Recorded Webinar: Choosing Your Executor

Posted on May 10, 2013 by Larry Short

If you missed the live webinar on Thursday June 6^th, 2013 – here’s the link to view the recorded version: http://bit.ly/1bvVVXo (Please note: we apologize for the minor technical sound issue (echo) during the intro portion of the webinar; it only occurs for a short time … thank you).

There are many traps, hazards, errors, and legal problems to avoid when it comes to your estate and your executor. Help your executor do a great job after you’re gone – view this webinar together to learn what you both need to know.

Please call us if you have questions or would like further information:

Tel: 709 726 6991 Toll Free: 1 888 725 6991

If you would like to be invited to future informational sessions, kindly call or e-mail Sarah Matthew at toll-free 1-855-611-0112 or e-mail smatthew@dundeewealth.com

Registration now open. To RSVP, please contact Sarah Matthew at toll-free 1-855-611-0112 or e-mail smatthew@dundeewealth.com

The First Thing That Happens When The Boss Gets Sick

Posted on April 25, 2013 by Larry Short

I am often told by business owners that if they become sick or disabled, their spouse will step in to run the business until it can be sold. This sounds like a logical succession plan when discussed rationally in a comfortable office as part of an overall retirement and estate discussion. Unfortunately, reality most often does not meet these expectations. To understand the flaw in the logic, you have to look at the situation not from the owner’s point of view, but from the perspective of your employees.

Regardless of how loyal your employees are, usually the first thing they do upon learning of the owner’s illness is update their resumes and start looking for a new job. The uncertainty created by such circumstances motivates them to look at their own situation in case the owner’s goals do not line up with theirs.

From the employees’ point of view, any potential change in ownership means new management and old relationships could be challenged; and worry sets in. When there is even a tiny risk of layoffs, employees often act in anticipation of the worst possible outcome.This is particularly true of your best employees. Often these employees are already being solicited by your competitors, and the smartest employees are aware that it is easier to get a new job while they still have their old one.

The net effect is that your employees may leave just when you need them the most. This could paralyze the business. This means that cash flow could be cut off and the value of the business could decline dramatically.

And let’s not forget that your suppliers, customers, and bankers may also be asking questions at this time and keeping these stakeholders in the loop is vital.

So … what are the solutions?

First, there is the reactive solution. This is better than nothing, but unfortunately it can’t be expected to make a dramatic difference. This involves meeting with your employees and other stakeholders as soon as possible after the disability incident has occurred and having an open and frank discussion of your plans. You should first meet with your advisors, anticipate the questions, and rehearse so that you sound as strong and confident as possible in these meetings. Again, this will not eliminate your problems but could minimize the damage.

The other solution is to be proactive – which means putting plans in place now in case something untoward does happen. Such a plan serves all stakeholders much more favourably.

The proactive solution is to employ disability and key person insurance to protect the business and the family. Depending on the detailed plan that you put together with your advisors, you would still hold a meeting with your employees and other stakeholders, but the message at that meeting would be a whole lot stronger than the passive approach. Confidently outlining plans and contingencies that were set up years before the incident serves to strengthen relationships and helps keep the business intact.

The disability plan can be designed to make payments to the business to maintain cash flow and keep it running until either the business owner returns to work or a buyer is found. This is not the same plan that pays the owner for loss of income.

It is one situation when the sick or disabled owner has the potential to recover and come back to work. It is entirely another situation when the owner dies. This is the reason for ‘key person’ insurance. The speed and depth of the problems which arise when the owner dies is infinitely more dramatic. On top of the problems outlined above, add in that the spouse will be going through a grieving period that could take up to a year. This means, quite frankly, that not having a proper plan in place in the event of death of the business owner is a great disservice to your family.

