Steve Gobel CFP R.F.P. Regional Director Investors Group Financial Services. Financial Strategies For Retirement - Part 1

Transcription

1 Steve Gobel CFP R.F.P. Regional Director Investors Group Financial Services Financial Strategies For Retirement - Part 1

2 For your information Written and published by Investors Group as a general source of information only. Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice. Seek advice on your specific circumstances from an Investors Group Consultant. Investment products and services are offered through Investors Group Financial Services Inc. (in Québec, a Financial Services firm) and Investors Group Securities Inc. (in Québec, a firm in Financial Planning). Investors Group Securities Inc. is a member of the Canadian Investor Protection Fund. Commissions, fees and expenses may be associated with mutual fund investments. Read the prospectus before investing. Mutual funds are not guaranteed, values change frequently and past performance may not be repeated. Insurance products and services distributed through I.G. Insurance Services Inc. (in Québec, a Financial Services Firm). Insurance license sponsored by The Great-West Life Assurance Company (outside of Québec). Banking products and services are distributed through Solutions Banking TM. Solutions Banking products and services are provided by National Bank of Canada. TM Solutions Banking is a trademark of Power Financial Corporation. National Bank of Canada is a licensed user of these trademarks. Trademarks, including Investors Group, are owned by IGM Financial Inc. and licensed to its subsidiary corporations. 1

3 Retiree Planning What is retirement? 2

4 Key Retirement Concerns LONGEVITY INFLATION ASSET ALLOCATION HEALTH CARE WITHDRAWAL RATE LEGACY Multiplier Effect 3

5 Longevity risk Trend toward less work and more play Source: The Daily, Statistics Canada. September 25, 2013 and October 26,

6 Life expectancy Male 65 Female 65 Couple Both 65 50% chance of living until age 83 25% chance of living until age 89 50% chance of living until age 86 25% chance of living until age 92 50% chance at least one will live past age 90 25% chance at least one will live past age 94 Retirees are living longer Their savings need to as well Source: Canadian Institute of Actuaries, UP-94 Projected to

7 Inflation What will my money buy? $1,000,000 today will be worth in 10 years in 20 years in 30 years 2% inflation $820,000 $673,000 $552,000 3% inflation $744,000 $554,000 $412,000 4% inflation $676,000 $456,000 $308,000 Even Low Inflation can Damage Purchasing Power 6

8 Planning is the Key Too often retirement is thought of only in terms of financial matters. Financial comfort is important but a successful and fulfilling retirement experience requires planning in all areas of life. Money is one tool for achieving many goals, but financial security, alone will not provide happiness, good health, rewarding relationships, meaningful activities and a sense of purpose. 7

9 Retirement income planning in a nutshell Determine your retirement goals Take a snapshot of your current situation Determine your retirement goals / identify gaps Identify risk Create your Retirement Paycheque TM Understand sources of income Calculate your retirement income needs Combine your income into a single income stream Maximize your Retirement Paycheque TM Take advantage of additional tax-saving strategies Consider asset protection strategies 8

10 Retirement income planning process 9

11 Determining your retirement goals 10

12 What s your number? Will you need 70% of your pre-retirement income to maintain your current standard of living? Some are now saying that number is closer to 80% If you plan to travel, that amount could reach 100% or more Every plan is unique. Lets take a look at what can alter these figures dramatically. 11

13 Two most common questions From the individual who is approaching retirement: How much money do I need in retirement? From the individual who is currently retired: Will I run out of money during retirement? 12

14 There is no simple answer Things to consider: What will you do to keep busy in retirement? Will you start a new career? Will you pursue new activities? How will you manage your health? Will you be planning with a partner or alone? Will you be supporting the activities of kids or grandchildren? Are you willing to accept investment fluctuations (risk tolerance)? What are your investment assets and liabilities? Will there be any changes to expenses in retirement? 13

15 Is there a gap between your goals and reality? Your desired retirement lifestyle Your retirement income forecast How do you fill the GAP? Financial Strategy 14

