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Recover Your Long Term Care Costs

Will your family be affected by the costs of caring for an aging loved one?

Statistics Canada states that over 350,000 Canadians 65 or older and 30% of those older than 85 will reside in long term care facilities. With increasing poor health and decreased return on investments, the fear of facing financial instability in your declining years is real.

How will this impact your family?

Caring for an aging parent or spouse takes its toll emotionally and financially. Adult children with families and job pressures of their own are often torn between their obligations to their parents, children and careers. This often results in three generations feeling the impact of this care.

Is it important to you to have control over your level of care?

Consider this:

  • The cost of providing for long term care is on the rise
  • While many Canadians assume that full-time care in a long term care facility will be fully paid by government health programs; this simply is not the case. In fact, only a small part (if at all) of the costs of a residential care facility will be paid by government health care programs
  • 28% of all Canadians over the age of 15 provide care to someone with long term health issues
  • For the senior generation, the prospect of the failing health of a spouse puts both their retirement funds and their children’s or grandchildren’s inheritance at risk
  • Capital needed to provide $10,000 month benefit (care for both parents) for 10 years is $ 1,000,000 (if capital is invested at 4% after-tax)

Norman (age 64) and Barbara (age 61) have three children, aged 32-39.  While still in good health the family does have a concern for their future care.

To safeguard against failing health it was decided that they purchase Long Term Care Policies to protect their quality of care and a Joint Last to Die Term 100 Life Insurance Policy to recover the costs.

The Long Term Care policies would pay a benefit for facility care in the amount of $1,250 per week for each parent.  The monthly premium for $10,000 per month Long Term Care for both Norman and Barbara is $544.17.

The Premium for a Joint Last to Die Term to Age 100 policy with a death benefit of $250,000 is $354.83 per month.

Upon the death of both parents $250,000 is paid to the beneficiaries (children) tax free from the life insurance policy, returning most if not all of the premiums paid.

 


Advantages of the Long Term Care Back to Back Strategy

  • Shifts the financial risk of care to the insurance company
  • Allows for a comfortable risk free retirement
  • Preserves estate value for future generations

When is the best time to put this structure in place?

  • Remember, the older the insured, the higher the costs
  • Do it early while you are still insurable!

Please call me if you think your family would benefit from this strategy.  Feel free to use the sharing icons below to forward this to someone who might find this of interest.

Should you wish to learn a little more about long term care, the Canadian Life and Health Insurance Association (CLHIA) has published a brochure which can be downloaded here

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Occasional Marijuana Users

With the federal government heading towards the legalization of personal marijuana use some life insurance companies have announced that occasional marijuana smokers would now be considered as non-smokers on new applications for life insurance and in some cases critical illness insurance.

How significant is this change? Substantial!

As an example, for a male age 35, the standard smoker premium for $500,000 of 20 year renewable term is $1,070*. Now a recreational marijuana user can purchase that same coverage for 410 per year. *

Sun Life, BMO and Empire Life were the first three companies to make this change and many are extending the offer to Critical Illness coverage as well. Most insurance companies are expected to make similar announcements. For some companies, medicinal marijuana users are excluded from the new offering but may be considered on a case by case basis.

During the underwriting process the insurer will take into consideration the quantity and frequency of marijuana use. Generally, an individual who smokes up to two marijuana cigarettes per week and uses no other tobacco products (including e-cigarettes and nicotine in other form) will be treated as a non-smoker. Hashish usage may also receive similar treatment.

The insurance companies point to the fact that they have been monitoring the latest medical research into the effects of occasional marijuana use on health. BMO also points to statistics that show 18% of Canadian smoke marijuana occasionally for recreational purposes.

For those who have already been classed as a smoker due to marijuana use, the premium reduction will not be received automatically. It is necessary to request the change on the applicable application for change form. If there is no change in health and all the conditions are met the premiums will be reduced upon approval.

If you are affected by the new developments outlined here, contact us for more information. As always, please feel free to share this article with anyone you feel would find it helpful.

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Finance Minister Bill Morneau delivered the government’s 2017 federal budget on March 22, 2017. The budget expects a deficit of $23 billion for fiscal 2016-2017 and forecasts a deficit of $28.5 billion for 2017-2018. Learn what the budget means for small business owners.

