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Why name a Trusted Contact Person?

A Trusted Contact Person is a person Cumberland can contact if we become concerned about your well-being. It’s another way that you can enhance your relationship with us.

The Trusted Contact Person concept is a new security measure implemented by the Canadian Security Administrators and our firm’s Regulator, to help us serve you and your family better in certain situations where we may have concerns about your well-being or may have difficulty reaching you through our traditional communication channels for example.

With your written permission, we will be able to reach out to your Trusted Contact Person in given situations, such as:

Contact information. There may be a time when we simply have difficulty getting in touch with you or the person to whom you have given a Power of Attorney. This may be because you are travelling, or because we are not aware of your latest contact information. If this occurs, we may reach out to your Trusted Contact Person to see if he or she has your current contact information.

Mental or physical health. Age-related cognitive decline is natural and almost inevitable if you live long enough. Cognitive impairment can also strike those at younger ages as a result of a serious injury, illness, stressful life events among other factors. If we see signs that you are having difficulty understanding your financial information or making sound financial decisions, we may check in with your Trusted Contact Person to see if they are aware of any changes in your mental or physical health and situation.

Abuse or exploitation. In very rare situations, if we suspect that somebody may be pressuring you into making potentially harmful financial decisions, we might ask your Trusted Contact Person if they are aware of anybody who might be financially abusing or trying to exploit you. Cases like these typically involve elderly clients who are being manipulated by either a service provider, a friend, a family member or a caregiver. It can also involve clients of any age being targeted by cybercriminals or fraudsters.

Your Trusted Contact Person’s role is limited to providing information about you as it relates to your well-being. Your Trusted Contact Person cannot access or have any authority over your detailed account information. Unlike a Power of Attorney, the Trusted Contact Person does not have the authority to make decisions on your behalf. We will only contact your Trusted Contact Person if we become genuinely concerned about your well-being.

Who Should You Appoint as Your Trusted Contact Person?

You can appoint anyone you wish as your Trusted Contact Person. We recommend choosing someone who is not already designated as your Power of Attorney and does not have trading authority over your account. You can think of your Trusted Contact Person as someone impartial, who would not have any conflicts of interest and could objectively clarify or validate your specific situation and well-being from time to time.

The ideal person should be mature, trustworthy, familiar with your personal situation, and someone with whom you are comfortable discussing potentially sensitive topics, such as your mental and physical health status, your whereabouts and who has a perspective on your personal and business life.

You can add or remove or change your Trusted Contact Person at any time. If you don’t feel that naming a Trusted Contact Person is right for you, there is no obligation to do so.

Contact Us

If you have questions about what a Trusted Contact Person is, who to select, more specifically why we might need to contact them, or how to update your records, please speak with your Portfolio Manager.

In addition, we have attached a link to a background document that explains the Trusted Contact Person at our regulator’s website here.

Federal Budget: No News is Good News

At the end of March, we hosted a panel of private wealth and tax specialists from BDO Canada to discuss what might be expected from the upcoming Federal Budget. During the discussion and subsequent Q&A, several areas of concern were raised. On April 7th, the 2022-2023 Federal Budget was revealed, and it turned out that the most concerning issues from an a individual investor’s and business perspectives did not come to pass. There were no broad increases to personal or corporate taxes, GST or HST, no new wealth, inheritance or capital taxes, and no increase to the capital gains inclusion rate.

An excellent summary of the Budget published by Deloitte said:

“Notwithstanding continued concern from many in the business community regarding the funding of budget deficits, there were no broad increases to personal or corporate tax rates, no increases in goods and services tax (GST) or harmonized sales tax (HST), and no new taxes on wealth, inheritance or capital. The capital gains inclusion rate remains at 50%.”

However, there were a handful of positive initiatives that may be of interest to our clients, their families, and their entities such as:

First Home Savings Account (FHSA). This new account allows individuals to contribute up to $8,000 per year (and $40,000 over their lifetime), with the contributions being deductible to the taxpayer, income earned in the FHSA being tax-free, and withdrawals for the purchase of a first home being non-taxable. The first contribution is expected to be available in 2023.

