Planning for a Disabled Child

Posted on by Chantel Gibbs

Parents of disabled children often spend sleepless nights worrying about what might happen to a disabled child if they are gone. Estate planning is very important for everyone, but particularly for parents of a disabled child because special considerations may need to be made for that child over the other children. This article outlines some of the planning opportunities, depending on what the parent wants to leave for their child’s provision.

Real Estate Property

Property like a home can be left for a disabled child in one of three ways – through the will, in a trust, or through joint title. Often when using a trust, the trust might not come into existence until after the parents pass away, but the details of how the trust will work are already prewritten – usually in the will. The will might also just simply specify that the house is left to the disabled child, giving them full control. A trust is advisable if the child’s disability is a mental one, but if it is a physical disability and they can manage their own finances, then letting the child have full control is fine. The downside of a trust is that it needs a trustee to manage it and it will need to file a tax return separately for every year that it is in existence (typically a $1000 accounting/legal fee yearly).

By far the simplest way to leave a family home to a disabled child is to add them joint on title because then it won’t even need to be part of the parents’ estate and will. This is best if the disabled child is living with the parents, is not mentally disabled, and doesn’t have another property, otherwise the principal residence tax exemption might be partially lost.

Leaving Funds

Funds can also be left for a disabled child in one of four ways – by beneficiary designation, by setting up and contributing to a RDSP, through a trust, or through the will. 

Accounts like RRSPs, TFSAs, segregated funds, and life insurance allow beneficiaries to be named so that those funds are paid out directly on death instead of having to go through the will and the estate. This can be a simple way to give extra to a disabled child while still having the will distribute the rest of the estate equally between all children. Beneficiary designations can be easily updated with the financial institution without having to update the will. 

A RDSP account is a savings accounts for people who qualify for the disability tax credit federally and the government gives matching grants depending on how much family contributes to the account every year. The RDSP is in the name of the disabled child, however, and would be part of their estate if he/she passes away. 

Funds can also be put in a trust, either while the parents are alive or created in the will upon the parents’ deaths. As mentioned earlier, a trust has additional administration and fees to maintain, but is the best for a child with a mental disability. Alternatively, the will can simply leave a higher percent of the residual estate to a disabled child, assuming the child can manage their own finances.

Communication

Whatever strategy you decide to use to provide for a disabled child, it is recommended to have a family discussion, especially if a sibling is expected to be a trustee or expected to help in managing the assets set aside for the disabled child. The only instance where parents might decide to keep it quiet is if the other children might resent the extra that a disabled child gets. In that case, gifting a life insurance policy or funds through direct beneficiary designation is the best way to quietly give extra to one child. Some insurance companies will even allow the death benefit to be paid out as a monthly allowance for the rest of the child’s life – almost like a trust but without the management cost.

If you would like to explore ways to set aside assets for a disabled child, reach out and book a meeting with me today!

Shrinkflation

Posted on by Chantel Gibbs

Dishwashing soap bought in 2021 vs same dishwashing soap bought in 2022 on right. A decrease of almost 60 mL for the same price.

If you feel like the stuff you are buying is just not going as far as it used to go, I’m here to tell you that you are not imagining things. I started noticing it in small ways around the grocery store and it is quite subtle. The packaging looks basically the same to the naked eye, but there is less in it than there used to be. This is a phenomenon known as “shrinkflation” and is a way to make people feel like prices are still similar when they are not.

You’ve probably noticed the increase in food prices, particularly staples like meat, eggs, and milk. There have certainly been complaints made about those, but those items aren’t the ones usually subject to shrinkflation because they have standard quantities. It is the shelf items that you will need to watch out for. I suspect that, as a result, prices have increased even more than the inflation numbers the government is currently putting out.

