by Kelley Doerksen | Jan 26, 2024 | Retirement Planning
As you prepare for your retirement, we know that although it is an exciting time, it can also be a bit nerve-wracking as you move from earning an income to drawing an income from your investments, pension, etc.
In this video, Kelley Doerksen, CFP® walks you through some of the steps you can take to feel more prepared and confident that you will have what you need to live comfortably, retire successfully and enjoy the wealth you have accumulated.
Watch the video here:
https://youtu.be/usUtMbKUqTs
A large part of what we do when preparing financial plans for clients is helping to prepare for retirement of course; and although clients are excited to make the transition from working life to retirement, it also comes with some stress and concern related to whether or not you will have enough financially to do the things you want to do when retirement comes. It also can be a challenging period of time mentally, moving from the process of earning an income to drawing an income from your investments, pensions, and so forth. Even though a lot of clients might know factually by way of our financial planning, that they are going to be fully capable of retiring financially, and they might know intuitively that they are going to be able to retire comfortably, it still can be challenging.
One thing that we often recommend clients do is get a good understanding for themselves of what their expenses might look like; and this will help pair the financial plan really successfully with the goals and values that you as the client would like to see achieved over your retirement.
An easy way to start looking at your costs, first and foremost, is understanding what you are spending currently. We all have certain months of the year where we are going to spend a little bit more than usual, so assess your regular spending months – months that you do not have big events or parties or travel or so forth and get a good handle on what those regular costs look like. Understand your fixed expenses – your property taxes and utilities, and all of those things that you can understand are going to be fairly consistent from month to month.
Go forward from that and understand what it is that you might need to spend money on, or more importantly might want to spend money on throughout your retirement stage.
We do recommend that people quite literally take a walk through their homes prior to retirement. Assess for yourself what major expenses are going to be needed through your house, whether that is a new roof or a fence that needs to be replaced or updated. All of those large expenditures can and should be projected in your financial plan. Again, knowing what those might look like and an estimate of cost will help us determine whether or not the assets that you have accumulated are going to be sufficient to cover off those large expenses.
Another thing that you want to keep in mind is, oftentimes, people in the first few years of retirement or maybe just prior, will look at purchasing a vehicle – maybe it is the last vehicle you intend to purchase or own, and understanding what that cost might look like and how that would impact potentially drawing from your assets can be beneficial as well.
The most important part of understanding your retirement expenses is to try and get an assessment for yourself of the expenses that you are excited to spend money on.
Many people are going to put the most time into travel for example, in the first 10 years of their retirement. And so, understanding what that looks like for you, whether that is a number of small trips or a number of once in a lifetime experiences. We can work with those expenses; we can project them into your financial plan and you can walk away feeling confident that the dollars that you have accumulated are going to be able to provide you with your basic living expenses of course, but also most importantly, those need to do, want to do experiences throughout retirement that you have worked hard to save for and you want to be able to comfortably use your money for.
When planning for retirement, understanding your goals and your objectives and what you value is absolutely critical; and pairing those with the expenses that you would like to see for yourself is a really meaningful use of your time and helps us build a financial plan that is going to help you see that you can meet those needs comfortably, retire successfully, and enjoy the wealth that you have accumulated.
Learn more about our retirement planning services here.
by Kelley Doerksen | Nov 2, 2023 | Estate Planning, Financial Planning, Tax Planning
Do you know what probate is? In this video, Kelley Doerksen, CFP® explains what it is as well as when and why it might be needed. You will also learn about some of the outcomes that happen whether you apply for it or not.
Watch the video here:
https://youtu.be/81NQR7jUZNQ
We are going to discuss probate – when and why it might be needed and some of the outcomes of obtaining probate or not.
Probate is simply the process of applying to the courts to validate the will of the deceased. The will does give the executor the authority to administer the estate, however probate can be really important to again, validate with certainty that the will is the final will of the deceased and the executor has full authority.
Many financial institutions will not allocate out assets according to a will alone, especially if there are no named beneficiaries; so for a non-registered account, etc. there often needs to be a process of going through probate in order for those institutions to feel confident that the residuals or the assets being provided are going to the proper beneficiaries and the executor has the authority to request this.
So, for some estates, probate is not necessary, but for many estates it is.
Probate also starts a period of time for a limitation where those who might want to challenge the validity of the will, will have the time and an end point with which to do that. If probate is not applied for, the limitation period never starts, and so therefore, it theoretically does not end either.
