House Inspections ~ Worth The Effort???

You love the house you just saw on your search for a new home.  Do you put a clause in the offer to purchase for a home inspection?  What you REALLY need to know when choosing a home inspector!!!

No, I'm not going to talk about the house inspectors credentials and everything else you have probably heard on TV.  I'm sure you know that already.  I'm going to give you a warning that you, most likely, haven't heard before.  But first, let's talk about the "Should I? or Shouldn't I?"

Your house is going to be one the single one investment that you will put most of your money into.  Even if you are a multi-millionaire your house will probably be representative of your wealth.  Those pictures of Tiger Woods home floating around the Internet come to mind.  What also comes to mind is the phrase, "A new broom sweeps well.".  When you see the house of your dreams you are not thinking about the potential mold behind the walls and water damage that has been covered up in a 'staging' effort.  That house is perfect, in your mind...but is it?

I remember the time I went to see a house that I was considering purchasing and the teenage child decided to take a shower at the time of the viewing.  I opened the closet under the bathroom and the amount of water seeping through the ceiling ensured that I wasn't coming back!

As you may have already ascertained...a home inspection is a must.  Paying a few hundred dollars can save you, potentially, thousands.  You may decide to buy the house anyways but armed with new information the seller may agree to a lesser price considering the price of the fix-ups.

OK, so here's something that no one tells you.  Do Not use the home inspector that the reals estate agent recommends.  I know you trust your real estate agent, otherwise you wouldn't be working with them to find your dream home.  Remember, that real estate agent gives many referrals to that home inspector.  The home inspector really wants to help the real estate agent sell the house or he/she may not get much more business from this steady referral base.  I'm not suggesting that home inspectors will lie on their reports but they may not delve much beyond the letter of the law when it comes to their disclosure.  House inspectors must cover a number of points to do a proper inspection but it doesn't cover Everything.  Personally, I think it's more likely that if the house inspector that you hire, that is working just for you, feels there may be issues beyond the scope of what is necessary for them to inspect they might be more willing to disclose this information than if they were referred by the professional that is trying to push through the sale.

The Debits and Credits of Divorce

The financial aspects of a divorce can play out differently for every divorcing couple.  At a time of high emotion you may want to protect yourself, financially by making some prudent choices.  Your bank ~ you want to make sure that they know about your situation.  Any money held in joint accounts likely only needs one signature to withdraw so you want to ensure you take your half out and place it in an account in your name only.  Ensure the bank also puts a hold on any credit cards that you jointly share.  Those country songs about seeking revenge and making the other spouse pay through reckless credit card spending came from somewhere.  You want to make sure that it doesn't happen to you.  Remember, you are still jointly responsible for that debt.  That means that even if your spouse is not paying the monthly payments on those credit cards...you should.  Any repayment can, hopefully, be settled through the separation agreement as part of the negotiation.  It's better to do it that way than end up alone with bad credit.  Another good exercise would be to close any credit cards you don't need. 


Remember those investment accounts, especially the registered ones?  Registered Retirement Savings Plans and Registered Pension Plans (as well as Tax-Free Savings Accounts) often ask for the account holder to determine a beneficiary.  If you chose your spouse you may want to contact the financial institution managing these accounts to change your beneficiary.  


Now that you have looked after the registered savings what about the regular savings investment s that you have?   Those assets and their distribution are covered in your Will so you will want to re-write that too. 


Your not finished yet....while you are re-writing your Will  you may want to consider re-writing your Powers of Attorney (PA).  Your PA covers both medical and financial matters should you become incapacitated. The last thing you want is your spouse to be calling the shots with the doctor as to your care, if you can't speak for yourself!!!  

Jewelery ~ From an Estate Planning Point of View

One of my clients is aging.  OK, we are all aging but she is aging to a point where she wants to be responsible for what happens after she leaves us.  Her name is Edith.  Edith has accumulated many things during her tenure, here, on Earth, and she has given much thought as to who she would like to see get which trinket or object of perceived value.  To her beneficiaries the value may be extrinsic as it will always produce a fond memory of Edith, herself, but does the object have any intrinsic value?  How can Edith divide her wares on an even basis to her beneficiaries from an Earthly value perspective?

