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Anna, the Ultimate Secret Santa

Karma Taken to a Whole New Level.

This month, I’m going to tell you a story I’ve been waiting to tell for almost two decades.

Early on in my career, I met an amazing lady who was well in her 80’s who we’ll call Anna. I worked with her for a number of years as her financial planner. Anna was a delight to work with – bright, articulate, very informed and opinionated. She was also worth a whole heck of a lot of money.

If you met Anna, she seemed like many seniors – very concerned about spending money, as she was worried she might run out. Her biggest concern in her late 80’s was that she was in great shape and planned to live a long time. That probably doesn’t surprise you, what might surprise you is why.

Anna planned to live a long time because she wanted to tick off “the greedy little buggers” (her words not mine).

See, Anna was worth nearly $10,000,000. She was a testament to a lifetime of chronic saving, and she had invested over the years in a wide variety of things. But the real growth area had been real estate and she’d been hanging onto some properties for a very long time.

Anna had some very greedy descendants, who had a good suspicion of just how much she was worth. They would try any number of tactics swindle her out of her money. She had seen everything from them trying to get her to sign deeds of properties, to elaborate tales as to why someone needed large sums of money in a hurry.

Being a sharp, strategic and crafty gal, her ultimate plan was to outlive most of them. But, just in case, she asked me to do some very creative planning work. And boy, did we ever have fun!

Making private transactions by bypassing the estate

Anna had one niece who had always been kind to her, and had no idea of Anna’s net worth.  Anna’s main goal was to make sure that the kind niece (we’ll call her Josie) was taken care of properly. Her other planning goal was to ensure that the Greedy Little Buggers (GLBs) got what they wanted, but in the most inconvenient way. All of this, of course, was the backup plan to Anna’s master plan of outliving her greedy family.

After some research, and coordination with Anna’s lawyer, we determined our best way forward was to move Anna’s cash holdings into the insurance-company version of GICs, as well as segregated funds. Both of these options come with a named beneficiary, which meant that she could have the funds completely bypass her estate and go directly to Josie. Unlike a will, which may be a public document, the insurance beneficiary designation is usually a private transaction and in most provinces not subject to public knowledge or scrutiny. This allowed her to quietly pass her cash to Josie, and leave the estate solely to the GLBs with little more than her extensive real estate holdings and the very significant capital gains tax consequences that would occur at her death.

How to create a cash crunch in the estate.

With the majority of her estate subject to capital gains, and most of the cash re-directed to Josie via insurance, her plan was to leave all the GLBs as joint executors with wording that they must all be in 100% agreement in order to sign off on any distributions. In her opinion, the most likely outcome was that they would bicker and argue with one another. They would ultimately have to sell or mortgage many of the desired properties in order to pay the tax bill and that it would take a long time for the estate to settle. She was just fine with that – the one and only time I have had a client who actually wanted to drag out their estate’s settlement period! As many of the GLBs were then in their 60’s and 70’s, she was hoping that by the time they received their “just due,” they wouldn’t be in any shape to enjoy the fruits of their many years of scheming.

The ultimate realization of her plans

Anna lived a long life, long enough to celebrate her 100th birthday in full control of her faculties.  Unfortunately, I didn’t get to remain her advisor as I took a promotion a few years after we structured her holdings and had to pass her accounts on to a colleague. My colleague did let me know several years later, however, when Anna passed away that she had outlived 2/3rds of the GLBs, and that the Josie had been stunned to receive a quiet but very significant inheritance when she expected and wanted nothing at all from her aunt.

As for me, I’m always going to remember with great fondness, a very kind, sweet, insanely smart and funny lady who took the time to knit my newborn son a sweater, all the  while reminding me of the truly important things in life.

Sometimes, Karma is sweeter than honey.

Do you have a great story about someone with character in your life and how you remember them?  If so, we would love to hear about them for a future newsletter.  Feel free to email us at ryan@quietlegacy.com if you do.

This newsletter should not be taken or relied upon as providing legal, estate planning, accounting or tax advice.  Clients should obtain advice from independent, professional advisors.

Growth your Wealth by Giving it away.

Help grow your wealth by giving to charity

I’m sure the first thought you had when you read the title of this newsletter is that I’m crazy. While that is entirely possible (my wife Bridget is nodding sagely in the background), it turns out it has been scientifically proven that you can help grow your wealth by giving to charity.

Professor Russell James of Texas Tech University published a 2009 study in The Journal of Educational Advancement that explains this in better detail. In this study, James analyzed data of more than 28,000 individuals in the United States over a 10 year period. In doing so, he discovered those who had active charitable-giving plans grew their net worth at a rate of 50 to 100 per cent higher than those who didn’t.

That’s a pretty significant difference.

You might be thinking older people with more money would have taken the time to plan, so what’s the big deal? The amazing part of these findings was that his study was examining the growth of net worth relative to when people started doing charitable planning. He also accounted for differences in initial wealth and age.

In research, we like to say correlation doesn’t mean causality. But in this case, my own experience leads me to think the professor’s findings do point to the likelihood that undertaking charitable planning earlier in life will help grow your wealth.