Probate fee planning can be an important component of your overall estate plan. In Alberta, of course, probate fees are insignificant, however in other provinces, namely Ontario and BC, probate fees can be quite significant.
Be careful when you are working with probate fee planning or your goal might be to eliminate probate fees in your estate because there can be unintended consequences for your estate and beneficiaries, by engaging in probate fee planning.
Probate fee planning should be part of your overall estate planning goals and objectives, and your financial planner can help you understand and maybe even project out what your outcomes would be by trying to accomplish your probate fee planning you have in mind; and perhaps provide you with some alternatives or other suggestions if the outcome is not what you intend.
Absolutely vital to estate planning, of course, is writing a valid will with a lawyer who understands your goals and objectives. Including your financial planner and involving them in the conversations with your lawyer can be beneficial in understanding by both parties and yourself how you would like to see your goals accomplished.
If you would like us to be involved, or have any questions about how your beneficiary designations or other goals and objectives for your estate needs are going to be met, please reach out to us and we are happy to help.
by Kelley Doerksen | Oct 24, 2023 | Estate Planning, Financial Planning, Tax Planning
Today we are sharing a charitable giving strategy that can be implemented as part of your overall estate plan.
Watch our video here:
https://youtu.be/uuMZK1wiAS0
This strategy involves donating life insurance policies and there are two primary methods of doing so.
The first way to do so is to purchase the life insurance policy with yourself as the owner as well as the insured, and name the charity that you would like the insurance policy to pay out to, as the beneficiary.
This method will provide you with a tax benefit at death. The benefit can be used in your year of death against your income for that year of death, up to 100% of your income in the year of death. As well, if the credits have not been used through in that year of death, credits can be used in the year previous. Again, up to 100% of income in the year prior to death.
A benefit of this method is that if you decide you would like to name a different charity as beneficiary, it is under your control to do so. All you need to do is fill out a beneficiary change form and make the adjustment. So you have a lot more flexibility with this method.
A second method for donating life insurance, is where you as the life insured are the insured on the policy, and the charity is the owner of the policy.
This method allows the charity to provide you with a tax receipt as you are paying premiums, and therefore, your benefit happens while living and helps you reduce your tax on your income while you are alive.
This strategy is beneficial for the charity; it also is beneficial for some clients who find that they need more tax benefit while they are alive, rather than the benefit to their estate, for a variety of reasons.
The downside to this strategy is that the charity remains owner of the policy, and you cannot change ownership of the policy to another charity. So, you need to be very confident that you have chosen a charity that you would like to support, and that they are going to use the proceeds of the policy in a manner that you deem suitable on your death. It can be a good idea to talk to the charity and have them write a letter of understanding for example, outlining that the use of the proceeds of the policy will be in line with what your goals and objectives are.
The benefit is that using that charity receipt while living can obviously help reduce your tax owing through your retirement (which is often when clients put this in place).
If you have any questions about or have any interest in learning about how using a life insurance policy to benefit charities can be suitable for you, please reach out.
by Kelley Doerksen | Sep 2, 2023 | Estate Planning, Tax Planning
A common question we often get from clients is how assets are taxed at death. Watch our latest video here:
https://youtu.be/V-IY0VnNaZU
Today we are going to touch on a few of the pieces of information that you need to know about different categories of assets and how they are taxed.
One thing that is important to note is that in Canada we do not have inheritance taxes, however some jurisdictions around the world do, and that may or may not apply to certain Canadian residents, depending on where assets are held.
We are going to talk specifically about Canadian resident, Canadian assets today. We are going to discuss Non-Registered Assets, Registered Accounts, and some things to be aware of with beneficiary designations on those accounts if applicable.
Many provinces and territories do apply probate fees to estates; and taxation for everybody, whether or not probate fees apply, is a really important topic to start thinking about for yourself and for your family.
On death, assets in a Non-Registered account are deemed disposed the day of death. And this will often trigger capital gains or capital losses, or both. And taxation on these gains or losses are going to be applied at the level of the estate of the individual that is deceased. Capital losses, if those are applicable, can actually be applied to any income in the year of death, and potentially other years, so speak to your accountant about that. Capital losses can be used against other forms of income, not just capital gains.
