With Inflation hitting multi-year highs across Canada, a 10% increase in Old Age Security pension will help offset higher living expenses for widows and widowers, especially those dependent on government benefits.

First, the good news on Old Age Security (OAS)

1. A 10 % increase in payments

All Canadian over the age of 75 will receive a 10% increase of OAS pension starting on July 2022. The payments will increase from $666.83 per month ($8,001.96 annually) to $733.51 per month ($8,802.12 annually).

Source: https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/benefit-amount.html

2. OAS is adjusted for inflation

OAS pension is reviewed and potentially adjusted several times during the year (January, April, July, and October) to reflect the increases to the Consumer Price Index (CPI).
Declines in CPI (although very unlikely at the moment) will not cause a decline to the OAS pension.

3. OAS may be deferred for up to five years

OAS may be collected at age 65 or may be delayed to age 70. By delaying OAS, the payment is increased by .6% for every month deferred.
For example, if OAS is delayed by five years, the payments increase by 36% (60 months multiplied by .6%). Assuming the annual OAS payment was $8,001.96 (see above chart), a five year deferral increases payments from age 70 onward to $10,882.67.

Now for the bad new on Old Age Security (OAS)

1. The OAS Claw back

Financial planners refer to the partial or full repayment of OAS as a “Claw Back” but the government calls it the “Old Age Security Pension Recovery Tax”.

Basically, the OAS recovery tax begins when a taxpayer’s world wide income exceeds $81,761 (for 2022) and is completely clawed back if their income exceeds $129,757 (for 2022).

For example, If Mary’s taxable income in 2022 was $90,000, the claw back is calculated as follows:

Step 1: Calculate the excess above the threshold

$90,000-$81,761= $8,239

Step 2: Calculate the claw back by multiplying excess by 15%

$8,239* 15%= $1,235.85

Step 3: Subtract the claw back from the base OAS

$8,001.96-$1,235.85= $6,766.11

The new clawed back OAS is now $6,766.11, reduced from the base of $8,001.96 and is taxed at the widows/widowers marginal tax rate.

Source: https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/recovery-tax.html

2. Your late spouse’s OAS cannot be transferred to you

Sadly, the OAS pension program doesn’t offer a survivor benefit for surviving spouses. The widow/widower can only receive one OAS pension and no top up is offered.

Conclusion

During an inflationary and uncertain economic period in Canadian history, the OAS pension provides widows and widowers with a guaranteed and indexed pension for life.

But the lack of OAS survivor benefits and a claw back provision often reduces the benefits of the OAS program for many widows and widowers. Tax and cashflow planning are highly recommended to preserve as much of the OAS pension as possible.

Although OAS provides a reliable source of retirement income, it’s best if combined with other sources of retirement income such as Canada Pension Plan, employer pension plans and personal pension such as RRSPs, etc.

If you have any questions about your OAS pension or any other retirement income sources, please call our office for an appointment and I’ll help you calculate your retirement income.

Related blogs:

https://richarddri.ca/cpp-for-widows-ers-planning-for-retirement/

https://richarddri.ca/why-widows-especially-should-defer-cpp-to-age-70/

source https://richarddri.ca/good-news-for-older-widows-and-widowers-a-10-increase-in-old-age-security-pension/

Parents (and grandparents) want the best for their children and grandchildren, including a good education.

In today’s competitive job market, a college or university degree is more important than ever and will likely become even more necessary in the future. That’s why it’s essential to start planning for the costs of education right now.

Registered Education Savings Plans

Registered Education Savings Plans (RESPs) are one of the best ways to meet your family’s education savings goals.

With RESPs, you can contribute to the future cost of a child’s education. Unlike RRSPs, contributions made to an RESP are not tax-deductible. However, the contributions have the opportunity to grow tax-sheltered in the account. And the income earned on the contributions is not taxable until paid out to a beneficiary (who will be typically taxed at a very low rate, if at all).

Withdrawals of income can be made to a beneficiary in full-time attendance at a qualified post-secondary institution. There is no limit on capital withdrawal. It can be made to either subscribers or beneficiaries.

While there are currently no annual contribution limits, you can only receive the Canada Education Savings Grant (CESG) on the first $2,500 in contributions per year, or up to the first $5,000 in contributions, if sufficient carry forward room exists. The maximum CESG paid per year is $1,000. Any contributions over and above these amounts will not receive any CESG for the current year or subsequent years. The lifetime RESP contribution limit is $50,000 for each child. You can make contributions to an RESP for up to 31 years, and the plan must be terminated no later than 35 years after you first opened it.

What happens if, for any reason, your chosen beneficiary doesn’t pursue post-secondary education? In that case, you can either name another beneficiary to the plan or transfer any unused income to your own (or your spouse’s) RRSP, up to a $50,000 limit, provided you have the contribution room. You can also have the income refunded with an additional 20% tax applied on top of the marginal tax rate. If you choose to be refunded, you’ll only be taxed on the gains because your contributions were made with after-tax dollars, and, therefore, they’re not subject to additional taxes upon withdrawal.

Finally, if you wish to contribute for the current year, ensure you have your child’s Social Insurance Number and plan to contribute before the end of December.

RESPs and the Canada Education Savings Grant

The 1998 federal budget introduced the Canada Education Savings Grant (CESG) to make RESPs a more attractive savings vehicle for Canadians. Updates to the plan were added in 2007 and 2008.