Of course, putting together such a plan takes time and expertise; and most of all – it requires the will to address the problem up front. It is ironic that business owners think nothing of buying insurance on a highly unlikely event such as insurance against fire on their home, but ignore the need to insure against a highly probable event such as their own disability or death. Regardless, your advisor should broach this issue with you and ensure that you are aware of all of the implications for your specific needs.

Recorded Webinar: How to Own U.S. Property The Canadian Way

Posted on March 26, 2013 by Larry Short

If you missed the live webinar on Tuesday, April 16, 2013 – here’s the link to view the recorded version: http://bit.ly/Z1tm2K

What is the best way to own U.S. property? There is no single solution. There are many key questions to address prior to making very important decisions. This recording details many of the considerations. Learn what to beware, and how to best maximize your U.S. investments by allowing key experts to guide you.

Please call us if you have questions or would like further information:

Tel: 709 726 6991 Toll Free: 1 888 725 6991

Advanced Tax Reduction Tools – Recorded Webinar

Posted on March 25, 2013 by Larry Short

If you missed the live webinar on Tuesday, March 19, 2013 – here’s the link to view the recorded version: http://bit.ly/YCLXgv

These are advanced tax reduction strategies, best deployed in conjunction with qualified investment and tax professionals. The possible application of these tax-efficient tools will vary based on personal financial situations, but most business owners will find in our examples an approach which applies to their circumstances.

Let us help you reduce your corporate tax bill. Call today.

Tel: 709 726 6991 Toll Free: 1 888 725 6991

Greatly Multiply Your Wealth Using Advanced Tax Reduction Tools – Webinar

Posted on March 4, 2013 by Larry Short

Advanced Tax Reduction Tools. Don't miss this informative Webinar March 19 2013 at 7pm. Register now toll-free 1-855-611-0112

Your Will Is Not A Private Document

Posted on February 19, 2013 by Larry Short

Many individuals are not aware that once they pass away and their will is probated, it becomes a public document that anyone can read. All anyone – and I mean anyone – has to do is pay a fee online and your will (the inventory of your assets at death, the list of beneficiaries of the will, as well as the gifts they received) is provided on any computer screen.

Personally, I think that this is a violation of privacy, but until there is some change in legislation there are very few things that can be done about it. I will provide a solution in a moment but first consider the implications of the lack of privacy.

First, I think that reading someone’s will is similar to reading their mail. Friends, neighbours, and strangers alike can all see who your beneficiaries are and the value of all gifts.

Second, it is rare that every beneficiary receives an equal amount. This can lead to disputes between beneficiaries and the Executor; and such real (or perceived) differences can lead to damage to family relationships or even lawsuits.

Third, lawsuits arising may drain the value of an estate significantly. It is also possible that the legal bill of both the Executor and the disputing beneficiary could be payable by the estate, meaning that the likelihood of a beneficiary launching such a lawsuit is increased. What do they have to lose?

Finally, such disputes can cause a significant delay in settling the estate, which means all beneficiaries suffer. Such circumstances can cause a nefarious nuisance claim to be paid just to get rid of the dispute so that other beneficiaries can receive some share of the estate.

My favourite solution to these problems is to employ an Alter Ego Trust (AET).

An AET is a private document and does not go through probate. It maintains the privacy of the estate in full. Strangers, neighbours, and friends do not see what the beneficiaries receive. Nor does each beneficiary see what the other beneficiaries receive, thus allowing for an uneven distribution of assets which often occurs in families.

Further, the Trustee (who has the same role as Executor) can only be challenged if a beneficiary proves that fraud has been committed and then a judge will review the trust and prescribe a remedy while maintaining the privacy of the AET. Proving fraud is incredibly difficult to do and the legal bill to initiate such a claim must be paid by the disputing beneficiary.

Because of these benefits, AETs result in far fewer disputes and more expedient settlement of estates. That said – AET’s are not for everyone. Consult with your advisor before proceeding, or call our office to learn more: toll free 1-888-725-6991.

To book a private consultation, call toll free 1-888-725-6991.