How did we end up with such large inflation? Contrary to popular belief, the government does not create value – it merely redistributes it. Granted, the government has some public utility companies and transportation services that do produce value, but very inefficiently (just ask my brother who worked for BC Hydro). The government has recently been touting it’s success at creating jobs after the pandemic, but upon closer examination, we discover those jobs are mostly government jobs – in other words, those jobs do not create value but just leech money from the sectors of the economy that are actually creating goods and resources. Worse, most government jobs are created to expand some sort of compliance requirement, meaning more paperwork and lost time for the sectors of the economy that are trying to produce value.

Inflation historically has often occurred in countries where the government attempted to print money to buy their way out of a crisis. Germany in the 1920s, Zimbabwe, Brazil, and Argentina to name a few. The inflation sometimes got so bad that the money wasn’t even worth the paper it was printed on and people would go after work and spend their whole paycheque on goods because otherwise their money would lose value overnight. During the recent pandemic, many countries including Canada started printing money to distribute to needy people and sectors of the economy. Problem is, that money was still chasing the same amount of goods produced. Divide the money over the goods available and it means the goods suddenly cost more. Economics 101. Now, the consequences of the government spending are hitting the country and the people will pay for it one way or the other – either through more taxes or higher costs of living. Value cannot simply be summoned out of thin air by government.

The next time a politician promises you a bunch of new programs and spending that are supposed to help you out, remember that they are bribing you with your own money.

Welcome to a Time of Inflation, Uncertainty, and Higher Interest Rates

Posted on by Chantel Gibbs

TIPS FOR STRETCHING YOUR DOLLAR

  • Make more meals at home and buy things in season and freeze or can it for later.
  • Use the food you buy instead of throwing out a bunch.
  • Teach your children the value of money and actually make them work for their allowance.
  • Get to know your community so you can trade favours with those around you.

WELCOME TO A TIME OF INFLATION, UNCERTAINTY, AND RISING INTEREST RATES

It has been a long time since we have had this much inflation – in fact, the last time was when we had Trudeau Senior in power. History has a funny way of repeating itself, doesn’t it? The Bank of Canada is increasing interest rates to slow the inflation and housing market down and it is beginning to work, but it also means that the massive amount of debt the federal government has taken out lately is about to become very expensive to maintain. People who took out a big mortgage to buy in to the recent housing frenzy are going to be hit with a double whammy as the price of houses fall again and interest rates rise. Supply chain issues still plague the world and now there is talk of potential famine. Things are about to get rough.

What should you do with your savings in this kind of an environment? Let me give you an example of diversifying wealth in a time of inflation and uncertainty. My grandparents moved to Canada in the late 1970’s. They were lucky in that they brought quite a lot of wealth with them, but when the inflation came, they were also trying to figure out where to put it so that it wouldn’t lose value. Here is a list of what they invested in and what worked out 40 years later and what didn’t.

 

 

As you can see, the home was a good investment because the land was a reasonable price and it was a good time to find builders, but our current market isn’t there yet. The vacant land was a mixed bag. The huge sacks of wheat was a panic buy that didn’t end up being needed and the gold was also a panic buy because everyone else was doing it. This time, people aren’t yet fleeing to precious metals and the prices are more reasonable, so it may work out better. Taking up farming was a decent move since it was both a hobby and a source of food and clothing security, but it only really worked because there was the land at a good price to do it. Starting a business was great, but only because they already had the seed money and didn’t need to get a 25% interest rate loan from the bank. In our current environment, interest is still fairly low, so starting a business could be good if you can lock in a longer term loan at the lower interest rates and if you are in an industry where demand will still be high in a recession.

Should you invest in something like cryptocurrency? Probably not. While it is a secure medium of exchange (unless the end user on either side is hacked), it has no asset backing and is only valuable because a bunch of people agree it has value. If you decide to invest in it, please only invest about 5% of your total savings, not 50%. Diversification across different industries, different countries, and different kinds of assets are key. If it is a decision between paying down your mortgage quicker or investing in risky assets with your extra cash, it is wiser to pay down your mortgage as housing will always be essential.