This weekend I was in a business coaching session and I happened to be sitting next to a woman who would provide a perfect resolve for Edith's dilemma.  Barbara is her name and Barbara's specialty is to value vintage jewelery.  I thought of Edith right away.  What a perfect solution to have such an expert peer through Edith's jewelery collection and make note of any hidden gems?!

Personal Effects Memorandum's are often attached to Wills.  They are not legally binding but they do disclose a 'wish' on the part of the deceased to have certain items go to particular people.  With full knowledge of her hidden gems and their approximate value Edith could write her own Personal Effects Memorandum and also ensure she is being fair about the value of her gift far beyond the memory of Edith, herself.

If you are interested in getting in touch with Barbara about her specialty, please let me know I will put you in touch!

Happy Planning.

Divorce ~ Save some money and get some clarity.

Fred and Bette were both hurt.  Their feelings of betrayal, loss of trust and the sense that the person who was to be the partner in your life is not only no longer fulfilling that role but also they have become a third party.  Through their negotiations they felt suspicious of one another when dealing with the financial issues, child custody and child access issues that they needed to resolve.  With so much at stake visions of increased, indeterminable professional fees loomed.

Fred and  Bette were confused by the complexity of their financial situation.  Without the necessary complicated financial software Fred and Bette were struggling with issues such as lump sum versus spousal support payments, the difference between taxable and non-taxable assets.  Who want the house and who can afford to keep it?  Should retirement assets be swapped for real estate holdings ~ is it beneficial to be house rich and retirement poor?  What happens to Bette's stock options?

How could Fred and Bette have saved a bunch of money?  They could have had a financial professional, who specializes in divorcing clients, calculate their financial situation.  Not only would it have saved on some legal fees but it also would have given them a more concrete visual picture of their lives apart from one another.  Often divorcing people do not want to gouge their soon-to-be-ex but rather they want the best result for both themselves and their ex-partner.

Something to think about, eh?

A Legal Means to Avoid Paying the Tax Man.

Who wants to pay tax when you don't have to, right?

I know I certainly do not so as soon as the clock struck midnight on December 31 I sent a message to my administrators asking them to transfer $5,000 from my non-registered accounts to my Tax-Free Savings Account (TFSA).

I really do not like the name the government gave to this tax-free haven as it's title often misrepresents the benefits.  It's not a savings account, per se.  It can be an investment account so that you can put any stocks, bonds or mutual funds into your TFSA and any interest income, dividends and capital gains you receive are not subject to tax!  Calling it a 'savings account' has led clients to believe that you have to put the funds in a 'savings account' at the bank earning today's low rate of interest rather than use a more effective investment strategy and they tend to dismiss this strategy all together.  What a missed opportunity!!!

What's even better is that if you have come into a windfall in 2011 and have not been contributing over the past 3 years you can catch up and put in $15,000 all at once!  The rules are that you can contribute $5,000 per year from 2009.  Unlike a RRSP you will not receive a tax deduction for your contribution but when you take the money out it isn't taxable income either (which it would be if you took it out of an RRSP).  You can also replace the money you took out.  Let's look at this example.

Let's say in 2009 I put in the allowable $5,000 and then again in 2010 so now I have $10,000 in the TFSA (I'm not going to add any returns for the purpose of this example).  I decide I want to go on a vacation and take the money out so I take out the whole $10,000.  In 2011, I win the lottery and I can put in $15,000!  That would be the $5,000 amounts I am replacing for the 2009 and 2010 tax years as well as the new contribution for 2011.

Sometimes it is more important to use the TFSA for a savings vehicle rather than contributing to a RRSP!!!  It can also be used as a tool for income splitting.    If you want further information or clarification please feel free to comment or contact me @ kjankowski@tewealth.

How much is HR bound by governance?

Today's blog is more of a question, rather than financial advice.

Our corporations are bound by governance, meaning that they cannot offer a product, like a pension plan for example, without explaining it to their employees.  My questions is ~ how much should corporations get involved with their employees?  Where is the line?