Under the RESP program, every RESP beneficiary, until the end of the year they turn 17, is eligible to receive a grant of up to 20% of the first $2,000 contributed each year ($400 maximum per year) from 1998 to 2006 inclusive, then $2,500 contributed from 2007 onward. Contributions for beneficiaries aged 16 and 17 will only receive a CESG subject to certain stipulations.

While missed RESP contributions cannot be carried forward, the CESG room can be accumulated until the end of the year the beneficiary turns 17. There is a lifetime limit of $7,200 on the amount of CESG money any one student can receive from an RESP. Payments are to be made directly into the RESP and can be invested along with the contributions.

The CESG can be included in the educational assistance payments paid to the beneficiary once they pursue higher education. However, any unused CESG must be repaid to the government.

Canada Learning Bond

In addition to the CESG, your child may qualify for the Canada Learning Bond (CLB). CLB is money that the government adds to an RESP for children from low-income families meeting net income and a qualified number of children thresholds. The Government of Canada contributes up to $2,000 maximum CLB to an RESP for an eligible child. This includes $500 for the first year of eligibility and $100 each subsequent year the child continues to be eligible, up to and including the year they turn 15. Like CESG, if your child does not pursue higher education, any unused CLB must be repaid to the government.

Tax Free Savings Account

Another option to assist with education costs is to use a Tax Free Savings Account (TFSA).

A TFSA is versatile in its use and may effectively complement an RESP. RESPs and TFSAs are similar as contributions to either type of account are not tax-deductible. However, TFSAs have some unique features when compared to an RESP. For instance, income earned within a TFSA is never subject to tax, even when withdrawn. In addition, funds within the TFSA can be used for any purpose – not just education. With an RESP, the CESG and other potential grants must be repaid to the government if your child does not pursue higher education. Unused contribution room within a TFSA may be carried forward. As of January 2022, the cumulative TFSA contribution limit is $81,500, with a current annual limit of $6,000.

Given the rising costs of post-secondary education schooling, saving for a child’s education needs to be a priority for parents. Contact the Dri Financial Group to discuss educational savings strategies in more detail.

source https://richarddri.ca/resps-and-other-ways-to-save-for-education/

Since widows and widowers do not have a co-contributor to family expenses, emergencies may throw the family budget into a deep hole.

A widow’s emergency fund is simply a separate amount of money earmarked for unexpected emergencies. The intention of the funds is to pay for unpredictable expenses that are not covered by normal monthly cashflow.

In today’s highly inflationary and low interest rate environment (albeit higher than 12 months ago), it’s critical to consider how much is needed, where to invest the cash and how to balance other savings needs (i.e., tuition, bills).

Purpose of an emergency fund?

As a financial planner, I’ve struggled with clients who did not believe in the value of an emergency fund or use the fund as a “slush” account to cover expected expenses such as vacations or car purchases.

However, unexpected expenses may cause widows/widowers to borrow from credit cards, lines of credits or to increase the mortgage on the family home. These options often carry high interest rates, long repayment schedules and may cause harmful damage to retirement plans.

My suggestion is to budget and save for all foreseen expenses and save separately for expenses arising from unexpected events.

For example, If a widow/widower has a 15 year old car, the purchase of a new car or frequent repair to the existing car is not an unexpected event and should be in the family budget. But, emergency dental work (in excess of amounts covered by health plans) is usually not expected and should be paid from the emergency fund.

How much money should an emergency fund have?

In my opinion, the worst unexpected event for a widow/widower is a job loss (financially speaking of course). A job loss may result in weeks or months of reduced income (i.e. from employment insurance, severance payments) or worse, zero income.

Since the widow/widower doesn’t have financial support from a life partner, making ends meet during a job loss is stressful and potentially devastating financially.

In my experience, an emergency fund should cover approximately three to six months of vital family expenses. I recommend three to six months because it’s normally the time I see clients take to find new jobs.

A widow or widower’s personal circumstances will influence where on the range they should target, for example, a widow/widower with dependent children and/or a mortgage should carry higher reserves (perhaps six months) versus a widowed individual with adult kids and comfortable retirement savings could reduce the reserve to the lower end of the range.

Where should a widow or a widower invest the cash reserve for emergencies?

The purpose of the emergency fund is to be available quickly when an emergency occurs, hence the investment objective is ease of access and safety of principle (not growth).

High risk investments may be great long term investment tools however, they are usually very volatile and may be worth less than expected when needed, hence they are not an appropriate investment vehicle.

On the other side of the spectrum, guaranteed investments such GICs or savings accounts offer low interest rates and when inflation is close to a 40 year high, the net investment return (after inflation) is negative. A negative return causes widows or widowers to constantly add to the reserve to keep up with inflation.

Since no investment plan is perfect, I suggest short term guaranteed investments for emergency reserves. If a widow or widower wants more growth, they might consider increasing the equity component of their RRSP and/or TFSA. Both registered plans have longer time horizons and withdrawals may be aligned with stronger market conditions.

Emergencies are disruptive for everyone but for widows or widower, the financial implications of an emergency may be life altering.

How does a widow/widower balance the need for an emergency reserve versus other cash requirements?

For most widows and widowers, building an emergency cash reserve competes against saving for retirement, tuition, and debt reduction so, how does one reconcile the various cash requirements?

I suggest widowed individuals prepare a retirement plan using projected income, expenses, major outlays (new cars, tuition, house renovations, kid’s marriages, etc.) and include the gradual build up of cash reserves.

The retirement plan helps widows and widowers pay for normal everyday expenses and prepare for unexpected emergencies.

Conclusion

Ensure that three to six months of vital living expenses are invested in short term guaranteed investments and while on the topic of emergencies, don’t forget adequate life and disability insurance.

