How much life insurance do you need?

What Is Probate?

When you die, your will gives legal authority to your executor (estate trustee in Ontario, liquidator in Quebec) to deal with your estate.

However, before transferring the assets of a deceased person, financial institutions will often ask for court approval of the will to ensure everything is valid and legal.

The process of obtaining court certification is known as probate. Probate serves as proof that your will has been certified by the court and that your executor is authorized to represent your estate.

To obtain a grant of probate, your executor will submit the will, a list of your assets – including their current market value – and the probate application to the provincial court. This process can take several weeks.

Probate Fees

Probate taxes have been in existence since 1358 when they were launched in England. In Canada, the first legislation dealing with this issue was enacted in 1793. In 1950 the legislation was amended and the tax was designated as a “service fee.” Although services provided are identical across the provinces (with the exception of Quebec), the cost varies under the laws of each province.

Some provinces vary the terminology used in the probate process. Ontario now calls the cost of probate an “Estate Administration Tax” while other provinces call the cost of probate a “fee” or a “tax”. The actual grant of probate in Ontario is now known as a “Certificate of Appointment of Estate Trustee with a Will.”

Click below to download a probate fee schedule for the province of Ontario.

download

Strategies for Minimizing Probate Fees

There are a number of methods you can use to decrease probate fees on your estate. Since probate fees are assessed based on the value of your estate, most methods involve passing assets directly to others without them having been included in your estate.

Some examples include:

• Making your spouse the beneficiary of your RRSP or RRIF
• Naming beneficiaries of life insurance policies
• Holding certain assets jointly
• Setting up trusts
• Life insurance policies

Often people make their estate the beneficiary of their insurance policy, but doing so leaves the proceeds subject to probate fees. It is better to name an adult person beneficiary so the proceeds do not pass through your estate but go directly to that person.

To avoid paying probate fees twice, you may want to set up a spousal trust in your will so the assets pass directly to your children when your spouse dies.

Registered Plans (RRSPs)

If your spouse is named as beneficiary of your RRSP or RRIF, the proceeds can be rolled over to them directly without going through probate.

Joint Accounts

Hold your bank accounts and investment portfolios jointly with your spouse or other beneficiaries so assets will automatically pass to the survivor. The status of your accounts should be: Joint tenancy with right of survivorship.

Joint Tenancy

If you own your home jointly, it will pass directly to the surviving partner without probate.

Trusts

Consider transferring assets to a trust while you are alive. Assets held in a living trust are not included in your estate because they are no longer your property. Assets bequeathed to your spouse will be subject to probate fees when he or she dies.

Life Insurance and Estate Planning

Life insurance can be useful in planning your estate. There are no inheritance taxes in Canada, but when you die, your estate executor must file a final tax return.

Normally at this time, all accrued gains on assets like stocks and real estate, and the proceeds of all registered plans (RSPs, RRIFs, LIFs, and certain pensions) become taxable all at once. On large estates, the result could be a tax bill close to half the total value of the estate.

Various strategies can be used to reduce the impact of this inevitable tax bill, including life insurance. For example, say you own a cottage and want to leave it to your children. Accrued gains on the property may give rise to such a large tax bill that they are forced to sell it. Tax-free life insurance proceeds could be used to cover the taxes instead, so your children can keep the cottage.

Or, say you want to divide your estate equally between three children, but it consists of a $200,000 house and a $200,000 RRSP. Rather than selling the house to accommodate a three-way split, life insurance can be used to pay all taxes and provide another $200,000 bequest. Business assets can also be preserved using life insurance.

How Much Life Insurance Do You Need?

Life insurance can be a unique and valuable financial planning tool, especially when it comes to looking after the needs of your loved ones. Nothing else can provide the same degree of financial security for your dependents.

The question is: How much insurance do you really need?

The answer depends on your age and your circumstances. Children, for example, have little need for life insurance, although parents sometimes buy policies in their name as a savings vehicle. Young singles have little need for life insurance either, except perhaps to cover funeral expenses and any debts not insured elsewhere. Mortgages, for example, can be purchased with their own insurance protection.

If, however, you have dependents – a spouse, children, or others – then life insurance is often the only feasible way to provide financial security in your absence.

The question of how much life insurance you need then depends on your family’s income requirements.

Types of Life Insurance

Almost all life insurance falls into two main categories – term insurance or permanent insurance, with permanent often referred to as whole life insurance or cash value insurance.

Both types of insurance require premiums and both pay the face amount upon the death of the insured. But they have some distinct differences. Clink on each of the types of insurance for more information.

Term Insurance

Often called pure life insurance, term policies provide coverage for a fixed period. The term can range from one to 25 years (it’s typically 5 or 10 years), or even to age 65 or 70, depending on the policy. At the end of each term, the policy must be renewed. Premiums rise with each renewal, reflecting the fact that you are getting older and are more likely to pass away.

Since coverage is limited to a fixed period, premiums for term policies are initially much lower than for a comparable amount of whole life coverage. Term costs do increase over time, though. Eventually, the premiums may exceed those of whole life, and beyond a certain age (usually 65 or 70), you can no longer buy term insurance at all.