What can you do in your daily life to reduce your living expense and make your money go further? Growing your own food is an option, but there are many other ways to reduce what you spend on food. How much food do you end up throwing out? Do you eat out often or do you make meals at home? Have you learned the art of cooking big meals and freezing portions for a later day when you don’t feel like cooking? Do you buy things in season and on sale and have you learned things like canning and drying fruits? If you buy food in bulk, do you actually use it all or does a large portion get thrown out? Managing your food expense can go a long way. Pets are another potential money pit. Your dog really does not need all that pampering. If you have children, teach them the value of money and pay them according to the money and time they save you; ie. when they do their household chores, walk the dog, and make meals. They shouldn’t get an allowance simply because they live under your roof (heck, after 18, I had to pay my parents rent and there was no allowance).

And finally, let me stress the importance of community. The next few years could be rough, but let’s get out of our COVID isolation mentality and start helping each other out. Practice your bartering skills and learn how to exchange favours with your neighbours. We can get through the rough times by working together.

If you need help managing your cash flow and trimming expenses, feel free to reach out to me for a no-obligation introductory meeting to discuss your situation.

 

 

Getting Your Estate Documents Done

Posted on by Chantel Gibbs

Getting Your Estate Documents Done

No one likes to think of their own mortality and getting your estate documents done is probably one of the least fun activities out there. Personally, it took me about a year to have my will and POA documents done and signed. Part of that roadblock might be that the average cost of seeing a lawyer and having those documents done is $1000. However, the cost of dying without a will for your family is usually far more.

Dying without a will – otherwise known as intestate – means that your assets are distributed according to provincial law. Some provinces have everything go to a surviving spouse while others give a portion to children immediately. With no spouse or children, it goes to parents and siblings first, then grandparents, and finally aunts and uncles if there is no immediate family. Inheritance for a person under 18 is usually administered by the Public Trustee for a fee until the beneficiary is old enough.

A survey in 2018 found that 51% of Canadians do not have a valid signed will.

 

The administration of an estate without a will tends to drag out and pile up in costs. First, one of the family members needs to volunteer to administer the estate and may need to put up bond to personally guarantee that they will do it properly. This step alone can drag out and in the meantime, the deceased’s bank accounts and assets are all frozen. If a deceased person owned a business, this is especially bad. Secondly, the court needs to determine who the beneficiaries are going to be and there can be family squabbles over that. All this goes to show that it is better to have the will done ahead of time.

The main steps in getting a will done is to pick an executor/administrator, determine if there are any specific gifts you want to give (like a lump sum to charity), and then divide whatever is left in the estate pot between named beneficiaries according to a percent. For instance, you might have three children and no spouse, so the estate pot would go 33% to each child. You also need to think about who would get a person’s portion if they died before you. For example, if one of your children pre-deceased you, would their portion go to their children or to your other surviving children?

Picking an executor can be difficult. You want someone trustworthy and decent at administration. It is best to pick someone who lives reasonably close since the job of an executor often includes sorting through household items and visiting banks. Don’t pick someone who lives in the USA if you can help it for reasons too complex and annoying to get into. If you pick a family member, remember that being an executor can be a lot of work so they should be allowed to take a fee from the estate over and above their inheritance. If you use a trust company as executor, they will tell you the fee calculation ahead of time and you will need to approve it and add clauses to your will permitting them to have certain rights and abilities. You can also name an alternate executor in case your first choice can’t do it. In my experience, most spouses will name each other as the main executor and then maybe another family member as alternate.