If you need help calculating your emergency fund, please book an appointment and together we will identify the amount and investment vehicles for your emergency reserves.

The process of finding a financial advisor can be overwhelming. It is our job to make that process simpler and easier.

Dri Financial Group’s proprietary Wealth Navigator Process is designed with you in mind.

Its structured framework helps you make an informed decision and feel confident in our team and management practices before we get started.

We offer you a range of services from creating bespoke financial plans and providing investment advice to helping you take advantage of our investment models. If you would like more information on the Wealth Navigator Process or our team, call me any time at 416.355.6370 or email me at richard.dri@scotiawealth.com.
—

Beyond helping you manage your finances, we take pride in motivating, educating and helping you expand your financial literacy. We are here to answer any questions you have and to help you feel in control of your financial destiny.

If you are ready to dive deeper into your financial literacy journey, we have a wide range of free tools and educational resources available.

1. • Subscribe to our ​Never Retire Newsletter
   • Contact us to ​order a complimentary e-book
   • Check-out our latest ​Wealth Navigator P​odcast
   • Follow me on ​LinkedIn

source https://richarddri.ca/does-a-widow-need-an-emergency-fund/

My first experience with life insurance occurred in the early 1990s, when I was young financial planner who knew everything about anything (so I thought).

Here’s a true story, some background first.

My client, a doctor, operated a successful plastic surgery practice in Toronto. He was in his early 40s, had three young kids, a stay at home wife and a mountain of debt. Most of the debt came from medical school and equipment needed for his practice. But a good portion of the debt came from a lifestyle that reflected the income he expected to eventually earn.

Now here’s what happened.

One morning, I received a call from a crying woman who introduced herself as Frank’s wife (not his real name), Judy (not her real name) explained how Frank suffered a fatal heart attack while playing golf with his buddies. She asked for an appointment to discuss Frank’s life insurance policy.

During our meeting, I explained that Frank had a $1,000,000 life insurance policy and she was the sole beneficiary. We discussed how the death benefit could provide time to rebuild her life, but she would need to make several major financial changes.

After running many different “what if” scenarios, Judy decided to downsize her family home, transfer the kids to public school and found a part time job. The life insurance death benefit, as well as the proceeds from the sale of the first house, allowed her to buy a smaller home. She was now mortgage free and she invested the remainder in an annuity that provided a guaranteed monthly payment for life, thus supplementing her income.

Was this a perfect outcome, NO, but it provided the family enough money to get back on their feet. In hindsight, Frank needed more insurance coverage.

Frank’s Widow faced her own mortality

After completing the work on Frank’s estate, Judy asked if she needed her own life insurance policy. My answer was a resounding “YES”.

Why did Judy need life insurance?

Judy had three financially dependent kids (ages 10, 12 and 15 ). If she died unexpectantly, the estate would not have enough money to financially support her kids until they were old enough to be independent.

Again, we ran numerous illustrations and finally estimated that if Judy died today, her kids needed approximately $1,200,000 of cash to cover their care and education expenses until they reached the age of 21.

Although Judy’s cash flow was tight, she realized that if she died during the next 11 years, the kids would not have the necessary funds to maintain a reasonable lifestyle. Judy decided she couldn’t live with the risk, so she bought a term life insurance policy for $1,200,000.

Fortunately, Judy is still alive today and doing very well.

Lessons for widows and widowers

1. Financially dependent kids may create a need for life insurance.

Ask yourself, if I died today would anyone (i.e., kids, parents, business) be financially burdened by my death? If the answer is yes, you may need life insurance.

2. Although rare, young people can die too.

When a young person dies, he/she often causes disastrous financial implications for the surviving spouse and children (not to mention the emotional suffering).

Don’t assume that the unexpected will not happen to your family. Consider all risks, and purchase the appropriate insurance.

3. Incorporate life insurance in your financial plan

When preparing your financial plan, include a life insurance analysis and discuss the family’s strategy in the event of your unexpected death.

If you’re widowed and not sure if you need life insurance, or how much life insurance is sufficient, please book an appointment and I will personally help you evaluate your life insurance needs.

The process of finding a financial advisor can be overwhelming. It is our job to make that process simpler and easier.

Dri Financial Group’s proprietary Wealth Navigator Process is designed with you in mind.

Its structured framework helps you make an informed decision and feel confident in our team and management practices before we get started.

We offer you a range of services from creating bespoke financial plans and providing investment advice to helping you take advantage of our investment models. If you would like more information on the Wealth Navigator Process or our team, call me any time at 416.355.6370 or email me at richard.dri@scotiawealth.com.
—

Beyond helping you manage your finances, we take pride in motivating, educating and helping you expand your financial literacy. We are here to answer any questions you have and to help you feel in control of your financial destiny.

If you are ready to dive deeper into your financial literacy journey, we have a wide range of free tools and educational resources available.

1. • Subscribe to our ​Never Retire Newsletter
   • Contact us to ​order a complimentary e-book
   • Check-out our latest ​Wealth Navigator P​odcast
   • Follow me on ​LinkedIn

source https://richarddri.ca/as-a-widower-do-i-need-life-insurance/

When there is a divorce or separation, family law will attempt to clarify responsibilities for support and the division of family assets.