I’ve worked with all kinds of folks over the years and one thing that has struck me is how much working in and contributing to the non-profit sector can lead to a net benefit. Of course, this is provided that one is truly giving selflessly and not for personal gain.

First and foremost in my mind is that people who are inclined to support charity are almost always amazing, warm and compassionate people. Jerks just don’t survive long around a charity! Since, by definition, charity is a selfless act, selfish people generally don’t show up to the ball game, and certainly, the odd time when they do, they don’t feel welcome at the table and quickly leave.

People who interact with charity are prepared to make short-term personal sacrifices for the long-term collective good. The universe seems to be very good at providing long-term payoff for those willing to give of themselves now. People who give openly to charity – be it time or money – tend to build networks and trust as their long-term commitments develop. If you take the time to reflect on your social circle, I’m sure you’ll immediately identify somebody who exhibits deep personal integrity and compassion and who you hold in high regard for this reason. These are the kind of people who, in the long term, we all prefer to associate with, do business with and know we can count on. We all love to get to know people like this.

If you stop to think about it, it should come as no surprise that these kinds of people can have better financial prospects than those with a different set of personality traits. If you were an employer, wouldn’t you be more inclined to offer these people a job? If one of these people owns or runs a company, wouldn’t you prefer to do business with them over a competitor with a different set of values? And, to add a little more zest to the sauce, isn’t this kind of person more likely to lead a lifestyle that’s less consumer driven so they’re likely more inclined to save money at a higher rate?

So much of our view of philanthropy has been that some rich person has money and gives it away, but both my experience and James’ research point to a very different reality. Giving really does make your richer – not just in spirit, but literally in wealth.

Leaves are falling, but Interest Rates are Rising So What happens now?

 

Full disclaimer:  The pumpkin shown above is thinking about GIC interest rates from 1982.

With October here, leaves are turning quickly and falling to the ground. For the first time in years, however, interest rates aren’t following suit. The Bank of Canada has pushed rates up twice in a relatively short time period, bringing us up from historic lows. If they continue to rise, it will put us in a different financial climate for the next few years.

Effect on fixed-income investments

The major short-term effect of rising rates will be an increase in GIC and bond interest rates, and a corresponding rise on lending rates. The impact on you depends on what kinds of investments you hold.  It’s good news if you have a renewing GIC, but not so good if you have debt. If you own any bonds or related fixed-income investment funds – well, that’s potentially a mixed bag. For example, for investment funds that invest in bonds or fixed income (for illustrative purposes only):

When new bond offerings have higher rates, the market value of existing holdings will drop. Why? Well, if a $1,000 bond paying 2% over 10 years and interest rates on GICs rise to 3%, bond cannot be sold on the market for $1,000. Instead, the price offered would drop below $1000. The interest doesn’t change – just the bond’s market price. If the bond is sold for less, the effective interest rate is higher.  If the bond is held to maturity, it will miss out higher interest rates until it does mature.

Pension

If you have a defined-benefit pension plan where your pension is based on an amount multiplied by your years of service, the commuted value of these pensions will drop in a higher-interest-rate environment. Currently, commuted values are quite generous – because in a low-interest environment, you need more principal to generate retirement income. You’ll only care about this if you’re leaving work prior to retirement in the next couple of years.

The impact to life insurance policies

Over the long term, rising rates will generally be positive for dividends on participating whole life insurance. If you have a whole life policy, interest rates have a major effect on the annual dividend, and with time, these should rise with rates. Most insurance companies smooth out their dividends; however, to limit the impact of sharp changes in interest rates, any change in participating dividends will likely take a few years to fully implement. In the meantime, policyholder dividends may drop or hold as the new rate levels are phased in.

In general, however, higher interest rates are generally good news for insurance companies themselves.  If rates continue to rise, you can expect to see the industry as a whole expanding product lines – a significant change from the last 10 years where many small insurers began to limit lines of business because of the risk and capital requirements needed in a low-interest-rate environment.

Charitable Donations of Life Insurance

You can donate an existing life insurance policy to charity in your lifetime and potentially receive a tax credit for the fair market value of your insurance (as opposed to its cash value). In this situation, you pay an actuary to work out what the “replacement value” of your life insurance policy would be if you were to reacquire it at your current age and health status. In many situations, the value to acquire the policy could be significantly higher than what you originally paid for the policy so the charity can issue you a larger tax receipt relative to the cash value of the policy.

Like the commuted value of pensions and all other things being equal, a fair market valuation of an insurance gift is likely to be higher in a low-interest-rate environment than a higher one.

So what should you do?

Well, don’t panic for starters!  As you can see, rising rates are a mixed bag, with some positives and some negatives.  If portfolio holdings are diversified, in many cases, rising rates’ positive and negative attributes can potentially cancel each other out. If portfolio holdings are focused in one area, there is a potential for more volatility. Each situation depends on your investment goals and investment risk profile.

As always, your best bet is to review your financial and estate plans and make sure nothing you’ve read here will affect your plan.

The information provided is accurate to the best of our knowledge as of the date of publication, but rules and interpretations may change.  This information is general in nature, and is intended for informational purposes only.  For specific situations you should consult the appropriate legal, accounting or tax advisor.