16 Planning is the Key Financial Strategies for Retirement 15

17 Planning is the key Two Possible Outcomes Door #1. Your money outlives you. Door #2. You outlive your money. You Have To Have A Plan! 16

18 Planning is the key Two Retirement Issues Dignity. Independence. As we get older these are things that we may need to purchase. 17

19 Planning is the key Three Planning Necessities Have a Plan. Adjust the Plan as needed. Protect the Plan 18

20 A Simple Financial Plan Time $avings Goal: Retire with $X Income per year % ROR 19

21 THE SIX PILLARS OF FINANCIAL PLANNING I II III IV V VI Maximizing Cash Flow Building Your Portfolio Managing Taxes Lifestyle Insurance Retirement Readiness Leaving a Legacy 20

22 THE SIX PILLARS OF FINANCIAL PLANNING I II III IV V VI Maximizing Cash Flow Building Your Portfolio Managing Taxes Lifestyle Insurance Retirement Readiness Leaving a Legacy 21

23 1. Maximizing Cash Flow YESTERDAY, TODAY AND TOMORROW 22

24 THE SIX PILLARS OF FINANCIAL PLANNING I II III IV V VI Maximizing Cash Flow Building Your Portfolio Managing Taxes Lifestyle Insurance Retirement Readiness Leaving a Legacy 23

25 The risk of playing it safe Overly conservative investing comes with risk Inflation can erode your investments A balanced investment portfolio stands the test of time. 24

26 The risk of playing it safe 25

27 Why do so many people fail to reach their financial goals? Lack of a Plan Ad-hoc investment decisions Chase performance Fear & Greed Improper Asset Allocation Lack of Diversification High Taxation 26

28 140 Diversification Reduces Volatility Investment A Investment B Combination For Illustration only 27

29 Equities Drive Asset Growth 28

30 The Perils of Chasing Investment Performance 29

31 Modern Portfolio Theory Using diversification, a portfolio can be optimized The optimal combinations form an Efficient Frontier Efficient Frontier Expected Returns A B C Variability 30

32 Sample Moderate Aggressive Portfolio 31

33 Markets Recover Despite Volatility 32

34 The Importance of Rebalancing 33

35 Profit with Dollar Cost Averaging 34

36 THE SIX PILLARS OF FINANCIAL PLANNING I II III IV V VI Maximizing Cash Flow Building Your Portfolio Managing Taxes Lifestyle Insurance Retirement Readiness Leaving a Legacy 35

37 Taxation of Investment Income 36

38 Managing Taxes WATCH YOUR SAVINGS GROW TAX-FREE THROUGHOUT YOUR LIFETIME Reduce your overall tax bill Tax-Free Savings Account (TFSA) Save for important goals What are you saving for? A tax-free way to save Contributions are not tax deductible. You will not be taxed on interest, dividends or capital gains earned inside the TFSA. Withdrawals are not subject to tax. More than just a savings account. 37

39 Give Yourself A Raise 38

40 THE SIX PILLARS OF FINANCIAL PLANNING I II III IV V VI Maximizing Cash Flow Building Your Portfolio Managing Taxes Lifestyle Insurance Retirement Readiness Leaving a Legacy 39

41 Lifestyle Insurance What is your most valuable asset? Your home? Your RRSP? Your vehicle? 40

42 Lifestyle Insurance Your most valuable asset is your ability to earn an income. 41

43 Life altering illness Did you know, in Canada, it is estimated that: Approximately 410,000 Canadians will suffer a critical illness this year and most will survive 1 in 2 men and 1 in 3 women are predicted to develop heart disease in their lifetime 40,000 to 50,000 Canadians suffer a stroke each year An estimated 3,075 Canadians will be diagnosed with cancer every week - the cancer survival rate has nearly doubled to 55 percent in 30 years. Commissioner s Disability Table 1985 Heart and Stroke Foundation 2001 National Cancer Institute of Canada: Canadian Cancer Statistics

