Saskatoon Directory in our Trusted Saskatoon Financial Services category.

 tip on Insuring our Families:

No one likes to talk about it because no one wants to entertain the thought. Parents dare not imagine for a single moment the possibility of one of their children receiving the diagnosis of a critical illness or passing away.

Yet, not talking and not thinking about the financial consequences of unfortunate events such as a critical illness or the death of one of our children, does not make the possibility of these situations less likely. Having sufficient and appropriate insurance coverage for parents and children is an integral part of family financial planning.

Besides providing funds to cover funeral expenses, insurance for children will provide a financial cushion in the event of a disaster. This will allow parents to take the additional time off work needed to cope with such an ordeal.

Acquiring insurance for minor children also provides several advantages:

· Low premiums when children are young and in good health

· Guaranteed future insurability

· Protection against possible health exclusions

· Additional savings for education, first home or other needs in the future

Of course, parents should ensure that their own insurance program is in place prior to considering insurance for their children. 

Dear Financial Planner,

I read an article about estate planning and it says that everyone should have a will. I think I am ready to have one prepared. Some people recommend just going straight to a lawyer, others recommend seeing a financial advisor before meeting with the lawyer. Can you tell me why I would meet with a financial advisor before a lawyer? What can you offer that a lawyer can’t? It also said that part of completing a will is assigning an executor. What does an executor do and how do I pick one?

Yours truly,

Jane Smith

Dear Jane,

Congratulations! You are making a responsible choice in preparing a will. Thank – you for your inquiry about estate planning. A lawyer will prepare your will but a financial planner can help you understand what to be aware of when structuring your will. For example:

• Identify assets that could be appropriately transferred outside your will such as joint assets with the right of survivorship, registered investments that are eligible for the spousal rollover, and insurance proceeds.
• Calculate how much liquidity (cash) your estate will need to meet your estate’s liabilities (any outstanding debt you may have), your bequests (inheritance you plan to leave) and pay your final taxes.
• Identify ways to structure your assets to reduce taxes and probate fees upon your death.
• Calculate how much you would need to set aside in trust for your children’s education and cover their care until they are at least 18 years of age.

Having all of this information when you visit your lawyer will ensure you are making informed decisions and your lawyer is fully aware of what must be included for your personal situation.

An executor is the person that you choose to carry out the instructions in your will. It can be a family member, friend, lawyer, trustee, whomever you choose but it should be someone you believe will act in the best interest of the estate to carry out your instructions to the best of their ability, i.e., someone you trust. It is a good idea to consider the complexity of your estate, the skills of the person you are choosing and where they live. Some people choose to appoint an alternate executor in case the original is unable to fill the role.

The executor is responsible for accounting for all of the assets of the estate, paying any outstanding debt, distributing the assets as outlined in the will, and completing the personal and estate income tax returns. He or she is legally obligated to follow the instructions in your will subject to any limitations imposed by law.

I hope this information was useful and if you have any further questions please contact me.

Sincerely,

Financial Planner

Stay Trusted my friends...

 Saskatoon Directory in our Trusted Saskatoon Financial Services category.

tip on Renting your U.S. vacation property - Be sure you know the tax implications:

Like many Canadians, you may own a vacation property in the United States (U.S.). And, you may be considering renting it out for the purpose of earning income or to defray the ongoing maintenance expenses. Before you begin renting your U.S. vacation property, however, you should take into account both the U.S. and Canadian income tax consequences.

Is your property subject to U.S. income tax?
If you are a Canadian tax resident, you must pay U.S. income tax on the rent you receive from your U.S. vacation property whether you or your agent:

• arranges the rental while in the U.S. or Canada,
• receives rental payments while in the U.S. or Canada, or
• rents the property to Canadians or others

If you are NOT a U.S. person¹, you must pay U.S. income tax on the rent you receive in one of two ways:

1. withholding tax, or  

2. tax on net rental income.

If you ARE a U.S. person², you declare the rent as income on your U.S. tax return and you may deduct your ordinary expenses and a depreciation charge from this income. You then pay tax on your net rental income according to U.S. tax rates.

Foreign tax credit helps avoid double taxation
As a Canadian resident, you pay tax on your worldwide income, including the rent you receive from your U.S. vacation property. However, you should receive a credit on your Canadian tax return for any tax you have paid in the U.S. on rental income. This is referred to as a“foreign tax credit” and by claiming the credit you avoid double taxation on the same rental income.    

Also, remember that you may need to report the cost of your U.S. vacation property and the net rental income you have received. This is required when the cost of your specified foreign property (your rented vacation property and other foreign investments) exceeds $100,000 at any time in the taxation year.

As with any tax planning, you should consult a tax advisor about your own unique circumstances.

Any discussion of U.S. tax matters in this communication (including any attachments) cannot be used for the purpose of avoiding tax penalties.

1. You are a non-resident alien for U.S. Tax purposes.

2. You are a U.S. citizen or resident alien (green card holder), or have elected to file a U.S. income tax return.

 Saskatoon Directory in our Trusted Saskatoon Financial Services category. 

TrustedSaskatoon.com Talk to the Experts – Trusted Finance Sho

Q: M Liz Beisel:  Is it better to buy back pension years that one did not contribute to or buy RRSP's or TFSA's?

A: Pension buy back really applies to those individuals who are part of a defined benefit pension plan and who may have missed out on some years of contribution service. Some examples might include a maternity leave, sabbatical, leave of absence or war service. When it comes to the buyback dilemma, the numbers will be the biggest determining factor. That being said, there are many other issues that will affect your decision to buy back pension:

-     Length of tenure.The longer you work for the same employer under a defined benefit plan, the more likely it will be that buying back pensionable years will be the best investment you can make. Defined benefit plans reward longer-term employees.

