Tag: financial planning
The financial industry is relentless in encouraging Canadians to “plan for the unexpected” – and highlighting how anything can happen. You could lose your job, become disabled, lose your home to a fire, lose a loved one – the list of possible bad news seems endless.
The solutions that the industry is pushing – emergency funds, insurance, retirement savings – are all smart choices, and it’s important to have protections against bad news in place. But what about the good news? Do we need a plan of action when happy financial events occur?
The answer is absolutely. But luckily, your actions can take place after the good news. Unlike the bad news event, no advance planning is required.
Unexpected good financial news can come in many forms: an inheritance, large gift, work bonus or promotion, or a rapid rise in the value of shares that you own. And if you experience financial good fortune, it’s important to integrate the unexpected additional assets into your financial plan.
For example, with a more secure financial base, you may be more comfortable with investment risk, and more willing to adopt a more aggressive investment strategy to enhance your long-term returns. Conversely, if your savings are already aggressively invested to achieve your retirement goals, the additional wealth may allow you to structure a more moderate risk portfolio.
If you are currently retired, financial good fortune can also affect your retirement income strategy. If you draw on your new funds to meet your immediate cashflow needs, you’ll be able to withdraw less taxable income from your registered plans – and this could significantly lower the taxes you pay.
Of course, the most unexpected – and most unlikely – piece of good financial news is what nine Montreal co-workers received around Christmas: a $60 million lottery win, representing nearly $7 million each. The group seemed surprisingly tight-lipped in the press reports, not even disclosing where they worked. But you definitely get a sense that this is a savvy group who will plan well.
And while the article below contains advice for a lottery win, it really applies to any financial windfall.
Enough of the bad news – here’s to good financial fortune for you in 2018.
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Beginning April 10, 2017, the United States Department of Labour will implement what is being referred to as the “Fiduciary Rule“. The Fiduciary Rule will require American investment advisors to satisfy a higher standard of care when providing investment recommendations, putting clients’ interests above their own and providing complete disclosure with respect to fees and potential conflicts of interest.
The standard of fiduciary, premised on a role of trust and the duty to act in utmost good faith, is applied to guardians of property and the person, attorneys of property and personal care for incapable grantors, estate trustees, and other types of trustees. While commentary regarding the Fiduciary Rule recognizes that investment advisors should be (and often are) already guided by the best interests of investor clients, some who earn commission on the sale of certain products may be in a position of conflict. The Fiduciary Rule will prevent advisors from making certain recommendations if they are not in the client’s best interests. The new standard of care required of American investment advisors may to some extent fall short of that applied in respect of other traditional fiduciaries, and is subject to a number of exceptions.
Absent the implementation of the Fiduciary Rule or equivalent requirements in other jurisdictions, investment advisors are not typically treated as fiduciaries. Contracts may specifically state that advisors are not acting in a fiduciary role and that they do not absorb risk on their clients’ behalf related to investment advice that is followed. Typically, if something goes wrong and an investor wishes to pursue a claim against his or her advisor, the onus is on the investor to prove the fiduciary nature of the relationship. If the investor is able to prove that a fiduciary obligation existed (factors include the length of the relationship, the sophistication of the client, and the demonstrated reliance on the advice of the advisor), the advisor must then show that he or she has discharged the duty in good faith and with full disclosure.
Although the Fiduciary Rule is scheduled to come into effect on April 10 of this year, it is anticipated that the new Trump administration may delay the applicability of the Fiduciary Rule for the time being. Although there have been discussions with respect to raising the standard of care of investment advisors in Canada, where extensive regulations already apply, an equivalent to the U.S. Fiduciary Rule has not yet been introduced.
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I recently tweeted an article from the Wall Street Journal entitled Five Steps to Prepare for a Decline in Your Financial Cognitive Ability. The article points out that, although we easily consult health-care providers with respect to our physical health, we may have more difficulty recognizing our limitations and changes in our financial health. As we live longer lives, the likelihood of mental and cognitive decline increases, and accordingly, the need for a plan with respect to how to cope with such a decline increases as well.
During the holidays, many of us host and attend family gatherings, which may provide a good opportunity to discuss your plans and wishes with your loved ones, at a time when everyone is together in a relaxed, low-pressure environment. While such conversations are not always easy, they are a necessity to ensure that your wishes will be carried out, and that your family will not be stressed in attempting to discern exactly what your wishes are.
The first of the five steps suggested in the article is to talk to your spouse to ensure that both parties are in agreement with respect to your financial plan. The second suggestion is to organize your finances as clearly and simply as possible. If your finances are spread out over several banks or institutions, consider consolidating accounts. At the very least, it may be wise to create an inventory of all accounts, investments, and assets so everything can be easily located and accounted for.
The next step is to review your Will and your Power of Attorney for Property, or if you do not yet have either of these documents, arrange to have them prepared by a lawyer. With respect to your Will, ensure that you have clearly thought out your choice of executor, the bequests to beneficiaries, and anyone you may be leaving out. With respect to your Power of Attorney, of course, the most vital element is that you choose a trustworthy Attorney.
The fourth suggestion is to assign roles to your family members. This involves asking the individual if they would be willing to assume the role you have selected, and communicating within your family with respect to who will be responsible for which tasks. By having this conversation in advance, and explaining the reason for your choices, you may be able to avoid any surprised or hurt feelings at a later date, based on who has, or has not, been selected for a particular role.
The last suggestion included in the article is to seek professional assistance and advice from a lawyer and/or a financial professional. They can help you feel comfortable with the planning you have put in place and give you, and your family, peace of mind.
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This week on Hull on Estates, Paul Trudelle and Nick Esterbauer discuss their experience volunteering with Junior Achievement of Canada and the importance of teaching youth about financial planning.
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John Hunt wrote an article titled “Get a financial strategy now” in the January 8, 2007 issue of Law Times, discussing the uncomfortable situation faced by many lawyers of spending a high proportion of their income in the face of the possibility of a pension-free retirement. He suggests that lawyers need extra focus on financial planning.
The article reminded me of how many lawyers I have met who have no Will, some of whom even practice in the Wills and Estates area. In some cases, they have estate plans that do not require a Will, such as holding all assets in joint ownership, but even so, there is a risk of problems with changing assets and financial profile, sentimentally valuable personal property and overlooked assets.
Coming up with an estate plan inevitably involves the contemplation of an uncomfortable certainty: one’s demise. This prospect is as unpleasant to lawyers as it is to anyone else. In the result, many lawyers are just as vulnerable to procrastination as laypersons when it comes to estate planning. They also risk all the same problems and risks of mayhem involved in dying without a Will.
Hopefully the “do as I say and not as I do” approach by lawyers to will planning is less prevalent than my experience suggests – Maybe I only run into the exceptions that prove the rule.
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