Permanent Insurance

Whole life and other types of permanent coverage are more complicated than term policies. The coverage is for life with no time limit, and premiums generally are set for life at the time of purchase, meaning they will never be increased, no matter what happens.

Initially, you pay much more than with a term policy. The difference can be viewed as a reserve that is used partly to cover the higher premium requirement in future years. At some point, the reserve may even cover all future premiums, at which point the policy is said to be paid up.

The reserve is also used to generate a cash value for policyholders. This cash value can be used in a number of ways:

You can borrow from the insurer, usually up to 90 percent of the balance. You can use it to pay your premiums for a while, sometimes at reduced face value. You can discontinue coverage and convert the cash value into income. You can cancel the policy and receive the cash surrender value (generally the same as the cash value).

Because of the cash value aspect, whole life is often referred to as life insurance with a savings component. But shortcomings in regular whole life policies – particularly their low effective yields – have prompted the industry to introduce a few variants:

Term-to-100

Despite the name, this is really a permanent contract. You pay fixed-level premiums and receive coverage to age 100. If you live to age 100, the policy terminates but you receive a cash payment equal to the face value or more (depending on contract terms).

Many Term-to-100 policies do not have a cash value per se – one that can be accessed during the life of the policy. As a result, Term-to-100 is sometimes described as stripped-down whole life and is much less expensive than whole life. It has become popular since its introduction in 1979 and accounted for about 8 percent of all new individual life insurance policies sold in Canada in 1997.

Universal Life

First introduced in 1982, this type of policy keeps the savings and insurance components completely separate. Within policy limits, you can decide how much or how little you want to pay into the reserve, or even pay a single premium to fund the entire policy.

You have some choice over how the reserve is invested, and can withdraw cash from it, not just borrow against it. You can adjust the premium and the face value. Universal Life is a direct industry response to the “buy term and invest the difference argument,” and it has become very popular as well.

You may reduce the value of your probatable estate by making gifts while you are alive. There is no gift tax in Canada although there may be income tax consequences.

The tax rules state that if you dispose of any property (by selling or giving it away) and there are no proceeds, or the proceeds are less than the fair market value of the property, you will be deemed to have received an amount equal to the fair market value of the disposed of property. This means that if you give away your assets, you may have to report a capital gain on the property.

If you are considering gifting property, talk to your advisor to make sure you understand the legal and tax implications of this strategy.

Power of Attorney

You may think your spouse or another family member could automatically step in and take care of your finances, but that’s not always the case. Unless you draw up what is called an enduring power of attorney – which means it continues even if you become mentally incompetent – you and your family could be in for an unpleasant experience.

What happens if you don’t have an enduring power of attorney? The government, through the public trustee, could take over your bank account, investment portfolio, and other assets without consulting your family, although rules vary from province to province. The government’s duty is to protect your interests, even though its decisions may not be what you want.

What Can a Power of Attorney Do for You?

A power of attorney gives someone you trust the power to make decisions for you – except to change your will. Ideally, you should have your lawyer draw one up when you are preparing your will. The cost is minimal and well worth it.

A power of attorney is automatically revoked when you die, at which time the person you appoint as executor in your will takes over. You can revoke a power of attorney by advising your appointee in writing. You should also have your lawyer prepare a power of attorney for personal care, also known as a “living will.”

Depending on your province, you can designate someone to make medical decisions on your behalf and outline the type and extent of medical treatment you desire under different circumstances. As with a financial power of attorney, the person you appoint to make such important decisions should be someone you trust and who knows what you would want to be done.

Utilizing a Trust

Trust can be a tax-effective way of providing for your dependents both while you are living and after you die.

You should know that when you create a trust, you are giving away the assets in it. Any income is taxed in the hands of the trust or its beneficiary. Trusts are of two types – those that form part of your will and come into effect when you die, and those that take effect while you are alive.

A Trust set up under a will is called a Testamentary Trust and can be used in a number of different ways including:

Spousal Trusts

This type of trust may be suitable if your estate is large or complicated and your spouse lacks the necessary expertise to manage it. Spousal trusts can also be used to preserve the assets for your children in the event that your spouse remarries.

Trusts for Children Under 18

Rather than having your children receive their inheritance in a lump sum when they reach 18, you can space it out over several years. You can also give the trustee discretion to release funds in advance for a child’s schooling.

Trusts for Dependents with Special Needs

Trusts can be set up to provide lifetime income for dependents who are mentally or physically handicapped.

Living Trusts

Living trusts can be put to effective use in a number of situations including:

Second marriages

With a living trust, you can provide for your current spouse during his or her lifetime, after which the money passes to the children from your first marriage.

Supporting children, dependent parents, or children who are mentally or physically handicapped

Rather than using after-tax income to support adult children who return home, you can set up a living trust, the income from which is taxed in their hands – at a lower tax rate. The same strategy can be used to provide for dependent parents or children with special needs.

Estate freezes

Proprietors of family businesses can use a living trust to freeze the value of the business for tax purposes. In effect, you can pass the business on to your children while still maintaining some control. Future capital gains will be taxed in the hands of your children.

Discreetly providing for someone special to you

Bequests in wills are made public when you die, but living trusts remain confidential.