Power of Attorney documents are also highly recommended and come into affect while you are still living if for some reason you are unable to make certain decisions or do certain tasks. The Power of Attorney for property allows a named person to run your finances and pay your bills for you. They can’t change your will or beneficiary designations, but can otherwise do most financial things for you – which means you need to name someone trustworthy. The Power of Attorney for personal care, otherwise known as representative for personal care, names someone to make medical decisions on your behalf if you can’t. You can spell out your general wishes like “Do not resuscitate” to help guide the decision maker. Most provinces provide the default forms for these so you can complete them without a lawyer if you so choose. The link for the province of BC’s forms can be found here: POA for BC

If you know exactly what you want in your will and if your situation is straight-forward, you may consider using a will kit instead of having a lawyer draft the will for you. I still recommend sitting down with a lawyer for a review once you have a draft that you are happy with. There may be things you missed or didn’t think about. The benefit of a will kit is that it is far less expensive than seeing a lawyer and in every province except Quebec, you do not need a lawyer or notary to sign your will; you can use friends and neighbours as witnesses. For a user friendly online will kit, try LegalWills.ca

Estate planning, however, is not just about getting your documents done. For instance, a person may have more taxes at death than at any other time during their lives? How should that be planned for? Who should care for children and hold children’s inheritance in trust until they are old enough? What about accounts like the RRSP and TFSA where you can name beneficiaries directly on them so that they don’t even go through the will and the estate? For these considerations and others, feel free to contact me for a free initial consultation to discuss your estate planning.

What kind of life insurance should I buy?

Posted on by Chantel Gibbs

What kind of life insurance should I buy?

You’ve probably heard about life insurance, but you might be uncertain what the best options are for you and your family. In this article, I’ve put together some general tests to determine what product would be better for your situation. For a brief introduction to the types of life insurance, please look at my prior article The Basics of Life Insurance

The most basic type of life insurance is term insurance that covers a person for a set number of years (though you can get a permanent kind called a Term100). If you are in your prime working years, this is the best way to have affordable coverage for 10, 20, or 30 years at a set premium to cover your income earning potential for that time and protect your family. This is the ideal insurance to buy when you are unable to put much into savings and need to cover debt like a mortgage. A lot of insurance companies like Empire Life, Manulife, and Equitable Life also allow you to bundle critical illness insurance into it for an extra premium. Term insurance is also good for a business owner who intends to retire out of the business or sell at a later date and only needs insurance for a certain number of years.

Whole life insurance is a permanent kind of insurance where the insurance company invests the premiums in a fund and pays dividends to each policy holder yearly based on the performance of the fund and whether more or less people insured died than were expected to die. The dividends are very consistent year over year, making a whole life policy a very stable investment that will far outperform a GIC or most bond funds. In some ways, a whole life policy is like a TFSA on steroids. As long as the cash you invest in the policy stays in the policy, the return on that investment is tax-free. The cap on how much you can put in a whole life policy is quite high, so if you have already maxed out your TFSA and want more tax-free savings, this could be ideal for you. The down side, however, is that it usually takes over 12 years for the cash value of a whole life insurance policy to surpass the premiums you’ve put in – meaning you better not need liquidity from it anytime soon. Also, whatever cash you pull out of an insurance policy directly will become taxable, so when the policy eventually does have a large cash value, the best way to tap into that is to get a line of credit against the cash value. Manulife Bank specializes in these kind of insurance policy loans for a reasonable interest rate.

Many people get a small whole life policy to help pay for final expenses and combine it with a term insurance rider to cover those income producing years. Combining all the insurance needs in one application can reduce policy fee costs and save time. If possible, use an insurance broker who can shop for you among the major insurance providers for the best rates for your age and health status.

If you are a business owner who is saving a lot of your business earnings in a holding company, permanent life insurance can have huge tax benefits. Be very careful to put the insurance in the correct company since insurance cannot be moved on a tax deferred basis between companies like most assets can. Generally, a permanent insurance policy should never be put in the active business company, especially if it is a business you might sell in the future.

Permanent life insurance in a private company is a tax-free investment just like in personal hands, meaning that putting money into an insurance policy instead of a regular investment portfolio can reduce taxable investment income. As of 2018, any taxable investment income over $50,000 grinds down the small business limit for earnings that get to enjoy the lower tax rate compared to the usual business tax rate.

