax-free basis, up to $60,000 from your Registered Retirement Savings Plan (RRSP) to purchase your first home. Essentially, it’s an interest-free loan from your own RRSP to help you buy a home. You’re allowed to withdraw funds from more than one RRSP, to a cumulative total of $60,000, provided you’re the owner of each account. The institution(s) that issued your RRSP(s) won’t withhold tax on the money you withdraw. You should also note that certain RRSPs, such as locked-in or group RRSPs, may not qualify for the HBP.
HBP withdrawals must be paid back to your RRSP account in annual minimum amounts over a 15-year period, beginning the second calendar year after the withdrawal. In April 2024, the government extended this two-year grace period to five years for withdrawals made between January 1, 2022 and December 31, 2025. Note, you may repay more than the minimum in a given year, or repay the entire amount at any time prior to the end of the 15-year period. If you fail to repay the full amount within the allotted time, your outstanding balance is considered taxable income.
How the FHSA works
This plan was introduced in the 2022 Federal Budget, and now that the legal and administrative details have been addressed, financial institutions are rolling it out. The FHSA is a registered account for Canadians aged 18+ who haven’t owned a home ever or, at a minimum, in the past four calendar years. It allows eligible Canadians to contribute up to $8,000 annually on a tax-deductible basis, to a lifetime limit of $40,000. If you contribute less than the maximum in a given year, the unused contribution room (up to $8,000) may be carried forward to the following year.
When you withdraw funds to buy a home, this amount is not taxable (including any income earned in the account). If you don’t withdraw all your FHSA funds to buy a home within 15 years, you must close the account. You can transfer the remaining assets, tax free, to an RRSP or RRIF; otherwise, withdrawal of residual FHSA funds will be taxable. As with many registered accounts, you may invest in various types of securities in your FHSA, such as stocks, bonds, mutual funds and ETFs. Your Investment Advisor can help determine which securities best suit your time horizon, risk tolerance and financial objectives.
How do you decide?
While the HBP and FHSA may have their own features and distinct rules, both plans can help accelerate the home ownership process. An HBP is valuable if you don’t have much cash available, since you’re withdrawing from your established and funded RRSP. An FHSA is valuable if you can contribute a significant amount of cash, since it’ll lower your taxable income and withdrawals are tax free. The good news is, you don’t need to decide. If you wish (and have money readily available), you may use both the HBP and FHSA to assist with funding the purchase of a first home.
Consult with your Investment Advisor to decide how best to use the HBP and/or FHSA to help buy your home, based on your tax situation and overall financial circumstances.
Tax Filing Checklist
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By iA Private Wealth, March 14, 2024
It’s tax season, and no matter how many times you’ve gone through the ritual of preparing your income tax return, our refresher will help get you organized and on track for what will hopefully be a smooth and painless experience.
Reference materials
It may help to have last year’s return handy as a guide to figuring out which slips and forms you may require for this year’s return, and which lines must be completed on those forms. Of course, circumstances can change but knowing what you needed last time is a good starting point for gathering info.
Similarly, last year’s CRA Notice of Assessment could help. Each notice contains valuable info, such as your RRSP deduction limit for the next tax year, the amount of unused net capital losses that can be applied to reduce future taxable capital gains, and the correction of mistakes you might have made on your return. Finally, note any tax installments you paid over the year as well as any relevant correspondence you received from the CRA.
Here’s a checklist to help gather your tax slips, forms and other required info that’ll be used when completing your income tax return.
Federal tax slips
T3: Investment income (allocations, distributions) received during the tax year
T4: Employment income (also includes CPP/EI premiums paid, income tax deducted, pension adjustment amount, charitable donations made through payroll, etc.)
T4A: Pension, retirement, annuity and other income received
T4A(OAS): Old Age Security pension benefits
T4A(P): Canada Pension Plan benefits
T4E: Employment Insurance benefits
T4RIF: Income received from a RRIF
T4RSP: Income received from an RRSP
T5: Investment income (e.g., interest earned from bank accounts and GICs; corporate-class mutual fund distributions)
T2202: Tuition and related fees (or a TL11 form if you studied outside of Canada)
T5013: Statement of Partnership Income
Receipts/documentation
RRSP receipts for contributions made in previous calendar year, up to first 60 days of current year
Investment-related expenses, including loans used for investing purposes
Child care and/or adoption expenses
Child support, alimony/spousal support payments
Medical expenses
Moving expenses
Charitable donations, political contributions
Professional or union dues not on your T4 slip
Digital news subscription fees
Business income and related expenses
Rental income and related expenses
Investment counsel fees and carrying charges
Documents pertaining to the sale of real estate
Work-from-home expenses
Regarding the deduction for home office expenses that was introduced during COVID-19, some rules and conditions have changed. According to the CRA, eligible employees working from home in 2023 must use the detailed method to claim home office expenses. The temporary flat rate method no longer applies. Visit the Government of Canada website to learn more about eligible expenses and other important information concerning work-from-home expenses.
Our checklist is a basic compilation of common slips, receipts and other documents you may need while completing your income tax return, but it isn’t exhaustive. Not all items will apply to you, and you might need additional info to file your return. We recommend consulting a qualified professional to help ensure you complete your return accurately and fully, claiming all deductions and credits for which you’re eligible.