Brett Millard – Dec 16, 2024 / 4:00 am | Story: 522955
Photo: Esther Ann/Unsplah
The largest intergenerational transfer of wealth in history is now underway, with Canadian seniors set to pass down an estimated $1 trillion to their heirs in the coming decades.
While many parents dream of leaving a lasting legacy for their children, not all are confident their offspring can responsibly manage the wealth they’ll inherit.
For those facing this concern, there are several strategies to consider that could help ensure their hard-earned assets are preserved, used wisely, and distributed according to their wishes. Here are five options to consider, along with their respective pros and cons:
1. Establish a trust
A trust allows you to transfer assets to a legal entity managed by a trustee who distributes funds according to your specified conditions. For example, you could stipulate that funds be used only for education, buying a home or reaching specific milestones.
Pros:
• Control: You dictate how and when the wealth is distributed.
• Protection: A trust can shield assets from creditors, divorce, or poor financial decisions.
• Privacy: Unlike wills, trusts are not subject to probate and remain private.
Cons:
• Cost: Setting up and managing a trust can be expensive, requiring legal fees and ongoing trustee fees.
• Complexity: Trusts require careful planning and regular reviews to remain effective.
• Trustee selection: Finding a trustworthy and competent trustee is crucial.
2. Gift wealth during your lifetime
Another approach is to gift portions of your wealth to your children or grandchildren while you are still alive. That allows you to guide and monitor how the money is used.
Pros:
• Immediate impact: You can witness the benefits of your generosity and provide guidance.
• Tax benefits: Canada’s tax laws may allow you to avoid certain estate taxes through lifetime giving.
Cons:
• No recourse: Once the money is gifted, you have no legal control over its use.
• Risk of mismanagement: If financial habits are poor, the gifted wealth could be squandered.
• Unequal expectations: Gifting to one child but not another may create family tension.
3. Charitable donations
For those who prefer not to leave their wealth to family, donating to a cause close to their heart can be a meaningful alternative.
Pros:
• Legacy: Establishing scholarships, funding programs, or endowing institutions creates a lasting legacy.
• Tax savings: Charitable donations can provide significant tax benefits, reducing the estate’s taxable value.
• Fulfillment: Knowing your wealth will contribute to a greater good can be deeply satisfying.
Cons:
• Family disputes: Disinheriting children, even partially, can lead to resentment or legal challenges.
• Irrevocability: Once donated, the decision is final, leaving no room for second thoughts.
4. Designate beneficiaries and use insurance policies
Life insurance policies and registered accounts (like RRSPs and TFSAs) allow you to name beneficiaries directly, bypassing the estate process.
Pros:
• Ease of transfer: Funds transfer directly to beneficiaries, avoiding probate delays and costs.
• Privacy: These transfers are not part of the public estate process.
• Flexibility: You can update beneficiaries as circumstances change.
Cons:
• Limited control: Beneficiaries (usually) receive funds outright, with no restrictions on use.
• Potential disputes: Unequal distributions can lead to family conflicts.
• Complex tax rules: Missteps in designations can lead to unintended tax consequences.
5. Education and gradual exposure
Instead of withholding wealth, consider educating your children about financial management and gradually introducing them to larger sums of money.
Pros:
• Skill development: This builds their financial literacy and confidence.
• Family harmony: Open communication can reduce misunderstandings and resentment.
• Long-term benefits: Responsible habits often extend beyond managing their inheritance.
Cons:
• Time-intensive: Teaching financial literacy requires patience and commitment.
• No guarantees: Not all children will adopt responsible financial behaviors.
• Partial risk: Missteps may still occur, even with education.
Canadian seniors who worry about their children’s ability to manage wealth are not alone, and the good news is that there are solutions.
Ultimately, the best approach depends on your unique family dynamics, financial situation, and goals. The right solution for you may be a combination of some or even all of the five options shown here.
With careful planning and professional guidance from a professional financial planner, you can navigate the great wealth transfer with confidence and peace of mind.
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.
Brett Millard – Dec 9, 2024 / 4:00 am | Story: 521721
Photo: Pixabay
As the holiday season approaches, it’s natural to focus on giving to others.
This December, why not give yourself a gift that will keep on giving? I’m going to let you choose what gift you give yourself and even suggest you pick more than one. By giving yourself one or more of these gifts this month, you can set yourself up for a more prosperous and stress-free 2025.
Here are five financial presents you can give yourself this holiday season to ensure a brighter financial future:
1. A budget that works for you—The best gift you can give yourself is a clear picture of your finances. Sit down and create a budget that reflects your income, expenses, and savings goals. If you already have a budget, take time to review and update it. The holidays can bring extra spending, so plan for gifts, travel, and festivities without compromising your financial stability.
How to make It happen:
• Use budgeting tools or apps to track your spending in real-time. There are many free ones available.
• Prioritize needs over wants and be mindful of holiday overspending.
• Set aside a “fun fund” for guilt-free spending during the holidays.