If a staff member is going through a divorce and is not preforming well at work due to emotional stresses ~ should the company pay for counselling?  Again, in a divorce situation, should a corporation hire a financial specialist to help the employee with understanding how his/her soon to be split pension is going to affect the employees retirement?  Or, is the employee left to find this out for themselves potentially placing themselves outside of a retirement solution during their lifetime?

Negotiations for the Right Reasons in Divorce

Sometimes divorcing people seek to covenant certain assets for the wrong reasons, typically fueled by anger.  "She cheated on me so I want her favourite......"(fill in the blank) is common.  When looking at the financial aspects of divorce, however, emotions should be negated in favour of logic.  Easy to say and hard to do, I realize.  I know my example is stereo-typical but all too often this is the scenario.  Wife wants to keep the house.  Why?  One reason is the way that women perceive money.  Studies have shown that women equate money with security.  A house has bricks and mortar and it provides shelter, after all.  Another reason may be that she does not want the children to experience too much change, all at once.  Dad is no longer at home and changing schools and the pressure of creating new friendships may prevail.  Although this reasoning may have a lot of validity, is it reasonable.  Maybe the house means a lot to him and she is angry but can she afford to keep the house?  Will she deplete all her assets held outside of the home to try to keep the house, finding out a few years later that she is house rich and in debt?

Maybe more logical choices are available keeping in mind the reasons stated for wanting to keep the house.  Perhaps less costly housing alternatives are available in the same neighbourhood so that that kids can go to the same school and have the same friends.  Maybe the newer housing alternative may be a benefit from other points of view like, no memories of married life and less upkeep.  Perhaps less expensive housing alternatives can also give her the opportunity to save for retirement, as well.

 In my example, I talked about the wife wanting to keep the house but men have other challenges in their financial decisions, especially if they are paying child and/or spousal support.  A little less often but becoming more common place that in past years is the issue of the wife paying support to her husband, especially since women have been advancing in their business careers and the same types of issues need to be considered in this scenario.  

The power of the financial neutral in a divorce situation is to draw out these conclusions before the financial errors are set in motion.  Often clients do not want to pay an additional professional (other than their lawyer) to help with the divorcing process but my argument is, "How can you afford not to?"

Life should be stop and go!

When all systems are a 'go' you have to sometimes stop and look out the rear view mirror.  Often, I see clients who are so busy chasing future dollars but they don't stop to look after the wealth that they have already created.  Remember, life is dynamic not static, so once you have your financial plan in place it doesn't mean that task should be off your radar forever.  As we chug along we should stop, at intervals, to re-assess the validity of our previous financial commitments.   A few things to reflect are:

1)  Is my Will still up-to-date?  What about my Power's of Attorney, both financial and medical?
2)  Is my portfolio working for me?  If not, is it time to consider a different strategy....????
3)  Is my retirement planning in place?  Will my pension be enough?  If not how much do I have to supplement?
4)  What will happen if I die tomorrow?  Do I have enough insurance to ensure my family is not hit by financial hardship?  How much is enough?
5)  Do I want to help my kids with the cost of post-secondary education?  Are they thinking of going to school and staying home or are they planning to leave the family home to attend school?
6)  Do I have elder care issues?  What is going to happen to my aging parents/grandparents?

So how often is reflection required?  I advise my clients to reflect upon these issues on an annual basis.  Pick a birthday, end of the year, June 1st (half way through the year), anniversary or some other date that is going to trigger you to remember.  All too often these questions get ignored and then when we are faced with issues we are often ill-prepared.  After all, spending a few hours every year ensuring the wealth you have already created is  well looked after is worth putting aside the potential for a few hours worth of potential future value, isn't it?

The Secret of How to Negotiate the Waves of the Stock Market

Many people are already doing this, either directly or indirectly.  Maybe they're doing it but they don't know they're doing it.  The secret of how to take the nervousness out of investing is to make the conscious decision to allocate your investments in a strategic fashion. 