A surprise tax break for private businesses. Canadian-controlled private corporations (CCPCs) benefit from a reduced rate of federal tax of 9% (vs.15%) on the first $500,000 of taxable income, which is subject to a full elimination where taxable capital exceeds $15 million. Going forward, the small business deduction will be eliminated when taxable capital exceeds $50 million, although the phase out will continue to start once taxable capital exceeds $10 million.

Higher charitable disbursements. This measure increases the registered charity disbursement quota from the current 3.5% to 5% for the portion of property not used in charitable activities that exceeds $1 million, effective for charities’ fiscal years that begin on or after January 1, 2023.

Click here to download the full budget summary from Deloitte and please be in touch with your Cumberland Portfolio Manager if you have any questions about tax planning as it relates to your wealth management strategy.

What to consider when drawing down your RRSP

If you have been a good saver and diligently contributed to your RRSP, you should be rewarded with a sizeable six or seven figure RRSP that would make your retirement that much more enjoyable. The only issue now is – how do you get money out of the RRSP without paying more in taxes than you should? Typically, it is advised that investors leave their RRSPs alone for as long as possible to take advantage of the tax-deferred growth. While this can be true for many people, it is important to crunch the numbers before you retire to make sure this makes the most sense for your unique retirement situation. Many retirees, especially those with a high net worth, may find there could be a more efficient way to withdraw retirement income.

What You Need to Know

The intended use of a RRSP is to defer taxes from the time you are in a high tax bracket until you find yourself in a lower tax bracket, thereby saving on taxes by your contributions and allowing the money to grow tax-deferred for many years. At some point, however, you will have to take that money out and leave what’s left to your beneficiary. The government mandates that Canadians must convert their RRSP to a RRIF, or an annuity, at age 71. The government also mandates that a minimum amount be taken every year after that . The issue with waiting until you are required to convert to a RRIF and take income is that you have little flexibility as to what you can withdraw. If your RRSP is large, the mandatory withdrawal amount may push you into higher tax brackets.

Could You Be in a Higher Tax Bracket?

Let us look at an example of how this could play out. In the situation described below, the retiree waited until age 71 to start drawing down their RRSP:

Joe has a RRIF worth $600,000 and his minimum withdrawal at age 71 will be $31,680 (5.28% x $600,000 = $31,680) for the year. He receives the maximum CPP benefit of $14,445 annually and an OAS benefit of $7,380. These three income sources alone will total $53,505. The lowest tax bracket for the 2021 year is $49,020. This means that Joe has been pushed into a higher tax bracket! This is before the income from his rental properties, defined benefit pension plan, and income from his non-registered investments are calculated.

As you can see from the example above, waiting until the last minute to start taking an income from your registered investments can have unintended consequences. Aside from simply paying higher taxes, there are income tax implications that need to be considered as you move to higher tax brackets as well. At age 65, you gain two tax advantages: the Age Amount non-refundable credit ($7,635 for 2021) and the Pension Income credit ($2,000 for 2021). The Age Amount is income-tested and it reduces by 15% of the amount your net income exceeds $38,893 for 2021. This clawback also applies to your OAS, which begins if your income exceeds $79,054. Both credits could be affected by RRIF minimums that become mandatory at age 71, therefore:

  1. Pushing you into a higher tax bracket
  2. Cause a partial or total loss of your Age Amount tax credit
  3. Cause a partial or total claw back of your OAS income

And since the minimum withdrawal rate gets larger as you get older, this issue will only worsen as you age.

Ways to Look for Tax Efficiencies

Here are some strategies that could help you pay lower taxes on your RRSP withdrawals:

  1. Consider deferring your CPP and OAS. Both Canadian pensions allow you to defer until age 70 to start receiving them, and you get rewarded for the deferral by receiving higher amounts. You can then use RRSP withdrawals to fill the income gap that the CPP and OAS would have provided, so you can draw down your RRSP at a lower tax bracket.
  2. When you stop working, you normally fall into a lower tax bracket, so top up your income to your existing tax bracket with RRSP withdrawals.
  3. Start a RRIF at age 65 to take advantage of $2,000 pension income credit. No matter how much income you have, this pension credit will allow you to withdraw $2,000 tax free from your RRIF, if you do not have any other pension income. So, fund the RRIF with your RRSP money to take $2,000 out tax-free each year.