If You Own a Business or a Professional Corporation, You May Not Want to Contribute to An RRSP

Posted on February 7, 2013 by Larry Short

It’s that time of year again – radio, newspaper, and television ads are actively promoting the RRSP as the ‘be-all retirement tool’ that you should definitely take advantage of.

If you are a business owner or have a professional corporation, that is not the case – and you should consult your accountant or investment advisor before taking any action. This topic has been covered in many previous articles, however its importance bears repeating.

You see… an RRSP is a great tool for employees to save for retirement, especially those who anticipate being in a lower tax bracket than during their working years. For business owners and professional corporations, the math is not as straightforward and they may be further ahead NOT contributing to an RRSP.
While this statement opposes the media hype of RRSP season, when you crunch the numbers the results clearly illustrate that if you have to withdraw funds from the company or Private Corporation to make the RRSP contribution, it is not worth doing. If you expect in retirement that you will pay the same tax rate that you are paying now, then the RRSP contribution is not your best option.

For individuals in this situation, we recommend utilizing a holding company for the funds you would otherwise use (and lose to taxes) to accumulate savings for your retirement.

A word of caution … this strategy is not for everyone. Your specific circumstances will dictate suitability, and that’s where we come in. For years, we’ve helped business owners and corporations examine and determine their optimum financial solution.

For further details and information on this topic, be sure to register for our upcoming webinar called Tax Reduction Strategies for Business Owners and Professionals by calling Sarah Matthew toll-free 1-855-611-0112 or by e-mail: smatthew@dundeewealth.com

To book a private consultation, call toll free 1-888-725-6991.

WEBINARS: TAX REDUCTION STRATEGIES FOR BUSINESS OWNERS & PROFESSIONALS

Posted on February 7, 2013 by Larry Short

Don’t miss this informative webinar! Contact Sarah Matthew at toll-free 1-855-611-0112 or e-mail smatthew@dundeewealth.com

WHY YOU SHOULD KNOW THAT THERE ARE DIFFERENT TYPES OF INVESTMENT ADVISORS

Posted on December 7, 2012 by Larry Short

It’s important to know that the term ‘financial advisor’ or ‘investment advisor’ can encompass a very wide range of talent and knowledge. Far too many investors in Canada are unaware that there are several different types of licensed advisors. Choosing the wrong one could result in being funneled into the wrong type of investment solution for your specific needs.

The vast majority of investment advisors in Canada are mutual fund sales representatives. These agents are licensed to sell mutual funds, and quite often that is all they can sell or give advice on (i.e.: they can’t provide investment advice on individual stocks, bonds, exchange traded funds (ETF’s), or insurance products). In addition, many of them are only able to sell the funds offered by the company that employs them (called house funds) and cannot access any others. Mutual fund sales representatives are regulated by the Mutual Fund Dealer’s Association (MFDA).

A second type of advisor is one that is licensed under the provincial insurance body. These individuals are permitted to only sell insurance products, including traditional life and health insurance, as well as segregated mutual funds and GIA’s (which is the insurance industry version of GIC’s). They are not allowed to offer advice on any other type of investment product.

The third type of advisor is one that is regulated by the Investment Industry Regulatory Organization of Canada (IIROC). In the past, these people were called stock brokers. Nowadays, not only do they sell stocks and bonds, but many of them also sell mutual funds, ETF’s, and insurance products as well as derivatives, options, commodities, and futures.

The final type of advisor is one that is IIROC regulated as outlined above but who is also licensed to manage their clients’ money on a discretionary fashion. These individuals are called Portfolio Managers (PM’s).

So perhaps you are wondering why all of this is so important.

All of these individuals are required to ensure the suitability of the investments that they are recommending to their clients. That said – while an investment may be perfectly ‘suitable’ for a client, that doesn’t mean that it is necessarily the ‘best solution’ for that client. For example … a ‘bond fund’ may be suitable for a RESP that is needed in four years and three months, but an actual ‘bond’ maturing in four years and three months may very well be the most optimal solution for that client. Knowing these subtle differences is the key.