For example, I'm a Balanced investor.  What does that mean, for me?  That means that my asset allocation is 60% equities (or stocks) and 40% fixed income (or investments with a stated rate of return).  I stick to this asset allocation through good markets and through bad markets.  If my equities become 65% of my portfolio then I take 5% out and allocate it to the fixed income component, and vis versa.  This keeps me disciplined in my approach with my investment portfolio.  It also does something else ~ it keeps me disciplined in the 'sell high' and 'buy low' strategy that tends to bring about successful investing.

Currently earning an income, I may not be so worried about the fluctuations of the market as I will be when I am retired.  Without income replacement it is challenging to watch those dips in the market but my strategy of keeping 40% in fixed income will help me.  While equities are out of favour the less volatile fixed income component of my portfolio can become my major source of cash flow.  This way I can wait for the equity markets to return and I will not be forced to sell them while they are at their all time bottom price levels.

Having my portfolio balanced, from an asset allocation perspective, is the first step in negotiating the waves of the stock market.

Teaching Kids About Money ~ I'm not kidding!!!

It's interesting that I have been hearing a lot about how to teach kids about money.  I know that when I counsel couples about budgeting I usually begin with how they think about money and what it means to them.  Most of the psychological issues with money stem from our up-bringing.  Typically, one person in the couple is the 'perceived' spender.  I say 'percieved' because they may spend more than their partners but they can also be good savers and have a very disciplined saving and spending philosophy.

So, as parents or grandparents what can we do to ensure that we are instilling the "good" philosophies about spending money.  Keep in mind that money is just paper.  What we want to teach our children is the work ethic, the sense of constraint and the freedom of enjoyment in a healthy balance.  That's the real lessons to be learnt.

Typically, we can start our very young off with the piggy bank and teach them how to save and how the savings add up, if not spent.  I think it is important to let children spend their money, if they wish, so that lessons can be learnt about how things cost money and how we can make conscious decisions as to whether we want to budget for the bigger ticket items or whether some smaller ones are justifiable along the way.  Letting children make their own decisions is a good one...but some guidance along the way is also important.  "You sure you want to spend that money on a new toy instead of saving a little more for that teddy bear that you saw at the store with Grandma?"  Remember, kids have short memories, especially when something immediately gratifying can be right in front of them.  Allowing them to make their own choices will also give them a certain amount of independence and neither choice should be deemed a 'good' versus a 'bad' choice.  Children must learn on their own, within limits.

Generally, after the age of about 5, it would be a good idea to set up a spending and a savings plan.  This shows kids that they can still make the independent choice to spend but saving money is also important. Perhaps, some small chores can be incorporated, just enough to ensure that they understand that money must be earned.  Of course, light chores are recommended at this age.  You don't want an over-stressed child..but rather, something that is befitting their age and capabilities.

Once children are in their mid-teens you may want to add a little 'credit' to the situation.  Give them a leeway of about $50 to 'over spend' with the intention of paying it back within a reasonable time frame.  This will teach them that they can have that immediate gratification but the work must follow and payments must be made.  You can even have the payments in increments.  It is important, however, that you child gets 'paid' even though they owe you money because they may chose to only repay half instead of the whole 'pay-check' and this also helps them to manage their funds in a responsible way.  Perhaps minimum payments should be understood and a 'credit' document be written up for them so they know their limits and expectations. 

Once your children have entered their 20's they may well be ahead of their peers and they will make financially healthy decisions with their childhood experiences and your guidance, behind them.

T.E.Wealth | About Us | What Makes Us Different

T.E.Wealth | About Us | What Makes Us Different

Does September mean turning over a new leaf?

As autumn approaches and we all have a renewed spirit of digging in our heels and approaching daunting tasks that we put off during the summer months we may also be thinking of the financial drain, if we are paying, or helping to pay, our children's tuition fees.  These expenditures can really help with the 'digging in our heels' feeling when discretionary funds are so minimized that we have little else to respond to other than those daunting, inexpensive chores. 

If the kids have been home for the summer or if the step children have been visiting more often during their summer vacation then entertainment, dinners out as well as clothing needs for our youngsters have already tapped into our 'fun' funds during the hazy days of summer. 

