Can Beatrice, 91, Afford to Stay in Her Home Indefinitely?

Special to The Globe and Mail – By Dianne Maley
Before Beatrice’s husband died, they sold the family house and …

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There’s a smart way to shut down the bank of mom and dad

September 6th, 2018

The Globe and Mail – By Kira Vermond

Forget asking for keys to the family car. Now, some adult children are soliciting parents for cash to pay for wheels of their own.

But is it any wonder why millennials are turning to the bank of mom and dad to bankroll everything from car payments and mortgages to day-to-day expenses such as phone bills and dental fees? Faced with mounting student loans, sky-high housing costs and lacklustre salaries, launching into early adulthood can seem downright overwhelming. Particularly in high-cost markets such as Vancouver and Toronto, asking parents and grandparents for a handout can even mean the difference between paying rent and not.

“It comes up all the time,” says Ngoc Day, a registered financial planner with Macdonald, Shymko & Company Ltd., a fee-only firm in Vancouver. “There’s a perception that the seniors are very wealthy because the real estate has done so well.”


Parents are often willing to acquiesce to the requests, even if they’re not rolling in real estate dough.

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Facing a major cash-flow shortfall, how should Faith deploy her substantial investable assets?

August 24th, 2018

The Globe and Mail – By Dianne Maley

Faith is a recently separated, 53-year-old professional woman who makes about $32,000 a year working in the complementary health-care field.

She has two teenagers, one going into second-year university this fall and the other Grade 12. Since the family house was sold, Faith has been renting for about $3,500 a month. She wonders whether she should continue to do so “or get back into the real estate market – a scary proposition in Vancouver, especially because capital preservation is my No. 1 goal,” she writes in an e-mail.

Either way, she will be relying on her investments to supplement her income, which falls far short of her spending. Fortunately, she has substantial assets, including assets in a corporation – part of her separation agreement – $400,000 of which is available tax-free.

Faith’s questions: “Can I afford to buy a new townhouse? If so, how much can I afford? What should I do with my investable assets? Will the proceeds of my investments cover the gap between my lifestyle expenses and my income?”

We asked Ian Black, a portfolio manager and financial planner at Macdonald Shymko & Co. Ltd. in Vancouver, to look at Faith’s situation. Macdonald Shymko is a fee-only financial planner with an investment counsel arm.

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Don’t underestimate the threat of personal liability lawsuits

August 7th, 2018

The Globe and Mail – By Chris Atchison

A Muskoka cottage, a boat or two and a few luxury cars, plus the globetrotting résumé that comes with them. It’s an enviable lifestyle to many, but one that also invites risk.

The higher profile of most high-net-worth people, and the ease of acquiring information about practically anyone these days, makes them a target for litigation.

Let’s say you’re in an auto accident and you injure someone.

“Your auto insurance policy covers you to a certain amount,” says Karen Ritchie, senior vice-president at Baird MacGregor Insurance Brokers LP in Toronto. “But it’s not hard to find out about people nowadays by Googling them. They might find out you’re a senior executive, for example, and the amount of the lawsuit goes up.”

Even frivolous lawsuits can result in settlements in an effort to keep a case out of the courts.

Wealthy people need ample liability insurance, and specifically a personal liability umbrella policy that provides coverage over and above that offered by a home or auto policy, experts advise.

Many high-net-worth individuals fail to recognize the threat to their personal wealth, leaving them exposed to lawsuits for everything from libel and slander to property damage and personal injury.

“Typically, [buying adequate liability insurance] is very low on their priority list,” says Ian Black, a financial advisor with the Vancouver-based wealth planning firm Macdonald, Shymko & Co. Ltd. “ It’s not even on most people’s radar screen for a variety of reasons.

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How can this couple owning five rental apartments arrange a tax-efficient future for heirs?

July 20th, 2018

The Globe and Mail – By Dianne Maley

At the age of 67, Ed and Alexa are reaping the rewards of years of saving and investing: Rising income and the prospect of big capital gains down the road. They are retired with three grown children.

They have amassed a nice-sized real estate portfolio comprising five rental apartments in Vancouver in addition to their own principal residence. They also have substantial financial investments. As the mortgages on the rental properties are paid down over time, Alexa and Ed’s income has been rising – and so has their tax bill.