Providing for yourself

You may become too old or sick to manage your own affairs. You can set up a trust to care for you and your spouse during your lifetime with the remaining capital passing to your children when you die.

Preparing a Will

Your will is a statement of what you want to happen with your property when you die. It is also the document that designates someone to raise your children if you and your spouse die together. If you have dependent children, it could be the most important document you’ll ever sign.

Your will protects your family in the short term by giving them the money they need to pay immediate bills should you die. A properly drafted will goes much further, anticipating future needs such as your children’s or grandchildren’s schooling. It can also greatly reduce the income taxes your estate must pay. Everyone over the age of 18 with assets of any kind should have a will.

Here are some pointers to consider in preparing your will:

Hire a Lawyer

Because a will is a legal document, it is best prepared by a lawyer. Indeed, some provinces do not recognize handwritten, or holograph, wills. Do-it-yourself wills, such as those prepared on forms from a stationery store, can end up costing your estate many times more than you save.

The cost of having a will drawn up depends on the size and complexity of your estate. A typical fee for a straightforward will is $200 to $300; someone who has married for a second time, owns a family business or has property offshore, can expect to pay more.

Distributing Your Assets

If you are married, sit down with your spouse and discuss how you want your assets to be managed and distributed. You may decide to leave everything to each other, but what if you both die at the same time? How will your property be handled? What if your children die before you?

Select a Guardian

Decide who you would like to raise your children should both you and your spouse die. Consider a potential guardian’s age, other children, professional responsibilities, and location. Discuss your wishes with your top candidate and be sure they are willing to accept the responsibility. Obtain their full address and full legal name.

Tax Considerations

Ensure you have arranged your affairs to keep income taxes and probate fees to a minimum; for example, name your spouse beneficiary of your RRSP or RRIF to take advantage of the tax-deferred rollover. Determine whether you will have enough cash in your estate to pay your final tax bill – which could be much larger than you think – or if assets will have to be sold to achieve this.

Choosing an Executor

Give careful consideration to choosing your executor. Ideally, the person will be trustworthy, have good business sense, be able to handle the paperwork and be living nearby. Choose an alternative executor in case the first one cannot do the job. If your estate is substantial, you may want to appoint your spouse and a trust company as co-executors.

List Your Assets

Although you do not need an inventory of everything you own, it will be helpful to list assets such as your home, cottage, rental properties, business interests, life insurance, and registered savings plans such as RRSPs and RRIFs. You will also need to mention special gifts – such as a stamp collection or your grandfather’s gold watch.

List Your Assets’ Beneficiaries

• If you intend to bequeath property, make sure you own it outright and not jointly. Jointly held property automatically goes to the surviving partner when you die.
• If you plan to leave money to a charity, make sure you have its proper name.
• Check whom you have named as the beneficiary of your RRSP, RRIF and life insurance policies.
• Will trusts be needed to provide for your dependents? If so, who will act as trustee? Do you have dependents with special needs?
• If you have children from a previous marriage, will they be provided for if you leave everything to your current spouse? What will happen to your children’s inheritance if your spouse remarries?
• What if your children divorce? Do you want to include a special clause to prevent their former spouses from claiming a share of the income earned on their inheritance?
• If your estate is large or complicated – or if you have a family business – it would be prudent to get specialized tax and legal advice.

Wills and Marital Status

If your family situation changes, you must review your will.

Marriage

In most provinces, if you get married, your existing will is automatically revoked. The only time this isn’t true is if you state in your will that it was drawn up in contemplation of marriage. If your will becomes invalid due to marriage and you die, unless you make a new will, the court will rule that you died intestate, with all the negative consequences that brings.

Divorce

If you divorce, any bequests to your former spouse will be revoked, and your former spouse will not be able to act as your executor. This is not the case if you are separated.

If you are making child support payments, you may want to revise your will to set aside assets or take out an insurance policy to cover the payments after your death. People who are separated should revise their wills if they start living in a common-law relationship.

Otherwise, you run the risk of your entire estate going to your estranged spouse – and your current partner being left out in the cold.

Dying Without a Will

If you die intestate (without a will), the provincial government will step in and appoint someone to distribute your assets.

The rules vary from province to province. Generally speaking, your children’s share of the estate will be held in trust until they are 18. While they will receive the entire amount at 18, the question you must ask yourself is: Will they be mature enough to manage it?

A will is the only place where you can elect who you would like to be the guardian of your children. Without a will, the courts will decide who raises them.

Dying without a will can also seriously affect the value of your estate. For example, your estate may have to pay income taxes that could have been avoided. Further, taxes due as a result of your death may force the sale of the family cottage – or even the family business.

In short, the distribution of your assets may not reflect what your beneficiaries need or what you would have wanted.

The message is clear – a will is one of the cornerstones of financial planning. If you have a family, or have accumulated any assets, have one prepared – and soon.

Choosing the Right Policy

What kind of life insurance policy should you buy? It is a complicated question, because the answer depends on your needs, which will change over time, as well as the details of the contract.

