What’s your Family Financial Philosophy?

What’s your Family Financial Philosophy?

Some of the most important events and decisions in life can be incredibly joyful and terrifying at the same time, such as having a child, buying a home and starting a business. Deciding how to use your wealth to build a legacy – both during and beyond your lifetime – often falls into this category as well.

You’ve worked hard to achieve financial independence and reach the point of not needing to worry about where your next dollar is coming from, yet tackling the question of how best to put your money to use can be daunting. However, inaction is not a reasonable strategy.

To secure your legacy and ensure the spirit of all you’ve worked for lives on, you need to give meaning to your wealth.

 

Giving purpose to your surplus wealth

So here you are, with wealth beyond your immediate needs. For those with a clear plan for how to use their wealth, this is considered good fortune. For others, grappling with uncertainty and worrying that their family may plunge into conflict after they’re gone can become a burden. Whatever path led you to this point – a stellar career, entrepreneurial success or prosperous forebears – you ultimately have only two choices for this wealth when you die: you can spend it or give it away.

From wills to trusts to insurance, your estate plan covers all the practical considerations required to ensure that your wealth is disbursed and put to use according to your wishes upon your death. These are the mechanisms that will allow you to pass on a family cottage, leave behind money for future generations or direct financial support towards important causes. In other words, your estate plan covers the ‘how.’

But what about the ‘why’?

Building a legacy with meaning

For those who have achieved financial independence, wealth management takes on a deeper meaning. When you die, your prosperity has the potential to brighten the lives of family members, friends, and strangers. However, it also has the potential to result in chaos. We’ve all heard the cautionary tales about families that end up fighting in court, or children and grandchildren going off the rails when access to wealth is not balanced with responsibility and good judgment.

While the estate planning process puts in place the mechanisms to tell your family how your assets should be distributed, it doesn’t address the ‘why.’ To do that, you need to dig deeper to understand and articulate the purpose that you want to drive your legacy.

We call this your family financial philosophy

Putting your motivations, ambitions and inspirations into words can help your family avoid uncertainty after you’re gone. By helping them understand the thinking behind the distribution of your wealth, you can also reduce the risk of family conflict and increase the likelihood that future generations will build on your legacy in a positive way.

 

Working with a trusted guide

Giving shape to your family financial philosophy takes honesty and introspection. This starts with asking the right questions and considering all the possibilities before you.

Whose lives do you want to touch? What causes do you want to support? Why are these things meaningful to you? What are your hopes for those who will build on what you leave behind?

At Rubach Wealth, we can guide you through this process, ensuring that you have the information and clarity needed to plan your legacy and articulate your philosophy. You can’t explain these things to your family unless you put them into words before you’re gone, so let’s sit down now to give clear meaning to your wealth.

 

Family Legacy Case Example

Asking the big questions to focus on the big picture

Asking the big questions to focus on the big picture

 

A new year has begun, and just like every year, 2018 will have its share of ups, downs and surprises. When it comes to managing your wealth, the focus is often on long-term planning to protect against short-term blips and keep you moving forward toward your goal.

But what is your goal? Is it to retire with a certain amount of money in the bank? Is it to ensure financial security for your children and grandchildren, so that they will never have to worry about money after you’re gone? Or is it to leave a mark on your community or the world?

Tax-efficient strategies for growing and preserving your wealth are an integral component of sound wealth management, but they are only a means to an end. If the management of your wealth is not guided by your values, you may one day find yourself with piles of money and no idea what to do with it.

That’s why it is crucial for your wealth planning to be driven by big-picture goals tied to your values. And to gain clarity on these goals, you need to start by asking the big questions. For example: when it comes down to it, what does wealth and money actually mean to you?

Understanding what drives you

People spend much of their life directing time and energy toward their career or business. For many, this is simply a matter of survival, but this motivation is less applicable for high achievers who are already able to meet their immediate financial needs.

To reveal what truly drives you, you need to dig deeper. This involves thinking about not only what you want to do, but also why you want to do it.

Perhaps you want to build wealth that you can pass on to your children, but what are your underlying motivations and concerns? Do you want to give them the resources to achieve incredible things in life, or are you worried that they may lack the capacity to support themselves once you’re gone? On the other hand, maybe you are grappling with how best to provide them with a comfortable life without leading them down a path toward excessive privilege or entitlement.

Alternatively, you may be motivated to build your wealth so that you can share it with others through philanthropy. Yet even here, it is important to look deeper. Is your goal simply to give as much as possible and help as many people as you can? Or do you view philanthropic giving as an opportunity to become actively involved in tackling social issues and guiding social development in a hands-on capacity?