Finance Minister Bill Morneau delivered the government’s 2017 federal budget on March 22, 2017. The budget expects a deficit of $23 billion for fiscal 2016-2017 and forecasts a deficit of $28.5 billion for 2017-2018. Find out what this means for businesses.

Small Business

  • No changes to income tax rates
  • No changes to capital gains inclusion rate

Tax Planning using private companies

While no specific measures are mentioned, the government will review the use of tax planning strategies involving private corporations “that inappropriately reduce personal taxes of high-income earners.” including:

  • Income Splitting: Reducing taxes by income splitting with family members who are subject to lower personal tax rates.
  • Regular income to Capital Gains: Converting income to capital gains (instead of income being taxed as dividends)
  • Passive income inside Corporation: Since corporate income tax rates are generally lower than personal tax rates, this strategy can facilitate the accumulation of earnings by owners of private corporations.

For Professionals

The government eliminated a tax deferral opportunity for certain professionals. Accountants, dentists, lawyers, medical doctors, veterinarians and chiropractors will no longer be able to elect to exclude the value of work in progress in computing their income. This will be phased-in over two taxation years, starting with taxation years that begin after this budget.

Please don’t hesitate to contact us if you have any questions.

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Finance Minister Bill Morneau delivered the government’s 2017 federal budget on March 22, 2017. The budget expects a deficit of $23 billion for fiscal 2016-2017 and forecasts a deficit of $28.5 billion for 2017-2018. Learn what the budget means for families.

Finance Minister Bill Morneau delivered the government’s 2017 federal budget on March 22, 2017. The budget expects a deficit of $23 billion for fiscal 2016-2017 and forecasts a deficit of $28.5 billion for 2017-2018. Find out what this means for families.

Key points for families

    • Childcare: The funding could serve to create more affordable childcare spaces for low-income families
    • Parental leave: Extending parental leave and benefits to 18 months, Parents who choose to stay at home longer, however, will have to make do with a lower Employment Insurance (EI) benefit rate of 33 per cent of their average weekly earnings, instead of the current rate of 55 per cent
    • Caregiver benefit: Introduce a new caregiver benefit that’s meant to help families copy with illnesses and injuries.
    • Parents who go to school: Single, higher federal income threshold for part-time students to receive Canada Student Grants. Grants don’t have to be repaid.
    • Foreign Nannies: Waiving a $1,000 processing fee required to obtain a work permit.

Please don’t hesitate to contact us if you have any questions.

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Protecting Your Family

Let’s face it, raising a family today can be financially challenging. The cost of living continues to increase, housing costs are rising along with education and extra-curricular activities for our children. It is tough to make ends meet and still have something left over at the end of each month.

Most families today require both parents to work to afford the lifestyle they enjoy. Losing one of those incomes through premature death, illness or a disability is a real risk that many families would have a difficult time facing emotionally and financially.

How do you protect your family?

  • Life insurance is designed to protect your family by providing the resource to replace income, pay off debt, and fund future education costs in the event that one of the parents dies.
  • Disability, or income replacement insurance, is designed to replace lost income if an individual is not able to work due to accident or sickness.
  • Critical Illness insurance will pay a lump sum benefit in the event of a diagnosis of many major illnesses.

If you and your spouse work for a company that provides employee benefits, you may already be insured for both life and disability insurance and in some cases critical illness. Be aware that for the most part, employee benefit programs provide only a minimum amount of life insurance, usually based on one or two years of income. If long term disability coverage is provided it may be enough for personal needs but that is not always the case. Each situation is different, so it’s important that you and your spouse review your respective plan information to ensure that you have sufficient coverage in place. There are options to top up your coverage either through your group insurance or individually.

How much life insurance do you need?

If you or your spouse dies, the family will require a lump sum of capital to replace earned income. You should aim to have enough cash for the following needs:

  • insurance to pay off any outstanding debts and mortgages
  • enough income from the invested capital to replace the lost income
  • an amount to cover future education costs

Think life insurance premiums are too expensive?

Term insurance is an affordable solution for a growing family with a tight budget. A 35-year-old non-smoking male can purchase $1,000,000 of ten-year renewable term insurance for less than $45.00 per month. A non-smoking female of the same age would pay approximately $30.00 per month for the same coverage. A relatively small cost to protect a family for $2,000,000 of tax free benefit in the event of an untimely death.

