Financial Fitness: Strategize for comfort

The beach is a sweet place to retire to. Photo by Hayley Juhl.

To retire comfortably, you need to save and invest regularly using an effective savings and investment strategy.

Maximizing RRSPs or other retirement accounts will likely be essential to realizing your retirement goals. Once you retire, however, you’ll need to “switch gears” and begin considering wealth transfer strategies.

An effective wealth transfer strategy can help you accomplish a variety of goals, such as distributing your assets the way you choose, avoiding probate fees, and reducing estate taxes. There are a variety of wealth transfer tools:

Gifting your assets to your adult children can help minimize the size of your estate, reducing the tax burden at death. This could also potentially lower executor and legal fees. Be careful when gifting property (including cash and securities) to a spouse or minor child, as income attribution rules may apply, which will incur taxes on the income earned. (The income attribution rule applies when gifting property during your lifetime. It does not apply when gifting cash to an adult child during your lifetime.)

If you donate securities with a capital gain to a registered Canadian charity then there is no tax payable on the capital gain, and you will get full credit for the donation, up to the standard charitable deduction limit.

A will is simply a plan for distributing your assets to family members and other beneficiaries. If you were to die intestate (without a will), provincial laws would determine how your assets should be distributed and that may not be what you would have dictated.

Some of your financial assets, including life insurance policies, allow you to name a beneficiary. Upon your death, your beneficiary will automatically receive these assets. It is essential that you periodically review these designations to make sure they reflect your current wishes and that they do not conflict with the terms of your will.

Different trusts can help you accomplish a variety of wealth transfer and estate planning goals. You can structure the trust to stagger payments over a number of years, rather than all at once, or include other restrictions or incentives. A testamentary trust, created in your will, can allow your heirs to effectively income split with the trust, potentially decreasing overall taxation.

Trusts are versatile instruments, but they are also complex. Consequently, you’ll need to consult with your tax and legal advisors regarding your particular situation.

When building an estate for your heirs, you have typically considered both registered and unregistered investment accounts as your principal pools for accumulating wealth. Permanent life insurance can be used to effectively accumulate wealth and pass it along to children or grandchildren, typically in a very tax-efficient manner.

These strategies require careful thought and preparation. Time has a way of sneaking up on all of us so don’t wait too long to plan how your estate will be transferred to loved ones or causes you hold dear.

Deborah Leahy is an Investment Advisor with Edward Jones Member Canadian Investor Protection Fund

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