44 $ Everyone s Dream Target Net Stay Same $ $ Delayed retirement? 1/3 of people will have to access their savings in order to deal with a disability, critical illness or need to care for aging parents.* Now Age *1985 Commissioner s Disability Table A (experience table); 43 CIA 86 to 92 Aggregate Mortality Table

45 Living with a life altering illness Ongoing expenses Lifestyle Adaptation Expenses Transportation Expenses Home Conversion Expenses I have learned how the financial health of an ailing person can also become a contributing factor to his or her physical health. There is a definite link between physical and financial well-being Dr. Marius Barnard 44

46 Critical illness & long-term care insurance Critical illness & Long Term Care Protection: Fills the gaps between life and disability insurance Provides you with living benefits 45

47 Lifestyle Insurance Your retirement nest egg 46

48 Lifestyle Insurance Two key questions How much insurance? What type of insurance? 47

49 Lifestyle Insurance THE RIGHT CHOICES 48

50 Questions? 49

51 Steve Gobel CFP R.F.P. Regional Director Investors Group Financial Services Financial Strategies For Retirement - Part 2

52 For your information Written and published by Investors Group as a general source of information only. Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice. Seek advice on your specific circumstances from an Investors Group Consultant. Investment products and services are offered through Investors Group Financial Services Inc. (in Québec, a Financial Services firm) and Investors Group Securities Inc. (in Québec, a firm in Financial Planning). Investors Group Securities Inc. is a member of the Canadian Investor Protection Fund. Commissions, fees and expenses may be associated with mutual fund investments. Read the prospectus before investing. Mutual funds are not guaranteed, values change frequently and past performance may not be repeated. Insurance products and services distributed through I.G. Insurance Services Inc. (in Québec, a Financial Services Firm). Insurance license sponsored by The Great-West Life Assurance Company (outside of Québec). Banking products and services are distributed through Solutions Banking TM. Solutions Banking products and services are provided by National Bank of Canada. TM Solutions Banking is a trademark of Power Financial Corporation. National Bank of Canada is a licensed user of these trademarks. Trademarks, including Investors Group, are owned by IGM Financial Inc. and licensed to its subsidiary corporations. 51

53 THE SIX PILLARS OF FINANCIAL PLANNING I II III IV V VI Maximizing Cash Flow Building Your Portfolio Managing Taxes Lifestyle Insurance Retirement Readiness Leaving a Legacy 52

54 Planning is the Key Non-Financial Concerns 53

55 Not Your Grandparents Retirements A generation ago, the average Canadian retired at age 65 and could expect to live another 7 or 8 years. Nowadays, Canadians are choosing to retire earlier than before, with the average retirement age now just 62. Add in increases in longevity over the past 25 years, and the amount of time most people spend experiencing the next phase has almost tripled. 54

56 Retirement is no Longer an Age, It s a Lifestage Today s retirees don t want to retreat from life when they leave their formal career. They want a fulfilling lifestyle. They want to find meaning in life rather than resting, achieve a life balance over enforced leisure, realize life-long dreams and have fun! 55

57 Welcome to the New Retirement The new retirement means living the next phase of your life on your own terms. These resolutions will help you do just that. I will leave my workplace when I am ready. I will continue to learn and grow as a person. I will continue to play a positive role in the lives of my children and parents. I will maintain a positive network of friends and associates. 56

58 Welcome to the New Retirement The new retirement means living the next phase of your life on your own terms. These resolutions will help you do just that. I will continue to contribute. I will do things that engage my mind, time and energies. I will do all I can to maintain my personal health and wellbeing. I will feel good about myself and my accomplishments at every age. 57

59 Six Key Steps to a Successful Retirement 1. Have a clear vision of the future. 2. Practice good health and wellness. 3. Be positive about making your retirement work. 4. Take a balanced approach to leisure. 5. Enjoy personal relationships. 6. Feel financial comfortable. 58

60 Step 1: Have a clear vision of the future. What is it you really want to do with the next phase of your life? Most content retirees will tell you they created a structure for their retirement life to replace the structure they left behind with their workplace. 59