It doesn’t help that there are a dizzying array of policies and options that you can use to achieve your insurance objectives. Insurance needs change over time, but everyone follows a typical pattern consisting of four separate stages:

• As a young single person, your only need is to cover debts and obligations, so someone else isn’t saddled with them.
• When you get married and/or have children, you must ensure that your family will be financially secure if something happens to you. This is usually the period of maximum life insurance needs, but also the time you can least afford high premiums.
• Eventually, the children grow up, and as dependents become self-supporting, your life insurance needs decline.
• As you age, you need to plan your estate. Permanent insurance can be useful for covering obligations such as your final year’s tax bill.

The type and amount of insurance you require will vary during each of these phases. At first, a simple term policy may be adequate and inexpensive. Looking ahead, though, you may want to put some coverage in place for your estate. A whole life policy bought now could be much cheaper than if purchased later in life.

A typical compromise is to buy a small amount of term coverage until marriage, then increase that coverage as your needs grow. You may also want to consider buying a permanent policy. If estate needs are substantial, some additional permanent coverage may be purchased even after retirement. Many people find the flexibility of Universal Life very attractive in this situation.

Choices depend on many factors. Quite often, the best result can be obtained with a combination of policies that accommodates your changing circumstances. The various features and options on different policies may provide additional choices.

Important Features to Look For

There’s no getting around it, life insurance has a lot of strikes against it. Not only do few people want to acknowledge their own mortality, but it’s hard to make a financial bet on your early demise.

Once you’ve gotten over those hurdles, you run into a maze of features. Unfortunately, if you want to get the most for your insurance dollars, you’ll have to educate yourself in the jargon to make an informed decision.

Before you put off your life insurance needs for another year and go play catch or watch the game, take heart. Below you’ll find a straightforward explanation of the various features of life insurance policies. And if you need to motivate yourself, think of all the money you’ll spend on life insurance over the next several decades.

The only way to get the most for your money is to know what you’re buying, and whether it’s necessary.

Term Insurance Features

If you’ve decided to buy term insurance, there are a number of choices you’ll have to make. Here are the features you’ll need to consider.

Length of Term

Term insurance premiums are fixed, but for how long? You can purchase term insurance so that the premium goes up (adjusts) annually, or every 5, 10, 15, or 20 years. The older you are, the more likely it is that you will die, so the higher your premiums will be. As a result, the less frequently your premiums adjust, the higher the premium will be, relative to a shorter term.

A policy with a 5-year term, for example, is going to be cheaper than for 10 years, but when you renew, the next 5 years will be more expensive. It can be reassuring to know what your insurance costs will be for many years. On the other hand, if you want to change the amount of coverage, you don’t want to have yourself locked in for a couple of decades.

In general, choosing a 5- or 10-year term offers a good balance between price and predictability. If you want to look at the overall bill, ask your broker to run through a few net present value calculations. This allows you to compare apples and apples.

Essentially, it looks at the lifetime cost of various terms in today’s dollars. The results will let you compare the total cost of selecting different terms.

Guaranteed Renewability

This provision means that when each term ends on your existing policy, you can sign on for another term at rates that are guaranteed today. Without this critical feature, your insurer could demand, for example, that you undergo a medical examination. If your health had declined they could simply set the premiums for your new term at whatever level they felt appropriate.

A policy that is guaranteed renewable means that the insurer has to renew your policy at the agreed-upon terms regardless of your health.

Guaranteed Renewal Rates

There’s no point in having guaranteed renewability unless the level of the premiums you’ll be renewing at is spelled out. Ensure that what you’ll pay for each renewal is laid out term-by-term in your policy.

Guaranteed vs. Negotiable Premiums

If premiums are guaranteed, the insurer will adhere to a fixed rate of increases as specified at the time of the initial purchase. Negotiable basically means the issuer can charge whatever they want upon renewal.

Some firms also provide preferred rates – they’re guaranteed, but subject to a medical and lifestyle examination. A policy that is both renewable and guaranteed is best.

Convertibility Option

Most term policies are convertible. This means you can convert to a whole life policy at a stipulated premium and face value.

There may be restrictions on the type of whole life policy to which you can convert, as well as the time(s) it can be done. This can be a valuable option because going the permanent route later on in life might not otherwise be affordable, particularly if your health declines.

Whole Life Insurance Features

Whole life insurance comes with its own set of features and options. Here are some of the main points to familiarize yourself with.

Premium Structure

Some whole life policies require fixed annual premium payments for the life of the contract (straight life). Others provide for payments for a fixed period (e.g. for 20 years, or until age 65).

Yet others provide for premiums or face values to fluctuate based on various factors. The choice you make depends largely on your future cash flow.

Non-Forfeiture Value

This is the amount guaranteed if you cancel the policy. It is usually the equivalent of the cash value. Also called the surrender value, it can vary widely between policies. Term-to-100 policies often have no surrender value.

Participating Policies

Some whole life policies incorporate an additional savings element and pay periodic dividends to policyholders. These are not normal stock dividends, but special amounts that can be taken as cash or used to help fund the policy.

These insurance dividends are never guaranteed and amount to little more than a partial return of inflated premiums. In general, you should avoid buying participating policies.