Let’s have a discussion about how we can build a program of protection specifically designed for your needs and circumstances. Knowing what the needs are and what protection is in place goes a long way to providing peace of mind.

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BC Finance Minister, Michael de Jong delivered the province's 2017 budget on Feb. 21, 2017. Learn what the budget means for small business owners and individuals.

BC Finance Minister Michael de Jong delivered the province’s 2017 budget on Feb. 21, 2017. The budget anticipates a surplus of $295 million for the current year, $244 million in 2018-2019 and $223 million in 2019-2020.

Corporate Income Tax Measures

Reduction in Corporate income Tax Rate from 2.5% to 2.0% effective April 1, 2017

Corporate Income Tax Rates- As of January 1, 2017
British Columbia Combined Federal & BC
 General 11% 28%
 M&P 11% 26%
 Small Business* 2.5%/2.0%** 13.0%/12.5%**
 *on first $500,000 of active business income **effective April 1, 2017

Personal

Increase in the personal tax rate from 40.61% to 40.95% for ineligible dividends effective January 1, 2017.

 Personal Combined Federal/Provincial Top Marginal Rates
2017
 Interest and regular income 47.70%
 Capital gains 23.85%
 Eligible dividends 31.30%
 Non-eligible dividends 40.95%

Medical Services Plan Premiums: Rate will remain at $75/month/adult. Effective Jan 1, 2018: 50% MSP premium reduction for households with annual net incomes up to $120,000.

Firefighter & Search & Rescue Volunteer Tax Credit: Non-refundable tax credit of up to $3,000 for 2017.

Back to School Tax Credit: Non-refundable tax credit of $250 per child (ages 5 to 17) for 2016 to 2018. Effective Jan 1, 2018, the education tax credit will be eliminated.

Electricity- Provincial Sales Tax Act: Effective Oct 1, 2017, the tax rate is reduced to 3.5% of the purchase price.

Property transfer tax: For first time home buyers to save property transfer tax on the purchase of their property the partial exemption has been increased to $500,000 from $475,000.

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Thinking of Cancelling Your Life Insurance?

Have you found yourself wondering if you really need that life insurance policy you pay for every month? You are not alone.

As time goes on we often forget the reasons behind purchasing the amount and type of coverage we did. For this reason it is advisable to have regular reviews to make sure you are adequately protected.

Perhaps you are having trouble making ends meet and are looking to trim expenses. Maybe you simply don’t think you need it because the kids are getting older and your obligations to them have diminished. Some may feel that they have enough assets accumulated that insurance is no longer necessary and even a waste of money. Before you make the decision to cancel your life insurance policy, consider these compelling reasons to keep it.

Can no longer afford the premiums?

The most common reason people cancel their insurance is affordability. In times of financial stress many people start eliminating unnecessary expenses. Consider this – if you think you are having trouble making the life insurance payments each month now, think how difficult it will be on your family if you were to die prematurely, without it.

Will your family be able to pay the necessary living expenses such as; housing, food, transportation and education without your salary?

In times of financial instability, make insurance the last thing to go, not the first. Think of switching to a lower cost plan such as term insurance to get you over the hump. You have to qualify medically to make this change but if you find yourself uninsurable, this is definitely not the time to consider getting rid of it.

So when it comes to trimming expenses, perhaps get another year out of your cell phone, skip dinner out once a month or even take the drastic step of skipping your morning Starbucks. You will sleep better at night knowing your family is protected.

Don’t feel you still have a need?

Are there any lingering debts, unpaid taxes, mortgages or outstanding loans that should be paid off should you die prematurely? The last thing you would probably want to do is to leave your family the financial burden of your unpaid debts.

Or perhaps, your parents are still living and are somewhat dependent on you for financial support. Who would be responsible for them should you die and would there be enough resources?

Your children may have left home to start their lives but the unforeseen does happen and they may return as members of the boomerang generation. Should that happen, and you find yourself with financially dependent children living at home once again, you may want to consider keeping or reducing the insurance to an amount that matches your new requirements.

Will your estate require liquidity when you die?