61 Step 2: Practice good health and wellness. Most Canadians can look forward to many productive years by paying attention to the basic principals of healthy living. Staying physically active is a big health plus and so is staying mentally active. Look for ways to keep yourself both physically and mentally stimulated throughout life. 60

62 Step 3: Be positive about making your retirement work. Some people generate retirement income from a job other may opt for a phased in retirement. Some may decide to start a business, go back to school or volunteer for a cause they believe in. Once, retirement was viewed as freedom from work; now it s seen as freedom to work at something you truly enjoy. 61

63 Step 4: Take a balanced approach to leisure. Having the opportunity to do what you want when you want is one of the advantages of the next phase of your life. If you focus on just one or two activities, you could miss out on a lot. Think about casting your net wide by trying new things in new places with new people be adventurous and find a happy life balance. 62

64 Step 5: Enjoy personal relationships. Retirement should be a time to enjoy family and friends. For too many, it can be an isolating experience. Make the effort to work on maintaining and developing social networks and don t wait to the last minute; it takes time to develop networks of friends and personal interests. 63

65 Step 6: Feel financially comfortable. Financial comfort means different things to different people; What you don t want is the daily stress and worry about your financial situation; and What you do want is to feel confident that your financial resources are strong enough to support your retirement lifestyle. 64

66 Creating your Retirement Paycheque 65

67 Complexities of various income streams Multiple income sources require planning Understanding your sources of income Personal savings Government Employer sponsored Other Registered investments TFSA Nonregistered investments Etc CPP QPP OAS Etc Employer pension plan Group RSP Deferred profit sharing Part-time employment Home equity Etc 66

68 Government benefits Canada Pension Plan & Québec Pension Plan Provides monthly income Entitlement based on past contributions and length of contribution period Must apply in order to begin receiving payments Old Age Security (OAS) Provides monthly income Income tested benefit beware of the clawback! Must apply in order to begin receiving payments 67

69 Employer sponsored programs Pension Plans Defined Benefit pension plan Defined Contribution pension plan Group RRSP Deferred Profit Sharing Plans 68

70 Personal savings Registered Retirement Savings Plan (RRSP) TFSA Annual contribution limit 2009 to 2012: $5, to 2014: $5, :$10, and forward:? Tax-free withdrawals Great for sheltering income from tax Non-Registered Investment Option once contribution room has been maxed-out Used as an emergency fund 69

71 Other Post retirement employment Postpone or reduce withdrawals from your retirement funds Phased retirement may provide balance between work and leisure Home Equity Downsizing to a smaller house No taxes on capital gains if house is designated as principal residence Equity take-out to pay for expenses 70

72 So how do I get my money? Prior to retirement you had a single paycheque every two weeks How do you put it all together?? 71

73 Putting it all together: Your Retirement Paycheque TM Streamline monthly income into a single paycheque CPP/QPP OAS Employersponsored program TFSA RRIF Retirement Paycheque Nonregistered 72

74 Maximizing your Retirement Paycheque 73

75 Strategy #1: Maximize tax credits Age Credit Aged 65 or older at December 31st Phased out as income increases beyond a certain point Medical Expense Credit Generally, medical expenses in excess of 3% of net income* Spouse with lowest net income should generally make the claim Disability Tax Credit Not limited to retirees For those unable to perform basic daily living activities Pension income Credit Available each year on the first $2,000 (federal limit) of qualified pension income Note: Provincial thresholds vary *family income in Quebec 74

76 Strategy #2: Pension income splitting Basic fundamental concept Shift income from the high income earner to lower income earner Up to 50% of Eligible Pension Income can be split Eligible Pension Income depends on your age Benefits of pension income splitting could be: Reduction in combined family income taxes Reduce or prevent entirely the OAS claw-back Reduce or prevent entirely the claw-back of tax credits 75