What does it really cost to educate them?  Well, of course, each university or college is different.  Prices depend on whether your protege is going to attend school and stay at home or whether they will be going away for their education.  If they stay in the country it is much less expensive than the hefty international tuition...unless your child has had the fortune to be born in France and returns for their free post-secondary education needs. 

If they stay at home and go to school, in Canada, the average cost for tuition and books is in the $5,000 to $6,000 range.  Of course, this does not include their housing or food requirements.  If they go away to school then you are looking at an average of $20,000 which includes tuition, supplementing their food bill, books and rent.  If we dare to add it up then the stay-at-home kid's 4 year degree is about $24,000 and the go-away-kid is costing about $80,000.  Keep in mind that this is after-tax money!  If you are paying tax according to Ontario's highest marginal tax rate then you have to make about $117,000, before tax, to fit this bill.  ....   and that's for one child!!!

Some children want to go on to graduate studies.  If you are thinking to help out here, then consider that professional designations can be much more.  Have a look at the link to Osgoode Hall's projected budget.
http://www.osgoode.yorku.ca/financial_services/enough_sample_budget.html

My advice?  Start saving early for your children's RESP.  It may be a drain on the pocket book when they are smaller but you will appreciate it when the times comes.  If you happen to run out of RESP funds after they turn 21 years of age remember that they can apply for student loans as, once 21, parental income is no longer a factor in the application process.  This allows you 'free' use of government funds until the child graduates and must commence repayment after 6 months.........maybe you can even save a little to help out!

OSAP

Divorce? Remarriage?

Remarriage? Who wants to think about the legalities of anything past signing the new marriage certificate when you are getting married again?  For most, remarriage is a significant turning point of a renewed beginning with all the hopes and dreams that most of us lost during divorce or widowhood, hopefully, with the lessoned learnt from the first experience.

Who wants to think about legals issues and considerations of the impact on others when we want to be selfish and focus on our 'special day'?   Before walking down this isle or, if you prefer, standing on a beach or overlooking a volcano to say your wedding vows you may want to consider the complications that might arise which may cloud your bright, shinny future.  Ben Franklin said, "An ounce of prevention is worth a pound of cure".  In this case having your remarriage legal issues well in place before you promise the rest of your life to another may add to the relief allowing you to actually enjoy your 'special day' and save you a lot of money should the unthinkable come to fruition.

Here's the link to my story......it may save you a fortune and your family many headaches to ensure you have everything well plannned out beforehand and that your estate is actually handled in the way you had intended it to be handled.

http://www.advisor.ca/advisors/news/industrynews/article.jsp?content=20100712_093205_4840

The Collaborative Movement in the GTA

Collaborative divorce sounds like a juxtaposition of terms but this divorce process can save lives!  OK, that may sound a little dramatic but, in reality, it is the quality of life going forward, especially for children.  There are many different divorce processes which I have explained in an early blog so I won't g through the detailed description of each but rather focus or highlight what the collaborative process is all about.

Each couple must sign the collaborative agreement or a participation agreement. In the agreement each spouse promises to be upfront, honest, respectful and most importantly not go to court.  Both spouses must retain a collaboratively trained lawyer and, initially meet with their newly retained legal council.  The first 4-way meeting which consists of both spouses and their lawyers discusses the process, how it works and the rules of conduct.

At the second meeting the issues are brought forward.  Every divorce is different and some couples may agree, for example, on the financial issues and custody issues but not on access issues (access to the children).  Wherever there is disagreement that is where the couple and their lawyers work to some form of resolve.  The reason the lawyers are there is to ensure that the spouses are being fair to one another from a family law perspective.  Sometimes people feel they will give away everything to make the divorce issues go away but later live to regret the decision.  Lawyers help to ensure the fairness prevails and also correct any misconceptions.  Collaborative divorce embraces the interdisciplinary model which simply means that other professionals may be invited to join the group.  Often family professionals are necessary when access issues are at the forefront.  They can work out parenting plans with the couple.  Often times financial professionals can be brought into the group to help with budgeting issues and also to ensure that the assets you want to keep are the assets you can afford.  Sometimes spouses will give away retirement funds, for example, to keep the house but they can't afford to keep the house and they have to work all their lives as they cannot afford to retire.  Often there are solutions available at the beginning of the divorce that would negate these future issues.

