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Your 2018 financial “spring cleaning” to-do list

8 Simple Steps

After the snow melts and the winter coats have been put away, many of us turn to spring cleaning to declutter everything from our closets to our finances. Even if you’re a regular “pack rat” these tips will help you – and your family – to reduce paperwork and start the season off on a fresh note.


1. Get to decluttering by consolidating accounts - If, over time, you have opened several accounts at different financial institutions, you may find it redundant to manage the additional administration, statements, meetings with multiple advisors and duplication of fees and investments. You can simplify all this by consolidating accounts with one full-service financial institution that can manage it all on your behalf.  You can also reduce your paperwork by setting up online banking arrangements, pre-authorized bill payments, electronic funds transfers, e-statements and pre-authorized contributions for your RRSP, TFSA, RESP and stock savings plan contributions.


2. Use family income-splitting strategies to reduce taxes - In Canada, the more you earn, the higher your tax rate. If you’re a high income earner, you may be able to reduce your family’s overall taxes by transferring some of your income to lower-income family members, who are taxed at a lower rate. One strategy is the Prescribed Rate Loan Strategy, by which you loan money to a low-income family member who then uses the money to invest. Generally, as long as the family member pays you at least the CRA-prescribed rate of interest on the loan amount no later than 30 days after year-end, the investment income is taxable to them, not you, at their lower rate. You can also transfer income that otherwise may have been taxable at your higher rate by gifting money to family members aged 18+ to contribute to their TFSAs. All the investment income earned in your family’s TFSAs grows tax-free.


3. Schedule a review of your asset mix - Your after-tax investment returns can be largely dependent on how your portfolio is allocated between stocks, fixed-income investments and cash. Some strategies that may be useful for your portfolio include:

• Hold more of your interest-bearing investments in your RRSP/RRIF, where the taxes are deferred.

• Hold more of your equity investments outside your RRSP/RRIF, because capital gains and Canadian dividends receive preferential tax treatment.

• Speak to a cross-border tax advisor about holding individual U.S. stocks in a Canadian holdco to potentially minimize U.S. Estate Tax. Especially if you are a Canadian resident, not a U.S. citizen, green card holder, or U.S. resident, with a net worth over US $10 million.


4. Make your debt “smart” - Review your debt with your financial advisor to determine if any of the interest you’re paying might be tax-deductible, or if you can restructure your loans and your assets to reduce interest costs or make the interest tax-deductible.


5. Review your family’s insurance coverage - Spring is a good time to review your insurance coverage and allocations to make sure they continue to meet your needs. Ensuring that you and your family have adequate financial resources to maintain your standard of living in the event of illness and/ or death are key components of your wealth planning. A qualified life-licensed insurance advisor can analyze your current and future needs, review your existing insurance policies and make sure you have the right solutions and coverage. It doesn’t take long and will provide you with peace of mind knowing that both you and your family will be protected. If you are a business owner, it’s important to be aware of the many opportunities insurance can provide. Available solutions may be useful for paying taxes at death on business shares, funding buy/sell agreements, insuring key people, equalizing inheritances for children outside the business, transferring surplus cash in a holding company to the next generation, and more.


6. Check that your Will and Power of Attorney (POA) are still current - A study by LAWPRO revealed that 56% of Canadians do not have a signed Will. Even if you have a signed Will, it could be out of date or overly simple, potentially resulting in higher taxes and family disharmony. Give your family and yourself peace of mind by booking an appointment with a legal advisor who specializes in estate planning to get an up-to-date Will and a POA for both medical and financial affairs. For most people there is a higher probability of becoming disabled than dying before age 65, so having a POA is critical to ensure your wishes are followed in the event that you are unable to express yourself. Keep a copy of your Will and POA in a fireproof safe, or with your legal advisor.


7. Establish appropriate account structures and beneficiary designations - List every one of your accounts, including any accounts through your employer (employer pension, stock savings plan, etc.), and ask yourself these two questions: “How is this account legally owned?” and “Who is the beneficiary?” When considering the legal ownership of an account, bear in mind that joint ownership with your spouse may reduce the amount of probate tax payable on death. However, joint ownership may not always be appropriate. For example, if you are in a second marriage and have children from a first marriage, you may not want joint ownership with your second spouse as they would be under no obligation to provide your children with an inheritance. In addition, joint ownership with adult children should be consistent with your estate distribution intentions; otherwise it may be challenged in court.


Next, look at any accounts that permit beneficiary designations such as pension plans, RRSPs/RRIFs, TFSAs and insurance policies. Are these beneficiary designations current? Should you even name a beneficiary? Rather than having your assets go directly to a family member after your death, it may be more  appropriate to have them go through your estate in certain situations, even though probate tax is payable. The appropriateness of your account structures and beneficiary designations will depend largely on how you intend to have your estate distributed, so speak to your legal advisor for advice as you are getting your Will updated.


8. Take stock of your financial future - Between today’s longer lifespans, inflation, taxes, health-care costs and our own lifestyle expectations, retirement may cost more than you think. And if you’re a business owner, you may have other considerations like converting the equity in your business into a satisfying retirement income. A financial plan summarizes your financial life in one document, making it simple for you to understand where you stand now and, with annual updates, how you are progressing from year to year.


Susan Gottlieb is Vice President and Wealth Advisor with RBC Dominion Securities Inc. This article is for information purposes only. Please consult with a professional advisor before taking any action based on information in this article.


This publication is not intended as nor does it constitute tax or legal advice. Readers should consult their own lawyer, accountant or other professional advisor when planning to implement a strategy. Interest rates, market conditions, special offers, tax rulings and other investment factors are subject to change. This information is not investment advice and should be used only in conjunction with a discussion with your RBC Dominion Securities Inc. Investment Advisor. This will ensure that your own circumstances have been considered properly and that action is taken on the latest available information. The information contained herein has been obtained from sources believed to be reliable at the time obtained but neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers can guarantee its accuracy or completeness. This report is not and under no circumstances is to be construed as an offer to sell or the solicitation of an offer to buy any securities. This report is furnished on the basis and understanding that neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers is to be under any responsibility or liability whatsoever in respect thereof. The inventories of RBC Dominion Securities Inc. may from time to time include securities mentioned herein. Insurance products are offered through RBC Wealth Management Financial Services Inc. (“RBC WMFS”), a subsidiary of RBC Dominion Securities Inc.* RBC WMFS is licensed as a financial services firm in the province of Quebec. RBC Dominion Securities Inc., RBC WMFS and Royal Bank of Canada are separate corporate entities which are affiliated. *Member-Canadian Investor Protection Fund. RBC Dominion Securities Inc. and RBC WMFS are member companies of RBC Wealth Management, a business segment of Royal Bank of Canada. ® / ™ Trademark(s) of Royal Bank of Canada. Used under licence. © 2018 RBC Dominion Securities Inc. All rights reserved. MyGPSTM is a trademark of Royal Bank of Canada. 18_90083_048 (01/2018)