The greatest tax benefit of permanent life insurance for a private business is the death treatment. On death, the majority of the insurance payout becomes an addition to the capital dividend account from which tax-free dividends can be paid out to shareholders. This can greatly reduce the tax on death for the estate of the shareholder who is insured or enable other shareholders to buy out the deceased shareholder with tax-free dollars.

If you would like to discuss the kind of insurance that might work best for your situation, feel free to reach out for a free initial consultation.

 

  • Term insurance is to cover short term needs like income replacement for a family or business.
  • Permanent life insurance can be a great investment for retirement or  a way to pass the family business  along with less of a tax impact.     

 

 

 

 

 

 

What is the Craze around Cryptocurrency all about?

Posted on by Chantel Gibbs

What is the Craze around Cryptocurrency all about?

You’ve probably heard of Bitcoin and how it has gone up a ton in value over the last few years and made some young geeks into multi-millionaires. You may have also heard of other cryptocurrencies like Dogecoin or Ethereum. You may be wondering whether you should invest in some yourself and what the best way is to do that. I did some research on the topic and here is what I learned:

 

  1. What is a cryptocurrency?

Cryptocurrency is built on the blockchain technology that has been around for almost two decades. Think of it like a Google Doc. There is a starting document or piece of information, call it a block, that is shared with many others over a network and everyone who has access to that block can add information to it. The information in the starting block is summarized into a hash ID and encrypted. Any change to that block would change the hash ID and show that it has been tampered with. If someone adds information or a transaction to that starting block, it is another block with another hash that is linked to that other one. Hence the “blockchain” name. If you’ve used a Google Doc, you will note that it tells you who has made changes to it and you can go back and look at each version over time and even restore a previous version if someone added bad data or messed up the file. Blockchain gives the same sort of audit trail because it is possible to view every block of information that has been added to the chain. Blockchain goes a step further than a Google Doc, however, because the encrypted hash information is kept by servers all over the internet and any time anyone wants to add a block to the blockchain, they first must prove they have all the data from the rest of the blocks and that they have permission to add to it by verifying the data with all the other servers. For someone to alter a blockchain, they must tamper with the data held by all the different servers at the same time. That’s pretty much impossible.

A cryptocurrency like Bitcoin starts with that hashed block of information that then has blocks added to it as transactions happen. In the case of Bitcoin, there are 21 million possible coins and creating a coin means solving a very complex set of mathematical functions. Think calculus on steroids. “Miners” use super computers to solve the mathematical functions to create possible blocks and are rewarded with Bitcoins for their efforts. So far, about 18 million of the 21 possible Bitcoins have been solved and created. Other computers and servers work as nodes that verify the information in the blocks and process transactions using Bitcoin and are also rewarded with some Bitcoin. The whole thing is completely decentralized and works because it rewards those who participate in enabling the network and disincentivizes those who would try to hack it because it would take far more computing power to reverse engineer the hashed info than it would take to just solve the mathematical functions and create another Bitcoin.

Not all cryptocurrencies are created equal. Bitcoin is one of the first and most secure in terms of being unable to decode. There are now over 4000 cryptocurrencies in existence and most of them are garbage. Some of them were created for fun and there is at least one out now that is a bit of a game where you can have your smartphone “mine” the coins in the background while you go about your day. Are those coins going to be worth anything? Probably not.

A cryptocurrency has no asset backing, unlike the currency of a country which is backed by the economic strength of the country. The value of a cryptocurrency is in its ability to be bought and sold easily on exchanges, its ability to be transferred worldwide to anyone with a receiving address for hardly any transaction cost, and the security of the blockchain underlying it. It is still mostly a perceived value and speculation that drives the cost up.