Are you Migrating this fall? Three examples of charitable structure all working to preserve nature.

As  some of you know, one of my hobbies is photography, and in particular, bird & wildlife photography.  The egret you see above was migrating through Linde Shores Conservation area in late August, and put on a great show with 50 of its friends for me right at dawn.

We are very fortunate to live in a part of the world which lies on one of the major North American flyways.  While most people in this part of Canada think of Point Pelee in the spring for songbirds, or Aylmer for Tundra Swans, one of the coolest migrations in the fall is the Hawk & Raptor migration which is just starting as I send this newsletter.  Over 36,000 magnificent birds of prey will fly over Hawk Cliff, just east of Port Stanley on the Lake Erie shoreline.

If you go, you will also be witness to two charitably-owned environmentally sensitive properties in very close proximity.  One is the Hawk Cliff Woods owned by the Thames-Talbot Land Trust, a public land-trust foundation.  Its purchase of the property was partly funded by the Ontario Trillium Foundation, an agency of the province which is run as a Public Foundation.  The second property is Solitude Nature Reserve, operated by a Private Foundation.

Each of these organizations is doing some fantastic work in preserving the unique natural areas around Hawk Cliff, however, they represent  excellent, but different approaches to philanthropy and legacy.

Private Foundation, Public Foundation or Charity?
Charitable organizations are what we normally think of in terms of charities.  Charities like the Thames-Talbot Land Trust (TTLT) are run by a board of directors, and have an operational purpose that has a charitable mandate.  In the case of TTLT, the mandate of the organization is to preserve environmentally sensitive land and protect wildlife along the Thames River and Talbot Trail.
Charities like the Thames Talbot Land Trust are directly involved in a charitable mission.  To qualify as a charity, the organization must be involved in at least one of the following:

  • Relief of poverty

  • Advancement of Education

  • Advancement of Religion

  • Certain other purposes that benefit the community in such a way that courts have deemed charitable.

The last category is broad, but specific, and fortunately, the preservation of nature is amongst them, allowing the Thames Talbot Land Trust to continue their good work at Hawk Cliff and elsewhere.  Like foundations, Charities must disburse 3.5% of their assets annually towards their charitable mandate. In the case of a  land trust, this is easily met working to preserve their properties, and towards purchasing new sensitive areas for future preservation.

Private Foundations
A Private Foundation is run by a closely held group, where 50% or more of the directors are related.  Often these foundations are created upon the sale of a business, as the sale may generate a significant tax bill to the owners.  A private foundation is a very useful structure which allows you to generate an immediate tax credit, but then disburse the funds to charity at a later date or over time, allowing one time to determine charitable goals, etc.

Due to the close control of the charity, usually by the originator and his or her family, CRA puts some restrictions on what can be donated compared to other charities, and slightly different reporting.

Public Foundations 
A public foundation, like the Ontario Trillium Foundation (OTF) is operated, has an independent board of directors who are all at arm’s length.  OTF is actually a government agency of the province, which is different than most public foundations, but in principle, it operates in many of the same ways, even though it only has one donor.

Public Foundations grant money to any number of charities.  Like all charitable entities, they must disburse 3.5% of their holdings a year to maintain their tax status.

Just because a charity has “Foundation” in their name, doesn’t actually mean they are a foundation according to CRA rules.  Foundations generally are grant-providers to other charities, and not involved in operational capacities like registered charities.

How about you?

All of these structures provide our society with excellent benefits – as we see in the case of our examples involving nature-preservation efforts around Hawk Cliff.  Most people are likely to donate to a registered charity, but it is always wise to know there are multiple structures you can access to make a major impact in your community.
If you want to learn more about any of these structures, as always, drop me a line at ryan@quietlegacy.com

Disclaimer:  You are encouraged to seek legal advice prior to engaging in a charitable structure.

Procrastination and Planning

“Enraptured By Grace” – Acrylic, 2015

Danielle Gardiner

Visual Artist - www.philosopherswalk.ca

Procrastination and Planning

As you read this, I’m going to be returning from our big vacation for the year.  Bridget, the boys and I are going to the north end of Killarney Provincial Park, and spending seven days travelling by canoe through the Grace Lake and Nellie lake loop.  If you have never heard of it, Killarney was literally created by the efforts of the Group of Seven, and much of their most iconic work was painted at the park in this area.

 

We’re going to be travelling with our friend Bill and Danielle Gardner, who are respectively the Astronomer and Artist in Residence at the park.  Danielle was, in fact, the first Artist-in-residence  at the park since the Group of Seven themselves.  (Her work “Enraptured by Grace” featured here, is from her last trip on this loop)

 

We’re pretty excited.  Much like finances and estates, however, this trip has required a lot of up front work, to make it pay off.  I’d like to share some of what we have learned on this trip that can be applied to financial and estate planning.

