Imagine purchasing a vehicle – you don’t just fill it with gas and windshield wiper fluid every so often; you also need to get regular maintenance checks. At the very least, you need an oil change every few months to half a year. And while you hopefully never have to worry about your engine, heeding that ‘check engine’ light instead of ignoring it is definitely the way to go.  

As with cars, life plans must be reviewed regularly in order to determine whether anything has changed. Have your goals altered since the last review? Has your personal situation been transformed? Have your financial resources and responsibilities shifted?  

I’ve often heard that a plane’s flight path is a good metaphor for how important it is to re-evaluate your life plans. Apparently, planes are off-course most of the time they are in the air. Even during a fairly smooth flight, changes in wind direction and velocity, and other weather related events, not to mention the odd flock of winged wildlife, can steer an airplane into a slightly different direction. The pilot, or in some cases, autopilot will continually re-adjust the plane’s course to ensure that the intended destination is reached. Otherwise, a plane could end up in the wrong town!  

How often should a life plan be reviewed and recalibrated? It will depend on several factors. Regular checks should be performed once a year, because sometimes our lives change in subtle ways that we don’t expect will affect our future. As in the case of our friend William getting married, having kids, or buying a home, major life events are also important times to review your life plan.

By Gino Scialdone

gino@blacksprucefinancial.com

Previous post: The Estate Plan – It’s a Family Affair!

The post Monitoring the Plan appeared first on Black Spruce Financial.

In the case of our client William, let’s fast forward 15 years into the future. He is now married and has 2 wonderful daughters. He has also had a few years to build up the investment accounts for both himself and his wife. William and his wife now own a primary property, a cottage, a small mortgage on both of the properties, investments, a business (and business partners), along with some valuable personal possessions. They realized, thanks to their advisor, the need for an Estate Plan, including a will, is put in place a few years ago shortly after William finished the other areas of his Life Plan.

This Estate Plan involved having a will, within which, all plans for our three questions were not only answered but put into writing by a legal advisor so that there would be no question as to final instructions upon either or both of their demise.

Most of the items listed are easily handled if only one of them should pass, the other will simply inherit everything free of estate tax. For example, the RRSPs would roll over to the living spouse’s RRSP account tax free.

In the case of William’s business, he now has a partnership agreement that includes life insurance that would ‘pay out’ William’s spouse and she in turn would relinquish his shares (now her shares) to the other partners. Both parties would satisfy their part of the agreement almost automatically. William’s share of the company, as an asset, would be covered.

The items that needed to be addressed were keeping the cottage as both the girls very much enjoy going there. This would incur some tax upon the demise of William and his wife. The tax implications require a little thought as taxes may be a factor. So too would some of the investments such as all non-registered accounts, which of course were set up as joint with rights of survivorship accounts in order to avoid the immediate deemed disposition at death for the surviving spouse, however not so much for the kids.

The ownership of the primary residence would transfer over to the surviving spouse, again tax free, as too would their personal possessions. If both William and his spouse both pass away, then their daughters would inherit the primary residence.

The case for personal life insurance owned personally or corporately, would serve to cover the remaining two mortgages and any other outstanding debts or funeral expenses along with taxable assets that their daughters would inherit.

Getting the whole family involved in the Estate Plan is not only an essential step, but also can help to avoid problems or issues in future when the event of death eventually happens.

By Gino Scialdone, Black Spruce Financial

gino@blacksprucefinancial.com

Next blogpost: Monitoring the Plan

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While it is great that he is passionate about his work, we all need balance in life. When one area of our lives is dominant, we can’t live life to its fullest potential, and the whole of our focus is placed on that one area, much to the neglect of many other important aspects, such as Succession Planning. 

Succession Planning has been a key element to the future of William’s business. In the case of William wanting to sell or ‘exit out’ of his business, a well thought-out succession plan will ensure his business legacy, and make certain that he is well compensated for the business for which he has been working so hard. This involves appraising the business as well as examining and deciding who he trusts enough to take over his business once he is ready to move on to other endeavours or simply retire. 

Although William’s Succession Plan will be relatively straight forward because he is the sole owner of his company, it is still very important that he have a plan in place in which to build upon going forward.

 A proper plan would include a partnership agreement, including a buy/sell clause and succession upon the death of one of the partners. This can usually be facilitated by insurance policies on the lives of the partners. 