These questions are not always obvious and the answers are not always clear, but pursuing them will lead to greater alignment between your goals and your values.

 

Guided by values

Your decisions and actions today will influence what happens 10, 20 or 40 years from now. To avoid reaching the finish line and looking around to see where you’ve arrived, you need to create a roadmap for where you want to go.

At Rubach Wealth, one of our key roles is to act as a sounding board for our clients as they develop this roadmap. As you uncover and make sense of your core motivations, we can work with you to translate these into meaningful, overarching goals that will frame our relationship.

We can’t predict what 2018 will throw your way, but we can help you identify any gaps in your plan and take advantage of any opportunities that pop up. More importantly, we can help you maintain your focus on the big picture and chart a course forward that is guided by the values closest to your heart.

Passing on the family cottage

Passing on the family cottage

For countless Canadians, the cottage has a special place in our heart. It’s the patter of little feet and the joyous splash of our kids running along the dock and plunging into the lake. It’s the cozy afternoon of hot chocolate and playing cards, while the thunderstorm howls outside. It’s the togetherness of family sharing stories around the dancing flames of a campfire.

Many of us assume that our cottage will stay in the family, passed on through the generations. But have you considered how this will happen from a practical and legal perspective? If you have multiple children, will they share ownership or will only one inherit the cottage? Have you thought about who will pay the capital gains tax – potentially in the tens of thousands of dollars – that may arise with the transfer of ownership when you die, and where this money will come from?

Your cottage is the backdrop of cherished family memories. However, without planning to pre-empt potential family disputes and unexpected tax burdens when ownership passes to the next generation, there is no guarantee that your children and grandchildren will be able to continue building these memories.

No tax holiday for your holiday home

When you die, your cottage is treated the same as your other assets: from a tax perspective, Canada Revenue Agency will assume it has been sold at fair market value and – assuming this value is higher than price you paid for the cottage – apply capital gains tax to half of the increase in value.

In this situation, numbers are better than words for illustrating the point: if you purchased your cottage years ago for $225,000 and it is worth $500,000 when you die, your estate could be hit with a capital gains tax bill of $61,875[1].

Will your children have that kind of cash on hand to pay the tax owing? Will they have to take out a loan to cover this amount? Or will they be forced to sell the cottage?

[1] This assumes a marginal tax rate of 45%, applied to half the increase ($137,500) in the value of your cottage.

These questions can be difficult to answer, especially when you don’t know what the future holds for you or your children. Fortunately, there are different strategies that can help you minimize the uncertainty and reduce the risk of your family losing the cottage, including the following:

  • Establish a family trust. By transferring ownership of your cottage to a family trust, you or an appointed trustee can exercise greater control over the ownership, maintenance and use of the cottage. Your children and other family members will be able to enjoy the benefits of having the cottage, but will be spared some of the financial implications of direct ownership.
  • Use a life insurance policy to cover any tax obligations. This can be a cost-effective way to cover the capital gains tax for your cottage. By using the death benefit from the life insurance to pay the tax bill, your children will not need to come up with tens of thousands of dollars on their own.

Hoping the kids will play nicely

Most of your family memories of cottage life are undoubtedly positive, but chances are there were some sibling arguments mixed in among all the sunny days. As grownups, your children will be better at resolving disagreements without wrestling, but that still doesn’t mean they will see eye to eye on everything.

If you have more than one child and want to leave the cottage to all of them, the best place to start is with an open and honest family discussion. This is an opportunity for both you and your children to share your wishes, intentions and expectations.

Even if everyone is on the same page now, it’s important to acknowledge that this may change as personal, financial and health situations evolve in the years ahead, resulting in differing views on usage and ownership. A buy/sell agreement is a useful tool for managing changing circumstances in the future.

Such an agreement lays out clear rules for what happens if one or more of the children want to sell their share of the cottage. By providing clarity, a buy/sell agreement can help prevent your family’s cottage memories from being overshadowed by tears and animosity.

Sunny outcomes require a plan

Ultimately, there are many factors to consider when passing along a cottage to the next generation and many ways to tackle this issue, but doing nothing is not one of them. Failing to plan ahead can result in hurt feelings and financial hardship among your family members after you die.

At Rubach Wealth, we can work with you to understand your priorities and develop tax-optimized strategies aligned with your wishes. If you have a cottage that you hope to keep within your family for future generations, call us today to set up a meeting. Your family has been shaped by the magic of sunsets at the lake, and we want to ensure that your children and grandkids can enjoy sparkling sunrises on the dock for decades to come.

 

Disclaimer: This article is provided for informational purposes only and does not constitute any form of legal or tax advice. You should consult your lawyer and/or accountant prior to making decisions related to the topics covered in this article. Rubach Wealth can work with you to facilitate such discussions.