The tax implications of transferring the assets will likely determine how the assets are to be divided to ensure that the individuals maximize their available cash and minimize taxes. Therefore, it is important to understand the tax implications and engage tax professionals early in the separation process to ensure all objectives are met. This article will discuss the tax implications of the following:

• Division of property
• Support payments
• Tax-deductible expenses
• Government credits

Division of property

Generally, when there is a transfer of property between two individuals, the transfer is usually done at fair market value. Any capital gains that arise from the transfer will be subject to taxation. However, in a divorce or separation, spouses or former spouses may transfer assets to one another on a tax-deferred basis using the spousal rollover. The spousal rollover is available when the transfer results from a settlement of rights arising from a marriage or common-law partnership. The adjusted cost base will remain unchanged when transferred to the former spouse.

In some circumstances, the property transfer between former spouses can be done at fair market value. To transfer the property value at fair market value, both individuals must file an election with the Canada Revenue Agency (CRA). The transfer at fair value may be beneficial when one party has significant capital losses that they want to utilize or if the individual wants to use their lifetime capital gains exemption.

Family home

For most individuals, the family home is the largest asset that is subject to division in a divorce. As discussed above, the family home can be transferred to the former spouse at cost or fair market value. An issue arises when the couple owns more than one property, and both properties are held for personal use. As the family can only designate one property as their principal residence, any other properties would be subject to capital gains when sold. If the divorce agreement is silent on who gets to claim the principal residence exemption (PRE), it will be the first of the spouses to sell one of the properties who can claim the PRE. This suggests that any good separation or divorce agreement should clarify how the PRE will be claimed upon a subsequent sale of a particular property.

RRSPs, RPPs, DPSPs & RRIFs

Upon the breakdown of a marriage or common-law partnership, an individual can transfer assets to their former spouse’s registered plan on a tax-deferred basis. However, once the assets are transferred to the former spouse, the receiving spouse will be liable for future tax obligations when the amounts are withdrawn.

Registered Education Savings Plan (RESPs)

RESPs are unique as the plan’s beneficiaries are the children and not the spouses. However, the subscribers (usually the parents) can control the funds within the RESP and can choose to withdraw the funds.

Former spouses can remain subscribers of the RESP after a divorce or separation. However, if the spouses do not wish to continue to be joint subscribers of the RESP, it can be split and transferred to another RESP on a tax-deferred basis. For the transfer of the RESP to be on a tax-deferred basis, the beneficiaries must remain the same.

Tax Free Savings Account (TFSA)

When there is a breakdown in a marriage or common-law partnership, amounts within a TFSA can be transferred directly from one spouse’s TFSA to the other’s TFSA without affecting the receiving spouse’s contribution room. However, the transfer must be done directly between the TFSAs by the financial institutions.

Canada Pension Plan (CPP)

CPP contributions made when a couple was married or were common-law can be equally divided during or after a divorce or separation. The contributions can be divided even though one spouse did not contribute to the CPP during the period.

Private pension plan

Funds in private (employer-sponsored) pension plans accumulated while the couple was married or considered in a common-law relationship may be included in family property (please check your provincial legislation) and be subject to division upon separation. Generally, the maximum amount that can be split between a former spouse is 50% of the value accumulated during the marriage. However, in some provinces, a judge can order that the allocation be greater than 50%.

Individuals who own a federally regulated pension plan can also assign up to 100% of their pension to an ex-spouse or ex-common-law partner. In addition, if a pension is being paid out during the time of separation or divorce, the former spouse may be entitled to receive up to 50% of the contributing spouse’s monthly benefits.

Support payments

Spousal support is taxable in the hands of the receiving spouse and deductible for the paying spouse when the following conditions are met:

• The amount is payable under an order of the court or written agreement (based on provincial laws);
• The amount of the support payment is specified and on a periodic basis for the maintenance of the receiving spouse;
• The receiving spouse has complete discretion to use the support payment as they wish; and
• The payer and the receiving spouse are living separately and apart.

Child Support payments are not tax-deductible for the paying spouse and are not required to be included in the receiving spouse’s income. However, child support payments negotiated and agreed upon before May 1, 1997, were tax-deductible.

Tax-deductible expenses

Legal fees

Legal fees incurred to get a separation or divorce, to establish custody of or visitation arrangements for a child are not tax-deductible. However, the legal fees incurred for the following are deductible for tax purposes:

• Fees incurred in relation to enforcing payment or defending against a reduction of spousal support
• Legal fees incurred to try to make child support payments non-taxable

Childcare expenses

Childcare expenses are typically claimed by the spouse with the lower net income while a couple is married. After a divorce, if the child is in a shared custody situation, where the child lives with each parent at different times in a year, both parents may be eligible for the childcare expense deduction. Each parent may only claim childcare expenses incurred for when the child resided with them and only to the extent that the costs were paid by them—provided that the expense was to enable that parent to earn an income or obtain an education.

Government payment and credits

Canada Child Benefit (CCB)

Upon divorce or separation, depending on which parent has custody of the child, the revised CCB can vary as it is now calculated based on that specific parent’s new adjusted family income. The maximum CCB in 2020 is $6,765 (for children under 6) and $5,708 (for children aged between 6 to 17).

If the parents share custody of the child, each will get 50% of what they would have received if they had full custody of the child, calculated based on their own adjusted family net income. The CRA will not split the CCB using other percentages or give the total amount to one of the parents.

GST/HST credit

If an individual is recently divorced or separated from their spouse or common-law partner, they may be entitled to the GST/HST credit once the CRA has been notified of the marital status change. The CRA will determine your eligibility (based on your income for the prior year) and inform you if you are entitled to receive the GST/HST credit.