“We’ll soon have to convert our RRSPs to registered retirement income funds (RRIFs), resulting in even more taxable income,” Alexa writes in an e-mail. They’re worried about having their Old Age Security (OAS) benefits clawed back if their income is too high.

“We have three children and we intend to pass down our assets to all three equally,” Alexa adds. “We’d like to avoid as much tax as possible and organize our affairs so that our beneficiaries inherit the maximum amount.

What can we do about our rental property capital gains?”

We asked Brinsley Saleken, a fee-only financial planner and portfolio manager at Macdonald Shymko & Co. Ltd. in Vancouver, to look at Alexa and Ed’s situation.

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Should you give your children their inheritance now?

March 9th, 2018

Morningstar – Personal Finance Article By Gail Bebee

The baby boomers, that great swell of Canadians born in the first 20 or so years after the Second World War, are retiring, and judging from Statistics Canada data they are retiring in decent financial shape. In 2016, the median net worth for a family with the major income recipient aged 55 to 64 was $669,500. For a senior family (eldest partner is 65 or more), this figure was $762,900. These numbers are set to rise substantially as this cohort will inherit an estimated $750 billion over the next decade according to a 2016 CIBC Capital Markets report. It’s a question many parents are considering, especially in cities such as Toronto or Vancouver where a teardown can sell for upward of a million dollars.

Not surprisingly, some seniors and pre-retirees are giving their children at least some of their inheritance now. The money has a positive impact on their children’s lives. It can allow them to buy a home, and the parent(s) can witness their children enjoying the money. However, careful evaluation of the pros and cons of such a gift is essential before any assets change hands. A living inheritance will not suit all family circumstances.

“If you are considering a living inheritance, you must first make sure your own financial house is in order before you start giving your wealth away,” says Ian Black, a fee-only financial advisor and portfolio manager at Macdonald, Shymko & Co. Ltd. in Vancouver.

Retirees must be certain that they retain sufficient assets to enjoy the retirement lifestyle they desire and avoid running out of money. Pre-retirees must consider how the gift will affect their planned retirement date and lifestyle. Will the gift mean delaying retirement to earn additional funds? If so, will your health allow you to work the extra years? Will there be suitable work available?

“When assessing the feasibility of a living inheritance, we like to stress-test a client’s financial plans by asking the question: If your net worth decreased by 20 to 30%, would you still be able to afford the gift?” says Black.

Another crucial consideration is how the planned gift will affect your child. Clearly, your intent is for the gift to have a positive impact, but will it? Is she mature enough to avoid squandering the money? Will the gift destroy her ambition? Does she have sufficient financial literacy to make sensible decisions about the inheritance?

Gifts that address specific needs of a child such as paying off student loans or help with a down payment for a home are generally well received.

There are ways to address at least some parental concerns about the negative impact of a living inheritance:

  • Delay the gift until the child reaches a certain age or milestone such as college graduation;
  • Arrange for training in financial management before giving the money;
  • Give a small sum initially and monitor how the child handles it;
  • Place conditions on the gift, such as limiting the use to the down payment on a home;
  • If the gift is intended to establish a business, require the child to provide a detailed business plan and match any gifted money.

The impact of a living inheritance on the siblings of the recipient must also be taken into account before any funds are dispersed. For the sake of family harmony, fairness in giving to all children is vital. If one child receives funds toward a home purchase, their siblings should receive an equivalent gift, even if they do not intend to buy homes.

The tax implications of a living inheritance can be considerable for both parent and child, and merit investigation before any decision regarding a gift is made.

There may be tax savings if you give money or property to your children while you are alive. No probate fees are payable. If your child is legally an adult, profits generated by the gift money will be taxed in her hands, possibly at a lower tax rate.

If you need to sell investments to raise money for the gift, capital-gains tax will be payable on any profits. If you plan to give real estate, consulting an accountant is crucial, since the tax treatment can be complex.

Canada has no gift tax, but large gifts of money and property will pique the interest of the Canada Revenue Agency, according to the income-tax consulting firm FBC.

Given the complexities of Canada’s tax rules, seeking the advice of a tax professional when considering a living inheritance is likely money well spent.  Click here to read the rest of this article

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