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Women embracing philanthropy with financial planning

Women embracing philanthropy with financial planning

There is good in all of us. Particularly in Canada, we all make an effort to help those in need, whether it’s making donations, attending fundraisers or volunteering with a community group. While many of us long to do more, taking greater action to tackle the struggles, injustice and suffering in the world can be daunting if you don’t have a plan.

Our research shows that many women face obstacles when it comes to engaging directly in philanthropy on a larger scale. Overall, the most frequent explanation for philanthropic absenteeism is lack of time and clarity. In addition, some feel that their family’s philanthropic endeavours have been taken care of by their partners. Some are pushed into or accept minor positions even though they have the skills, know-how and resources to take on a leading role. Some simply dislike the spotlight and prefer not to have their names recognized when cutting a large cheque. Meanwhile, most of those who donate do so without any rhyme or reason.

These are all legitimate concerns, but that doesn’t mean you should let them stand in your way. If you are fortunate to be in a position to make a greater impact through philanthropy, we say it’s time to break down the barriers and create a plan to make it happen.

Overcoming the obstacles

There are many questions and concerns that may be stopping you from taking significant philanthropic action. However, with answers to your questions and guidance to help you move forward, there is no reason for these worries to hold you back.

Here are some common worries that keep women from fulfilling their philanthropic objectives, along with insights on how to move past them:

Lack of time.

When you are a multitasker trying to wear countless hats, time can be your greatest enemy. You may have a strong desire to support a particular cause, along with ideas and money to make it happen, but where are you supposed to find the time to research, plan and engage in yet another initiative? For one thing, you can seek out help from a financial advisor or others to take on some of the work of turning your philanthropic objectives into reality.

Fear of over-committing.

Committing a significant amount of your time or money to philanthropy can be scary when there is uncertainty surrounding markets, careers or family dynamics. All of these factors can introduce an element of perceived financial instability. However, with sound planning, trusted advice and flexible safety mechanisms in place, it is possible to make a major philanthropic gift while ensuring that your family’s financial needs will always be well looked after.

Overwhelming choice, not enough clarity.

With the myriad of pleas to end poverty, protect the environment, care for animals, cure diseases and end wars, how are you supposed to decide where to direct your resources? One place to start is by considering where you can have the greatest impact. Perhaps you have existing connections in a particular field or ideas for an innovative approach to tackling an existing challenge. Talking things through with trusted friends or advisors may also help to narrow your focus and reveal a clear path forward.

Concerns about where the money goes.

If you are going to make a major financial contribution to a cause, you want to be sure that your money will be put to good use rather than disappearing into an organization’s expensive bureaucracy. It might take extra effort, but researching expense ratios and seeking assurances about how your money would be spent are an important part of the philanthropy due diligence process. While large organizations may have more bureaucracy than small charities, they may also have a greater impact due to their wider reach.

A desire to see the impact first-hand.

When people are hurting or in need, there is understandably a desire to help right now. It can be difficult to focus on long-term outcomes when people are going hungry before your eyes. Philanthropy at its best is about addressing these urgent cries for help as quickly as possible, but doing so in a sustainable manner. With a hybrid solution, you can take heart in immediate results while also working toward long-term solutions. This will have a much greater impact in the long run compared to short-term efforts that focus solely on fighting fires here and now.

Finding the right fit

So what does a good philanthropic initiative look like? It depends on what you are looking for. As a unique individual, your ideal way to engage in philanthropy may not be the same as anyone else’s.

You may already have found a cause or organization that you are passionate about, and you may already be donating to that cause. This is a good start. If you are going to be directing a significant amount of your time, energy or money toward philanthropy and supporting this cause, the following are some important considerations:

  • The cause should be something that you find personally meaningful and compelling.
  • You should have a clear understanding of the mission and impact of any organization you support before giving to ensure there is a good cultural fit.
  • You need to have a plan, and what, how and when you give needs to fit this plan to ensure that it is financially sustainable and optimized from a tax perspective.

The leap from ‘planning to give’ to a Giving Plan

Successful philanthropy does not happen by accident – it starts with a plan. Your focus is on helping others, and at Rubach Wealth we want to help you navigate the giving process with confidence and a financially sound plan to maximize the impact of your efforts.

Aside from bringing about meaningful change, philanthropic giving also has many tax advantages for donors. When thoughtfully integrated into your estate plan, philanthropy enables you to have a significant positive impact in areas that are close to your heart while at the same time taking advantage of beneficial tax structures.

Our team at Rubach Wealth designs flexible giving plans that evolve together with your financial situation and preferences. Your philanthropic objectives and capacity may change over time; with a good plan, changing beneficiaries and how much you give will not be an issue.

