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Should you have a savings plan that's similar to having your own Defined Benefit Pension Plan?

As the Canadian postal workers union  (CUPE)  continues to negotiate with Canada Post over their contract and in particular t he issue of ph...

Tuesday, 1 December 2015

Do you have charitable gifts in your Will?

Do you have charitable gifts in your Will?

The great things that you wish to accomplish with charitable gifts in your Will may be affected by changes to Canadian tax rules in Bill C-43 that come into effect January 1, 2016.

The new rules are generally more advantageous to gifts in Wills than the existing framework. They allow executors to allocate charitable tax credits to the donor’s final tax return, the previous year’s return, and/or any of the first three years of estate returns. Also, charitable gifts will also be valued on the day the gift is received by the charity. This is a major change – previously, the gift was receipted based on its fair market value on the donor’s the date of death.

You should also know that the first three years of an estate are now called a Graduated Rate Estate, or GRE. This means that income taxes paid by an estate in it’s first three years are based on a graduated scale. After three years estate income is taxed at the highest marginal income tax rate.

Your estate may be impacted if your charitable gifts are distributed after the three year GRE period. If this happens, the charitable tax receipt can only be applied against that year’s estate tax return, and can’t be allocated retroactively to the tax returns of the deceased or any of the years of the GRE’s existence.

If you want to donate appreciated assets to charities, the capital gains tax exemption for gifted property will no longer be available to the estate after the three year GRE period. This may result in smaller settlements to all beneficiaries due to unintended additional income taxes owing by the estate.

In many circumstances, the new GRE will be a non-issue. However, it may become expensive if your estate is complex and takes more than three years to settle, since your estate can lose the advantages of the GRE. For example, this may happen when charitable gifts are delayed until your spouse dies, or where other entities are involved such as corporations or family businesses that may need more time to be settled or restructured. The possibility of challenges to the Will may be another concern.

In fact, anything that may delay an estate from winding up before the 3 year GRE period expires may become an unintended and expensive situation for an estate that expects to use charitable donation tax credits and other tax-friendly strategies available only to the GRE. If your valuable charitable tax credits are forced to go unused, this will almost certainly throw a wrench into your best-laid estate plans.

If nothing else, Bill C-43 is a compelling reason to get proper legal and financial advice on your circumstances today to determine whether any changes should be made to your Will and to your current investments strategies to ensure that all of your legacy intentions will be met tomorrow.

Tuesday, 25 August 2015

Recent Market Volatility And Your Investment Savings


This morning my wife Marlena asked me if we should be worried about the recent stock market activity that’s all over the news these past few days.

I reassured her that the vast majority of our retirement savings were carefully placed in products that offer guarantees that keep them immune to market swings.

When speaking with clients for the first time to determine the most appropriate choices for their own investment needs, my goal is also protect your own hard-earned savings against the effects of these negative market events.

As my client, you learn that it’s important to establish a stable savings portfolio following sound practices such as having a proper asset mix of stocks and bonds based on your risk tolerance. Some financial institutions call this balanced approach ‘safe investing’.  Our work goes further, offering you more advanced and sophisticated levels of protection. 

For example, choosing investments that historically have been able to recover very quickly from market downturns can often be critically important during both your savings and income years. Additionally, I am constantly monitoring your investments to ensure they continue to perform as anticipated, and always looking for new or better solutions that might fit your specific needs and keep your savings safe so you can use them when you need them.

Events such as the current market downturn can’t be predicted, but I offer all of my clients even more ways to protect their savings. Often that comes by choosing insured investment products that can provide a 100% guaranteed benefits on your capital, guarantees on savings growth, and/or contractual guarantees to provide you with an income for life that rides out these volatile markets.

Marlena was comforted when I reminded her that our own savings are 100% guaranteed and our income is contractually guaranteed for life.

Please feel free to contact me anytime if you have any questions or concerns about your current investment savings. If you know of anyone else who can benefit from this worry-free approach to their investments, I invite you to share my contact information with them.

Best Regards


Jack Bergmans 
Certified Financial Planner/ Founding Partner Life Insurance & Estate Consultant
Bequest Insurance
Phone: (416) 356-4511
Toll free: (888) 708-3134 Ext. 2

Friday, 24 April 2015

Financing Retirement - 6 - Will you need Long Term Care Insurance?

Will you have enough money to cover your health care costs when you’re older?

Are you worried that you may not have family or friends who could properly take care of you as you age? Do you wonder if your nest egg will cover the long-term care costs?

Many Canadians expect that the government will cover health care costs when they get older. Yet the reality is very different.

When it comes to government-subsidized home care or long-term care, only some basic care is covered by a patchwork of provincial services, leaving a good portion of long-term care costs to be paid by you. And these costs are on the rise, as the list of approved health care expenses gets shorter every year.

You may want to follow the lead of Mary and Sonil. This couple wants to live in their three-story Toronto house until they can’t handle the upkeep, or a decline in their health means they can’t deal with stairs and need help with personal care.

They don’t have kids to care for them in their old age, and they are concerned about the health problems running in both of their families that may manifest themselves later. So when they were 65 and still in decent health, Mary and Sonil gave themselves peace of mind by buying long-term care insurance. Their financial advisor explained that it’s better to buy this insurance before it’s needed, since it can be hard to get once health problems start occurring.

Their insurance will start to pay benefits if they need help with any two of these five everyday personal care activities:
·      bathing
·      dressing
·      eating
·      toileting (due to incontinence or mobility problems)
·      getting out of bed; transferring from bed/toilet to wheelchair

When Mary and Sonil turned 75 they both were in fairly good health, but they didn’t have as much strength or energy as they once had. They were tired of shoveling snow, and gardening had become a literal pain in the neck. Their 80-year-old house needed more and more repairs, which was also cutting into their savings.