What to Look for in the Fine Print of an Insurance Policy

An insurance policy is a contract between the insurance company and you, the insured party. The insurance company is obligated to pay a sum of money (called the “benefit amount”) to the insured’s beneficiary(s), but it is important to know that the contract could be made void if information has been omitted or if false statements have been made.

The following, while by no means exhaustive, is meant to provide an overview of some of the more important terms.

Grace Period

Most policies allow for a grace period of 30 days should the policyholder miss a premium payment. Provided the policyholder pays all outstanding premiums before the end of the grace period, the policy will remain in force. If a payment is not made before the end of the grace period, the policy may have to be reinstated (see “Reinstatement” below).

Reinstatement

If you have allowed your insurance policy to lapse, you can reinstate it by paying all outstanding premiums, plus interest, and providing new medical evidence. So long as you pass the medical, it will be as if the policy had never been out of force (ie there is no new policy fee or new premium scale). You have two years in which to reinstate a lapsed policy, although some companies may offer longer periods in their contracts.

Incontestability

Once a life insurance policy has been in force for more than two years, the insurance company cannot revoke coverage. If the owner has misrepresented information on the contract, the insurer can only refuse to pay if they can prove that the insured made the misrepresentation (e.g. failed to disclose a medical problem) with fraudulent intent.

Here’s an example: in one court case an insurer attempted to deny a claim on the grounds that the client was an alcoholic and failed to disclose it when asked if she had received “treatments for illness over the previous five years”. The court ruled that the client wouldn’t have regarded her drinking as an illness since denial is a part of alcoholism. The insurer had to pay the claim.

Renewability

This provision, which specifies the conditions under which a term policy may be renewed after the initial term is up, can vary from insurer to insurer. Most companies offer a “guaranteed renewable” term, meaning that the contract can be renewed at a specific rate and without submitting new medical evidence. Some policies, however, may require you to re-qualify at renewal – meaning that if your health has changed, you may have to pay higher premiums, or you may be unable to obtain coverage at all.

Right of Rescission

Having received the contract, you usually have a 10-day period to examine the policy. Should the terms prove to be unacceptable, you may rescind the policy – return it to the insurer in exchange for a full refund of the premium.

Suicide

In order to discourage individuals from purchasing life insurance prior to committing suicide, insurers insert a clause into the contract that only provides a refund of premiums should the insured party take his or her life during the first two years that the policy is in force. After two years have elapsed however, the insured’s beneficiary will receive the full face value even if the death is a result of suicide.

Your home is a source of pride. There is no place more important than a home where your family feels comfortable, secure and protected. But what would happen to your home if you were to die today? Would your family be able to keep making the mortgage payments? Would your family have to sell your current home?

You can protect your family home with Mortgage Life Insurance. Mortgage Life Insurance offers flexible, low-cost coverage designed to provide the protection you need in insuring your mortgage, one of your largest outstanding financial obligations.

Know your options when applying for mortgage insurance

READ MORE

Choosing an Executor

An Executor is a person you appoint in your Will to carry out your wishes. Ideally, he or she will be someone who is trustworthy, knowledgeable about financial matters, and who lives nearby.

You can generally choose anyone you wish to be your executor. Many people name their spouse, especially if he or she is the main beneficiary of their estate. You can also choose to have more than one executor. This is often a wise decision.

Being an Executor takes more time and skill than many people realize. Before you name someone as an executor, be sure to discuss it with him or her. It’s also a good idea to choose an alternative executor in case the first one is unwilling or unable to act when the time comes. Here are a few other things to consider:

Start by Making your Executor’s Job Easier

You can make the task of settling your affairs a much easier process by keeping your files and records up to date and easy to locate. Give your executor a copy of your will along with a list of your financial advisers, insurance policies and other important documents. You may also want to discuss funeral arrangements in advance.

Know the Duties of an Executor

An Executor may have to deal with an array of third parties, including lawyers, accountants, Revenue Canada, insurance companies, banks, business partners and your beneficiaries. Depending on the complexity of your estate, your executor’s duties will include:

• Reading and interpreting the will and meeting with your family
• Becoming familiar with your financial affairs
• Safeguarding your assets
• Dealing with financial institutions
• Assembling an inventory and valuing your assets
• Hiring a lawyer to apply for probate
• Arranging for the sale of real estate if required
• Converting assets to cash to pay debts and taxes if necessary
• Preparing your final tax returns and getting tax clearance from the Canada Customs and Revenue Agency
• Distributing assets to your beneficiaries

Bear in mind that your beneficiaries may hold your executor liable if the estate is not managed effectively, so it is important to give your executor the powers necessary to do the job. These powers must be detailed out in the will. For example, your affairs may be better managed if your executor has the power to invest, buy and sell assets, or borrow money on behalf of the estate.

Determine a fair compensation

Because of the amount of work involved, you may want to compensate your executor; a rule of thumb is 5 percent of the value of the estate. Trust companies usually charge starting from 5 percent for small estates and as much as 10 percent for large ones.

Planning and Maximizing your Charitable Gifts

For many Canadians, making a difference and leaving a legacy is important. And when you receive a tax credit for your charitable gifts, the act of donating to worthy causes becomes more practical and doable.

