Retirement, Tax and Estate Planning

Wealth Matters

Oct-2010-Est-Pln

Wealth Matters

Section 1:The Big Picture

1. The Big Picture

Financial: Having enough money in retirement to maintain lifestyle

Estate Planning:Taking care of their heirs

Tax:During life and at death.

Tax on investment income, on sale of business, and on the estate

Top 3 Financial Concerns

72%

79%

85%

1. Retirement planning

2. Tax planning

3. Estate planning - shouldn’t be for another day

1. The Big Picture

Today’s presentation

Section 2:Planning for Retirement

Wealth Matters

2. Planning for Retirement

• Lifestyle planning• Living arrangements• Income security• Investment strategy• Physical health and care planning• Wealth preservation and transfer• Asset protection• Incapacity planning• Important causes and charitable giving

What do we need to consider?

• What does retirement look like?– Continued income from work?– Income from work ceases?

• Goals and interests?

• New opportunities?– I always wanted to…– Consider impact on spending

2. Planning for Retirement

Lifestyle planning

2. Planning for Retirement

• Home

• Cottage

• Other vacation house / condo

• Do you need both properties?– What are the tax considerations for

Principal Residence Exemption?

2. Planning for Retirement

Living arrangements

2. Planning for Retirement

• Do you have a financial plan?

• Should you split your pension income? • What other income splitting opportunities exist?

– Do you have enough resources to maintain your lifestyle?

– How much can you spend?– What do you need to earn?– Regular review to stay on track

Income security

2. Planning for Retirement

Working with your advisor

Section 3:Tax Planning

Wealth Matters

Oct-2010-Est-Pln

3. Tax Planning

• Income splitting to help save for or during retirement

• Tax planning with your business structure

• Income tax consequences of ownership and sale of a vacation property

• Reducing tax on investment income to enhance retirement savings

What are your tax issues?

Income splitting – with a minor child

Income is attributed back to transferor

Capital gains realized after transfer are taxed in

minor’s hands (no attribution)

On transfer, any inherent gains are triggered

3. Tax Planning

Income splitting – with an adult child

No attribution of capital gains

No attribution of income

On transfer, any inherent gains are triggered and taxed

3. Tax Planning

– Don’t forget to consider your own financial needs

– How much TAX will be saved?

– Caution re: triggering capital gains on transfer

– Caution re: sale at less than FMV

Income splitting – with an adult child

3. Tax Planning

Certain exceptions to attribution rules can be exploited…

Income splitting – with your spouse

Rollover on transfer

Attribution of capital gains

Attribution of income

3. Tax Planning

YOUYOUR

SPOUSE

Income splitting – with your spouse

• First need to calculate potential TAX savings • Is the right spouse paying lifestyle expenses? • “Transfer for value” or “low interest loan” to avoid attribution

– “rollover” to spouse not available• Tax-deferred investing could be simpler, better

3. Tax Planning

YOUR

SPOUSEYOU

• Income tax consequences– Capital gains on sale during life or deemed disposition at death

• Use of Principal Residence Exemption (PRE)– Family unit may only designate one property in respect of each year– PRE deemed to be claimed for all years if gain not reported– PRE may be used to offset Canadian gains from US property, but

different issues arise

• Own 2 properties and doing something with either one?

Income tax and your vacation property

3. Tax Planning

GET TAX ADVICE

• Saving through use of corporate tax deferral

– 2011 NS corporate active business income tax rate: 15.50%

– Compare to 50.00% max rate on personally earned income

– An incentive to save cash in your corporation

Tax planning with your business structure

Opco

BusinessOwner

BusinessOwner

50.00% rate

15.50% rate

Cash accumulates

3. Tax Planning

• $750,000 capital gains exemption

Tax planning with your business structure

Opco

BusinessOwner

BusinessOwner

– Saving excess cash in operating corporation likely to prevent shares from qualifying

– Purification – possible use of holding company

Holdco

Cash

3. Tax Planning

• “Freeze” structure

– to split income

– to defer/reduce capital gains tax

– multiply access to $750,000 exemption

Tax planning with your business structure

Opco

Holdco

Trust

Trust

3. Tax Planning

BusinessOwner

BusinessOwner

$10,000 of: Tax paidRemaining

after tax

Interest Income 50.00% or $5000 $5000

Dividend (eligible) 35.63% or $3563 $6437

Capital Gain 25.00% or $2500 $7500

• The difference in the after-tax value of $10,000 in income from interest, dividends, and capital gains:

Investment income: Why is tax efficiency important?

• Investment success = portfolio performance?• What about the tax you pay?

3. Tax Planning

• Seek tax-preferred treatment as dividends and capital gains– even if portfolio includes exposure to interest, foreign income – increase your after-tax income

• Seek to defer income by minimizing distributions (tax slips)– deferral of tax results in absolute savings over time

• Seek ability to switch (“rebalance”) investment strategy without incurring tax

Corporately held investments:• Seek to defer distributions of highly-taxed income to the corporation

Investment income: Don’t forget the tax

3. Tax Planning

1. Maximize asset values

2. Minimize tax now and later

3. Minimize risks in event of untimely death, disability, incapacity

4. Ensure wealth is ultimately transferred efficiently and effectively

5. Avoid family disputes, costly estate litigation

Why Wealth Planning?

1. The Big Picture

Wealth planning is more than investments.

It is a process to maximize what you have, provide for your future, and effectively pass it on.   Wealth planning is not just for the “wealthy”.  

It is something that everyone should do. It is never too early or too late to plan. Wealth planning provides a financial framework for your life and beyond.  

It is personal.  It is customized.  And it works.

Important Disclosure

• This material is general in nature and subject to change without notice. Every effort has been made to compile the information from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on any of the information contained herein, please seek professional advice based on your personal circumstances.

• Assante Capital Management Ltd. (“ACM”) and Assante Financial Management Ltd. (“AFM”) are indirect, wholly-owned subsidiaries of CI Financial Corp. (“CI”).  The principal business of CI is the management, marketing, distribution and administration of mutual funds, segregated funds and other fee-earning investment products for Canadian investors through its wholly-owned subsidiary CI Investments Inc.   If you invest in CI products, CI will, through its ownership of subsidiaries, earn ongoing asset management fees in accordance with applicable prospectus or other offering documents. Services and products may be provided by an Assante Advisor or through affiliated or non-affiliated third parties.

• © 2011 United Financial, a division of CI Private Counsel LP. All rights reserved.