 

If you have come to any of my talks, you know that a stat I love to quote is that only 20% of us “get off our butts” to make changes to our estate plans.  I’d hazard a guess that no backcountry hiker or canoeist would go out without a lot of planning!  (Or, they might end up going out in a completely different way…)

 

Things we’ve learned from our trip that you can use in your estate and financial planning

 

1)      Start planning early while its cheap and easy.  Our friends are expert backcountry folk –– being experienced, they knew a few quirks of the Ontario Parks reservation system that ensured we got backcountry sites before most people even knew you could register.  If we had waited, costs could have been higher, as we would have had fewer options for travel available to us. Estate planning works the same way – the sooner you start, the more options you have, and the cheaper they are.  Wait to long, and you will find its an expensive mistake.

2)      Pay for quality now to save yourself a hassle later.  One of our portage routes is known as “The Notch”, which is the steepest portage in the park.  We will have a 49lb Kevlar canoe to carry the five of us.  It wasn’t cheapest canoe, but given part of this portage is near-vertical, we’re going to be greatful we spent the money on it vs. the 70lb option that was half the price.

Cheaper doesn’t always mean better in financial and estate planning.  Its usually a trade off between long-term costs vs. short-term costs.  Smart people start with what the need for the long term, rather than finding the cheapest option now that might cost way more later.

 

3)      Lay down the game plan in detail, and plan for failure and changes to the plan as you go.  We have meticulously worked out our schedule.  Since we will be in one of the most remote areas, we need to know what food and gear we need, including planning for failures along the way, since there’s no going back once we get started.  Lots can happen to your financial life over the years, but people studies show who have worked with  a financial plan in place end up with 290% higher assets than those who don’t.  (Source:  CIRANO Study 2012)

4)      Get insurance – its cheaper than the alternatives.  Our friend Bill rents a special transponder for back country hiking/canoeing, that includes an insurance plan if anyone is hurt on the trip.  An air rescue from a remote area can run in the $10-20,000 range. If you are insurable, and a reasonable age, the rate of return on an insurance policy for your estate is often hard to beat with investments on a risk-adjusted basis.  This is particularly true for charitable gifts, and tax planning purposes.

5)      Be prepared to deal with bugs and other things that can through you off course.  Northern Ontario is having a miserably year for bugs.  We’ll have spray and bug nets to keep us on course. You can’t plan for everything.  Stuff will happen along the way, and that’s why its important to save and plan now, so you have capacity to be blown a bit off course with all the things we can’t envision right now.

 

 

Paint your Financial Picture.

 

If you have been putting off your estate or financial planning details, maybe its time to start painting in the sketches.  I’m currently chair of the Estate Planning Council of London, which has accountants, lawyers, trust officers, etc.  If its not something I can help you with, I’m happy to give you a few names of colleagues who are members of that group whom I trust can help you fill in the brush strokes.  Feel free to drop me a line.

 

 

 

 

 

 

 

 

 

 

 

 

 

A look under the Hood at our Own Estate Plans

July is a special month in my family – Bridget and I celebrate our 17th wedding anniversary on July 1st, as well as my Dad’s 76th birthday.  Mom would have been 74 on the 3rd, and I turn 43 on the 5th.  It’s a busy month on the home front for sure!

Last year we celebrated with our family trip to Gros Morne National Park, shown above.  This year, we are going to celebrate in my house by tweaking a few things in our estate plan.  (Exciting, I know, I lead a wild and crazy life!)  I’d like to share a piece of that with you, and talk about the impact of this change.

A few months ago, Bridget and I set up a second-to-die life insurance policy, which will pay out $250,000 upon the death of the second of us.  As you might recall from past articles, that’s when the bulk of tax comes due in most of our estates.  Rather than setting our kids as beneficiaries, we are going to make the beneficiaries our chosen charities.

This policy will ultimately save (based on todays tax rules)  our estate approximately $125,000 in income tax, as the charities will issue our estate a tax receipt for the amount received from the insurance.

Who we are supporting

In our case, there will be 6 charities each receiving a portion of those funds.  Two of these Charities (Amabile Choirs of London & The Clay Arts Centre) are local arts organizations which my wife has belonged to, and which she loves dearly.  Both have provided her with many friendships, much needed stress-relief from her job as a primary school teacher, and lifelong memories.

For my part, I’ve chosen two organizations as well that I have had long standing volunteer commitments to – The Secrets of Radar Museum (I was a co-founder), and The Brain Tumour Foundation of Canada, for whom I have volunteered for over a decade.

Our last two organizations, St. Joseph Hospice, and the Canadian Cancer Society are newer additions to our list.  Our family was extremely grateful to both organizations for the outstanding support our family we received while my mom was dying.

Why are we doing it this way?

A gift of insurance for us, makes sense for a few reasons:

  1. Its cost-effective. For a couple between the ages of 40-70, an insurance strategy is very cost-effective relative to other gifts.
  2. Its fast – unlike gifts made via bequest, the organizations will get their funds within a couple of weeks.
  3. It keeps our estate simpler – we have some complexities in our estate, and this keeps the charitable giving part simple and clean.
  4. We can change our minds easily and with no cost – all it takes to tweak is an updating of the beneficiaries.
  5. It sends a message to our kids about what is important to us.

How about you?

About 84% of Canadians give to charity each year, according to Statistics Canada, but less than 10% of us have thought about leaving something when we are gone.  Bridget and I are pretty excited at making a legacy of transformational gifts when we are gone.  (Well, maybe not so excited about the “when we are gone part”, but moreso about the transformational gift part!)