Where to Start

Always talk to a financial advisor before starting RRIF payments. There is no one-size-fits-all when it comes to planning for retirement income. Everyone must consider their own financial situation when deciding how and when to start taking an income from an RRSP.

Some things to talk to your advisor about:
a) the amount of your minimum RRIF withdrawals at 71,
b) how secondary income (rental income, side business etc.) will affect your tax bracket,
c) the best time for you to start OAS and CPP, d) whether you are in a position to convert your RRSP into a RRIF earlier than by age 71.

It is important to ensure all your income sources are working as tax efficiently as possible so that you can get the most out of your hard-earned retirement savings.

At Cumberland, we work closely with our clients so that they have a sound financial plan in place that optimizes their situation and ultimately allows them to meet their retirement and lifestyle goals.

What you need to know about your pension before you quit

Employers are seeing a trend of their employees quitting their jobs. The Covid-19 pandemic has caused many to re-evaluate how they are spending their lives. Employees are valuing their time more than ever and are looking for opportunities where work / life balance is a top priority. One worry that employees may have as they embark on their next stage of life: What happens to my pension?

The three most common workplace retirement savings plans are, Defined Contribution Pension Plans, Defined Benefit Pension Plans and Group Registered Retirement Savings Plans. Regardless of which type of plan you are enrolled in, all is not lost once you leave your job. Each type of plan has special rules and provisions for what you can do with the money when you leave your employer.

Defined Contribution Pension Plan (DCPP)

Defined Contribution plans are typically made up of a combination of employer and employee contributions. The retirement benefit is dependent on how much the fund is worth when you retire.

When you leave your job, you can transfer your pension into either a LIRA, LIF, or RRIF, depending on your province of residence. A LIRA is a locked-in retirement account holding the pension money until it comes time to take an income from it, when it will be converted to a LIF. It is also possible to transfer pensions directly to a LIF, if age requirements are met.

Provincial authorities are responsible for regulating pension money and most pension money is “locked-in”, which means there are age restrictions on when you can withdraw the money and limits on how much you can take. Rules differ from province to province.

Defined Benefit Pension Plan (DBPP)

Defined Benefit Pension Plans guarantee an income to employees in their retirement. Defined Benefit plans may be made up of both employer and employee contributions, or just employer contributions.

When you leave your employer and have a Defined Benefit plan, you will have two options:

  • Leave the money in the plan and take an income based on contributions up until the point you leave.
  • Take the commuted value of the plan and transfer it to a LIRA. The LIRA will be subject to the same locking provisions as mentioned above.

Whether or not to take the commuted value of a Defined Benefit plan is a financial planning issue that should be worked through with your advisor. They will help you determine whether the income or lump sum would be more beneficial to your retirement plan.

Group Registered Retirement Savings Plans (Group RRSP)

Group RRSPs are the most flexible pension option. When you leave your employer, you will be able to transfer your Group RRSP directly into your individual RRSP. Technically, you could also withdraw the account in cash, but this is usually not optimal as the full amount will be taxable.

If you are considering leaving your employer and you are a member of a pension plan, your Cumberland Portfolio Manager can help you understand the rules in your province, your investment options, and discuss the best course of action within the context of your overall financial plan.

Be Careful When Naming (Or Being Named) An Executor

Imagine this scenario:

Someone in your family passes away with two adult children, and leaves their sister to act as executor. The sister cashes out a $1 million RRSP and gives the proceeds to the surviving son, and transfers ownership of a $1 million condo to the surviving daughter. Sounds fair, right?