The Mackenzie Charitable Giving Program is a great option for those looking to incorporate regular charitable donations into their financial plans. A key benefit of Mackenzie’s program is that it enables you to be more organized about your giving, without taking on the responsibility and expense of starting a private charitable foundation.

The fund, which is the first of its kind, requires an initial minimum donation of $25,000. Each year, you give money to the charities of your choice. And the program leverages the expertise of Mackenzie fund managers to manage your assets, so your original donation has the potential to grow substantially over time.

Start making a difference today. Speak to your financial advisor about making regular giving a part of your financial plan.

Mackenzie Charitable Giving Program by the Numbers

• $94.6 million in donations received since inception
• 1408 charities supported
• $19.4 million in grants paid out to charities and institutions

Source: Mackenzie Investments as of June 30, 2016

Joint Ownership of Assets

For most families, a home is among their most valuable assets. As part of your estate plan, it’s important to be thoughtful about how, and to whom, you pass on this critical possession.

Increasingly, an estate strategy based on joint ownership of assets is being used as a means of transferring wealth between spouses or to successive generations. Sometimes, joint ownership is used as a tool for expediency. As the owner of an asset, you can give joint ownership to someone who you want to help manage the asset or so the joint owner can make the asset available to your family immediately after your death.

Also, joint ownership can be a planning technique used as part of a legal or tax strategy for minimizing probate tax. Regardless of your motivation, an important consideration before entering a joint ownership agreement is whether joint ownership of the asset fits into your overall estate plan. There could be another estate planning tool that’s more suitable to your particular situation.

Joint owners can hold property in two different ways: as joint tenants or tenants in common.

Joint Tenants with Rights of Survivorship (JTWROS)

This form of joint ownership provides two or more people with simultaneous rights of ownership of an asset. Each joint owner has an undivided and equal legal interest in the asset.

Upon your death, the surviving joint owner(s) will acquire your interest in the asset automatically by a process called “right of survivorship.” This means your interest in the asset will pass directly to the joint owner(s) of the asset, not through your estate — and through a potentially costly probate process — to the beneficiaries named in your will.

Tenants in Common

Under the tenants-in-common form of joint ownership, there is no right of survivorship. When a co-tenant dies, his or her share of the asset passes to the will’s named beneficiaries, or, absent a will, becomes subject to the rules pertaining to intestacy.

Joint Ownership of your Family Home

Spouses typically hold property as joint tenants. This permits their respective shares of the asset to transfer directly to the surviving spouse. But tenancy in common may be preferred in some situations, like a second marriage. Using tenancy in common, the family home, or a portion of the value, can be willed to the children of the deceased spouse.

Tax Considerations

If you transfer your joint interest in a capital asset, such as real estate or an investment account, that qualifies as a disposition at fair market value at the time of transfer. When the present market value of the transferred asset exceeds its adjusted cost base (the tax cost of the property to the original owner), capital gains tax is owed on the difference.

If you transfer your joint interest in certain assets, like your home, bank accounts and investment accounts, to your spouse, the spousal rollover under the Income Tax Act allows the transfers to be reported at the original adjusted cost base of the transferred property, instead of present fair market value. Thus, no capital gains tax is owed.

Appropriate elections and filings have to be made with CRA to document the transaction. This rollover is not available on transfers to children.

The Importance of Having a Will

Whether you’re a young adult or in your retirement years, a will is a must. And the older you get, the more important it becomes. Think of a will as the last gift that you will leave for your family and loved ones.

What is a will?

A will is a legal document that says how you want your estate to be divided once you die. Your estate includes what you own (called assets) and what you owe (called liabilities).

What are the benefits of a will?

By having a will, you’re ensuring that your estate will be looked after, your finances are taken care of and your health-care directives carried out — all according to your wishes.

A will is also the best way to make certain that your estate benefits the people, charities and organizations that are important to you. If you don’t have a will, the government will decide who gets what, and those close to you could run up unnecessarily high legal costs.

In addition, a will provides an opportunity for you to make your wishes known about who will take care of your children (if they’re minors) after you’re gone. If you haven’t made a will, this decision also will fall to the government.

Keep your will current

For all these reasons and more, it’s imperative to have a will. But it’s also important to keep your will current. As your circumstances change, so should your will. Be sure you update — or at least review — your will after all major life events, including a divorce, birth, death or change to your economic status.

Top Ten Reasons to Have an Up-to-Date Will

1. Makes a difficult time less difficult for your loved ones.
2. You get to designate the executor of your estate.
3. You decide how your estate will be distributed.
4. You decide who will take care of your minor children.
5. Helps avoid disagreements and legal challenges among your heirs.
6. Helps avoid a lengthy probate process.
7. Helps minimize estate taxes.
8. Allows you to outline a plan for business succession.
9. You can disinherit individuals who you don’t want to benefit from your estate.
10. Allows you to make a gift or donation to the charities and organizations important to you.

We encourage you to get your will together today and keep it current going forward. In the event of your passing, your family and loved ones deserve it — and they’ll be grateful for it.

The Importance of Estate Planning

Estate planning starts with creating a will. If you don’t have a will, your assets will not automatically go to your spouse and children. Instead, they’ll be dispersed according to the rules of your province.