I know we’ll celebrate extra hard this July, if our gift inspires you to make your own.  Have a wonderful summer!

 

Being a Hero: A Gift with Significance

A gift with Significance.

If you have ever been involved in founding a charity, or “worked on the inside”, you gain a new perspective on the vital importance of donating to help support operational funding.  My thoughts have again turned to this topic as last month I had the honour of attending the funeral of Julia Wagg, who, with her wife Holly, founded The Ten Oaks Project(http://www.tenoaksproject.org/) in Ottawa over a decade ago.  Julia died of leukemia just a few days before her 37th birthday.

Her memorial service was extremely moving, as she had touched so many people with her brief but significant time with us  (It was also perhaps the first memorial service in history to involve the camp song “Baby Shark”, for which Julia was famous for leading at Ten Oaks!)

For me, however, one of the most moving moments involved her “parting charitable gift” to The Ten Oaks Project, The Wagg Family Legacy fund.  Julia and Holly have created a fund to specifically provide long term stability and operational funding to the organization they founded, and asked friends, family and colleagues to commit to monthly donations in Julia’s memory to the fund to provide a lasting legacy that will ensure organization stability.

Their gift isn’t “sexy”, but it is ever so significant.  The “why” behind this gift is the topic of this month’s newsletter.

Where your money goes when you donate.

When I work with clients on charitable gifts from their estate, one of the most common questions I get is around how effectively charities spend their money, and how much of the gift ends up going to administration costs.  It’s a natural question for people to ask – after all, they worked hard for the money they are giving away, but there is a lot of background needed to properly answer the question.

Most people are surprised to learn that, in my experience, the vast majority of charitable organizations actually have too low administration and salary costs relative to the work they are doing.  In particular, small to medium sized organizations are often understaffed, and perform an incredible amount of work relative to dollars raised and spent.

The reasons for these are complex, but one of the root causes in my experience, is that funders and donors are often reluctant to fund the day-to-day operations of a charity.  Its more “sexy” to donate and fund projects or specific causes (ie, research, etc.) than it is to fund the more basic things like keeping the lights on, and paying staff.

As someone who has helped found a charity, I can’t begin to tell you the frustration of trying to find creative ways to run operations in an organization when finding operational funding to do so is very, very difficult.

The net result is that organizations do not have the long-term stability necessary to execute on their mission effectively.  Because funding is not stable into the future, many charity staff members work on short term contracts of less than two years, and have relatively low job security.  As a result, the industry as a whole, understandably sees a lot of turnover.

In my experience, charity employees work for about 70% of the salary of an equivalent for-profit position, and in most cases, have limited or poor benefits.  Yet these very same people, driven by their passion for the mission and mandate of their organization, often work longer hours and harder than their for-profit equivalents.    Job stress can be very, very high, as organizational resources are very limited.  In many cases, 1 full time charity worker does the job or 2 or 3 people in the private sector.

Don’t ever doubt that if any part of your donation goes to administration that the money isn’t being well spent – charities, of all organizations, know how to stretch a dollar to the limit.

Be a Julia.

To me, Julia’s final gift speaks to the heart of creating a Quiet Legacy.  There are lots of people who want their name in lights, but not nearly enough people who want their gift to keep the lights on.  The true heroes, in my opinion, are the people who help an organization thrive for the long term.  Julia was certainly that kind of hero.

PS – Julia’s final note on linked-in has some remarkable thoughts as she approached the last weeks of her life, and on living your life with significance, and is well worth reading.  You can find it at  https://www.linkedin.com/pulse/i-am-going-die-julia-wagg-chrl

 

This newsletter contains general information only and is intended for informational and educational purposes.  While information contained in this newsletter is believed to be reliable and accurate at the time of printing, we do not guarantee, represent or warrant that the information contained in this newsletter is accurate, complete, reliable, verified or error-free. This newsletter should not be taken or relied upon as providing legal, accounting or tax advice.  You should obtain your own personal and independent professional advice, from your lawyer and/or accountant, to take into account your particular circumstances.

Choosing your executor & leaving a gift to your favourite Charity the right way.

This month’s newsletter comes to you courtesy of my dear friend Colleen DeJager, who is about to retire as Director of Planned & Memorial Giving for London Health Sciences Foundation, where she has been working for the last 12 years.

Prior to this, Colleen started her career as a professional Trust Officer, and worked for a few of the larger trust companies in Canada.  This dual background has given Colleen some unique insights into both managing estates where charitable gifts are involved, and being on the receiving end as a Charity.  I’ve had the honor to present with Colleen a number of times at conferences and training sessions over the years, and very much value her perspective on the intersection of Estates and Charities.

Colleen is retiring shortly, but she’ll still remain active, doing some part-time consulting work for charities on their planned giving programs over the next few years.  She is also a faculty member for the Canadian Association of Gift Planners (CAGP), helping to train fundraisers across Canada in the art and science of planned giving.