Not quite. The son ended up owing about $500,000 in taxes on the money he received. And when his sister refused to share that cost, he sued his aunt. As executor, she was liable for settling the taxes before disbursing the money. On top of that, the aunt failed to obtain an indemnity or a release from both the niece and nephew, leaving her open to personal liability.

This true story shows how a lack of knowledge and understanding and therefore arguably the mismanagement of an estate, can compound the pain of losing a loved one. That’s what made our recent webinar on executorship relevant. It was presented by two of our trusted experts in the field – Hadielia Yassiri, Lead Family Continuity Advisor at Green Marker, and Jandy John, Director at Wyth Trust.

Although the topic of the executor is a very large one with many facets, here are some of the issues that were discussed:

Who to name as your executor. If your situation is fairly straightforward, a spouse can be a good choice. But the more complex your affairs are, the harder the job can become. Complicating factors include having business interests, owning overseas assets, being responsible for a trust that must continue, having a blended family or even the advanced age of the spouse and his or her ability to handle the situation in its entirety.

Combining executors and trustees. You can name one or more executors for your estate and one or more trustees for a trust that holds your assets. For example, you might wish to name your spouse as executor and make her/ him co-trustee with a child so the trust can hold and disperse assets to the child in a controlled manner rather than having them inherit everything immediately. These arrangements can give you some control and flexibility.

Duties of executors. An executor is often responsible for more than 250 different tasks – everything from cancelling the deceased’s health card to enumerating their hockey card collection. The executor must gather all of the assets and see that a value is established for each one, then deal with the legal documents and family, typically file two separate tax returns, and provide detailed accounting to the beneficiaries. And, as we saw in the real life case described above, an executor can be held liable for any missteps. If you have been named as an executor, you might want to weigh the pros and cons of being able to fully follow through on these duties, or perhaps even exercise your right to renounce the position. You may even call in some professional assistance.

Engaging a corporate executor. When you hire a corporate executor, you are putting an experienced professional in charge. They can neutralize some of the most common causes of conflict among beneficiaries by not allowing their decisions to be clouded by emotion or sentiment about mom’s ring for example, and by providing impeccable reporting. They also take the burden of any financial loss if mistakes are made.

Deciding who to name as an executor and how to plan your legacy is a huge topic and the role comes with serious duties and responsibilities. Deciding how to handle given matters if you have been named an executor is another one. Both can have a material impact on your financial and emotional well-being, as well as impact those you care about. At Cumberland, we are here to help our clients navigate these issues and more, and to work with the experts and teams through our comprehensive approach to wealth management.


Contact us to request a replay of the webinar.

It’s not too Late to Start Planning for Retirement

Retirement planning is an inevitable stage in everyone’s life. What determines whether you will be in a stable financial state during that period is how you have been able to save and invest during your active days. It is never too early to start a retirement savings and investment fund that will ensure you spend your latter days in reasonable financial comfort. We all have life goals that require planning, but it is advisable you include retirement planning so as to achieve a desirable retirement goal. Just as it is never too early to start your retirement planning, it is also never too late to start one. If you are close to retirement, it is still possible to start a retirement plan.

Why Do You Need to Plan for Retirement, No Matter How Late?

There are different retirement plans that will suit your future goals. While some people will prefer to retire at the official retirement age, some will retire as early as 50 to 55 years of age. For someone close to retirement age, your retirement plan may be different from someone younger because of the age difference. It is important that you have a retirement plan that specifically suits your post-retirement needs, putting into consideration that you started your plan late. Some of the reasons why you need a retirement plan, regardless of your retirement age include:

  • To know whether to maintain or reduce your standard of living post-retirement
  • To have emergency funds
  • To have a financially independent retirement
  • To fulfill your retirement goals
  • To protect your savings against inflation

Steps to Start Retirement Planning for Late Starters

If you desire to retire at an early age of 55 and you do not have a retirement plan late into your retirement age, don’t be discouraged that you are starting late. You can still enjoy your retirement days even though you start planning late.