The best estate plan for your situation could range from a simple will with an enduring power of attorney to a complex plan involving an estate freeze.

When I meet with my clients to discuss estate matters, I begin by asking them to consider what is important to them about planning their estate?

Determine Your Priorities

For some, the top priority is providing for their spouse and children. Others are most concerned about preserving the wealth they have been accumulated. If there’s a business involved, it may be necessary to determine how control is passed on to surviving family members.

In some cases, a portion of the estate may be gifted to a charitable cause. With a well-crafted estate plan, you can protect your beneficiaries and ensure your estate is distributed according to your wishes. The last thing you want to do is leave the future of your loved ones unplanned.

Understanding Probate

Probate is part of the government’s system of checks and balances to ensure your heirs obtain the inheritance you intended them to receive.

When you die, your will gives your executor the legal authority to manage the settlement of your estate. Frequently, an executor must provide proof (requested by financial institutions, government agencies and others) that they are the person authorized to represent the estate.

Probate is the process that provides court certification of this fact.

How to File for Probate

To obtain a grant of probate, your executor must submit to the provincial court an application for probate along with a copy of your will and a list of your assets, including their current market values.

This process can take several weeks. Most provinces charge a fee or tax — representing a percentage of the value of the estate — for probating a deceased person’s will. In Ontario, this fee (officially called an estate administration tax) equals almost 1.5% of your estate’s value.

Avoiding or Minimizing Costly Probate Fees

Due to the costly nature of probate, taking steps to reduce or avoid probate fees has become an important element of estate planning. There are a variety of strategies available that allow you to avoid probate on different estate assets, including property, registered savings and insurance plans.

For more information about estate planning, check out our Guide to Estate Planning.

Download the guide

Looking for help with probate or any other aspect of your estate planning? Contact us today.

Why You Need an Enduring Power of Attorney

April 23, 2020

An enduring power of attorney is a legal document you sign to give someone else the authority to manage your finances on your behalf in the event you become incapacitated. In most of Canada, the person you appoint is called an “attorney,” but that person does not need to be a lawyer.

It’s crucial to understand that if you don’t have an enduring power of attorney, your loved ones will not be able to access your bank funds or other assets held in accounts solely in your name.
In that case, the Public Guardian and Trustee becomes the statutory guardian, and your spouse or another family member will have to apply under the Substitute Decisions Act to the Superior Court to take over the guardianship.

By establishing an enduring power of attorney, you ensure that your trusted loved ones have the power to look after your affairs while minimizing the burden placed on family during an already difficult time.

We encourage you to appoint an enduring power of attorney today. It’s the right thing to do on behalf of your family and loved ones — and they’ll be grateful for it.

Getting started with an Estate Plan?

If you are looking for help on estate planning download our guide to get started.

download the guide

Pandemic Puts Focus on Estate Planning

July 15, 2020

For all of us, COVID-19 has increased concerns for the health and economic well-being of our loved ones. We want to protect them, but we’re also reminded of our vulnerabilities and just how unpredictable the future can be.

Estate planning is a tool that you can use to reduce uncertainty for everyone involved while giving yourself peace of mind.

If you don’t have an estate plan or haven’t reviewed your estate plan in the last few years, now is a good time to do so. An effective estate plan starts with creating a will. Beware, if you don’t have a will, your assets may not automatically go to your spouse and children. Instead, they’re dispersed according to the rules of your province.

What’s best for you?

The best estate plan for your situation could range from a simple will with an enduring power of attorney to a complex plan that includes an estate freeze to minimize taxes.

When there’s a business involved, it may be necessary to decide how the control will pass on to surviving family members. If your goal is to leave a portion of your estate to a charity, your estate plan can ensure your wishes are fulfilled.

The last thing you want to do is leave your loved ones unprotected or in a state of uncertainty. An estate plan is the best way to ensure this doesn’t happen.

For more information about estate planning, check out our Guide to Estate Planning.

download the guide

Looking for help with probate or any other aspect of your estate planning? Contact us today.

Ontario Raises Small Estate Limit to $150,000

July 15, 2021

Following a stakeholder consultation that began in August 2020, the Ontario government has simplified the application process to manage small estates, effective April 1, 2021.

The changes to the Estate Act, which include setting the limit for a small estate at $150,000, are intended to help people receive their inheritances faster and make the probate procedure for small estates more accessible.

Before the changes, the procedure was identical for all estates regardless of their size, often creating an unnecessary burden for families following the passing of a loved one.

Removal of bond requirement

Under the new rules, there’s no longer a requirement to post a bond for a small estate, except when a beneficiary is a minor or deemed incapable.

Other changes include a new, more straightforward application form and removal of the requirements for certain supporting documents, such as a commissioned affidavit of service.

It’s important to note that the new, small-estate limit will not affect probate fees — known as the estate administration tax — which will continue to apply to the portion of the estate exceeding $50,000.

Using Life Insurance as Part of Your Estate Plan

January 2020

Did you know that Life insurance can play a vital role in estate planning? For most people, there are two main areas where life insurance coverage can support estate-planning goals: income replacement and estate transfer.