William has often had ambitions to grow his company without exhausting his current financial and personal resources. The easiest way he thought to do this is by merging or even bringing on a financial partner for his business expansion plans. If he were to go forward with a move like this, his succession plan would suddenly involve partnership agreements.

These are just a few thoughts to take into consideration when planning a successful Succession Plan.

For a more detailed example of a Succession Plan, please read our case study Business Continuity Planning.

By Gino Scialdone, Black Spruce Financial

gino@blacksprucefinancial.com

Next blogpost: The Estate Plan – It’s a Family Affair!

The post Success With Succession Planning appeared first on Black Spruce Financial.

We all pay goods and services taxes, but our income taxes vary widely depending on our income tax bracket, the types of investments we hold, and any tax deductible expenses or losses we may incur. We all know that entrepreneurs can write off expenses that are directly related to their costs of doing business.

What many of us may not be aware of is that tax repercussions differ for various types of investments and insurance vehicles.

For example, we all probably know by now that the investment contained within vehicles such as RRSPs, LIRAs, RESPs and TFSAs grow free of all taxes while the investments stay inside the shelters. A fair number of us do not realize that you can also create a similar tax shelter within a permanent life policy with cash values too. This can be very beneficial for those of us looking to broaden their scope of investment choices for the more guaranteed or ‘lower risk’ profile portion of their portfolio. The same life insurance policy can also add value in the estate and succession plans.

Our entrepreneur client, William, did decrease his tax payouts by writing off his business expenses, but he was not aware that he could also save money in taxes by investing wisely. With the help of his advisor, a tax plan was created to help William improve his financial situation by ensuring that he pays his fair share, but does not overpay in taxes.

William decided to utilize investments that offered better tax benefits, although his ultimate tax plan complements his financial plan; it is not the sole deciding factor.

When it comes to the different types of investments, the first step is to determine which vehicle the funds will be placed into. For all registered accounts, such as RRSPs and TFSAs, as a general rule of thumb when considering a self-directed account, most investments can be held within these. That includes growth equities, dividend paying equities and interest paying securities such as bonds and GICs. If the accounts are none registered, then a more tax efficient choice of investments is prudent since they will not enjoy the shelter of a registered account. Non-registered or Cash/margin accounts should generally hold mostly securities and investments that are subject to lower taxable income in the category of capital gains and dividend paying investments. For the fixed interest portion of the non-registered holdings, consider investing into a permanent whole life policy such as a participating whole life or universal life insurance policy. This type of policy usually also satisfies other parts of the life plan such as Estate, Succession as well as Financial Plans.

With these tax advantaged financial vehicles in now in place, William is getting closer to completing the objectives in his Life Plan!

By Gino Scialdone, Black Spruce Financial

gino@blacksprucefinancial.com

Next blogpost: Success with Succession Planning

The post Happy Tax Season! appeared first on Black Spruce Financial.

After William thought he had had a heart attack, he realized that although his business was important to him, there were other things he wanted to do, which included having some fun! Knowing that this was important to William, his advisor helped him flesh out the life he was envisioning, and they started to look at what would be required to make this life a reality.

Question Period

Part of the planning process involves asking questions – “What is it that you want to achieve?” “How do you envision your future?” “What is important to you?” “What do you love to do?”

William did some soul-searching and discussed his ideas with his advisor. He had decided that he wanted to travel for fun, start dating, and now that he knew his heart was strong, we wanted to do more physical activities, such as skiing, tennis and swimming. He also wanted to buy a home and put money aside for his retirement. He also wanted to put aside some money for the family he hoped to start one day.

All of this takes time and money. Financial Planning looks at how much, based on William’s immediate financial situation, projected situation and his goals, should he retain in liquid assets versus long-term investments. What type of investments suited his needs, wants and plans? Also, what is his risk tolerance level? Is he a conservative investor who prefers a low risk portfolio, even though it may take longer to reach those goals? What are William’s financial obligations?

Together, William and his advisor examined his income and assets, his current and projected expenses, and  was reviewed, along with related costs such as taxes.

Moving Forward

Once they had a better understanding of William’s various goals, timelines, and risk tolerance, the planning software William’s advisor used helped them to create a strategy that would allow William to take more money out of the company for his personal use, while keeping his taxes to a minimum, and continuing to look after the company’s interests.