Here are some steps you can take:

  1. Hire A Financial Advisor – At this stage, when you are close to retirement, you will need an expert to help you draw out a workable retirement plan. There will be many things to consider because of the timing, so you need an expert.
  2. Determine How Much Cash You Will Need and When You Want to Retire – This will help you know how aggressive you should save and invest to prepare for retirement. It will also help you choose the best retirement lifestyle.
  3. Service Your Debts – Multiple debts are one of the reasons that can prevent you from having enough savings set aside for your retirement. It is important you try as much as possible to service all your debts so you can focus on implementing your retirement plan.
  4. Have A Budget and Stick to It – Once you decide to have a retirement plan, one of the very first things to do is have a budget for your daily spending and follow it diligently. This will eliminate unnecessary spending and you can focus on saving and investing for your retirement.
  5. Consider Working Longer – There is the fear that late starters may not save enough for retirement. It is true, which is why, if you can, consider working a little while longer so you can save more. You can also start a side ‘hustle’ that will bring you some extra money.

Stop Procrastinating

It is never too late to start. Do not avoid meeting a financial advisor regardless of your age. There are many options (many of which you might not know) that an advisor can assist you with. Our team at Cumberland would be happy to guide you.

Appointing a Power of Attorney

Many people may worry as they get older about what will happen if they are no longer able to
manage their finances and personal property. It can be a good idea to be proactive in planning
ahead for a time when you may need help managing your affairs. One option available to Canadians
to address this financial planning concern is appointing a Power of Attorney.

What Is a Power of Attorney?

Power of Attorney (POA) is a legal document that gives one or more persons the authority to
manage your finances on your behalf. Once a person is appointed POA, they have the same
decision-making abilities over your finances and property as you do. This includes bank accounts,
investments, bills, real estate, among others. It’s important to understand that this does not
mean they now own the property, only that they can make decisions regarding it. POA is limited,
however, and they do not have the authority to make or change your will, change beneficiaries, or
appoint a new POA. You can outline how the power of attorney can act.


For example, you can limit them to having decision making abilities over only one piece of property.
It is possible to appoint more than one person as power of attorney. The acting POA’s can be
required to make decisions together, or have the ability to act separately. This is something that
is outlined in the power of attorney document. Unless you become mentally incapable, you still
maintain the same control over your finances and property.

Types of Power of Attorney

There are two types of power of attorney when dealing with finances and property:


General Power of Attorney
General POA gives someone the authority to make decisions over some or all of your property
on your behalf. General POA only has this authority when you are mentally capable of managing
your own affairs. POA ends immediately if you become incapable. Power of Attorney can come
into effect when you assign them or on a specified date.


Enduring/Continuing Power of Attorney
Enduring POA allows for the appointed attorney to have decision making power over your
property when you are mentally incapable.

Choosing a Power of Attorney

The person you assign as power of attorney should be someone you trust completely. This person
could be a spouse, sibling, child, or other friend/relative. The minimum legal age for a POA varies
from province to province. It is recommended to assign a substitute POA in the event your first
choice is unable or unwilling to assume the role. It is important to note that in some provinces, POA’s
are entitled to be paid unless otherwise specified in the document. Power of Attorneys must be able
to manage your money in your best interest and keep detailed records on the decisions they make
on your behalf. Below are a few questions to ask yourself about the person you are considering
appointing:

• Does this individual have experience managing money and property? Do they do a good job
of managing their own affairs?
• Do you know this person well enough to feel that you can trust them?
• Do they have any personal issues that may interfere with their ability to act in your best
interest?
• Does the individual understand what will be expected of them as your attorney?
• Does this person have the time to manage your money or property as well as their own?
• Is this person nearby and readily available to assume this role? Having someone that lives
far away from you may cause issues.
• Has this person willingly accepted their appointment as attorney?

Benefits and Risks

Benefits:

• Makes it clear to family and friends who will be responsible for your money.
• POA’s must manage your money for your benefit and can be required to account how they
manage it.
• Your Power of Attorney document can be as general or specific as you want giving you great
flexibility over what assets your attorney would have control of.
• The ability to have multiple attorneys can limit the possibility of someone taking advantage of
you.