Even the wealthy may have a need for liquidity in their estate. Often, there may be taxes arising from capital gains, recaptured depreciation, administrative fees and last expenses. Assets may need to be liquidated in order to pay some of these costs but that may take time, or it may not be the right time to sell those assets. Life insurance is the most cost effective way to provide this needed liquidity allowing families to make decisions to sell assets if and when the time is right

Do you want to leave a legacy?

Life insurance has long been a method for charitable minded individuals to leave a legacy to a charity or institution of their choice. Not only does this benefit the recipient but it provides a tax deduction in the amount of the gift to benefit the estate.

What about the adult children?

There is no doubt about it, the next generation are having a lot harder time financially today than at any other time. Rising house prices and education costs not to mention today’s cost of living make it necessary for adult children to depend more on their parents than previous generations.

If you are not in a position to leave a large inheritance to your children, life insurance can certainly be the answer. While continuing to pay the premiums may not be life changing for you, the insurance proceeds when received may certainly be life changing for them. This generosity will likely help your grandchildren be raised and educated at a higher standard than their own parents could reasonably afford.

If you can’t afford the policy yourself as you head into retirement, perhaps your children would be in a position to take over the premiums. It’s important to include your adult children in these discussions as you enter your retirement years.

What about survivor benefits in retirement?

If you and your spouse are soon to retire or have retired already, you understand the risks in outliving your income. Backing up your retirement nest egg with life insurance to protect a surviving spouse is one way to manage risk in retirement when safe investments are yielding lower returns.

Do you have the right type of Life Insurance?

If your renewable term insurance coverage is up for renewal, the substantial premium increase may be causing you to rethink the need for insurance. Renewable term insurance does renew at increasingly higher premiums and will ultimately expire at age 80 or 85. It may be time to consider changing or converting some of your life coverage to a permanent form of insurance that has a level premium for life.

As you can see there are many reasons to keep your insurance for your lifetime. Let’s have a chat to determine if you have the coverage that makes sense for your family’s needs or if some adjustments to amounts or insurance plan are necessary at this time.

As always, please feel free to share this information with anyone you think will benefit from it.

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Boomer + Sandwich Generation + Club Sandwich + Boomerang = Financial Instability

The Sandwich Generation was a term coined by Dorothy Miller in 1981 to describe adult children who were “sandwiched” between their aging parents and their own maturing children. There is even a term for those of us who are in our 50’s or 60’s with elderly parents, adult children and grandchildren – the Club Sandwich. More recently, the Boomerang Generation (the estimated 29% of adults ranging in ages 25 to 34, who live with their parents), are adding to the financial pressures as Boomers head into retirement. It is estimated that by 2026, 1 in 5 Canadians will be older than 65. This means fewer adults to both fund and provide for elder care. Today, it is likely that the average married couple will have more living parents than they do children.

What are the challenges?

The truth is that many members of the Sandwich Generation find the circumstances are both emotionally and financially draining. In the past, women have been looked upon to provide the primary care giving in the home while men take care of the income needs. Today, roles have changed with the majority of working age women employed outside of the home. As a result, financially, both parents are looked upon to provide for the family. For The Sandwich Generation helping their parents and their children at the same time, creates a stress that can affect both their mental and physical health.

Risk Management in the Sandwich Generation

Having an effective financial plan becomes key in dealing with the challenges. As the main breadwinner in this situation it is possible that three generations are dependent upon you. One of the first issues to be addressed then is how you protect your revenue stream.

5 Steps to Minimize risk for the Sandwich Generation

  1. Have an open and clear discussion about family resources and needs – The older generation needs to have a discussion with their children so that everyone knows what steps have or have not been taken to provide for the senior’s care when they are no longer able to care for themselves. This would also be a good time to initiate or continue any talk about what liquidity needs exist for taxes, long term care, funeral costs and last expenses etc.
  1. Complete a life insurance needs analysis – Where there is not sufficient capital to continue family and dependent’s income at the death of a breadwinner, life insurance can provide the necessary funds required to maintain lifestyle, pay debt, reduce mortgages, fund children’s education and provide money for aging parent’s care. Life insurance is an affordable way to guarantee future security.
  1. Review your disability and critical illness coverage – If there is not sufficient income that will continue to be paid should you become unable to work due to sickness or accident, consider long term disability coverage. Critical illness insurance will provide needed capital in the event of diagnosis of a life threatening illness or condition.  Not only will this provide financial support but will also improve your chances of recovery without the financial stress that often accompanies such a condition. 
  1. Investigate Long Term Care Insurance – Having the appropriate amount of LTC insurance will help to reduce the stress of having to care for a parent when they are no longer able to fully care for themselves. Consider having all the siblings share the cost.
  1. Draft a Living Will or similar Representation Agreement – Making your wishes known to your loved ones in the event you are no longer capable of making medical decisions will go a long way to providing comfort to all concerned when difficult choices need to be made.