Registered accounts are eligible for beneficiaries to be designated. Many people choose to designate beneficiaries that will receive the proceeds of their registered account at death. If a rollover provision is available, such as to a spouse, there is no taxation that needs to be addressed at the time of the deceased’s passing, as the assets in the registered account will essentially rollover to the spouse at the time of death. If the beneficiary of the registered account is not the spouse or eligible for a rollover, the registered assets will still be provided to the beneficiary in full, however it is very important to note that taxation does still occur on the full value of the registered account, and at the level of the deceased.
For example, if the registered account, for round numbers is worth $100,000 on the date of death, and there are two beneficiaries for which the rollover does not apply – each beneficiary will receive $50,000, and the estate still needs to pay tax on the $100,000 of deemed income for the deceased. Keep that in mind when you apply your beneficiary designations to the registered account.
A Tax-Free Savings Account can have both a successor-holder named, which can only be one’s spouse, as well as contingent beneficiaries. It is not common that people consider adding contingent beneficiaries to a Tax-Free Savings Account if their spouse is named successor-holder already; however, we have seen many circumstances where one loses testamentary capacity later in life and their successor-holder is deceased (their spouse is deceased), and we can then no longer name or add beneficiaries to their Tax-Free Savings Account. So do consider this, and review your own designations for those accounts to ensure that your estate and beneficiary designations are up to date and where you would like them to be. Of course, a Tax-Free Savings Account does not have tax applied, so if beneficiary designations have been elected, the dollars in the Tax-Free Savings Account will be distributed accordingly with no taxation necessary at any point.
Estate planning is very complex and we have just touched on a couple of issues today. There is a lot more to it and all estate planning should be considered in the context of your goals and your objectives.
Please reach out to us, we are happy to connect you with a lawyer and answer any questions that we are able to help you with. Learn more about our estate planning services here.
by Kelley Doerksen | Jun 10, 2023 | Financial Planning, Tax Planning
This is the third and final part in our series on RDSP accounts or Registered Disability Savings Plans.
Watch here:
https://youtu.be/pGHOkJa8FX8
Today we are discussing taxation of RDSPs.
The first thing to note is that RDSP accounts are a tax-sheltered account. And that means that the assets within the account can grow without needing to pay tax on the growth of the investments until such time as withdrawals are made on the account.
Another thing to note about the withdrawals is that not all of the dollars that you withdraw from an RDSP are taxable.
Contributions made to the RDSP account won’t be taxed as they have already been tax paid dollars that are going into the account. It will just be the grants and the growth and any bonds that are paid into the account which would be taxed on withdrawal.
Another piece of information about RDSP taxation is that the assets in an RDSP are sheltered from provincial assistance programs. Most programs have an asset limit with which a person eligible for Disability Tax Credit can accumulate assets. And in Alberta, AISH does not allow individuals to hold assets greater than $100,000 currently, however RDSP dollars do not count towards that $100,000 limit.
RDSPs are taxed when withdrawn, but again the taxation is only going to be occurring on grants, growth and bonds. And when those withdrawals are made, the withdrawals do not affect federal income-tested benefits such as guaranteed income supplement or old age security.
When withdrawals are made from the RDSP account, the withdrawals are going to be a proportionate representation of contributions, grants, bonds, and income in the account; and so you will be taxed accordingly on those withdrawals.
Withdrawals made within 10 years of the most recent grant or bond, should be avoided whenever possible because they will trigger a claw back of a proportionate amount of the grant and bond.
You may also be wondering what occurs on the death of the beneficiary of the RDSP account. If a grant or bond has been paid into the account within 10 years at death, those grants and bonds would need to be repaid to the government. But if 10 years has elapsed since the last grant or bond has been paid, the proceeds of the RDSP account in full would form part of the beneficiary’s estate.
If the beneficiary of the RDSP does have testamentary capacity, it is recommended that a will is drawn up so that the proceeds of those assets in the RDSP and others can be distributed according to the terms of the will.
And it is also important to know that an RDSP does not replace a disability trust for the beneficiary.
If there is an inheritance contemplated for your family member that has access to the Disability Tax Credit, there can be some trust planning done around any inheritance that you may desire to provide to that beneficiary. And it is important that you speak to a lawyer when contemplating that as part of your own estate planning objectives.
RDSPs can be complex vehicles, but so valuable and important to your family and to the financial future of the beneficiary of that plan. If you have any questions, please reach out to us and we’re happy to discuss.