Your selection of who will manage your money is very important because the investment tail wags the dog. That is, if you hire an advisor that can only provide you with their own company’s house mutual funds, then their money management solution for you will obviously be limited to their house mutual funds. The same goes for insurance licensed individuals and IIROC advisors.

It is correct that IIROC advisors do have the largest assortment of investments for their clients, but like most things, the availability of more tools is not a guarantee that the end result will be better than those who are selecting from a smaller list of available investments.

I really cannot emphasize this enough – your investment success still comes down to the advisor’s knowledge, skill, and experience; and your relationship with that advisor.

I personally chose to pursue licensing as a Portfolio Manager (PM) because I believe it allows me to better serve my clients.

PM’s are regulated under IIROC and have access to the same large assortment of investments that other IIROC advisors enjoy. However, PM’s must charge a flat fee rather than charge on a commission basis. The other difference between a PM and the other types of IIROC advisors is that PM’s do not have to contact their clients for permission for every trade they make – they have an agreement signed with their clients to make changes as needed within a framework that factors in the client’s risk tolerance and investment objectives. This is called discretionary trading.

All other advisors must contact their clients with specific investment recommendations and receive permission from the client before they can make a change. If a non-PM advisor makes changes on a discretionary basis without having the PM license they can be fined, suspended, or dismissed.

The advantage for a client employing a PM is that the trades occur when the PM feels it is the right time to do so, rather than when he or she is able to reach the client for permission. The average IIROC advisor in Canada is dealing with 218 families (Source: Investment Executive, September 2009) and has one assistant (that’s the ‘average’ – many insurance and MFDA advisors have significantly more). If the advisor (MFDA, Insurance, or IIROC) believes that the stock markets are about to fall and wishes to change all clients’ asset allocation from 60% stocks/40% bonds to 100% bonds to lower the risk, they can only do so by contacting each client family and getting specific permission to make the trade. This means that at least 218 phone calls have to be made (if not more because some families may have two or more clients in the household).

The net result is that it could take several weeks before all clients are reached. One can easily see that in a falling market the first client reached would have received a better deal than the last client. The last client could very well end up having sold their stock position at a lower price and bought their bond position at a higher price than the first client who was contacted. How fair is that? Well, really it isn’t. If the investment in one client’s account needs to change, then all clients’ accounts holding the same investment should change at the same time and at the same price. That is the fairest way to do it, and that is what working with a PM permits.

The key point is that the PM is permitted to use all the tools at their disposal on an as-needed basis and in a much quicker manner. This is particularly helpful in a rapidly rising or falling market.

Of course, the license to discretionarily trade means an increased level of supervision by the advisor’s head office – which, for the client, is never a bad thing. PM’s must employ a documented and disciplined investment process and all transactions are subject to daily review. PM’s meet with clients to review the results of trades, discuss any questions clients may have, and update any required changes to the client’s profile.

To become a PM is a fairly arduous task as it demands quite a bit of knowledge and expertise (and so it should as it carries a lot of responsibility). One must be experienced in the business, complete significantly more course work and exams than other types of advisors, make an application to the firm’s internal PM committee, and be granted authorization by both the firm’s compliance department and the regulator (IIROC). The firm that I work with (DWM Securities Inc.) has 981 advisors, but only 19 of them are Portfolio Managers.

So how should you go about determining which type of advisor you should be working with? Not all investors need a Portfolio Manager and many do quite well with insurance advisors, mutual fund advisors, and regular IIROC licensed individuals. I always recommend interviewing prospective advisors and if you’re not sure what questions you should be asking, there is a very good checklist in Chapter 16 of my book In Short: Successful Investing During Turbulent Times.