Eligible dependent tax credit

The eligible dependent tax credit is a non-refundable tax credit of $13,229 (2020). An individual may claim the eligible dependant tax credit for a dependent child or other dependent relatives if the following conditions are met:

• You do not have a spouse or common-law partner, and you were not supporting or being supported by a former spouse;
• You supported a dependant during the year; and
• You lived with the dependant in a home that you maintained.

Summary

Transitioning through a divorce can be emotional and challenging for anyone. Engage tax and legal professionals early to develop agreeable tax-effective solutions that may benefit both spouses.

source https://richarddri.ca/tax-implications-of-a-divorce/

As a widower, I must have the confidence to make my own decisions even if it means contradicting my late spouse’s positions.

When Mary and I drafted our Wills, we agreed to leave everything to the surviving spouse and on second death, equally to our three children. After Mary died, I decided not to change my Will and left my three kids inheriting any remaining assets equally.

Recently, I questioned whether I made the right decision. I asked myself: do I still agree with an equal distribution or should I treat each child differently?

Equal versus Fair

In my mind, an equal distribution of assets means that each child receives one third of my remaining assets (I have three children). A fair distribution assumes my children receive a portion based on another metric (e.g., needs, family participation/involvement).

From my experience as a financial planner, most clients believe that a sibling “war” will erupt if they leave their children different amounts of money, instead they opt for a “less controversial” route and distribute their assets equally on second death. Mary and I belonged to this group.

But does this decision make sense?

Let’s review two reasons it may be fair to leave each child with a different amount.

1. Different needs

No one can predict the future but what if one of my kids experiences one (or more) of the following:

• A costly divorce and a second marriage
• A bankruptcy
• An illness/sickness
• A disabled child
• Becomes addicted to drugs or alcohol
• Unable to maintain a job

Each of the above situations will negatively impact my child’s financial position. I feel responsible to help this child while I’m alive and potentially after my death by providing him/her a larger inheritance.

2. Different degrees of family involvement

Currently, my three children live in three different cities and their family input varies. Again, I don’t know what the future holds but what if one of the situations below occurs:

• A child becomes estranged from the family
• A child becomes my caretaker (I hope this never happens)

Personally, I think that a child’s involvement or lack of involvement in family matters should be a factor in deciding how to divide assets after death.

If one child ignores the family or fails to engage in family issues, is it fair to allocate this child with an equal weighting of any heritances? I don’t think so.

Cash or Assets

After deciding on an Equal or Fair allocation for my children’s inheritance, the next decision is to decide if I should leave assets or cash.

For example, some families leave the cottage to one child and the family home/a stock portfolio to the others. Even if the family home/stock portfolio and cottage have equal values, I don’t like this approach and prefer leaving children cash.

As a long term investor, I appreciate that assets grow at different speeds. This causes me to worry that one child’s inherited assets may grow faster than the assets given to his/her sibling, causing conflict and resentment among the siblings.

As I get older (and hopefully wiser), I’ll convert my assets to liquid investments and instruct my executor to distribute cash and not assets to my beneficiaries. The kids may proceed as they wish with their portion of the cash and hopefully, they will all be very successful long term investors.

Communicate, Communicate, Communicate!

I’m leaning toward treating my children according to their needs (not equally) and I’m prepared to communicate the “why” behind my choices during my lifetime (not after I’m deceased).

From my experience as a financial planner, many parents refuse to share their dying wishes with their children before their death. I think this may be the biggest estate planning error anyone can make.

If I change my Will, I plan to hold a family meeting so my Will may be read, and the kids have an opportunity to ask questions.

I may find that a child feels surprised and/or hurt by my decisions. A family meeting provides the opportunity to explain my reasons and my intentions.

Occasionally, I have seen children raise legitimate issues that parents have either accidently ignored or have not properly addressed. Having the meeting before death provides an opportunity to change the Will to reflect the consensus and reduce conflicts after death.

Conclusion

Many readers may disagree, but I feel kids should receive their inheritance based on what’s fair (e.g. needs, family involvement), and not equally.

At the moment my children are young, and I see no reason to justify providing unequal inheritances. However, if this changes I’ll use the “needs” metric to help decide how to fairly allocate the assets left behind.

Please let me know what you think, should assets be allocated equally or fairly? If you select fairly, what metric will you use to help make the allocation.

source https://richarddri.ca/now-that-im-a-widower-should-i-treat-my-three-kids-equally-in-my-will/

You may have drafted your will once you married, but if your marriage breaks down, you should re-evaluate your plan and amend who receives your assets in the event of your untimely death.

Your will

Usually, when couples marry, they make each other the beneficiary of their wills. A will is not automatically revoked by divorce. However, if you get divorced, any provisions in the will where the former spouse is left assets or made the Executor are revoked. This is subject to a contrary intention appearing in the will. Therefore, you will need to reassess the arrangements in your will.

Consequently, if you are drafting a new will after a marriage breakdown, you should ensure that any dependent children are adequately provided for on your death. The Family Law court can step in and overrule your will if you don’t. Take the opportunity to review our Will planning checklist to help guide you when planning your estate.

A professional should be consulted when a will is being considered. Legal and family issues need to be addressed if this route is taken.

RRSPs, RRIFs and life annuities

With these investment structures, you can (and should, in most circumstances) have named beneficiaries. When your relationship breaks down, you must look at your investments to determine if the recipients are still appropriate in your new situation.

Insurance

In many cases, married couples name each other as the beneficiaries of their life insurance policies. If you are going through a separation or divorce, you may want to reconsider who you name as your beneficiary. If you do not contact the insurance company, your former spouse will continue to be the beneficiary of the policy. In the case of a relationship breakdown, you may want to change the life insurance coverage to provide for your children should anything happen to you.