Colleen was kind enough to sit down with me in my office a few weeks ago and graciously allowed me to interview her to share her insights as she moves into retirement.  Her answers below are based on both her personal and professional experience, and are not necessarily the view of any of her past employers.

Congratulations on your retirement Colleen!  Now that you have been on both sides of the charitable giving equation, (both as a Trust Officer administering estates and as a charity representative), what are the key things you would like to let our readers know from your experience?

Colleen: I think the key thing I would suggest is that you need to talk to the charity if you are planning to support them through a bequest or other future planned gift.  There are all kinds of examples of where people have only talked to their planner or advisor and have failed to explore the charity enough to ensure their gift will actually work within the charity’s agenda or mandate, to understand that the legal name of the charity is accurate and even to confirm the organization’s charitable registration number which can be very helpful in ensuring the gift goes to the right organization.

Secondly, it is very important to make sure the language in a will or gift is very clear. I have seen situations where charities have been able to quietly agree amongst themselves to settle confusing bequest terms in wills in order to avoid having to approach the court for a formal decision.  Usually this is where bequest wording has not been clear or the charity has been misnamed significantly enough to create confusion as to the Testator’s true wishes.  Most often however, court input is required.  In a few cases, the will wording almost implied that there were two charities, when everyone involved was certain the donor intended to make a gift to only one organization.  As a result, a legal process was required to determine which charity the donor might have meant, creating additional cost to the charities and the estate in both time and money. I have seen costs going into the tens of thousands of dollars where the residue of an estate is unclear due to poor or incomplete will drafting, and the matter has had to be brought before the courts for a decision.

How often have you seen problems where charitable bequests have required court intervention?

Colleen:  The percentage of estates that involve litigation is relatively small.  Where you can potentially run into trouble is where the testator did not adequately provide for their spouses, children and/or other dependents and there laws in place to protect against this.  In such cases, legal direction is required through the courts in order to ensure all interests are protected, which costs time and money to the detriment of all involved.   Sometimes it is simply a typo in the will that causes enough confusion as to the testator’s wishes that asking a judge to decide is justified.  So litigation isn’t always a negative thing – sometimes it can be positive where it clarifies the unclear.  It’s just costly, both in time and money, so it’s important your will is drafted as clearly as possible at all times.  Importantly, using the “will kits” that are commercially available online or in stores in order to save the few hundred dollars it costs for a properly drafted and legally valid will,  can cause a great deal of trouble for your executor and beneficiaries after you are gone, often negating your intentions completely.  As with drafting a proper will, if a will does end up in court it is important to hire a solicitor or litigator who specializes in estate law.

In your opinion, how should people work with their financial, legal and tax advisors to set up a gift from their estate to minimize problems?

Colleen:  Make sure the advisor you are working with is willing to take the time to sit down with you and understand what it is that you want to accomplish with your philanthropy, and then work with you to achieve that goal.  Often, advisors who are philanthropic themselves will invest extra time to ensure they understand the depth of what the client/donor actually wants to achieve and then ensure that happens.  Advisors who possess this philosophy will enrich their relationships with their clients tenfold.

What do you suggest when it comes to picking an executor for your estate?

Colleen:  When choosing your executor you want to make sure that they are willing to do it.  Make sure they are up for the job – it’s not an easy job.  A lot of people think it is an honour to be named an executor, but in reality it is a big, big job that comes with a lot of legal obligations and responsibility.   The fiduciary responsibility of an executor is one of the highest legal expectations in our land and as such, is taken very seriously by the courts.  Executors can’t make mistakes, and there are significant and costly ramifications both personally, and to the estate, for not doing the job properly.

Ideally, you want to appoint an executor who is young enough to outlive you, and you should have at least one backup executor named in the will in case your first choice is unable or unwilling to act after you have passed away.

If you don’t have any family or friends who would be up to the task, you can also appoint a lawyer but again, make sure you name an estate specialist.  Non-specialized lawyers may not have the necessary experience and expertise to work in this tricky area.  Personally, I’m a big fan of corporate executors like trust companies who handle estates on a daily basis.  Their staff are highly-trained specialists and trust companies will always be around, as opposed to individuals who can die, move away, or retire.

Thank you Colleen for sharing your personal insights with us.  Enjoy your retirement!

Colleen:  You are most welcome – it has been my pleasure!

Fraud

FRAUD

It’s an ugly word, and one all too associated at times with financial and estate fraud.  While it is not something that I see professionally on a regular basis, from time to time it does raise its head.

Brace yourselves; this is going to be a bit longer than normal, but it’s important you read it all the way through!

