Five Risks to Holding Property Jointly

Holding property jointly has long been called the “poor man’s will” – a way for a person to transfer wealth on death without spending the money to draw up proper documents.  It’s also an appealing way for married couples or parents to minimize probate taxes in provinces where rates are high.

The highest probate tax rates:

Nova Scotia:  $15.23 per $1000 in excess of $100,000

Ontario:  $15.00 per $1000 in excess of $50,000

British Columbia: $14.00 per $1000 in excess of $50,000

So, if you are considering transferring property into joint ownership with a spouse or child; consider the following risks:

1.       If you put property into the name of only one of your children, and that child then claims you wanted him to be the sole property owner, there is bound to be a fight when you die.  The other siblings will argue you made the arrangement for convenience and their brother is merely holding the property in trust for the estate.  Can cause a costly legal battle.

2.       A gifted interest in a property cannot be recovered without the consent of all owners.  A separation from your spouse or an estrangement from one or more of your children could leave you with a bad case of donor’s remorse.

3.       The transfer can have immediate negative tax consequences by means of capital gains tax.

4.       If any of the joint owners gets into financial trouble or a divorce-related property fight (or any other legal dispute), the property may be at risk.

5.       If the property has the potential to generate significant income or capital gains after you die, a testamentary trust may be a better option.  These trusts are created under a taxpayer’s will and are taxable at graduated rates.  This opens the door to income-splitting that, over time, can generate enough income tax savings to dwarf the probate taxes.

There is nothing wrong with Joint Ownership in the right situation, but before proceeding consult with your financial, tax and legal specialists who can explain the risks.

Enjoy your weekend,

Tracey

Article originally published on Advisor.ca, filed by Barry Corbin, editor@Advisor.ca

Some Perspective

I am sure you are being bombarded with all this negativity in the headlines.  A looming  global recession, Greece on the brink of default, the disconnect between U.S Congress and the real World, and the list goes on.  Clearly the market is moving on headline news, whether the information is accurate or not.  But investing is not about trading the news, it is about understanding a business you are buying, namely the “fundamentals”.  To determine a company’s fundamentals you would ask yourself the following questions:

1.            How is the business positioned relative to it’s competition?

2.            How is the business positioned relative to it’s sector and the market in general?

3.            What are the prospects for growth?

4.            Are they profitable?

5.            Are the balance sheets strong?

6.            Do they generate free cash-flow?

7.            Are they carrying excessive leverage?

8.            Is the price to earnings cheap relative to the market?

To some this may seem a bit much but this analysis is needed to make an informed decision on whether or not to buy a company and hold it for the long-term.  Clearly this is not happening in today’s environment.  Fundamentals are pushed to the side which in my view is illogical and irrational.  Once Governments around the World act on the structural issues of Sovereign Debt, which in my view is resolvable, investor confidence in the market will return only to realize companies with excellent fundamentals are trading at a discount… they will buy them.

I want to leave you with some food for thought.  Take a look at the Reuters link below.  Nike just released their corporate earnings for fiscal 2012.  They reported an increase in both revenue and earnings.   Clearly the consumer is still buying shoes, shirts, and apparel even though the headlines paint this grim picture.  If things are so bad, then how can this happen?  You would think a somewhat discretionary item like Nike shoes would be scratched from the list of needs and wants wouldn’t you?  Please understand my message is in no way intended to belittle some of the challenges out there, specifically with high unemployment in other parts of the World-namely the U.S.  The intent is to bring reason back into the fold in order to appreciate that investing is about fundamentals and the fundamentals of the business’ we own have never been better.

http://www.reuters.com/article/2011/09/22/idUS230549+22-Sep-2011+BW20110922

Best regards,

Tracey

Reading, Writing, Arithmetic and Money 101

Students across Canada are back to school this month.   They will have homework for history, English and math, and perhaps someday soon they may be asking for help in their Money Management class.  Over the last year, financial literacy has been a hot topic with government and educators.  In 2009 the federal government created a task force to gauge the level of financial understanding in the Canadian public.  The task force released a report of their findings in 2010 which showed a lack of understanding of saving, budgeting and debt concepts.  They strongly suggested increasing education in financial planning topics and that the education should start as young as possible.  Since the report, BC and Manitoba have started to implement money concepts into curriculum and this year Ontario will start their program for grades 4-12. 

The school programs will take time to develop and just like reading and multiplication the concepts must be enforced at home.  So what can parents do?  What money management related lessons can parents teach children and at what ages?  Here are a few tips courtesy of the Globe and Mail and Mr. Rabbior,

1. Saving

Get young children interested in saving by opening a bank account in their name and providing an allowance, with part of it going to their savings. As they get older, use an online savings calculator to show how compound interest works and explain that the younger they start to save, the more time those savings have to grow.