Depending on the nature of the separation agreement, you may be required to buy life insurance with your former spouse and/or children named as the beneficiaries. This is typically the case where spousal and/or child support is being paid by the primary income earner and ensures that if the supporting spouse dies, there would be enough money to support the children. In the case of this type of policy, the beneficiaries are irrevocable, meaning the recipient cannot be changed to someone else without the written permission of the current beneficiary.

Speak to The Dri Financial Group about how a divorce can impact your insurance coverage.

source https://richarddri.ca/the-importance-of-estate-planning-and-insurance-after-a-divorce/

In most jurisdictions across Canada, assets received by a grown child — whether as an inheritance or as gifts during your lifetime — can be exempt from the division of their family assets in the event of a relationship breakdown.

But if certain planning strategies aren’t implemented, gifts or inheritances you intend for your child could be shared with their partner, should their relationship break down.

Here’s an overview of five strategies that can help protect the inheritance you pass on to your children from the consequences of a relationship breakdown.

1. Set out your intentions in your Will

One easy-to-implement strategy is to make sure your intentions for any inheritance or gift you will give to your adult children are clearly specified in your Will.

For example, include a clause that states that your child’s inheritance, when you die, is meant solely for their benefit and is not to be included in any division of their family assets. Also, specify that in addition to any principal inherited by your child, any income or growth on the inherited property remains separate.

2. Discuss your wishes with your adult children

Make sure you have an open and frank discussion with your adult children about your intentions for any gifts or inheritances you provide to them. Talk to them about how gifted and inherited funds can be protected from division in the event of a future relationship breakdown.

While it’s important to make sure your wishes are known, this won’t be enough. Other strategies will likely be needed to protect your children’s inheritance from the consequences of relationship breakdown.

3. Advise them to keep inherited assets separate (where applicable)

In some jurisdictions, inherited and/or gifted funds will not be considered part of your child’s family assets if those funds have been kept separate and apart from the rest of any family assets, and those funds still exist at the date of separation. This would require a certain attentiveness on your child’s part: if the gifted or inherited assets were inadvertently mixed with family assets, they would become subject to division.

4. Encourage your children to create domestic contracts

Many couples put in place domestic contracts that govern how assets are divided if the relationship ends.

Although these forms of contract go by many different names —pre-nuptial agreement (prenup), postnup (or marriage contract), cohabitation agreement — they are all forms of domestic contracts setting out the rights and responsibilities of two people living in a conjugal relationship.

In this case, a parent’s role would generally be limited to discussing the options with an adult child. The domestic contract would be entered into by the two participants in the relationship, whether it’s a legal marriage or a common-law partnership.

5. Consider leaving assets to your children in long-term trusts

A fifth strategy, and one that is within your control as a parent, involves using long-term testamentary trusts to distribute your estate to your adult children. A testamentary trust is a legal entity established in a Will that manages the deceased’s assets on behalf of the trust beneficiaries.

If the beneficiary of a testamentary trust chooses to keep the assets in the trust and does not use them to purchase family assets (such as a family home), the assets are not generally subject to division in the event of relationship breakdown.

Long-term trusts are a flexible financial planning tool that offers other benefits, too. For example, trusts can be a good way to flow funds to any future grandchildren, providing tax advantages to the beneficiaries and limits on how and when the money is available to them.

All this said, if you’re thinking about using testamentary trusts to pass your assets on to your children (or grandchildren), be aware that there are several tax issues you’ll need to include in your planning.

6. Understand the rules and plan ahead

The rules around inherited/gifted money in the event of a relationship breakdown can be complex, and they’re different depending on whether your child is in a legal marriage or a common-law partnership and which province or territory they’re living in.

As a parent, it’s worth making sure you understand the rules and familiarize yourself with the strategies that can help ensure your wishes are fulfilled.

Find out how an Estate and Trust Consultant at Scotiatrust® can help you with your Will and estate planning needs.

source https://richarddri.ca/how-to-divorce-proof-your-childs-inheritance/

A divorce can impact many aspects of your life, including family dynamics, living arrangements, lifestyle, and financial situation.

Proper preparation and planning can help you protect your finances, preserve family harmony, and take charge of your financial well-being. Consider creating or revisiting your financial plan as you go through this significant life transition.

Here are some key considerations to help you make strategic financial decisions during a divorce.

Factors that can increase spending

Divorce can be costly, from hiring a legal advisor to guide you through the divorce process to engaging an accountant to help you plan for asset distribution. In addition, there are other expenses that you might not think to consider:

• Child health, personal care and extracurricular costs — New travel costs between households, additional therapy costs, sports or school events, and expenses for dependants may increase.
• Living expenses — Since you will be solely responsible for running your household, you must cover all living expenses. Your living expenses may also increase with utilities, food, mortgage, and home maintenance. Additional costs may be incurred for dependent children to maintain a consistent lifestyle in two separate households.
• Childcare expenses — Consider if additional childcare will be needed when both parents live in separate homes. It may be more challenging to coordinate vacations or personal time away from work.

Your support payment options

Whether you are paying or receiving support payments, the type and length of support will directly impact your financial plan. When contemplating support payments, it is important to consider the following:

Spousal support

• It can be settled either as a lump sum or as a monthly payment for a specified number of years.
• Generally, periodic spousal support payments are taxable in the hands of the receiving spouse and tax-deductible to the paying spouse. However, note that periodic support payments made to a spouse before drafting a written agreement may not be fully deductible for tax purposes.