77 Strategy #2: Pension income splitting John (55) and Mary (52) are a happily married couple John is retired from the Canadian Military, and receives an annual military pension of $40,000 John has a salary of $50,000 a year Mary works part-time, and has a salary of $25,000 John and Mary both maximize their RRSP contributions Without Split 76 With 50% Split John s federal taxes due $12,121 $7,721 Mary s federal taxes due $1,005 $3,705 Total federal taxes $13,126 $11,426 Net tax savings* - $1,700 *Example uses federal taxes only and are based on 2014 tax rates

78 Strategy #3: Spousal RRSPs 100% 80% Income of $60,000 Income of $40, % 15.78% Income of $20, % 60% 40% + Average tax rate 20% 0% Single retirement income $49,676 after tax Split retirement income of $51,838 after tax Total increase $2,162 after tax 77

79 Strategy #4: Reduce or prevent OAS claw-back OAS is reduced by 15% of net income in excess of the threshold If you go too far past the threshold you are left with no OAS benefits Therefore the strategy is to reduce your net income Common strategies include: Ensuring all applicable tax deductions are claimed Pension income splitting and spousal RRSPs Using TFSA withdrawals to fund income needs in retirement 78

80 Strategy #4: Reduce or prevent OAS claw-back cont d Kathy (66) is a retired public servant Kathy has $90,000 of net income this year this is above the OAS claw-back threshold Of this amount, $60,000 is eligible pension income Her spouse, George (64), has $25,000 of self-employment income annually Kathy allocates $30,000 of income to George using the pension income splitting strategy Without Split With 50% Split Kathy s income $90,000 $60,000 George s income $25,000 $55,000 Total federal taxes* $17,056 $13,295 OAS clawback $1,411 $0 Net federal savings $5,172 *Example uses federal taxes only and are based on 2014 tax rates 79

81 Strategy #5: Insured annuity Affluent individuals Age 60 or older, in good health, with conservative investments such as GICs or fixed income mutual funds, where income is being used to support or enhance lifestyle. Conservative investments are liquidated and used to purchase a prescribed annuity contract and an exempt life insurance policy. Also referred to as a back to back strategy. 80

82 Plan For Today and Tomorrow 81

83 82

84 Strategy #6: Corporate Class takes tax-planning seriously Tax-efficient investing Avoid triggering tax liabilities when re-balancing your portfolio Allows your investments to grow on a tax-deferred basis Additional benefits No contribution limits No age restrictions No loss of contribution room as a result of early withdrawals Limited impact on your income tested benefits 83

85 Who can benefit most from this strategy? Investors who: Hold investments outside of registered accounts, but have maxed out their RRSP and TFSA contributions Would like the freedom of adjusting their portfolio regularly without realizing capital gains Have a long-term investment time horizon May be looking to draw tax efficient income 84

86 Case study: David versus Susan David and Susan have both maxed out their RRSP and TFSA investments and are searching for alternatives. Susan opts to invest $100,000 in the Corporate Class structure David invests $100,000 in the same portfolio but in a traditional nonregistered structure Let s assume the following conditions apply Both have a 25 year investment time horizon Both have a marginal tax rate of 39% for the period The Corporation pays a 2% capital gain dividend each year 10% of the portfolio is rebalanced each year, resulting in funds being sold and reinvested* *For illustration purposes only - Portfolio funds typically rebalance more frequently than annually. 85

87 Case study: David versus Susan The after-tax value of Susan s Corporate Class investments is over $60,000 greater than David s regular unit-trust portfolio. Initial Investment After Tax Benefit of managing investment inside Corporate Class over 25 years $15,000 $9,284 $25,000 $15,473 $50,000 $30,947 $75,000 $46,420 $100,000 $61,894 60% of the portfolio consists of equity investments realizing an annual return of 8.5%. 40% of the portfolio consists of fixed income exposure investments earning a 3.5% return. The portfolio is rebalanced at each year end, resulting in 10% of the funds being sold and reinvested in other funds. The mutual fund trusts make annual distributions of their net investment income and capital gains distributions equal to 2% of net assets. A 39% marginal tax rate, an annual capital gain inclusion rate of 50% and the Corporation pays a 2% capital gain dividend each year. Investments are sold after 25 years. The mathematical table shown is used only to illustrate the effects of the compound growth rate and is not intended to reflect future values or returns on investment. 86