What is really important in the collaborative process is that despite the bad feelings each spouse has for one another during this time because they have treated each other respectfully they can continue to co- parent after the divorce is over.  There are studies that show that affectively co-parented children grow up to be just as stable and 'normal' as children of couples who remain together.  High conflict divorces always create problems for children.  Sometimes they are manipulated by one parent or the other and grow up to resent the parent who did so when they are old enough to understand.  These children often end up with issues that they grapple with well into adulthood.  So, therefore, my statement that collaborative divorce can save lives.

If you are going through a divorce or thinking about it here are some links to the GTA lawyers, family professionals and financial professionals who are collaboratively trained in this area.

www.peelcollaborative.com

www.collaborativepracticetoronto.com

If you are out of the Toronto area there is an international association that provides names of professionals as well as links to local groups.

www.collaborativepractice.com

These website also have a large amount of information available about the collaborative process.

Spousal Loans ~ Potentially saving Thousands!!!

I saved a client over $23,000 a year employing this strategy, a YEAR, in taxes!!!!!

OK, so....this is how it works.  You have to be married.  Your spouse has to be unemployed or have a big variance in income to employ this strategy.  It's a form of income splitting that is a way to avoid paying taxes that is completely legal.

Canada Revenue Agency (CRA) rules that a higher income earning wife, for example, cannot gift her husband a large sum of money to invest to take advantage of his lower marginal tax rate. Any investments made on his behalf must come from his earned income, otherwise the income (in the form of interest, dividends and capital gains) is attributable back to the wife.  If, however, the lower income spouse does the savings and the higher income spouse pays the bills then it's OK to attribute any income from investments to the lower income earner PROVIDING that he does not invest, annually, more than her makes net of taxes.

If, however, you have a spouse who has no income then you can lend that spouse money at CRA's prescribed rate (currently 1%) and then that spouse can invest and any growth attributed from the investments are taxed at their lower marginal tax rate.  Because the spouse is borrowing to invest and is earning income from the investment then the spouse can also write off the cost of borrowing (ie:  the interest charges) on their income tax return.  The lending spouse, however, must claim the interest as income but at the low rate of 1% the cost is more than offset by the spouses lower marginal tax rate.

Managing Debt ~ The mortgage difference.

The least expensive way to borrow money, if you own a home, is through your mortgage.  When your mortgage term is up you may want to look at some of the higher interest rate debt and lump it in with your mortgage.  With the amorization spread out over a longer period of time this would mean that if you are making regular payments (to your credit card, for example) that you can continue to make those same payments on the mortgage and pay down the principle that much sooner.  The reason why your mortgage is offered at a lower interest rate is because it is secured by your house.  Some clients tell me they have no mortgage but when I dig in deeper I realize they have a secured line of credit.  Folks....that IS a mortgage.  Any debt secured by your home is a mortgage.  The difference is that a term-oriented mortgage (fixed mortgage) is non-revolving.  What this means is that you have an outstanding balance and you make payments to it but you cannot re-advance the difference.  Also in a fixed mortgage your interest rate is known for whatever term you have selected.   In a secured line of credit your payment fluctuates with the interest rate environment. You can also re-advance your line of credit so it is considered to be revolving debt.  For example, if my secured line of credit is $100,000 and my balance is $25,000 then I can still advance $75,000.  The fixed mortgage does not have that ability.  Of course, one major difference I have not discussed is payment options.  With a fixed rate mortgage you may be able to increase your payments by a certain percentage and also make a lump sum payment on the anniversary date but if you win the lottery you cannot payout that mortgage without penalty....and if you are in the early part of your term, maybe not at all.  With the secured line of credit you can pay whatever you wish so if you win the LottoMax $50,000,000 this Friday you can pay off your secured line of credit with no problem!!!