Risks:

• Can lead to mismanagement of your money if your POA turns out to be untrustworthy.
• Sometimes people limit the abilities of the POA to the point that it makes it difficult for the
POA to fully take care of your finances.
• Appointing two or more POA’s can come with certain challenges. If the POA’s are required to
act jointly then it is possible that they will not agree on certain decisions.
• If your Power of Attorney is not up to date, it is possible that the person you appointed may
be currently unsuitable for the role.

Appointing a Power of Attorney can be a good option for many people and gives them the peace of
mind that someone will be able to help them with their money if there is ever a need for it. When
appointing a Power of Attorney, it is important to work with a lawyer who can fully explain the legal
document to both you and your attorney. You should never feel pressured by a relative or friend to
sign a Power of Attorney.

It is also important to note that a Power of Attorney for Property is not the same document as a
Power of Attorney for Personal Care. A POA for property will have no authority to make decisions
regarding your personal care. These are two separate legal appointments, and they are not
interchangeable.

For further information, please contact a Cumberland* Portfolio Manager, who can assist by
connecting you with just the right expert advisor.

What happens if you die without a will?

Most of us know that having a will is important, but statistics show that what we know about wills and the action we take with wills are very different. According to a survey conducted by a leading Canadian bank in 2013, more than half of Canadians die without a will. If you die without a will in Canada, it is referred to as dying in intestacy. When you die intestate, it is up to government legislation to handle your affairs. Below are some points that should be seriously considered before deciding against a will and how you could expect the estate will be distributed according to the current rules of intestacy.

What You Need to Know to Start

Anyone who has assets, debts, or dependents should have a will. This seems obvious. Most everyone wants their family to be looked after when they die. By not leaving a legal will behind, your family may not be cared for appropriately. Death takes a huge emotional toll on a family and not leaving a valid will can make things much worse.

Below are some considerations for your estate if you do not have an up to date will. While this list is by no means exhaustive, these points should be carefully considered before deciding against a will:

  • Depending on the province in which you currently reside, common-law partners may not be entitled to the estate as per the rules of intestacy.
  • Even if you have a valid will, it is possible to die in partial intestate. Dying in partial intestate means that for some reason your will does not deal with the whole estate or a segment of your will is considered invalid.
  • When individuals die in intestacy, an application must be made to the courts to appoint an estate administrator. Therefore, the deceased forfeits the opportunity to appoint an executor of their choosing.
  • Most provinces recognize posthumous birth under their intestate rules. Any children conceived before death and born after death are considered to have been alive during the deceased’s lifetime.
  • There is no opportunity to select guardians for any minor children.
  • Due to the laws of intestacy, your spouse could end up with significantly less than intended, therefore they may not be able to a maintain their lifestyle.
  • While everyone likes to think that their family would peacefully and fairly distribute their assets, this is often not the case. Money has a way of bringing out an undesired or even an ugly side in people. Having a will can prevent this conflict and ensure everyone is treated fairly.
  • There will be no outlined plan for dealing with any taxes or capital gains that may arise from your death.
  • Estate litigation can be very expensive for your family.
  • There will be no opportunity for charitable giving at your death.

Distribution of The Estate

If an individual chooses not to leave a will behind, then the estate is distributed according to regulations set forward by provincial legislation. Every province has its own legislation for their intestate rules. It is important to be familiar with the rules in your province. The distribution is dependent on a variety or marital/family situations. Typically, each scenario unfolds as follows:

  1. Surviving Spouse, No Children

In situations where the deceased has a surviving spouse but no children, the entire estate is passed to the spouse.

  1. Surviving Spouse, Surviving Children

Preferential Shares
When the deceased leaves behind both a spouse and one or more child, in most provinces, the notion of preferential shares come into play. Preferential shares dictate that a certain amount of the net estate is directed first towards the spouse. Depending on the province in which you reside, the amount of the preferential share could range from $50,000 to $200,000.