88 Receiving cash-flow Return of capital 87

89 Tax-efficient monthly payout Transfer your portfolio and/or fund over to Series-T Corporate Class Portfolios and save tax through the return-of-capital feature Series T Corporate Class Portfolios Series T Corporate Class funds Series-T Corporate Class Portfolios Systematic withdrawal plan with return-of-capital Payout is a return of capital, which is your original investment and therefore not subject to tax Tax efficient monthly payout 88

90 Not all cash-flow is taxed equally 89

91 Strategy #7: Annuity Strategies Annuities are products where an individual invests a single lump sum (single premium) with an insurance company who in return pays out a regular monthly or annual payment for a specified term, or, for the lifetime of the individual (annuitant). 90

92 Strategy #7: Annuity Strategies Registered Annuities Annuities purchased with RRSP or RRIF funds (including locked-in accounts such as Locked-in RRSPs, LIFs, LRIFs, PRIFs, and RLIFs), or RPP funds are considered registered annuities. For registered annuities, the entire amount paid out in a calendar year to the annuitant is taxable to the annuitant in the year the payments are received 91

93 Strategy #7: Annuity Strategies Non-registered annuities: Prescribed vs. non-prescribed A prescribed annuity is one whereby the income portion of the annuity payment is constant throughout the duration of the annuity. As a result, a prescribed annuity provides for tax deferral in that some of the income earned in the early years is taxed in the latter years whereas a non-prescribed annuity will result in larger income amounts in the early years of the contract reducing to a minimal amount in the final year. 92

94 Life Annuity - Guarantee Periods $500,000 RRSP Male 65, Female 63 Single Life Annuity Male 0 Year guarantee - $ 2, Year guarantee - $ 2, Year guarantee - $ 2, Year guarantee - $ 2, Year guarantee - $ 2, Joint Life Annuity M65F63 0 Year guarantee - $ 2, Year guarantee - $ 2, Year guarantee - $ 2, Year guarantee - $ 2, Year guarantee - $ 2, All annuity quotes shown are from Canada Nov. 17,

95 Strategy #8: GIF- Lifetime Income Benefit option (LIB) GMWB = Guaranteed Minimum Withdrawal Benefit GMWB = Lifetime Income Benefit Option (LIB) Guaranteed Investment Fund (GIF). The lifetime income benefit allows you to plan for retirement with certainty, knowing what your annual lifetime income will be. Income won't decrease regardless of how investments perform, which provides you with protection against the risks of market returns and volatility. The potential for increasing income. 94

96 The Opportunity Built-in protection through a partial or complete guaranteed return of principal via maturity and death benefit. An easier and potentially cost-effective transfer to a beneficiary upon death (bypassing the estate, reducing probate fees, etc depending on applicable provincial regulations). Some degree of guaranteed cash flow via the Lifetime Income Benefit (LIB). The potential for business owners to protect personal investments from their company s creditors. 95

97 Guaranteed Income For Life At Any Age Age of youngest annuitant Income % Income on $500,000 premium % $15, % $17, % $19, % $21, % $23, % $25,000 Amounts shown are for illustration purposes only 96

98 When markets go down; Your retirement income does not 97

99 When markets go up; Your retirement income increases Jack, age 65 $500,000 in GIF with LIB option $21,000 guaranteed initial annual payout (4.2% of $500,000) 98

100 THE SIX PILLARS OF FINANCIAL PLANNING I II III IV V VI Maximizing Cash Flow Building Your Portfolio Managing Taxes Lifestyle Insurance Retirement Readiness Leaving a Legacy 99

101 Leaving a Legacy Identify stakeholders Have the talk with your parents Make your wishes clear Protect your estate Protect family heirlooms A smarter way to give 100