WHY YOU DO NOT WANT TO BE AN EXECUTOR

Posted on November 8, 2012 by Larry Short

In the 25 years that I have been in the investment advice business, I have been involved in more than a few estate settlements. I have witnessed the work of many executors and more than once had executors say to me they wished they had never taken on the job.You do earn a fee, but is it worth it?

Elaine Blades of Scotia Private Client Group noted in a recent article that taking on the executor role is equal to renovating a home. Her point is that like any renovation,it is a tremendous amount of work and something is bound to go wrong, and she is right. A lot can go wrong, and often does.

I thought this was particularly insightful but I would add an extra observation – being an executor is equivalent to renovating a home that is not yours,and when things go wrong – you are held responsible. Further, the final result is subject to public display and review by all of the beneficiaries including the Canada Revenue Agency.

Let me expand on that last point a bit. A probated will and all matters pertaining to it are posted to the various provincial government websites. For a fee of $10 to $25 anyone can go online and see what money and possessions the deceased had and what you, the executor, did with them.

I am personally revolted by this government policy. To me this is equivalent of paying money at the post office to have the right to read someone’s mail; but there is nothing that we can do about that. There is however, a solution to this privacy issue, which I will discuss in my next article. For now, we will focus on the risks of being an executor.

The bottom line is this … as an executor you are personally responsible for all matters related to the estate. This is true despite the clauses that are often included in wills that supposedly discharge the executor from any liabilities. Makes me wonder why they are even there.

As the ultimately responsible person, this includes securing alcohol and firearms in the deceased person’s home. If a teenager breaks into the home and gets drunk, you are liable; if they then shoot someone, you’re even more liable.

The responsibility also includes ensuring that there is proper insurance on the house. There was a case some years ago where the son, who was the executor, missed the fire insurance coverage and the house burnt down. The two sisters were willing to forgive but their husbands wanted to sue, and did.

Being an executor also includes the responsibility of paying the taxes. Another case arose when there was an RRSP at a bank; the wife was the beneficiary, and the executor was a close friend.The wife showed up at the bank with the will, the bank called the executor, and the executor gave permission for the RRSP to be passed over to the wife. She cashed it before it was transferred to her name. Because it was cashed, it should have been included in the deceased person’s final tax return and the resulting tax should have been paid by the estate. The executor missed this, and he ended up being personally responsible to pay the tax.

Those are just three small instances. Expand that to include bank and investment accounts, a condo in the US, other properties and businesses, and throw in a second spouse, and various beneficiaries near and far. Talk about taking on a difficult job.

From sheer frustration, I have seen executors hire a lawyer to do all of the work. This is usually at an hourly rate and is one of the most expensive ways to settle an estate. The lawyer may do the work, but the executor still has the responsibility, and if one of the beneficiaries challenges because they believe the executor diminished the estate through unnecessary fees, the executor may be liable. Executors would have a hard time accepting a fee and passing on the work to a lawyer.

So what are the alternatives? Let’s look at the renovations analogy … you would likely prefer to give the responsibility to an experienced and wise renovator. You should seriously consider the same criteria appointing an executor.

My recommendation is to use a trust company as the executor. These people are often licensed, well trained, and experienced. Of course you will likely want to interview a few to find the best fit for you.

I was hesitant in the past to recommend trust companies because often they insisted on transferring the assets of the client’s estate into their own mutual funds. This placed the trust officers in a conflict of interest because fees were being earned on these funds and such fees factored into how the trust officer got paid. This meant that dragging out the settlement of the estate resulted in higher fees being generated. This was beneficial to the trust company and the trust officer but detrimental to the beneficiaries.

Thankfully, that practice has ended. You can now specify in your will who will manage your assets during the probate period and you can also negotiate the one-time, flat fee that will be charged.Such arrangements give the trust company an incentive to discharge their duties promptly.

Talk with your financial advisor about making such arrangements for your estate, and discuss the concept with anyone who has already named you as executor. You and your family really don’t need the complications.