2. A debt-reduction plan—Carrying high-interest debt into the new year can be a significant financial burden. This December, give yourself the gift of a debt-reduction plan. Focus on paying down credit card balances, personal loans, or other high-interest debt.
How to make It happen:
• List all your debts, including interest rates and minimum payments.
• Tackle the high-interest debts first by making minimum payments only on all debts except the one with the highest rate and put everything extra on that one first until it’s gone.
• Look into consolidating high-interest debts into a lower-interest loan or line of credit to save on interest costs.
3. An emergency fund—An emergency fund is your financial safety net. If you don’t have one yet, now is the time to start. Having three to six months of living expenses saved can provide peace of mind and protect you from unexpected financial shocks.
How to make It happen:
• Start small by saving a percentage of your December income.
• Automate your savings to make it a consistent habit.
• Consider reallocating holiday bonuses or year-end tax refunds to your emergency fund.
4. Invest in your future—The holiday season is also a great time to focus on your long-term financial health. Contributing to a Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA) can help you grow your wealth and reduce your tax burden.
How to make It happen:
• Maximize your RRSP contributions to take advantage of tax deductions.
• Use your TFSA for investments that will grow tax-free over time.
• If you have children, contribute to a Registered Education Savings Plan (RESP) to benefit from government grants.
5. Financial literacy and advice—Understanding your finances is one of the most empowering gifts you can give yourself. This December, invest in your financial education or seek advice from a professional financial planner.
How to make It happen:
• Read books, attend webinars, or take online courses on personal finance.
• Schedule a meeting with a Certified Financial Planner professional to review your goals and develop a personalized plan.
• Join online communities or forums focused on financial literacy for support and ideas but be wary of the source and of bad advice.
The holidays are a season of giving, and that includes giving to yourself. By focusing on these financial gifts, you can set the stage for a prosperous 2025.
This holiday season, unwrap the gift of financial security and peace of mind. It’s the kind of present that never goes out of style.
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.
Brett Millard – Dec 2, 2024 / 4:00 am | Story: 520449
Photo: Pixabay
For many Canadians, the idea of retirement represents freedom from the constraints of a working life.
However, achieving that ideal is often complicated by financial challenges, including the growing trend of carrying a mortgage into retirement.
While it may be unavoidable for some, managing this financial burden wisely is critical to maintaining financial security and peace of mind in later years.
Why are more Canadians retiring with a mortgage?
A combination of factors has contributed to the rising number of retirees who still have mortgages. Real estate prices have soared in many parts of Canada, leading people to take on larger mortgages that take longer to pay off.
At the same time, some Canadians are tapping into their home equity to fund other needs, such as helping adult children buy homes, financing lifestyle upgrades, or consolidating other debts. Additionally, delayed retirement means that mortgages once planned to be paid off by age 65 are lingering into people’s 70s and beyond.
The risks of carrying a mortgage into retirement
While the risks may seem obvious to many of you, it is important to fully understand all the risks and potential impacts of carrying a mortgage into your retirement years:
1. Reduced cash flow: In retirement, income often comes from fixed sources like pensions, RRSP withdrawals, or government benefits. A monthly mortgage payment can significantly strain a retiree’s budget, reducing the funds available for other essentials like healthcare, travel, or unexpected expenses.
2. Market risk: If a retiree is relying on investment income to cover their mortgage, market downturns can create significant financial stress. A bad year in the markets might force someone to sell investments at a loss to cover mortgage payments.
3. Interest rate exposure: For those with variable-rate mortgages or lines of credit secured by their home, rising interest rates can increase monthly payments, further tightening their budget.
4. Mental stress: The psychological toll of carrying debt into retirement can be immense. Many retirees worry about outliving their money, and adding a mortgage to the mix can exacerbate these concerns.
Are there any positives?
While carrying a mortgage into retirement is not ideal, there are situations where it can make sense. For instance:
• Low interest rates: If your mortgage rate is exceptionally low, it may be more financially advantageous to carry the mortgage while keeping your investments growing at a higher rate.
• Leveraging equity: Accessing home equity for investments or other financial goals can be a strategic choice, provided the risks are well understood and managed.
• Real Estate Appreciation: If property values continue to rise, maintaining ownership of a mortgaged home may still contribute to overall wealth.
Managing a mortgage in retirement
If you find yourself carrying a mortgage into retirement, careful management is essential. Here are some strategies:
1. Refinance for lower payments: Consider refinancing to extend the amortization period and reduce monthly payments. While this may increase overall interest paid, it can ease cash flow challenges.
2. Downsize or relocate: Selling your home and moving to a smaller, more affordable property can help eliminate the mortgage entirely or significantly reduce the amount owed.
3. Use a reverse mortgage: While not suitable for everyone, a reverse mortgage allows retirees to access home equity without monthly payments. However, the loan balance grows over time, reducing the inheritance left to heirs.