-     Employer contributions.In most cases, buying back years of service also means that your employer will be making some contributions to your pension.

-    Can you afford the cost?Obviously, this is one of the biggest issues. Often employers will help by allowing you to buy back the pension over a period of time rather than being forced to come up with one lump sum. If you have money in your RRSPs, you can also transfer the RRSP into the pension to buy back years of service.

-    Estate planning.Pension plans will often provide some income to a spouse but the pension will not be passed on to your children. With RRSPs, there is an estate provided to beneficiaries other than your spouse.

-     Flexibility and liquidity.As much as pensions are the cornerstone of retirement income for those belonging to a defined benefit plan, you will have greater flexibility and liquidity with other types of retirement savings like RRSPs. Pension funds are more restrictive.

-    Time.Buying back pension later will result in a higher cost. The sooner you buy back pension, the less costly it will be. This is simply the time value of money.

-     Life expectancy.Remember that pension income will pay for as long as you live no matter how long you live for. Although no one knows when they are going to die, keep in mind that if you think longevity is on your side, anything to do with the pension will weigh in your favour.

There you have some important considerations to think about if you are faced with the decision to buy back your pension. Most employers have calculators to help you make this decision. Alternatively, look for a retirement expert to help you make the best decision for your circumstances.  When we have reviewed these types of arrangements in the past there has often been more advantage than disadvantage to buy back the years.

Q: Vanessa Froese: How would one invest money if they took a work severance package during lay offs? And, would one leave their RRSP contributions in the former work plan or take out and put in a mutual fund? 

A: It is important that when considering to invest a lump sum from something like a severance package there is a careful analysis of the individual investor’s objectives, risk tolerance, cash flow needs and tax situation.In the case of severance, typically we are dealing with an emotional time for the investor and if there is future job uncertainty it is even more important to use a cautious and systematic approach as cash flow needs may be quite different at this time. 

When we work with people in this situation we would always do an analysis on the former work plan to see what the investing options, performance and flexibility would be before we would make suggestions as leaving it in the former work plan or transferring into an individual account where the investor would have more control over how the account would be managed going forward.Once a person leaves employment of a firm it is often more cumbersome to try and manage the investments but it is totally dependent on the firm and the structure of the former plan.If you were take the assets out of the former plan and invest then generally there are more options available to the investor and the choices would be dependent on what the investor/advisor would like to use going forward ie. Mutual funds, stocks, bonds, etc.We have seen more people move them then keep them with the former employers plans. 

Our best advice is to see a qualified Financial Planner, as there are so many variables to look at depending on age, personal situation, dependents, your goals and more. 

Q: Sheila Benesocky: I'm two steps away from building a business I'm short on equity, how can I go about finding an investor in my project? I am a member of the Woman's Entrepreneur’s.

A: Women Entrepreneurs of Saskatchewan Inc. is an excellent organization and has the ability to provide a number of services that may assist you in building your business – Business Advising, Networking, Lending, Mentoring are all services that are accessible to members.  Depending on the scale of the new business and how much investment would be needed we quite often see these type of investments come from “Angel” investors. 

According to Wikepedia the definition of an angel investor: An angel Investor or angel (also known as a business angel or informal investor or angel funder) is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. A small but increasing number of angel investors organize themselves into angel groups or angel networks to share research and pool their investment capital, as well as to provide advice to their portfolio companies.^[1]

There are a number of angel investor organizations that you may want to have a look at in the province:

            Saskatoon Capital Network: http://saskcapitalnetwork.com/

            Saskatchewan Angel Investor Network: http://www.saint.sk.ca/

Q: Kathleen Rose: At what age should you stop contributing to RRSP and begin to spend them without penalty? Is there a certain allowable percentage that won't result in paying a large amount of taxes per year?

A: The age at which investors should stop contribution to RRSP’s and begin withdrawing is unique to every investor depending on household cash flow needs, tax situation, employment situation, goals and objectives, etc.  These factors may change from year to year and should always be part of the annual planning review that you do with your advisor or if a do-it-yourself investor that you look at yourself.  You are required to start withdrawals in the year after you turn 71 but before that you can make that choice depending on your circumstances.   Ideally in years when incomes are highest you want to be making RSP contributions and you would want to wait for lower income years (if that was an option) to make withdrawals but every situation is unique.

In our office we start tax planning for this type of thing with our clients in October/November of every year and not only is it different with each individual, it can change every year!  While people are working we are often used to only one source of income from employment;  in retirement we can have over 6 different sources of income that now need to be managed for the best tax efficiency to meet your needs.  

Q: Mike Maille: Is it better to invest in RRSP's or mutual funds?

A: RRSP’s stand for Registered Retirement Savings Plan’s and this is a type of retirement account that can be setup for clients.  There are also Locked In Retirement accounts(LIRA), Tax Free Savings Accounts(TFSA) and Non Registered accounts.  Mutual funds are a type of investment that can be used inside the RRSP or other accounts.  Other types of investments that could also be used are individual stocks, Exchange traded funds(ETF’s), bonds, GIC’s, segregated funds.  Each type of investment has their strengths and weaknesses depending on the individual client situation. 

What you should be invested in should be determined based on your goals and objectives.  If using an investment advisor, they will assist and help you stay within your appropriate portfolio. If doing yourself, a lot of the direct investing websites have questionnaires to help you, but then you are responsible for watching and staying within your appropriate portfolio mix.

Q: Chris Mercereau: Am I better off buying more RRSP's every month or putting that money towards paying off my mortgage faster?

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