In the last few weeks, Fraud has hit the news headlines a number of times:

•    A Toronto real-estate Lawyer was sentenced to 3.5 years over a $2,000,000 fraud involving deposit made on condominium sales.  (Toronto Star, Feb 23rd)

•    A fraud-detection agent (!!)  in Ajax was charged with using phoney credit cards and other schemes to steal from businesses (London Free Press, Feb 17th)

•    In Waterloo, an individual claiming to sell Makeup over social media is being hunted by police for taking payment but not delivering the goods (CBC, Mar 3rd)

•    Manulife Financial admitted that they had been fined $1.2 Million by FINTRAC, Canada’s anti-money laundering operation over for failing to report 1174 Suspicious transactions, as is required by law.  According to the Toronto Star, many of these transaction related to a Winnipeg-based felon selling counterfeit medication to Americans over the internet. (Toronto Star, Feb 27th)

•    A Kitchener-area convicted financial advisor (who wrote a book, and claimed to be an expert on finance) ended her 4-year sentence late last year after taking $1.3 Million in client money and using it on cosmetic surgery, a Mercedes, and personal expenses (Beacon-Herald, Oct 24, 2013)

The last one in particular leaves a bad taste in my mouth, as I know several of the victims, and had met the fraudster herself.  What makes my blood boil even more though, is that the papers called her “a financial planner”.  Not only did she fail to hold a financial planning designation, to say she violated nearly every regulatory & ethical code applicable to financial planners would be a massive understatement.

In my own practice, over the years, I’ve had some strange and interesting cases arise such as:

•    A drug-addicted child attempting to forge a parent’s signature on a redemption form.

•    Someone claiming to be leaving the country quickly, needing us to “speed up the process” and get him a “Certified Cheque by tomorrow” to a third party under highly unusual circumstances.

•    Someone attempting to get information on their ex-spouse’s accounts.

In all cases, we have policies and procedures in place to prevent anyone from gaining information who is not entitled.  That said, it only takes one moment of letting your guard down before an opportunist can step in and do some serious damage.

Constant vigilance is key.

While fraud remains relatively rare, I cannot overstate the importance of taking steps to ensure that you and your family are not victims of fraud:

1)    Request your credit check annually from TransUnion and Equifax each year.

On their websites, you can annually request your credit report.  They will try to upsell you, however, to instant access for a fee, but by law they must provide a free copy each year via mail.

As soon as you get it, take a look for any unusual items or activity, and report it right away

2)    Never, ever take anything for granted that is said by a financial security or investment representative .

For mutual fund investment representatives, you can verify their registration.  Anyone registered to sell mutual funds in the province of Ontario has to be registered with the Ontario Securities Commission (OSC).  You can go to http://www.osc.gov.on.ca/en/Dealers_registrant-search_index.htm and put in their name and their firm’s dealer name and see what they are registered to offer.  (In my case, you can put my mutual fund dealer “Quadrus Investment Services Ltd.” , and “Fraser, Ryan” to find my record.)

Note that some advisors, like myself, may have an incorporated practice – you will need their dealer’s name, rather than their incorporated name to do the search.

On the insurance side of the equation, you can search someone up with FSCO – the Financial services Commission of Ontario at http://www5.fsco.gov.on.ca/alias2a/agents.aspx .  You can put in the advisor’s last name, as well as their city.  Note that the city may be based on the advisors place of residence, not necessarily the advisor’s office location.  If you don’t see them at first, try searching by last name with no city chosen.

3)     If your financial institution (or the CRA) sends you an email saying you have been compromised. Do not click on any links – ever!

99.9% of the time, these emails are schemes designed to get you to give a scam artist your username and password.  Call your institution (at the number you look up, not the one in the email!), and ask to speak to the fraud department to confirm if the email is legitimate.  Often if you look closely, some of the finer details will give away that the communication is not legitimate.

4)    If you receive a phone call wanting you to confirm your identity, Don’t!

Ask for a case number, then hang up, and call the institution based on the fraud number on their website.

5)    Maintain anti-virus and anti-malware software on your computer at all times.

 Software exists which can pick up your keystrokes as you log onto websites with your username and password.

6)    Make a point of calling the financial institutions your advisor has you with, and getting web-access to your accounts where available.

It’s pretty hard for someone to fake a website AND a call centre.

7)    Try to deal with well-known reputable companies, and avoid “suspiciously good” product offerings.

Read the fine print.  One type of investment is being marketed and advertises “8% Fixed returns”.   People read that as 8% guaranteed return – which it is not.  The fact that a “good” GIC rate is around 2% right now should be used as a guideline – if it offers a return significantly higher, it comes with significantly more risk.  A company advertising these products was recently put on a “name and shame” list by FSCO, as they are not actually licensed to sell the advertised product.

8)    Don’t complain about higher fees that come with better regulated products.

Mutual funds may charge higher fees than other alternatives, however, consumer protections around Mutual Funds are, in my opinion, stronger than just about any other investment offering in Canada.  While your returns aren’t guaranteed, the regulators do a very good job ensuring certain levels of protection if anything goes wrong with your advisor or dealer.

Scared yet?

I don’t mean to scare you – there are way more quality people in the financial industry than there are scam artists and fraudsters.  Fraud is a ridiculously small percentage of the overall number of transactions that go on each day – but to the person caught by it, it can be devastating.  Be vigilant, ask lots of questions and do your homework.

Ryan

Lessons Learned from my Mom’s Passing – 1 year Later

As you might remember from my post last June, the sending of this newsletter marks the one year anniversary of my mother’s passing after a prolonged journey with breast cancer. A few months after her death, I wrote on the many little things we learned as a family during that time in regards to the ’day to day‘ aspects of estate planning. It remains the most popular, and commented-upon, article I have ever written. (You can find a link to it here.)