Income replacement is more likely to be a concern when you’re younger with family members who rely on your income. If you were to die prematurely, life insurance can replace your lost income, helping your dependents meet their ongoing financial needs.

Estate transfer typically becomes relevant after you’ve accumulated wealth and are concerned to both preserve it and transfer it according to your wishes. Life insurance can provide liquidity to the estate, allowing your heirs to pay off liabilities such as taxes on investments or a mortgage without the need to sell off non-liquid assets.

When considering the use of life insurance as part of your estate plan, you will need to determine how much life insurance you require and the type of life insurance that best suits your situation.
Knowing you have a properly prepared estate plan in place can give you and your family invaluable peace of mind.

Get Started

Get started by calculating how much life insurance you need first. Then you can decide on the type of insurance that’s best for you.

insurance calculator

Read through the information and if you have any specific questions send us an email and we would be pleased to help.

Term Vs Whole Life: The Great Debate

Which type of insurance is best – term or whole life? Both sides have pros and cons, but in many cases it comes down to the simple issue of cost.

For a young family struggling to pay the bills, term insurance is often the only affordable choice. The difference in premium costs for whole and term life policies of the same face value can be significant.

For example, the premium for a 5-year renewable and convertible policy for $100,000 on the life of a 40-year-old male non-smoker would initially cost about $200 a year. A Term-to-100 policy for $100,000 would cost $600, and a whole life policy such as Universal Life could cost almost $1,000 a year.

Vendors of permanent life insurance point out that the premiums will never rise as with term policies and this, coupled with the build-up of cash values, represents a favourably-taxed savings feature. Detractors suggest that you can earn a better yield by simply buying term insurance and investing the difference in premiums over the years.

Advocates of whole life insurance argue that whole life yields are improving, particularly with the advent of Universal Life, and that permanent insurance is a product geared towards different needs; it shouldn’t be compared in terms of yield alone. For example, beyond age 65 or 70 (depending on a policy’s details) you may have no choice but to buy permanent life because term is no longer available.

Bottom Line

Both sides have merit, and the arguments continue. There is no easy answer as to which type of policy is best for each individual or situation. Cost is important, but your life insurance needs depend on additional factors and change over time. The best solution is often a combination of both types of insurance.

How Much Mortgage Insurance Is the Right Amount?

Your home is likely the biggest purchase you’ll ever make. It’s also the place where you’ve put down roots for yourself and your family. So if you carry a mortgage on your home, you’re going to want to insure the mortgage as a financial safeguard against the unexpected.

But what type of insurance makes the most sense for you?

Basically, there are two options:

1. Bank Mortgage insurance, obtained through your lender when you sign your mortgage
2. Term life insurance, purchased from your insurance company

Before deciding on one or the other, you should understand how they’re different and what each does.

Bank Mortgage insurance

Mortgage insurance pays down the balance of your mortgage to the mortgage lender, up to a specified amount, if you pass away.

A distinctive feature of mortgage insurance is that the amount of coverage declines every month as you gradually pay down your principal. This is because it’s designed to cover only the amount remaining on your loan.

Also, every time you renew your mortgage with your lender, you’ll also need to renew the insurance policy to maintain your coverage.

Term life insurance

Term life insurance offers protection for a specified period—often 10, 20 or 30 years—in the event something happens to you.

An important difference between mortgage insurance and term insurance is that the term insurance company makes the financial payout directly to your family, allowing them to decide what to do with the money. This can be a significant benefit if, for example, the family owes money elsewhere at higher interest rates.

If you want your term insurance to cover the full amount of your remaining mortgage, you’ll need to take out a policy with an appropriate amount of coverage and increase the coverage if you add to your mortgage during the term of the insurance.

Other mortgage protection options

Depending on your situation, it could make sense for you to protect your mortgage using a mix of different insurance policies.

Critical life insurance

You can add further financial protection for you and your family with critical illness insurance. If you develop a serious health issue covered by the policy, you’ll receive a lump-sum payout while you’re still alive. The money can be put towards your mortgage or used for any other purpose.

When you’re taking out a new mortgage or renewing an existing mortgage, some form of insurance protection may be necessary. Rather than signing up for the first offer you receive, consider your family’s financial needs and determine the best type of coverage to meet them.

Preparing an Estate Directory

July 2022

Imagine if an estate executor (or personal representative, liquidator or estate trustee, depending on the province) was about to administer an estate, and all they had was the will.

They would have a tough time identifying and finding important contact people and documents, not to mention locating any information hidden for privacy reasons. That’s why it’s essential to develop an estate directory that includes everything your executor needs.

Start with the contact information of your lawyer, accountant, financial advisor and beneficiaries. State the location of your will, insurance policies, tax returns and safety deposit box. Provide bank account information. List your assets, including any registered plans, investment accounts, real estate and valuable items.

Further, make a record of your online accounts, along with the usernames and passwords. And create a list of your monthly bills and any outstanding debts, including credit-card balances, mortgages, loans and lines of credit.

Be sure to keep your directory in a safe place, tell your executor the location and review the information periodically in case updates are required.

Need Advice?

Do you have questions about or need assistance preparing an estate directory? We encourage you to contact us to arrange a no-obligation meeting to discuss your options.

CONTACT US