102 Leaving a Legacy Identify Stakeholders Friends Children Creditors Spouse Estate Plan Business Partner Other Family Government Charities Consider all the stakeholders in your plan. Taxes and probate fees could reduce the value of an estate by up to half. Ensure your personal wishes are respected. 3 out of 4 Canadians have not talked to parents and siblings about their parents wills. 101

103 Leaving a Legacy Have the talk with your parents Conduct a family meeting. Review estate plans, funeral arrangements, all paperwork. Relieve stress for all. 102

104 Leaving a Legacy Make your wishes clear You re never too young to have a: Will, Power of Attorney, Health Care Directive. Name: An Executor, Guardians, Beneficiaries. Don t forget to review and adjust as your life changes. 103

105 Wealth preservation Your legacy represents a lifetime of earnings and savings - your lifetime! If it is worth a lifetime to accumulate, is it worth keeping? Wealth preservation is ensuring your heirs receive the full value of your legacy! THE GOVERNMENT WILL PROBABLY BE AN UNINTENDED BENEFICIARY OF YOUR ESTATE. You may be able to offset the tax liability 104

106 Wealth preservation Can you afford to ignore the tax bite? 100% of the value of your RRSPs or RRIFs (unless rollover exemption applies) Tax on capital gains 105

107 Wealth preservation Examples of capital property that may attract income tax if a capital gain occurs: Mutual funds Stocks & Bonds Cottage Rental property Land investments Business assets (including farm property and shares of a small business corporation) Antique cars, artwork and jewelry 106

108 Wealth preservation Current Exceptions: Personal Residence Rollover of property to a spouse or common-law partner Capital gains exemption in case of qualified farm property [$1,000,000] and qualified small business corporation shares [$813,600 for 2015]. Rollover of farm property to a child or grandchild 107

109 Wealth preservation Paying taxes on an estate - what are other solutions? Spousal or common-law partner rollover Heirs pay the taxes from their own income or assets Heirs can borrow money The personal representative of the deceased can sell estate assets 108

110 Wealth preservation Paying taxes on an estate - Another viable option is life insurance: Proceeds are guaranteed, tax free and can be payable upon the second to die spouse s death; Cost effective because only a single plan is required Monetary outlay is generally 1% - 2 % of gross estate Buy enough life insurance to cover your estate taxes. No matter how stiff the premium might seem, it s a bargain. 109 Fortune Magazine, March 1996

111 Fair & equitable estate distribution What if... Your estate assets include a cottage, rental property, business or farm that cannot be easily divided or sold? The assets are tied up in buildings, land, or machinery? One child is interested in the cottage, business or farm, while other children are not? Your surviving spouse still requires an ongoing income and does not want to rely upon the children or give away the assets yet? The child who wants the assets cannot raise the funds to buy out other siblings? 110

112 Estate equalization Critical issues to consider first: Who wants to own the cottage, or who is capable and committed to running the business or farm? What other assets are available? How will your other children (heirs) feel? When do you want to transfer your assets (at death, retirement or spouse s death)? Do you and your spouse have enough to retire comfortably? 111

113 Estate equalization An estate equalization strategy, using life insurance, can address all of these situations to enable a fair and equitable distribution of assets to all heirs 112

114 Estate equalization What is it? A guaranteed financial commitment provided by a life insurance benefit that is triggered upon the death of both parents A cash benefit that is made available at the precise moment it is needed Beneficiaries receive cash benefit completely tax free 113

115 Estate equalization - How it works Rental Property Farm Business Cottage Insurance Company ESTATE Estate Residue Estate Equalization Payments Involved/Interested child Asset usually acquired at increased cost base Non-Involved/Interested child No legal interest in these assets bequeathed to Involved Child 114

116 Estate equalization - Advantages Conserves family assets Enables transfer of property to a child who wishes to acquire it and provides proceeds to non-involved children Achieves an equitable estate distribution 115

117 Leaving a Legacy A smarter way to give Charitable giving options to: Support your community, Manage your ongoing charitable giving, Save tax, and Leave a lasting legacy. 116

118 Questions? Steve Gobel Regional Director Investors Group Financial Services Inc