Some of their friends had moved into an attractive local retirement home and were loving it, so they decided to explore this option for themselves.

It would cost them $7,000 a month ($3,500 each) for a nice room, 3 meals a day served in a dining room, having access an on-site nurse, and a wide variety of daily activities and day trips to keep them active and engaged. Their costs would be about $84,000 a year, not including their telephone bill, and other purchases including clothing.

They shopped around and discovered that some retirement homes charged as little as $1,500 per person per month, but those had fewer activities and the food was more institutional. And they were shocked to learn that there are homes that cost upwards of $6,000 per person a month!

They costed out hiring home care, and learned that charges range from $15 to $75 an hour. They knew that if they started needing more help, that would add up fast and negotiating the stairs would still be a problem.

They quickly realized that their government pensions and dwindling after-tax savings wouldn’t cover their costs. However, the sale of their home would free up about $600,000, which would certainly help.

Their advisor presented them with some options. If they invested all their money in safe investments like Guaranteed Investment Certificates (GICs), they’d only earn about 2% a year. The money from the sale of their home would run out in about 7-1/2 years if they moved into a retirement home. This would get them into their early eighties but then what? They may live into their nineties, or even top 100!

Placing savings in riskier investments such as mutual funds could bring higher rates of return, but could also potentially lose value from year to year, leading to an even swifter evaporation of their funds.

Putting this risk into perspective, their advisor pointed out that if their savings drop by 25% in one year, they would need to earn 33% on their money the next year to make up the difference. If their investments dropped by 50%, they’d need to make 100% to make up the difference! Their savings would shrink even faster, because they would have to keep drawing up on the remaining funds to cover their expenses. Mary and Sonil agreed that this type of investment strategy was too risky.

Instead, they decided to purchase of a joint annuity with some of the proceeds from the sale of their house. It started providing them with an income that was contractually guaranteed and almost tax-free, which they would receive for the rest of their lives, even if they outlived the funds originally invested in the annuity. This provided them with a lot of comfort. Their second safety net was their long-term care insurance.

Mary and Sonil confidently moved into their first choice of retirement residence, and surrounded by friends, good food and a wide variety of activities, they knew that they had made a good choice, and could sleep well, knowing they could cover their costs and live in dignity, no matter if they needed more help or how long they lived.

Is long-term care insurance right for you?

Long-term care insurance is often for people who prefer to know that their financial health care costs will be covered for life.  It can also be for people who are passionate about leaving behind money to support friends, family and their favourite charities after they die because the thought of spending down their entire estate during their lifetime makes them uncomfortable.

Because the benefits paid from long-term care insurance can be indexed to inflation, everyone can find comfort in this insurance product.

Knowing that long-term health costs are taken care of also allows people to explore advanced tax-smart and creative ways to redirect some estate assets away from the taxman, but that’s a story for another blog, or a conversation you could have with your financial advisor.

What does long-term care insurance cost?

The cost of long-term care insurance varies with such things as your age (the younger you are, the lower the cost); health; what size of monthly payment you choose; and if you choose extras like inflation protection or lifetime coverage vs. payments over a fixed number of years.

In addition, insurance costs can vary depending on your health; family medical history; and your desire to leave a legacy for the people and causes you are passionate about, or simply your desire not spend down all your assets during your life just in case you need funds for a special reason.

To give you an idea of cost, Mary and Sonil, a healthy 65-year-old couple, paid this for their shared long-term care insurance plan:
Annual insurance premium:   $4,594.56/year ($382.88/month)
The benefits they’ll with this plan receive will be:  $1,500/month  ($18,000/year) indexed to inflation.

At age 80, Sonil had a serious fall. He now needs a wheelchair to get around, and requires much more intensive daily care. Sonil and Mary made the hard decision to move Sonil into a long-term care home. They were no longer required to pay premiums eligible on their long-term care policy, and started collecting benefits, which had risen to $2,019/month ($24,228/year).

In total, over the 15 years of contributing to their policy, they have paid $68,919.

If they had put this money into safe investments like GICs, the 2% a year in earnings would have resulted in a total savings of about $86,385 by age 80.

Although that might sound like a lot, Sonil’s payments on his private room are  $2,439/month ($29,268/year). If Sonil was using these savings alone to pay his long-term care costs, he would run out of money in less than three years. As it is, between the money he receives from his pensions, his long-term care insurance, and a top-up from their annuity payments, Sonil and Mary don’t have to worry about covering Sonil’s health care costs or other living expenses.

Keep in mind that at age 80, the probability is quite high that the average person could benefit from long-term care insurance for five years or more. It’s clear that In the case of Mary and Sonil, their policy would more than pay for itself.

Are you worried that long-term care costs may be out of reach when you need the care?

Here are a few solutions to covering long-term care costs:
1.     Buy long-term care insurance.
2.     If it makes sense, delay a move to a retirement home.
3.     If you need help taking care of your home, you can hire people to clean, shovel snow, do your gardening and cut your grass.
4.     If you need health care support, contact your local Community Care Access Centre. You may be eligible for a few hours of government-supported care a week.
5.     Because interest rates are currently very low, it may be advantageous to put some of your savings into a life annuity or similar guaranteed solutions for some or all of these reasons:
i) Annuity income will be much higher than most other sources of guaranteed income today.
ii) Life annuities generate a guaranteed income for life, even if you outlive your initial investment. 
iii) Increasing your income in this way can help pay for affordable individual or shared long-term care insurance and take away any worries you have of being able to pay for care you may need later in life.

Everyone’s situation is different but it’s certainly worth a look to see whether a long-term care insurance plan makes sense for you.