4. Budget wisely: Build a retirement budget that prioritizes paying off your mortgage while maintaining a comfortable lifestyle. Consider cutting discretionary expenses where possible.
Tips to avoid retiring with a mortgage
If you still have some years left before you retire, now is the time to plan (or adjust your plans) to make sure you avoid this situation all together:
1. Start early: Aim to pay off your mortgage as early as possible. Consider making extra payments or increasing your monthly payment amount while you’re still working.
2. Plan for the long term: When purchasing a home, choose one that is affordable and fits your long-term needs. Avoid stretching your budget to buy a more expensive property.
3. Avoid equity withdrawals: Resist the temptation to tap into home equity unless absolutely necessary. This ensures your mortgage balance decreases steadily over time.
4. Boost retirement savings: The more savings you have, the easier it will be to manage any remaining debt. Maximize contributions to RRSPs and TFSAs during your working years.
5. Seek professional advice: Work with a professional financial planner to create a tailored strategy for debt repayment and retirement savings. They can help you assess whether retiring with a mortgage is manageable or whether adjustments are needed.
Retiring with a mortgage is not ideal, but it is a reality for many Canadians in our current economic environment. The key is to approach this challenge with a clear plan, no matter how tough your situation may feel, there are always options to consider to improve it.
By understanding the risks, managing the debt carefully, and taking proactive steps to avoid carrying a mortgage into retirement, you can secure a more comfortable and worry-free retirement.
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.
Brett Millard – Nov 25, 2024 / 4:00 am | Story: 519259
Photo: Pixabay
As we approach the end of the year, Canadian taxpayers still have opportunities to reduce their tax burden for 2024.
This is not the first time I’ve written about year-end tax planning ideas, but a refresher of the general strategies never hurts. So I’ve put together a summary of five of the most common year end tips as well as some information on a few unique situations for the 2024 tax year as well.
Tax planning basics that can apply every year:
1. Contribute to your RRSP—While the RRSP deadline for the 2024 tax year is March 1, 2025, now is a good time to review your contribution room and set aside funds if possible. Contributions reduce your taxable income, and for many Canadians, this is one of the most effective ways to lower taxes.
2. Maximize TFSA contributions—While TFSA contributions don’t provide an immediate tax deduction, investment income grows tax-free. If you have unused contribution room, consider using it to shelter investment growth from taxes.
3. Donate to charity—Charitable donations made by Dec. 31 are eligible for a tax credit on your 2024 tax return. This can significantly reduce your taxes owing while supporting causes you care about.
4. Tax-loss selling—If you have investments in non-registered accounts that have decreased in value, selling them before year-end can help offset capital gains elsewhere in your portfolio. This strategy can reduce the taxes you’ll pay on investment income.
5. Optimize family tax planning—Consider strategies, such as income splitting or contributing to a spousal RRSP. Parents may also benefit from putting money into a Registered Education Savings Plan (RESP), which comes with government grants that grow over time.
What’s new for 2024?
While the above strategies form the foundation of good annual tax planning, some unique changes and opportunities stand out in 2024:
1. First Home Savings Account (FHSA)—2024 marks the first full year Canadians can contribute to the FHSA. This account combines the best features of TFSAs and RRSPs, offering tax-deductible contributions and tax-free withdrawals for a first home purchase. If you’re planning to buy a home, make sure to contribute before year-end to maximize your room.
2. Climate action incentives and rebates—The federal government continues to roll out new incentives tied to clean energy initiatives. In 2024, more provinces became eligible for rebates under the Climate Action Incentive Payment. If you’ve made energy-efficient home improvements this year, ensure you have the receipts to claim credits or rebates.
3. Enhanced Canada Workers Benefit—The 2024 tax year includes higher thresholds and expanded eligibility for the Canada Workers Benefit, a refundable tax credit for lower-income individuals and families. If you qualify, this credit can provide meaningful savings on your return.
4. New rules for alternative investments—The Canada Revenue Agency introduced new reporting guidelines for cryptocurrencies and other alternative investments in 2024. If you’ve traded or held these assets, ensure you’re compliant with the reporting requirements to avoid penalties.
Proactive steps for a stress-free tax season
• Gather your documents—Get organized now by collecting receipts for charitable donations, medical expenses, and any business-related costs.
• Review your income sources—If you’ve had a significant change in income this year, consider whether you need to adjust withholdings or take additional steps to reduce taxes.
• Meet with a professional—A tax advisor can help identify strategies you might not have considered and ensure you’re maximizing deductions and credits.
Why proactive tax planning matters
Taking time for year-end tax planning can produce significant benefits when you file your 2024 return next spring. Small actions now can lead to significant savings, leaving you with more money to save, invest, or pay down debts.
Remember, the tax landscape changes annually and staying informed is key to making the most of available opportunities. Whether you’re focused on retirement, a first home, or maximizing your family’s financial resources, there’s no better time than now to act.
Make the most of the remaining weeks of 2024 and start the new year with confidence, knowing you’ve done what you can to minimize your tax bill.
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.