In Loving Memory – Pre-Arranging Your Funeral

Many people plan ahead and prepare their own final arrangements, some will even pre-pay; although most funeral homes don’t require it.

Why is planning ahead a good idea? 

• It saves your family and friends from having to make many difficult decisions during a time of grief
• It gives you a say in planning your own arrangements
• It gives you time to assess and compare your options
• It helps family and legal representatives who will be making arrangements at the time of need

A reputable funeral home will assist you in completing the pre-arrangement forms.  You can either meet with the funeral director or pick up the forms to take home and review your options.  Whatever decisions you make can usually be recorded and kept on file at the funeral home.   It is important to inform your family and your physician if you have made pre-arrangements with a specific funeral home.

Take note; after your death your executor or legal representative has the right to change your pre-arranged funeral, burial or cremation plans.  It is therefore imperative to discuss your wishes with him/her and provide them with a copy of your plan. 

The Cost of a Funeral

The most modest funeral, with casket and memorial service will cost between $10,000 to $15,000, although it is not uncommon to pay $25,000 for a service.

You do not have to pay in advance for your final arrangements, although many people do.   Some providers may keep a record of your arrangements without a fee, be sure to ask your provider about this service.

How Can I Prepay for my Arrangements?

You can pay the money to the Provider to be held for you ‘in-trust’.  This means your money will be held safely for you at a bank, trust company or with an independent trustee.  It will earn interest over the years until it is needed to pay for the services or supplies you have requested.  The income earned on the money will be used to offset any increased costs due to inflation.

You can also purchase an insurance policy to cover the funeral expenses.  This can be done through the provider whereas the provider will be the beneficiary of the policy and use the money to pay for the arrangements.  Or, you can purchase a policy independently from someone like myself (a licensed insurance agent) and have your estate made the beneficiary; with instructions in your will that this money is to be used for your final expenses.

Cancelling your Prepaid Contract

You, your legal representative or another person named in the contract may cancel or change your prepaid contract at any time before the services are provided.  Written notice to the provider will be required.  However, you may not get all of your money back, be sure to review the terms of the contract and the provider’s cancellation policy.

Regardless of your age, estate planning is an essential element of life planning.  If you don’t know where to begin, give me a call.

Have a great weekend,

Tracey

In Loving memory of George T. Marshall, April 12, 1937 - May 27, 2014

 

 

 

All insurance and segregated fund transactions are provided through Hub Financial.  Any information in the enclosed note is provided by Tracey Marshall who is a registered insurance agent under the Financial Services Commission of Ontario.  Hub Financial is not affiliated or related to Security Financial Services.

 

Sources:  Ontario’s Funeral, burial and Cremation Services Act, 2002, The Canadian Guide to will and Estate Planning 3^rd Edition by Douglas Gray and John Budd, So You’ve been Appointed Executor by Tom Carter

 

 

 

 

 

Cottage Life - Keeping it in the Family

Summers at the cottage – boating, fishing, late-night bonfires and family dinners are important reasons to keep the cottage in the family.  So, take some time this summer to learn how to protect your treasured asset from taxes. 

Succession planning for the family cottage can be complex, especially when it will be shared by multiple family members who all have an emotional attachment to it.  Cottage values have increased significantly over the past decade and some beneficiaries may be forced to sell it just to pay the capital gain tax and probate fees.  The first thing you will need to determine is how much taxes and fees your estate will be required to pay when you transfer ownership onto the next generation.

Calculating Capital Gains Tax

This will occur when you sell, gift or pass on the cottage to your children upon death.  To calculate the capital gains tax you first determine the difference between the current selling price (fair market value) and what you paid for the cottage; including the costs of any upgrades (cost base).  This difference is then divided by two, that figure is the amount that is added to your income; and taxed in the year of death.  (e.g. your purchase price was $100,000, current selling price $300,000, taxable capital gain = $100,000 or  $300,000 - $100,000 = $200,000 / 2 = $100,000) Therefore if you are in a 50% tax bracket, your tax bill will be approximately $50,000.

Calculate Probate Fees

If you hold onto the cottage until death and leave it to anyone other than your spouse, some provinces (including Ontario) will impose a probate fee based on the fair market value of the cottage.  Probate fees can be as high as 1.5% of the value of the cottage at the time of your death.  Using the above example; $300,000 x 1.5% = $4500.