If the value of the estate is less than the dollar amount set out by the province, then the spouse receives the estate in its entirety. If the value of the estate exceeds the dollar amount set out by the province, then the preferential shares come into play. The spouse receives the preferential share amount and then the remainder of the estate is divided between the spouse and children.

Beyond Preferential Shares
The net value of the estate that exceeds the preferential share amount is shared between the surviving spouse and children. This distribution is defined by provincial jurisdiction. Where there is just a spouse and one child, most provinces distribute one half of the residual estate to the child and one half to the spouse. If the child has predeceased the parents, then their share is distributed down to their children (if they had any). This distribution is based on degrees of kinship and is referred to as per stirpes.

Where there is a surviving spouse and more than one child, the distribution differs by province. Generally one-half to one-third goes to the spouse, with the remainder being divided up equally among the children. In most provinces the children’s shares are distributed per stirpes. If there is no surviving spouse, then the estate is shared equally by the children.

*Provinces that do not recognize preferential shares include New Brunswick, Newfoundland, and PEI.

  1. No Surviving Spouse, No Children

If the deceased leaves behind no spouse or children, then the estate is distributed to other heirs. In all provinces, except Quebec, if an individual dies without a spouse or children, the estate is passed to their parents in equal shares. If the individual is predeceased by their parents, then the estate passes equally to any brothers or sisters. If there are no surviving siblings, then the estate is then passed down to any nieces or nephews. In the case that there are no nieces or nephews, then the estate is distributed equally among the deceased’s next of kin.

  1. No Heirs

If a person dies without any heirs, then each province has legislation that dictates the estate passing to the Crown in a process known as escheat.

The Bottom Line

Not having a will is risky business and there is virtually no benefit that comes from neglecting to have one created. The processes that go with dying intestate are complicated and may cause your family more grief than necessary when trying to cope with your death. A will is perhaps the most important part of any financial plan. No matter what stage of life you are in, it is never a bad time to contact Cumberland’s team of in-house investment professionals and third party experts to start developing a well thought out estate plan.

Two valuable estate planning lessons for you and your loved ones

Death and money are traditionally taboo topics. Yet, when we avoid discussing them, we may also fail to adequately plan for them, and that can lead to confusion, conflicts, stress and financial loss.

Recently, trust and estate lawyers Margaret O’Sullivan and Stephanie Battista presented our clients with two valuable wealth planning lessons that can help prevent such negative outcomes. They shared stories based on real life situations drawn from their years of experience assisting affluent families, including clear steps we can all take to protect ourselves and our loved ones.

Lesson #1: Have a contingency plan

Leanne* was a schoolteacher in her mid-40s with a teenage daughter. Her husband, Tim,* owned a successful IT business and took care of most of the household finances. When Tim passed away suddenly, Leanne was thrown into complete chaos. Not only were most of the family’s financial records hidden behind passwords on Tim’s computer, but his company’s payroll also was due in about a week, and she had no idea where to begin.

In hindsight, Leanne’s situation would have been much better with a personal contingency plan in place. Such a plan would have let her know who to contact, what cash and other assets the family owned, where they were located, and how to access them. She would have had all the names, passwords, account numbers and procedures she needed when Tim was no longer able to take care of the couple’s affairs.

Your personal contingency plan can be as simple as a document with the “who, what, where and how” for your family when they need it. Think about bank accounts, investment accounts, insurance policies, titles to real estate, and details about holding companies and trusts. Please contact us if you’d like a starter template that you can help you address all of this.

Lesson #2: Keep your affairs up to date

Catherine* was the executor of her father’s will, which stated that his assets would be shared equally between her and her late brother, Andrew.*  However, since Andrew was separated – but not divorced – from his spouse of 20 years prior, Andrew’s spouse was still legally entitled to his half of the estate assets.

Fortunately, the law pertaining to separated-but-not-divorced spouses is set to change in January 2022 to avoid such extreme situations, but the lesson still stands. It is essential to keep wills and powers of attorney up to date to ensure that your wishes are carried out the way you intended.