Tax-Effective Investing

Not all investments are created equal.  Some investments promise rates of return by the issuer (of the debt) and some have the promise of potential lofty returns (equities or stocks) but neither are they treated the same way by Canada Revenue Agency (CRA).  Marginal tax rates in Ontario dictate that income, dividends and capital gains be treated differently, from a tax perspective.  Income, like your salary is at your highest marginal tax rate and dividends and capital gains are taxed less.  Capital gains applies to properties that are bought and then sold for a profit, such as real estate, stocks and even sometimes, bonds.  Primary residences are excluded from capital gains tax but secondary residences and investment properties are not.  Dividends are payable quarterly by larger corporations if you hold their stock on the dividend date.

In order to effectively utilize a tax strategy I put all my clients fixed income (bonds, coupons, bond funds) in their registered plans as much as possible.  Why?  Because any income generated in a registered plan, such as a registered pension plan or a registered retirement savings plan shelters any income from tax.  Therefore, by placing the highest taxable investments inside the RRSP's where the income is not subject to tax, for example, the client gets to keep more of what she or he earned.  By placing the growth investments that generate capital gains and dividends in their non-registered investments clients enjoy paying at a lower tax rate. 

So if you live in Ontario your combined federal and provincial tax rates have you paying 31.15% on any interest income received (that's $0.31 on every dollar that you earn), 15.58% on capital gains and 9.76% on dividends.  So why not shelter your interest income as much as possible?

(Of course, your asset allocation and geographical allocation should not be compromised when adhering to a tax strategy but it should be considered in the appropriate fashion.)

For your marginal tax rate, here is a link:

Marginal Tax Rates in Ontario

Ruling assets from the grave?????

We work hard all of our lives to create wealth and procure materialistic objects of either need or desire but when is it time to divest of our live's work and worldly possessions?  What happens if something happens to you tomorrow?  Is your Will up-to-date?  What about your Powers of Attorney and Living Wills?

Ever consider a testamentary trust?  A testamentary trust becomes a trust when you die (as opposed to an inervivos trust which is a trust while you are alive...not to be confused with a Living Will).  If you have children, for example, you may not have the faith that they will spend your hard earned cash in a manner that is acceptable to you.  Purchasing a Ferarri at the age of 19 may win your protegy some instant attraction from their peers but you refrained from purchasing one yourself in hopes of improving your child's standard of living and leaving a legacy.  It was hoped to give them the additional boost to success and help them to strive to ensure your grandchildren have some additional benefits that you did not.  (The world was built on the shoulder's of giants comes to mind).

You can write, in your Will, that you want your children to receive the funds in stages.  Maybe something like 25% of the assets at the age of 25, another 25% at 30 and the remainder (50%) at age 35.  In this way, if they misappropriate funds in their early years it is hoped that they have learnt a lesson and will continue to utilize the remaining 75% in a more responsible fashion.  Trusts have some additional benefits in that they have their own marginal tax rates so if you have a child who is in the top marginal tax bracket the trust can provide some possible tax relief.  Trusts are also considered not to be part of net family property so there may be some additional benefit in this regard.  The downside is that once the trust is established it must file it's own tax return every year so that additional cost should be considered.

It may not be right or even relevent for some people but it is worth considering, if you have young children.

Understanding your pension plan....

If you are fortunate enough to have a pension you still have to understand how the stream of income works at retirement.  There are two basic pension plans, defined contribution pension plan (sometimes referred to as a money purchase pension plan) and a defined benefit pension plan. 

A defined benefit pension plan provides you a level stream of income at retirement regardless of what is going on in the financial markets.  Of course, each plan is administered a little differently depending on what terms your employer works out with the provider.  Some defined benefit plans (DB plans) have inflation adjustments or they have a bridge benefit which provides an additional income if you retire before the age of 65.  (It is meant to supplement income until you reach the normal age of being a CPP beneficiary regardless of when you actually take your CPP).

Defined contribution plans (DC plans) are somewhat like RRSPs in that you chose your own investments and DC plans will experience the volatility of the financial markets before and during retirement.  At retirement, you cannot take out all the funds, like you are allowed to in a RRSP situation, but rather you are restricted based on a percentage of the value of the account at the end of each year.  The year end value will then dictate your income for the following year.  As a result your cash flow will change year-to-year if you have a DC pension plan.