What to do?

Life insurance can be a very cost-effective method of funding the looming tax bill.  This type of funding can be an ideal solution for people with modest estates and/or want to guarantee that funds are available to pay the tax and ultimately avoid the sale of the cottage to upon their death. 

If you have a larger capital gain on your cottage than your home in the city, consider designating the cottage as your principal residence.  Once you determine which residence (home or cottage) should be deemed principal residence, your executor should be instructed to report the disposition on your final tax return.

You may also want to consider transferring your cottage into a trust.  This vehicle may be used for tax efficiency, creditor protection, and maintaining control of the cottage during your lifetime, or all three.

Finally, if you sell the cottage prior to death, you will avoid probate fees and can pay the capital gains tax that would otherwise be payable upon your death.  Furthermore, these proceeds can then be used to help fund your retirement income. 

Since tax rules change frequently and everyone’s circumstances are different, it is important to discuss your particular situation with your financial advisor, lawyer and accountant.  If you need help getting started give me a call.

Have a great weekend at the cottage,

Tracey

Source:  Original article by Mike George and Staff at Advisor.ca published 10-01-11 and 05-17-13, originally posted on The Money Tree 05-23-13

Make Sure You Plan for Incapacity

Your estate planning shouldn’t end with an up-to-date will; it should also include powers of attorney (PoA) for both property and personal care.   A Power of Attorney is a legal document that gives someone else the right to act on your behalf if you become incapacitated and are unable to do so.

While most will and estate planners recommend you prepare these two documents at the time you create your will, they can be prepared at any time.

PoA for Personal Care

With a power of attorney for personal care, you can authorize someone to make medical and personal care decisions if you become incapable of making them yourself.

Under Ontario law, you can give power of attorney for personal care if you are at least 16 years of age, and have “the ability to understand whether the proposed attorney has a genuine concern” for your welfare, and can appreciate that the attorney may need to make decisions.

Personal care includes decisions concerning health care, nutrition, shelter, clothing, hygiene and safety.

PoA for Property

A continuing power of attorney for property authorizes someone to do anything regarding your property that you could do if capable, except make a will.

The law says you are capable of giving a PoA for property if you are at least 18 years old, know what kind of property you have, along with its estimated value, and are aware of any obligations owed to your dependants.

A continuing power of attorney for property is a powerful document.  Unless otherwise stated in the document, it is effective immediately; when signed, granting considerable power to your attorney.  Make sure your PoA includes the term ‘continuing’ and includes the document that only gives the PoA the right to exercise his power over your affairs if you have become incapacitated.

Not have a PoAs could be costly

If you don’t have a power of attorney in place, a loved one will have to make an application to the court before they can make decisions for you.  That can leave you and your family scrambling when you are in no condition to do so.  Having a will in place does not help because an executor is only able to act upon your death.

Furthermore, court processes can be both time-consuming and costly.  Depending on the circumstances, the Public Guardian and Trustee may have to get involved. Once this happens you may lose the opportunity to choose the people you want and/or you may not be able to set the parameters regarding the actions of your newly appointed decision makers.

Because of these serious issues; I would advise you to consult with your lawyer to ensure the documents are designed to work in your best interest.  If you have any questions or want more information, don’t hesitate to give me a call.

Happy first long weekend of the summer,

Tracey

 

Source:  original article by Elaine Blades posted on Advisor.ca 04-23-14

 

The Actual Cost of Carrying Debt

According to a recent survey 71% of Canadians carry some form of debt not including their mortgage.  In fact, the average consumer debt (credit cards, lines of credit, loans, etc.) is about $27000. 

Even more concerning; Statistics Canada reported that as of December 2013; Canadian household debt rose to 1.64.6% of disposable income.  This means that for every $1 of income earned, the average person owes $1.65 in debt – this is approximately at the same level as the Americans were at just prior to the U.S. housing bust.

The true cost of Debt

As shocking as these statistics may be, what’s worse it the actual cost of carrying all this debt.

From a financial planning perspective, the impact is quite substantial.  The average Canadian pays around $1400 in interest annually on his/her line of credit alone.  That may not seem like a lot however you must remember interest rates are at historic lows.  If the prime rate increases by only 1%, this annual amount goes up by $350. 