Child support

• Typically, couples strike a monthly payment arrangement until their children reach the age of majority or have completed their post-secondary education.
• Generally, payments agreed upon after 1997 are not tax-deductible to the paying spouse nor taxable to the receiving spouse.

Length of support payments — Child support may continue while your children attend university and are dependent. Spousal support may be finite or indefinite. Ensure that any support is appropriately reflected in your financial plan and budget.

Determining support payments — Support can be paid based upon a parent’s earnings or performance-based compensation. When compensation is commission-based or tied to performance metrics that can fluctuate from year to year, you may agree on a flexible component to adjust support based on the person’s annual income fluctuation. This should be reflected in your financial plan.

How to make financial projections during the negotiation process

Your advisor at Scotia Wealth Management can partner with you to draft financial projections to help clarify your financial situation through the divorce process. These projections can examine various scenarios while making assumptions on how you will settle a matrimonial agreement.

Some questions to keep in mind while preparing for the negotiation process are:

• How will any increased spending be split between both parties?
• Will assets need to be sold to provide liquidity?
• Will downsizing your home be part of the plan?
• Will one party purchase some of the other’s assets?

Dividing debt

During the divorce process, it is critical to ensure that required payments continue to be made on mortgages, lines of credit and credit cards to avoid impacting your credit rating or reputation. Debt can be difficult to divide, as one or both spouses may not have enough equity or a strong enough credit rating to assume debt on their own. Early consultation with your lender can help you determine the next steps.

When thinking of debt during divorce, consider the following questions:

• Is there existing debt that must be accounted for?
  Debt may be fixed with a repayment schedule or have variable access to proceeds based on an approved credit limit. Especially in an acrimonious divorce, it is essential to restrict access to credit that increases any joint obligations.
• Will each party be able to qualify for financing on their own?
  Often, the spouse with a lower income may have little or no credit history individually, particularly in families that decided to have a stay-at-home parent.
• Will there be a material change to the terms of any existing debt if one person is removed from the agreement?
  Mortgages or fixed-term debt will often have pre-payment penalties that may arise with a change to the contract. Other debt arrangements may give the lender the right to demand payment should the strength of the security or the borrower be of concern. Communication with your lender can help, so keep them informed of your situation.
• Can the legal title to property be changed as appropriate, and does it coincide with a change to associated financing?
  The property may be currently registered jointly, and each of you is jointly and individually responsible for the debt associated with the property. This means that, if necessary, the property may transfer to one individual only who will assume responsibility for paying the outstanding liability. Therefore, it is important to update the legal title registration and registered security appropriately.

Splitting private corporations, partnerships or joint ventures

When ownership of a private corporation or partnership interest is owned by one or both spouses, it can add complexity to any negotiation process. Depending on how the business is structured, certain considerations would preclude one of you from holding ownership. Contemplate the following issues:

• Is there a unanimous shareholder, partnership or joint venture agreement that prescribes what happens in the event of a divorce?
• Are there restrictions through an agreement or regulatory bodies on who can have ownership?
• How will the division of ownership interests affect other existing owners of the business?
• How will the business be valued? Consider engaging a business valuation specialist to determine the appropriate fair market value. Ask your advisor for an introduction.
• Is there corporate-owned life insurance that must be considered?

Life and medical insurance

Payments of life and medical insurance could be part of your divorce settlement and be subject to negotiation. As the ownership and beneficiaries of the insurance will likely change, consider the following questions:

• Who will pay the premiums?
• Will there be a change in ownership of any policies?
• How will any existing jointly owned/insured policies be treated?
• How will insurance or cash surrender value be used to equalize the division of assets?
• Are there any tax consequences to changing the policy?
• Will there be a change in beneficiaries for any existing policies?
• Will beneficiary appointments be irrevocable?
• Will insurance be required to cover support payments in the event of a death or disability?
• Are there any health issues that may affect eligibility?

How pensions play a role

Many pension rules include a requirement to pay a survivor pension to a surviving spouse. If the pension or locked-in retirement account is subject to division, the manner of division will depend on the regulating federal or provincial legislation. In many circumstances, spousal waivers will be required to divide the pension or locked-in retirement account to stipulate that the former spouse will not continue to be entitled to survivor benefits.

Please consult with your legal advisor and your Scotia Wealth Management advisor to learn more.

Consider the allocation of government payments and other tax implications.

There are various Canadian government benefits and tax credits that benefit individuals as part of a family unit. When filing your tax returns as separated or divorced individuals, both spouses should consider the divorce’s tax implications. Refer to our article Tax implications of a divorce to learn more.

Updating your estate plan

As with other major life events, you should work with your legal advisor to update your estate planning documents to reflect your new circumstances and current wishes. These include your Will, Powers of Attorney and personal directives.

Where you have named your former spouse as a beneficiary on registered accounts such as RRSPs, RRIFs, locked-in accounts, TFSAs, pensions and life insurance policies, consider a change in beneficiary to reflect your current wishes. Seek support from your Scotia Wealth Management advisor, life insurance consultant and pension administrator to update your beneficiaries accordingly.

Going through a divorce can be a complicated and emotional process. The Dri Financial Group can help you navigate the complex financial decisions during a divorce and plan for your future goals.

source https://richarddri.ca/financial-planning-considerations-when-navigating-a-divorce/

The mere thought that being a widow or widower can have positive aspects feels taboo – something we don’t talk about. I’d like to change that.

I’m about to say what might sound like the most terrible thing a widow or widower might say.

“Some positive things come out of being widowed.”