Understanding the basic concepts of each type of pension plan can help when trying to ascertain your income at retirement as a pension is, typically, one of the biggest building blocks of retirement income.

How to Divorce?????

Most people panic when they first divorce and their knee-jerk reaction is to hire a lawyer.  If you have never been through the divorce experience then talking to friends and searching the Internet become places for advice on where to turn.  Unfortunately, hiring your best friend's lawyer who you have heard is good because they are a real fighter may not be your best option.

In a time of overwhelming emotion it is sometimes hard to make a rational decision.  Racked with hurt, guilt or both can sometimes cloud judgement and enforce actions that you will later regret.  I think it is important to understand your choices so that you own your own process rather than meeting a lawyer who, for example, is litigious and finding that you are paying a lot of money for even more grief...grief that you could have avoided.  This may be especially important if you have to continue to co-parent in your post-divorce life.

Some clients prefer the 'per se' method, sometimes referred to as the 'kitchen table' method.  I encourage clients to do this if their conversations are open and honest and they can work together in an agreeable manner.  If they can figure out how to divide things up and they find it agreeable, that's great!  However, I always ask them to get Independent Legal Advice (ILA).  Remember those emotions that cloud one's thinking?  Giving away the house (literally) because you feel that you were responsible for your spouses hurt feelings will turn to regret once you start to work on your own.  ILA ensures that you are covered from a legal perspective and that you are not cheating yourself to what you are rightly due.  It also ensures that you are both signing a contract that you understand and that a professional has helped you to think about other alternatives.  I have had clients divorce using this approach and it works, in some circumstances.

Hiring that 'fighting' lawyer may be a good choice for someone who needs to be represented by a third person because there is an imbalance in the relationship or a huge sense of mistrust.  A litigious lawyer will under turn every possible scenario and fight with vigour....for many hours to represent their client's rights.  Although I am not sure that other alternatives would not work for couples who fit in this category.

Mediation is also a consideration.  Mediation is when a couple will sit with a mediator and place all the issues to be resolved on the table (custody, access and financial issues) and they will try to get the couple to do a little give and take to settle their separation agreement.  The clients come to their own resolve. Mediators can be lawyers but if they are they cannot give legal advice during mediation.  There are also many good mediators who are not lawyers.  My advice for clients who chose this method is to seek ILA once all the issues appear to be settled.

Arbitration is is similar in that the couple discuss their issues with a professional but the arbitrator will decide how to settle the issues.  My opinion is that this is dangerous as the clients do not take ownership in the decision making.  There is also a med/arb solution whereby the couple attempt to settle their difference and whatever they cannot settle is arbitrated for them.

Collaborative divorce is fairly new as it came to Toronto in about the year 2000.  Collaborative lawyers are trained to approach divorce differently than their litigious predecessors.  In a collaborative divorce each person hires a collaborative lawyer and all four meet to discuss the issues.  What is important to note is that all participants must sign a collaborative agreement stating that they will be respectful, honest and forthright.  Sounds civilized, right?  I think this is a great alternative if you are co-parenting after the divorce.  Litigation tends to be more of a shame/blame procedure, in my experience.  Collaboration does not promote hostility which is carried over in your life after the ink on the separation agreement is dry.  What's more is that the collaborative divorce process embraces the interdisciplinary.  Collaboratively trained professionals, other than your family law lawyer, can be involved in your process depending on your needs.  Family professionals can help develop an access plan commonly referred to as a parenting plan.  Financial professionals can help to forecast your financial future with your portion of the assets that are split.  Can you still afford to retire?  Can you afford to keep the house? 

I think it's important to understand that you have choices.  In hiring your best friend's lawyer you may get 'sucked' into a process that isn't really suitable for you.  I would urge you to 'interview' a few lawyers before you make a decision.  If you are looking for a recommendation for a someone to help you with your dispute resolution let me know and I can give you a few referrals.