There are many obstacles that can make women hesitate to embrace philanthropy, but there are even more incredible reasons for seizing the opportunity to make the world a better place. If you’d like to learn more about how we can help you throughout this process, we invite you to get in touch. You have the potential to do so much good, and with a plan tailored to your needs and objectives, you can make a real difference.

 

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When a spouse or parent dies: providing support through estate planning

When a spouse or parent dies: providing support through estate planning

This is not a fun exercise, but it is an important one: imagine that you have recently passed away. Now put yourself in the shoes of your spouse or children who have survived you.

First and foremost, they are grieving. If your death was unexpected and sudden, they may also be in shock. In the days following your death, other emotions may be added to the list: confusion, summed up in the question “what happens now?”, and worry, with surviving family members wondering

“How will we manage financially now that you’re gone?”

When a spouse or parent dies_ providing support through estate planning - 2017.04.25

The grief, shock and sadness are all natural reactions that cannot – and, arguably, should not – be avoided. On the other hand, the confusion and worry can and should be mitigated as much as possible. Fortunately, you can take active steps today to minimize the potential for this added stress at a time when your family is already grappling with a great loss.

The time for estate planning is now

An estate plan provides a map for your surviving family members outlining how you would like your personal and financial affairs managed after you die. It also serves as a guiding strategy during your lifetime, helping you make the most of available legal, financial and tax tools in order to preserve your wealth, provide for your family and build your legacy.

However, the thing about plans is you have to make them ahead of time. Putting off estate planning until you’re old or sick is a bit like waiting until the last minute to book your dream holiday: you may luck out and snag a great deal, but you’re more likely to end up squished into a middle seat flying to a dodgy resort, or perhaps not being able to go on holiday at all.

The process of creating an estate plan is highly personalized, but in general it includes the following elements:

  • Identifying your priorities
  • Creating a will
  • Designating beneficiaries
  • Designating a power of attorney and executor
  • Planning for taxes
  • Organizing all important documents

Some of these steps you may not be able to do right away and some elements may require updating over time. However, the important thing is to make a start. Having an estate plan that evolves over time is natural; having no estate plan at all is like rolling the dice and hoping for the best. Starting sooner rather than later also gives you a longer period to benefit from tax-saving strategies, which can make a significant difference in long-term estate preservation.

Death doesn’t happen on schedule

Death can happen unexpectedly, but what to do when a spouse or parent dies shouldn’t be a surprise. If you were to die tomorrow, would your spouse or children know where to start when it comes to making sense of your financial affairs?

Anyone who has been in this situation can relate to the horror of stepping into a home office or opening a filing cabinet and realizing that they have no idea what to do and what to look for. This is where estate planning can help to ease the confusion and worry. If you have developed a comprehensive estate plan, your spouse and children will be spared some of this stress as there will already be clear steps in place for them to take. Depending on your personal situation, these steps may include:

  • Contacting your lawyer
  • Contacting your financial advisor
  • Calling CPP to arrange death benefits

Having a clear and comprehensive estate plan is also critical to avoid litigation. If you pass away without a will or if you fail to identify a clear beneficiary for every single asset, your estate could very easily end up in court – bogged down by lawyers, legal fees, delays and fighting. Litigation is ugly, expensive and undignified, so clearly not something you want as part of your final legacy.

It all starts with communication and planning

Nothing aside from time and support from family and friends can ease the pain of losing a spouse or parent, but it is possible to ease the stress of dealing with such a loss. By ensuring an estate plan is in place, you can give your spouse and children peace of mind and a clear path forward at a time when they are likely feeling lost.

However, it is important to recognize that estate planning goes beyond the formal elements like creating a will and designating an executor. It also includes sitting around the kitchen table speaking openly about your wishes in the event of a serious illness and your preferences regarding funeral plans. It includes ensuring that your spouse and children know where to find property deeds, account numbers and other important information about your assets. And it includes sharing your hopes and worries for the future. Whether these issues come up naturally in conversations with your loved ones or you organize a family meeting specifically to talk about them, what’s important is that you have these discussions.

Thinking about your own mortality can be grim business, let alone planning ahead for your eventual death. However, when viewed as an opportunity to ease the emotional stress your family will face when you die, suddenly the importance and value of estate planning become clear.

Lawyers play a big role in preparing the legal components of an estate plan, but in general they are focused only on executing your instructions. In contrast, financial advisors can work with you to guide the process of estate planning and develop strategies that match your needs. At Rubach Wealth, we can help you build a robust estate plan to ensure that your family is well taken care of now and in the future, come what may. Contact us today to discuss how we can support you and your family.

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