They decided on investments that were appropriate for William’s needs. Investments were segregated into shorter and longer term holdings so that William would have access to funds at different times. Some funds were placed into other aspects of planning, such as insurance. We will look at these in future entries.

They also looked at Tax Planning.   A wise tax plan will help William to improve his financial situation by ensuring that he pays his fair share, but does not overpay in taxes. He even found that some investments offered better tax benefits than others, although they made sure that his tax plan complements his financial plan, rather than making financial decisions solely on this factor.

By Gino Scialdone, Black Spruce Financial
gino@blacksprucefinancial.com

Next blogpost:  Happy Tax Season!

The post Finances – This Time It’s Personal! appeared first on Black Spruce Financial.

For decades, financial advisors have been trying to help people plan out their lives, but this is made difficult because our circumstances and desires do not remain static. Difficult yes, but it is possible, and newer planning software is assisting advisors to make life planning a reality.

A Scare for William 

Let us look at an example. William, the owner of a small, Canadian, privately owned corporation, spent most of the last fifteen years concentrating on his business. All of his time, effort and money went into it, much to the detriment of his family, friendships and even his health. A heart attack scare led him to realize that his priorities needed to change if he wanted to live to see any of the rewards of his hard work and persistence.

Thankfully, his scare turned out to be nothing more than indigestion, compounded by an anxiety attack – but it still stirred up a desire to live a more balanced, fulfilling life.

His company was doing very well, so he would be able to put some of his profits to good use, but his personal finances were a bit of a mess. He had not put any money aside for his personal use other than to pay his monthly bills. He started thinking about the type of life he would like to lead, and saw himself traveling (for fun, rather than just business), skiing (which he used to love doing growing up), and maybe even starting a family if he found the right person.

However, William, like most of us, found that change is not easy. A consummate workaholic, he almost could not bear to think of going in to work late, or leaving early. He had the desire to change, but change can be difficult when we are comfortable in our daily routine – even when we are not happy.

William needed help.

He decided to talk to his financial advisor, to ask for assistance in creating a comprehensive plan. His advisor had planning software, which would help him with all the different aspects of life. He needed a plan that would help him with his new financial requirements, investment needs, and desired lifestyle.

How to Create a Life Plan

Where to start? The first step in creating a Life Plan is to examine and finalize William’s goals and objectives. Similar to how a map is important when setting off for a road trip, goal setting is one of the most important steps in the Life Planning process. Without this, the Life Plan will lack direction and important aspects of William’s life could be completely overlooked. Sufficient time must be spent on this, preferably in face-to-face meetings between William and his advisor.

William’s advisor walked through the whole process with him – examining his goals, helping to determine which are most important, and building a road map to help him get to where he wanted to be. Many of his aspirations required funding, which requires a variety of plans to be integrated appropriately, and put into place synergistically.

For this reason, Life Plans have various important sub-plans. For William’s situation, these included Financial Planning, Tax Planning, Succession Planning, and Estate Planning.

Over the next several posts, we will tackle these plans one by one – and get William a life!

By Gino Scialdone, Black Spruce Financial
gino@blacksprucefinancial.com

Next blogpost: Finances – This Time It’s Personal!

The post William Gets a Life appeared first on Black Spruce Financial.

A lot of times we go through life just putting one foot in front of the other, without a map of where we would like to go or what we would like to accomplish. Admittedly, living day to day can be fun; it can be challenging and rewarding in its own way.

Yet life can be even more fulfilling when we intentionally plan out our future. Of course there will be bumps and hiccups along the way. We will change our minds about our goals, and sometimes unexpected things happen that we have not prepared for. We may have to change our approach, our direction, and take some detours to get where we are heading.

This is part of life. This is part of what makes our lives unique, fun, demanding and glorious.

Planning for life can be overwhelming, but here is the simple message we want to deliver in this first post: Planning can also be very enriching, as it gives people – people just like you – a clear sense of direction, purpose, confidence and peace of mind.

Gino Scialdone
Black Spruce Financial

gino@blacksprucefinancial.com

Next blog: William Gets a Life

The post Planning For Life appeared first on Black Spruce Financial.