 

2. How do you transact with a cryptocurrency?

Cryptocurrencies have sender and receiver addresses that differ based on the coin. You can’t send Ethereum to a Bitcoin address, for instance. You hold your cryptocurrencies in a “wallet” which can be either a software program on your computer or smartphone or a hardware wallet that looks like a USB drive. The hardware wallet is the most secure since it is only accessible to the internet when you actually plug it in and use it, but otherwise it is sitting offline. Most hacks regarding cryptocurrencies happen with the user at the end point, not with the blockchain itself. If someone gets a hold of your private keys or password to your wallet, they control your cryptocurrency. Some of the more common software wallets include Jaxx and Bitcoin Core and hardware wallets can be purchased from Trezor, Ledger, or Keepkey.

Cryptocurrency can be bought or sold on an exchange much like a stock exchange. Most exchanges like Coinbase and Kraken are centralized and allow you to exchange country money like USD$ into any common cryptocurrency. You will need to set up an account and most of those exchanges will allow you to leave your currency in your account, much like PayPal allows you to keep a balance. However, exchanges have been hacked in the past, so it is not best practice to leave your currency there. Move it into your software or hardware wallet instead.

Whatever you do, don’t lose your password to get in to your wallet! Some guy in Ontario put a few thousand into Bitcoin years ago to try it, forgot about it and forgot his password, then realized he had millions of dollars worth of Bitcoin, but couldn’t access it. Since Bitcoin is decentralized, there was no central authority to help him recover his access. Tough luck.

 

3. What is the future of cryptocurrency?

Good question. There seems to be a move by certain governments, particularly China, to shut down the decentralized cryptocurrency like Bitcoin and introduce their own. They express concern with how much electricity super computers are using to mine Bitcoin and other cryptocurrencies and the environmental impact, but it is likely more of an excuse to try and control this craze. You may have read that Tesla was accepting Bitcoin for a while, but then Elon Musk changed his mind and cited environmental concerns as a reason. The real reason is probably the volatility of Bitcoin and the difficulty in setting a value on it for ongoing financial reporting to shareholders.

You should also be aware that any gains made on trading cryptocurrency needs to be reported on your taxes. You might think the government can’t track your trades, but remember that you have an address that is yours alone that you can send and receive trades from. An auditor can go to blockchain.com and look up your address to see all the transactions that have been done with that address. That is because that transaction history is embedded in the blocks that make up the coin itself and that is being verified through all the different servers. It is public knowledge.

In conclusion, I think cryptocurrency is quite revolutionary, but I also think government is going to try to take over that space to better control and tax it. This will mean that more businesses will be willing to accept cryptocurrency once government validates it, but it might be new cryptocurrencies that government introduces, not Bitcoin and other decentralized ones. If you are going to invest in cryptocurrency, only invest what you are willing to lose.

Giving Your Kids Money Now vs Later

Posted on by Chantel Gibbs

Giving Your Kids Money Now vs Later

Many elderly parents are downsizing their homes, simplifying their affairs, and getting their estate planning done. Often they end up with extra cash from liquidating property that they feel they likely won’t require for their lifetime and the question arises whether they should give some of it to their heirs now instead of later. There isn’t really a right or wrong answer to this question. As long as the parent isn’t giving away property with unrealized gains and is just giving cash, there are no tax consequences in Canada. In fact, it may even help save future tax and administrative costs. However, there are non-financial reasons why giving away money now may not be the best idea. The below is a chart of some of the pros and cons of giving an advance on the inheritance.

 

If parents do want to go ahead and gift some of their money while living, how do they make sure that each child is treated fairly? Some children might be begging for money now while others are doing just fine financially.

Let me give you some suggestions for how to give an advance while keeping things equal and fair between all the children.

 

#1 – Make it a Loan Instead of a Gift

Instead of making it an outright gift of money, give a loan to those children who are in need of money now and make it official. That’s right – get a lawyer to put it on paper and have it properly signed with interest and repayment terms. If no repayment is required or if there is a balance still outstanding when the parents die, then it must be deducted against that child’s share of the inheritance in order to keep things fair for the other children. Loan balances should be carefully maintained and kept with the will documents. There have been many estate disputes in the courts where one child claims there was a loan to another child and that child claims it was a gift. Without documentation, it is basically one person’s word against the other.