At the one year mark, and in honor of Valentine’s Day, I wanted to share with you a few other items, some small, some large from our experience.

1)  Your tax situation can be worse as a single rather than a couple

As my dad is discovering, from a tax perspective, a couple is often treated more favourably than a single in many ways. RRIF/RRSP rollovers to spouse mean that in the year following, you can end up with GIS or OAS claw backs, as you no longer have income splitting opportunities, and your minimum RRIF withdrawal is now based on the combined assets of you and your spouse’s accounts.

Needless to say, January 2017 brought a big surprise in how much he has to pull from his RRIF, and the impact it will have on his taxes.

2) Give yourself time before making big decisions

I think it’s safe to say that my dad, my sister, and I have been learning that, while one adjusts, the grieving process can take far longer to work through than you might anticipate. Certainly, you find it impairs your judgment at unexpected times. Generally, it’s not wise to make big financial decisions for a year or so.

3) Time to go see the lawyer about wills

Your lawyer generally should have written your will in such a way as to anticipate one spouse predeceasing the other. That said, my entire family now finds ourselves in a situation where we should all be revising our wills and Powers of Attorney (POA). Some of the reasons are practical (Mom was named as one of my backup POAs), but others are more subtle.

Having witnessed the last three years of Mom’s decline, it’s fair to say that we have all formed new opinions on what we would or wouldn’t want if we find ourselves in a similar situation to mom in the future. The directions I would give in my POA today are really different from those from a few years ago.

On a more practical front, my  father’s will  & POAs and my own reference my mother in a number of spots that are no longer relevant. It’s probably best to remove those references to prevent any unanticipated lack of clarity going forward.

4) Charitable giving changes with the death of a loved one

I think it’s fair to say that some folks in my family who traditionally haven’t donated to charity a lot in their lifetime have begun to donate significant amounts for the first time. (A fact of which I am immensely proud, given my profession and specialty in charitable planning!)

Even though Bridget, my wife, and myself have been quite charitable over the years, we’ve now included St. Joseph’s Hospice in our giving. Mom spent her last two months at Hospice, and there is no way for my family to repay the immense debt we owe the wonderful folks who work there.

5) Segregated Funds and insurance transfers can make some things much easier – but care and consideration is needed

For non-registered money, segregated funds and life insurance provided for quick and easy transfer of assets, outside the will – sometimes in a matter of days. This can be important both for transfers to family, and increasingly, for charitable gifts at death, thanks to recent CRA rule changes. Settling an estate with other non-registered investments can take significantly longer due to probate and other aspects settling of the estate. It is important however to ensure that you coordinate your will and your beneficiaries on these products to ensure everything gets to where you want it to go.

In Mom’s case, everything went smoothly, but recently we worked with a new client and discovered that their lawyer and their stockbroker had not given coordinated instructions in the will and beneficiary designation of the segregated fund, and it would have lead to a major problem in disbursing the estate. Fortunately, when they transferred the assets to us we were able to correct this for them long before it became a problem.

6) Gifts of set amounts to beneficiaries can be eroded by inflation fairly quickly

One of the things that was super important to Mom was travel – so much so, she actually had a clause in her will that left money to my sister and me expressly for that purpose. When she last did her will, about eight years ago, she set aside a small amount that seemed reasonable. In that time period, however, both my sister and I had children, and the cost of travel increased substantially.

My mother was very concerned in her last days that the amount she stated would not be enough, and fixated on this and made Dad promise her daily that he would gift some extra funds to us to ensure we could take the whole family on a trip. While neither my sister, nor myself were too concerned, it truly became a major concern to mom, as she saw this as a legacy for her kids and grandkids, and related to one of her true passions in life.

I often suggest to clients that you talk to your lawyer about percentages and shares in your will rather than fixed amounts. As a financial planner, my concern is that you may not have enough funds in your estate at the end to meet set dollar figures, and that can impact cash flow for your survivors. In this case though, it turns out that the set amount was eroded by inflation, and the estate had more than enough to cover the true cost.

By the time mom wanted to make changes, however, her mental capacity was in serious question and she was not able to revise her will legally. Dad had no issues honouring her wish using his own funds to make up the difference, but it is easy to see where under different circumstances, a similar issue could end up with a will being contested by a beneficiary.

This is a tricky legal area – there are significant legal ramifications to naming flat-amount gifts versus a share or residual interest, and you should always have this conversation with your estate lawyer. A good estate lawyer can draft your will to address your concerns and ensure your wishes are followed in most circumstances.

One year later

I think it’s fair to say that we are moving on as a family, but the best analogy I can give is that we feel like a person who has lost a limb – we adapt, but we certainly aren’t all that we used to be without mom’s presence. Like all life events, what we have learned has enriched our lives tremendously, and what we have lost we will continue to miss forever.

I’m happy also to report that my Dad’s health has improved tremendously – as some of you know, it’s been a long hard road for him both as mom’s caregiver, as well as dealing with his own health issues.  As I write this, he’s about to board a plane to Cuba, to spend time in a place that was special to both him and mom, filled with many dear friends. It seems a fitting way for him to draw this long year to a close.

All the best,
Ryan