 

As you can see, being part of the Sandwich Generation can be very stressful – emotionally and financially.  Having someone to talk to or being part of a support group dealing with this issue, will certainly help manage the emotional challenges.  Sitting down with a financial advisor or estate planner will help you determine what strategies you may need to implement to provide the financial security your family needs.

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Each year at Christmas we try to publish a newsletter that we distribute largely via e-mail, addressing a Christmas theme and some selected fiscal topics.

Each year at Christmas we try to publish a newsletter that we distribute largely via e-mail, addressing a Christmas theme and some selected fiscal topics. For the “Christmas theme,” we usually try to include something written by someone – that, to me at least, reads in some inspiring, practical way that is associated with the season. We do this again this year, but we talk very little, this time, about the financial side of Christmas. The story that follows here touches ever so slightly on the issue of “refugees” – topical, I think, these days. Enjoy!

FB Newsletter

Cranberry Trifle Recipe- Yum!

 

See the recipe
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There is nothing so certain as death and taxes...or so the saying goes. This certainly is true in Canada where there is a “deemed disposition” when a taxpayer dies. What this means is that a taxpayer is deemed to dispose of all his or her assets at fair market value immediately preceding death.

 

Or so the saying goes. This certainly is true in Canada where there is a “deemed disposition” when a taxpayer dies. What this means is that a taxpayer is deemed to dispose of all his or her assets at fair market value immediately preceding death.

How does this affect your assets?

  • For certain assets (e.g. stock investments, company shares, revenue property, collectables), if the fair market value is greater than the adjusted cost base then capital gains will result.
  • Fifty percent of capital gains are included in the deceased taxpayer’s income.
  • Revenue property could also attract additional tax in the form of recaptured depreciation.

There are some exceptions

  • Assets which are left to a spouse will have the gain deferred until the spouse dies or disposes of the asset.
  • A principal residence is not subject to capital gains.
  • Shares that the deceased owned in a Qualifying Small Business Corporation may qualify for the Lifetime Capital Gains Exemption where the first $800,000 of capital gain is exempt from taxation.

Registered Funds receive different tax treatment

RRSP, RRIF, TFSA and Pension Funds

  • A spouse who is left registered funds by her husband or his wife may roll those funds into his or her Registered Savings Plan or Retirement Income Fund and avoid paying income tax.
  • Registered funds left to anyone other than a spouse or qualifying disabled child are fully taxable as income. Some rules also apply to minor dependent children which involve spreading the tax by purchase of a qualifying annuity for 18 years less the age of the child at the time of acquiring the annuity.
  • Amounts paid to a beneficiary of a Tax Free Savings Account are not subject to income tax.

Other fees and costs

  • Funeral and other last expenses;
  • Probate fees;
  • Administrative costs and possibly legal fees.

Reduce or avoid the impact

Estate planning and life insurance solutions

Freezing the estate which has the effect of fixing the amount of tax payable on assets upon death and passing future growth to the next generation;

  • In conjunction with the above, the use of a family trust with the objective of multiplying the number of Lifetime Capital Gains Exemptions on shares in a Qualifying Small Business Corporation distributed to other family members.
  • The use of joint accounts. This strategy should be used with careful consideration and professional guidance.
  • Effective use of life insurance, both personally and corporately owned, which can provide sufficient liquidity at death to pay taxes with insurance proceeds rather than “hard dollars”. This can be especially true by using Joint Second-to-Die life insurance which will provide proceeds to pay the deferred tax upon the death of the surviving spouse.

While we often complain about the cost of living, the cost of dying can also be extremely high and could create significant problems for those we leave behind. With sound advice and planning the financial impact on your family and business partners can be softened and, sometimes, even eliminated.

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