Missed Opportunity Cost

Another cost of this debt is the missed opportunity cost – meaning the money you spent in paying interest could have been used to fund your other financial goals. 

For example, pretend you’re 46 years old, and last year you paid $200 per month servicing your debt; this year; instead you used that money to contribute to your RRSP.  By the time you are 65, assuming an 8% rate of return, your savings would grow to $103,731.  But let’s back up and say you didn’t have that debt and you started contributing to you RSP a year earlier, you would have accumulated $114,532 by the age 65.  So, even though the debt only cost you $1200, the missed “opportunity cost” would be $10,801.

When Debt Makes Sense

Not all debt is bad; there are situations where taking on debt makes sense, particularly if that debt gives you an opportunity or investment that you wouldn’t have been able to take advantage of otherwise.

Education is the ultimate investment in yourself.  Not only is an advanced degree or certification an exceptionally long-lived asset (it lasts your whole life and never goes down in value), it will often have a direct and permanent impact on your earning power.

Maximizing your RRSP.  Borrowing to top up your unused contribution room can be a good idea – but make sure you use your refund to help pay off the loan.

Borrowing to Invest in Non-registered investments can help build your investment portfolio and generate some tax deductable interest cost.  However, the risk of this strategy largely depends on what you invest in, make sure the investments you choose match your risk profile.

Rental Real Estate is potentially another good use of debt, especially if the rental income can cover the mortgage and taxes.

When looking at your personal finances remember it is not just about the math; your emotions, psychology and behavior play a significant role in how you manage your money. 

If you are feeling trapped in a never ending cycle of bills, give me a call, we can restructure your debt, reduce your interest expense and free up those dollars to put towards your other financial goals.

Have a great weekend,

Tracey

 

Source:  Original article posted on Advisor.ca by staff 09-12-13

 

 

 

 

 

5 Questions to Ask when transferring your RRSP to a RRIF

Should you make one last RRSP contribution?

If you are 71 years old and still have RRSP contribution room, consider making one last RRSP contribution – especially if you are going to be in a lower tax bracket going forward.  RRSP contributions are generally not allowed for people over age 71, so this may be your last opportunity for a large tax deduction in one year.

Have you named a Beneficiary on your RRIF?

Beneficiaries named on RRSP accounts do not automatically transfer over to your new RRIF account.  If you want to transfer your RRSP assets directly to your beneficiary - without going through your estate – be sure to name a beneficiary on your RRIF account.  Failure to do so may result in complex estate settlement matters or unintended distributions.

Whose age should you use to calculate RRIF minimums?

When you set up your RRIF you have the option to calculate payment based on your own age or the age of our spouse or common-law partner.  If your goal is to maximize the tax-deferral on income from your RRIF, it is generally best to calculate your annual RRIF payment based on the younger person’s age.  This will result in smaller mandatory withdrawal amounts and will allow for a longer period of tax-deferral.

Have you considered requesting increased withholding tax on RRIF payments?

Withdrawals from your RRIF are generally subject to withholding tax between 0 – 31% depending on the amount being redeemed.  If you receive other forms of taxable income that are not subject to withholding tax (for example, interest income, dividend payments or capital gains from the sale of an investment), you may want to increase the withholding tax taken from your RRIF payment.  This should off-set taxes owing on your other sources of income and reduce the amount of tax owing when you file your income tax return at the end of the year.

Am I entitled to the pension credit for RRIF income?

If you are 65 or older and receiving (or about to receive) RRIF income, consider claiming the pension credit on your federal tax return for up to $2000 of RRIF income.  A similar tax credit is available provincially, although there are some differences across the provinces.  The federal credit is worth $300 and can be used to offset tax payable on any other form of income.  The credit cannot be carried forward to a future year, so be sure to claim the credit when available.  If you are under the age of 65, the pension credit is available for your RRIF income only if received as a consequence of the death of a spouse or common-law partner.

If you or someone in your family is converting their RRSP to a RRIF this year be sure to contact me to ensure the transition goes smoothly, and of course making sure all of the above considerations are taken into account.

Have a great weekend,

Tracey

 

 

 

 

 

 

 

Source:  Mackenzie Investments