I would also recommend setting an interest rate at least equal to inflation on the loan, even though this ends up creating some income for the parents. This ensures there isn’t a benefit for the children who got money immediately compared to the children who waited.

 

#2 – Set Money Aside for Children Who Did Not Receive an Advance

In BC, if the will does not distribute the estate equally to all children, the children can use the wills variation act to try and get a better result. It is highly recommended to treat all children equally in the will. So how can parents make sure that children who did not receive an advance on the inheritance get extra in the estate to make up for not receiving any earlier?

A simple solution would be to put that money aside in segregated funds for the children who did not receive any money up front. A segregated fund is available through insurance companies in Canada and allows beneficiaries to be named on an account so that the money goes straight to them instead of passing through the will. While usually beneficiaries can only be named on retirement accounts like a RRIF or on a TFSA account, segregated funds can have beneficiaries named even on non-registered accounts, making it ideal for proceeds arising from the sale of a home. Because it does not pass through the will, it is not subject to probate and the wills variation act and it is entirely confidential. The segregated fund will earn an investment return on the money in it, making up for the time value of money that the children who received the money up front got. Money is not locked in to a segregated fund (unlike annuities) and the parents can still withdraw money if they need it.

For instance, let’s say an elderly couple sells a home for $1 million. They keep $500,000 for themselves, but feel that they can afford to give the rest of the proceeds to their four children. Of the four children, two are quite eager to have the money now, but the other two are financially stable and don’t need it immediately. If they give $125,000 to each child that needs it now, then they should put $125,000 for each of the other children into a segregated fund where that child will be the beneficiary upon the parents’ passing. If the investments in the segregated fund do particularly well, the parents can withdraw some of the funds for themselves while they are still living and leave the rest for the children. This is because segregated funds can hold mutual funds much like regular investing, so it is likely that it will return more than is needed to make up for inflation.

 

At the end of the day, estate and inheritance planning is not simply about having a will in place. The will only deals with the assets that actually need to go through the legal process of probate, but anything that is in joint title or has beneficiaries named will bypass the will and the legal estate and must be planned for separately. This is why it is important to have advice both on the legal side for the will itself, but also on the financial side for the accounts and insurance products that can bypass the will. Speak with me for a free consultation to discuss estate planning and the issues that are relevant to your family situation.

Reassessing your Finances for 2021

Posted on by Chantel Gibbs

Reassessing your Finances for 2021

The year 2020 was a strange one for all of us. Our usual patterns of life were overturned, businesses floundered and shut down, other businesses had to change to a whole new way of working, and social activities were largely shut down. Many people lost their jobs and found themselves having to cut back in order to make ends meet. The year 2020 taught us a lot about the uncertainty of life and the need for saving in the good times (though it doesn’t seem to have taught our government).

In light of 2020, I wanted to leave a number of tips and thoughts for improving your financial and personal well-being in 2021.

  1.  Revisit Your Budget

We aren’t past the virus yet, even though there is a vaccine. Now is the time to revisit your monthly budget to see what things can be cut back. If you have two cars but hardly go out, consider putting one in storage or changing the usage to pleasure use to save on insurance costs. Are you paying for a gym membership or other membership that you aren’t using?

For any money you free up, either pay down debt or set up a monthly automatic savings into a TFSA or savings account that you can draw from without a tax penalty. The uncertainty of 2020 has demonstrated the need for an emergency fund that can be used to help bridge the gap when there is a drop in monthly income. If that emergency fund is a line of credit, then during better times, that line of credit should be repaid or the debt can easily spiral out of control.