2. Incentives

As soon as your children begin to make spending decisions, talk about how marketers use incentives to try to influence their tastes and decisions, and how they use points and rewards to encourage loyalty. Make sure your children are able to weigh the benefits of such rewards against the costs of purchasing the products.

3. Credit history

When your children get their first credit cards or loans, explain the importance of responsible borrowing. Talk about credit ratings and how your children can build up a good credit score by paying bills on time over several years.

4. Student debt

Long before it’s time for your children to take out student loans, help them look for other ways to pay for their education, including part-time jobs. Research scholarships, grants and government programs through CanLearn.ca. And open a registered education savings plan, in which government grants and bonds can help your savings grow.

5. Borrowing

If your children are borrowing money, make sure they understand the associated costs and interest rates. Explain how they can reduce the costs of borrowing by paying their debts as quickly as possible, rather than simply making the minimum payments.

6. Investing

Explaining risk in terms of investing is a more difficult concept, but its one financial area where youth are at an advantage because they have a longer time horizon to recoup any losses, Mr. Rabbior says.

Have a great weekend and feel free to contact me to talk about any of these topics,

Tracey

The Silver Lining

This past Wednesday the Bank of Canada decided to maintain the key lending rate at 1% and announced the need for rate hikes has diminished.  With eyes on the struggling economies of Europe and the United States it is predicted interested rates will remain low until mid-2012.

For many of us, the silver lining to the current economic environment is historical low borrowing rates for mortgages and loans.   While prime rate maintains at 3% which is great for variable rate mortgages, the average 5 year fixed mortgage rate sits at 3.59%.  For those carrying debt, this is a great opportunity to consolidate loans at lower interest rates and use the savings to increase their payments to ultimately pay off their debt sooner. 

The next meeting date for the Bank of Canada to discuss rates again is scheduled for October 26. 

Dawn Desjardins, assistant chief economist with RBC Economics summarizes what this announcement means to the Canadian economy.

“Today’s statement shows that the Bank has clearly stepped away from an imminent tightening in monetary policy and will keep considerable monetary stimulus in place in order to mitigate the downside risks to the outlook emanating from the US and Euro-zone.  Even with a reacceleration in Canadian growth in the second half of the year, today’s statement points to downward revisions to the Bank’s 2011 growth estimate which stood at 2.8% in July.  At the same time, Canada’s headline inflation rate dipped back below 3% in July and the slower pace of growth in the first half of the year is consistent with the output gap narrowing more slowly than was assumed in the July forecast.  With the Bank still forecasting a rebound in growth in the second half of the year, the case for rate cuts at this juncture is wanting.”

For more details on the reasons and implications of the rate decision please read here .

For further details about the lending rates please see the Bank of Canada site here.

If you need help calculating your savings by consolidating your debt, give me a call.

Have a great weekend,

Tracey

What's your Critical Illness Recovery Plan?

Cancer, Heart Attack, Stroke; becoming critically ill is something none of us want to think about; but we all know people whose lives have been dramatically affected.

Recently, a number of my clients have been asking questions about Critical Illness or CI Insurance.  I think a lot of people are unclear on the benefits of this type of insurance and how it works.  This week I’d like you give you a quick overview of CI insurance and highlight some great features that you might not be aware of.

Critical illness insurance pays policy holders a lump sum (tax free) payment should they be diagnosed with a critical illness, to spend however they wish.  You can choose to be covered for the five most common illnesses; cancer, heart attack, stroke, coronary artery bypass surgery and aortic surgery; or choose full coverage which includes up to 22 different conditions.  The money can pay for non-covered medical expenses, keep a business running, or perhaps afford to have a spouse take time away from work to help during the recovery period.   The policy is designed to eliminate financial stress during a very stressful time.

Beyond the lump sum payment insurers have added other benefits into critical illness plans that policyholders have found helpful, for example:

·         Best Doctors - a service that provides access to the best medical care by connecting you to world renowned specialists to confirm the right diagnosis and right treatment plan option without you having to leave home.

·         Daily Living Assistance – If you’re having trouble managing day-to-day activities, in one simple phone call, you can get information on the local services available to you.  These services can help you manage daily activities that can become challenging during an illness.

·         Healing the Whole Person – This program provides emotional support for you and your family and helps deal with the feelings often associated with a critical illness

·         Return of Premium – an option whereby if you stay healthy and never make a claim; the insurance provider will return all of your premiums.

If you have any questions on this type of insurance or would like to review your current coverage; please do not hesitate to contact me.

Yours in good health,

Tracey 

Please note: Insurance is not a business of Security Financial Services but is placed through an AGA, Capital Insurance Services via Hub Financial.