There. I said it. And if you’re someone who’s been widowed, as I have, over a few years when the grieving process has settled somewhat, you may be thinking “yes, sorry, but it’s true”, but have felt too guilty to admit it.

Of all the emotions that course through your system after losing a spouse, guilt might be the most difficult one to set aside. The idea that any aspect of my life might be better today than when I was with Mary feels like a terrible admission.

But I’m admitting it here, to you.

Now, believe me, I loved my wife. For 37 years she was my everything. I miss her every single day, and I would gladly surrender any positive aspects of my “new” life to have her back. But I also know having her back is impossible, so it’s important to accept – even embrace – these new positives for me to be truly happy.

Here are a few ways that I feel, in Mary’s absence, I’ve grown as a person. Sometimes for the better.

1. I DISCOVERED I HAD THREE KIDS

When Mary was alive, we both took very traditional roles within our family. I was the “breadwinner”, focused on growing my financial planning business. Mary took care of our three kids, the house, breakfast, lunch, and dinner, family vacation planning, household finances…well, pretty much everything.

And I thought she had the easier job.

I did what a dad’s supposed to do. I made every effort to attend most of our kids’ soccer games, hockey tournaments, recitals, and school events. But Mary was the one who was home when the kids returned, with a front row seat to their thoughts, hopes, and fears. She did her best to keep me updated, but – and I hate to admit this – I wasn’t 100% present.

That’s changed since Mary’s death. I made a commitment to myself (and to Mary) that I would step up as a father. I’d be more involved in my (now adult) kids’ lives and help them deal with the loss of their mother. I’d truly get to know their feelings, something that somehow didn’t feel like my “job” before.

They’d already lost one parent. If I didn’t step up, they may very well have thought they lost both.

I tried all sorts of ideas but what worked best was weekly phone (or Zoom) calls or coffee dates. This one-on-one time was a whole new experience for me (and for them!) and ultimately made it easy for them to open up to me. The more I knew them, the better I could support and advise them… and share my own feelings.

You know, grownup Dad stuff.

I also insisted we maintain our traditional family vacation. This past January I hosted my three kids, two fiancés, and a boyfriend for a week’s holiday in Miami Beach. Not only did I feel bonded with my family, I felt I was among friends. Mary would have been proud.

Today I’m a better dad than when their mom was alive.

2. I FOUND FREEDOMS I NEVER THOUGHT I HAD

Okay, this is going to sound horribly selfish. But in a lot of ways, I feel freer today than I have in decades. I’m not complaining. But Mary and I had a pact – we would discuss issues and if we weren’t entirely in agreement on how to proceed, we wouldn’t do it. In that, we were in total agreement.

By moving forward only when we were absolutely eye-to-eye, we may have compromised a bit (or a lot!) – but it kept our marriage strong. And I think it led to better decisions in the long run.

But I’ll give you an example of one challenging compromise. For over a decade, I wanted to buy a Miami condo to escape winter in Canada. Maybe it would become our retirement home, who knows? But Mary disagreed. She argued that buying a condo would anchor us in one place and stop us from seeing the world. She’d rather rent accommodations wherever we might find ourselves.

Since we didn’t agree, we didn’t buy the condo.

Again, not complaining. We got to see Spain, Mexico, all of Florida, Italy multiple times… but I still dreamed of that condo.

After Mary’s death, that decision was mine alone. Close to two years ago I got up the nerve and finally bought my Miami condo. Not to disrespect Mary, but to make myself happy. And honestly, it makes my kids happy too… which brings me back to being a better Dad.

3. I’M DISCOVERING RICHARD DRI

I know this sounds funny coming from a 60-year-old man. But it’s true.

Mary and I were together 37 years, 33 of them as husband and wife. Over the decades, we leaned on each other for everything. There wasn’t a thing one of us didn’t know about the other, to the point we became one person.

We were Brangelina before there was Brangelina.

I imagine it happens in most marriages – you begin to see yourself as half of a couple, and not an individual. You find true happiness, but give up a little bit of yourself.

As a widower, I’m rediscovering what I like and learning more about who I am inside. For example, I discovered I’m not very empathetic towards family and friends. I don’t know why; if I had to guess it’s that 30+ years of studying investments made me a far more clinical than emotional thinker. It seems that trait spilled over into my personal life.

I plan to change that.

I think Mary would love the Richard Dri I am today – he’s probably very close to the one she met 37 years ago, but much better.

AM I ALONE IN THIS? I DON’T BELIEVE SO.

Following all the soul-searching I did after Mary’s loss, one of the hardest conclusions I came to was that I had to forge my own life. It would be different, not necessarily better, but it had to be the best I could make it.

I had to overcome guilt, acknowledge and fix what I didn’t like about myself, strengthen my family bonds and, perhaps selfishly, do the things Richard Dri always wanted to do. I have that responsibility to myself.

You may feel the same way. If you’ve been widowed and have found similar discoveries, and are willing to share them, please feel free to message or call me. Together we can discuss some of the positive aspects of your new life.

The process of finding a financial advisor can be overwhelming. It is our job to make that process simpler and easier.

Dri Financial Group’s proprietary Wealth Navigator Process is designed with you in mind.

Its structured framework helps you make an informed decision and feel confident in our team and management practices before we get started.

We offer you a range of services from creating bespoke financial plans and providing investment advice to helping you take advantage of our investment models. If you would like more information on the Wealth Navigator Process or our team, call me any time at 416.355.6370 or email me at richard.dri@scotiawealth.com.
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source https://richarddri.ca/can-being-widowed-make-you-a-better-person/