2.  Avoid Credit Card Debt

Credit card debt is among the worst kind of debt out there. The interest rates on unpaid balances are typically between 15% and 20%, even though prime interest rates are at a historic low. If you find yourself in credit card debt, try to consolidate it under your mortgage payments or under a line of credit secured against your assets in order to get the lowest interest rates available. Do not fall for those easy loans or payday loans since the interest rates on those are just as bad as credit cards. Instead, talk to your bank or credit union directly and shop around for the best offer.

3.  Beware the “Add to Cart” Button

Global online sales grew astronomically in 2020 as people stayed at home to isolate from Covid 19. Buying online is very simple and the selection is huge. It is quite easy to instantly satisfy a want and have the package arrive within hours or days without getting off the couch. Unfortunately, this easy access has encouraged a spending spree on everything from takeout food to pet toys. Instead of scanning Facebook or Amazon when bored at home, consider going for a walk or calling a friend. Trade “retail therapy” for a better kind of therapy that is less damaging to personal finances. See tip 5 for some ideas.

4.  Track Your Spending

Your monthly spending won’t always be consistent, but there should be a typical average for base needs like food, housing, telephone/internet, and transportation. It is the extras that need watching. There are apps available like Mint developed by Intuit (the makers of Quickbooks) that will link to your credit card and bank transactions and automatically categorize them for you so you can see how much you spent in each category a month. Apps like this make monthly tracking and budgeting far less manual and time consuming. Consider using one of these apps if you are constantly wondering where your money is going.

5.  Invest in Yourself and Your Skills

If, like many other people, you found yourself with lots of extra time in 2020, consider developing new skills, learning something new, and meeting your exercise targets. Not only will it help with the depression that tends to come with too much free time and social isolation, but it can open up future possibilities that you hadn’t considered. There are courses offered virtually for free or for low prices all over the place. Join a networking group or Toastmasters for some social interaction and to develop skills and contacts. Seize the opportunities available to you and take this time to consider what you want your life to look like.

If you would like help in getting sorted for 2021 and into a saving rhythm, reach out to me for a free initial consultation and put your goals into action!

The Financial Cost of Broken Relationships

Posted on by Chantel Gibbs

The Financial Cost of Broken Relationships

It is well-known that divorce comes with the splitting of assets and financial costs to one or both sides. We all go into relationships hoping they will last, but sometimes they don’t. The divorce rate in Canada is now close to 40%. The breakdown of relationship is one of the biggest risks to a person’s financial plan. Cohabiting or being in a common law relationship doesn’t provide much protection either, despite a common misperception that it does. The Family Law Act of BC has a number of definitions that you should be aware of before you walk into any relationship:

“The divorce rate in Canada is now close to 40%. The breakdown of relationship is one of the biggest risks to a person’s financial plan.”

A marriage-like relationship is defined as when a couple is either married by law or has been living together for a continuous period of two years or more. If there are any children in the relationship, spousal support claims can be made regardless of whether the two years are met. Indicators of a marriage-like relationship include sharing shelter, sexual activity, attending social gatherings together, monetary support, and in general doing life together. If the definition of a marriage-like relationship is met, then any family property is subject to being split on relationship breakdown.

Family property includes all assets and debts that were accumulated during the marriage or marriage-like relationship. If each person brings assets into the relationship, then any growth on those assets is family property. Any assets that have been put into joint are usually considered to have become family property. The onus is on each person to prove what assets they brought in to the relationship, that those assets should be excluded property, and that those assets are still intact and not changed into something that is joint.

Excluded property includes assets brought into a relationship that are still intact, gifts or inheritance meant for the one person, a settlement or insurance money that is meant for the one person, and property that is held in trust for the benefit of the one person. Everything else is subject to be divided, including private company shares and pensions.

It is advisable to have a pre-nuptial agreement outlining the assets each individual is bringing in to the relationship and what would be excluded in the event of a separation. Please note that I am not a lawyer and this is a general information piece to help make people aware of the financial risks associated with entering into any kind of marriage-like relationship.