A good guideline is to review these documents every 3-5 years, or when there is a change in your circumstances, such as:

  • The acquisition or disposal of assets
  • Assets in new jurisdictions – such as a vacation property
  • A change in marital status
  • A birth or death
  • Adding or changing a beneficiary
  • A change in the law
  • Please note there are many others that apply.

For example, if you drew up your personal will early in your career and you now own a holding company with significant assets, you may need a dual will plan to protect your corporate assets from a 1.5% probate tax if you were to pass away.

Another common situation is giving money to a child to purchase a home. Is this an advance on their inheritance? Do you need to equalize it to be fair to your other children? Whenever there’s money in motion among your family members, you might want to consider how this can impact your estate plan.

A growing trend among Canadians is to purchase properties abroad. Whether the property is in the US, Costa Rica, France or Mexico, you should be aware that even something as simple as opening a bank account outside of your home country may require an update to your will in order to avoid potential issues down the road.

Your Cumberland Portfolio Manager can help you identify these wealth planning opportunities, review them with you and confidently recommend the right estate, tax and legal experts to help you address your given situation. Often times, a significant change in your circumstances will also trigger the need to review of your investment portfolio. When these moments occur, we are here to assist you. It’s all part of our commitment to help grow and protect your wealth for future generations.

*Not their real names

Tax Planning

Maximizing wealth for business owners and professionals

Canada is home to more than one million small and medium-sized businesses*. These businesses are of vital importance to our economy, to our communities and to the people who own them.

At Cumberland**, we are often asked to help business owners and successful professionals plan for retirement. When this happens, we find it is often worthwhile to pair our wealth management expertise with the insight of dedicated tax planners.

Recently, our clients were treated to a presentation by Peter Routly, CPA, CA, TEP and Jeff Noble, DMC, FEA from accounting firm BDO Canada, where they specialize in helping high net worth individuals and families maximize their wealth through strategic tax planning.

Among the many insights they shared were three potential real life stories involving scenarios that you may find relevant and relatable.

Mary the law firm partner

Mary earns about $500,000 per year, which would place her well into the top tax bracket. To help manage this, she has established a professional corporation which allows her to lower her tax rate.

Since she does not have a pension plan and will not be able to sell her practice to fund her retirement, she needs to find a tax-efficient way to maximize her savings. One potential strategy is to create an Individual Pension Plan or IPP, which can be likened to a supercharged RRSP. An IPP would allow Mary to make significantly higher tax-deductible contributions than a regular RRSP, and essentially create her own pension plan.

She is also looking at establishing a discretionary family trust, funded through a loan, to hold some of her and her husband’s investments. This will effectively allow them to cover their university-aged daughter’s living expenses on a tax-free basis.

Bob the business owner

Bob owns a successful manufacturing business that generates about $1 million of annual net income after paying himself a salary of $200,000. As he approaches retirement, he has many tax planning options to consider, including the implications of selling the business or transferring ownership to his son.

He is also exploring the option of setting up a Retirement Compensation Agreement or RCA. An RCA would permit his company to make tax-deductible contributions to a fund from which Bob will make withdrawals once he retires.

At that time, if he decides to spend significant time at his property in a low-tax jurisdiction in the Caribbean, Bob may be able to keep his Canadian home and citizenship but draw his retirement income at a significantly lower tax rate.

Chris the startup founder

Chris and his two co-founders are about to sell their tech startup to a venture capital firm for $30 million. With his $10 million share, he is looking at two tax planning strategies.

The first is to create a discretionary family trust, funded through a loan, that will allow him to split his investment income with his wife and three children. Since his family members have no other income, they can potentially draw household income of more than $150,000 per year on a tax-fee basis.

The second is to place $1 million in a life insurance policy with an investment component that can grow significantly on a tax-free basis over the next several decades, and ultimately leave his children with a significant tax-free inheritance.

These are just three possible life stories, and there are nearly limitless variations based on your personal goals, business situation, family status, and how aggressively you wish to pursue your tax strategy.

One thing for sure is that, as a client of Cumberland**, you can look forward to expert retirement planning and proven wealth management combined with the integration of advice from some of the country’s very best tax planners.