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.
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.
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.
As a business owner, it is important to plan for significant life events and their affect on your operations, before they happen. Knowing what happens if one of the partners passes and diligently protecting the business and its value (and therefore the family) is the sensible thing to do. One way to safeguard your business and ensure that is by addressing the consequences of an early passing or “exit strategy” of one (or more) of the business partners through a buy-sell agreement. A solid buy-sell agreement needs to be optimally structured and adequately funded. Something we’ll touch on in this post.
The death or permanent disability of a business partner or a shareholder can have a significant impact on the long-term viability of your business. It’s crucial to factor this into your company’s financial planning. Yet so many don’t! Also, if your business loses an owner, the remaining owner(s) must decide how to continue operations, minimize disruption and maintain control of the business if ownership of shares changes hands.
So, as a partner or shareholder in a business, do you have a plan in place specifying what happens if a key player in the business dies or is forced to withdraw? Your business depends on it.
Ensuring continuity and clarity
A buy-sell agreement can help protect you and your business by laying out a clear path forward. Depending on your objectives and the specific terms of the agreement, it may specify what happens when a shareholder chooses to leave the business, is forced out or passes away.
Buy-sell agreement can be funded by various methods, including loans, insurance policies and accumulated earnings. In situations where a buy-sell agreement is triggered by the death of a shareholder, life insurance is an attractive funding option given the potential tax advantages that it provides.
A tax-advantaged solution
There are three main ways in which your business can use life insurance to fund a buy-sell agreement:
1. Cross-purchase method
Each shareholder purchases a life insurance policy on the life of the other shareholder(s), naming themselves as the beneficiary. If a shareholder dies, the buy/sell agreement requires the surviving shareholder(s) to purchase the shares of the deceased shareholder at fair market value. The life insurance benefit is used to fund this purchase.
2. Promissory note method
The company purchases a life insurance policy on the life of each shareholder, with the corporation as the beneficiary. If a shareholder dies, the buy/sell agreement requires the surviving shareholder(s) to purchase the shares of the deceased shareholder at fair market value. The life insurance benefit is paid into the company’s capital dividend account, which is then distributed to the surviving shareholder(s) and used by them to fund the purchase of shares.
3. Corporate redemption
The company purchases a life insurance policy on the life of each shareholder, with the corporation as the beneficiary. If a shareholder dies, the buy/sell agreement requires the company to purchase and absorb the shares of the deceased shareholder at fair market value. The life insurance benefit is used by the company to fund the purchase of shares.
The ultimate outcome
Which of these three approaches is best for your business will depend on a variety of factors, but the ultimate outcome will be the same: less uncertainty for your business, strengthened control of ownership following the death of an owner, and a tax-efficient approach to funding the purchase of the deceased owner’s shares.
We have experience structuring the optimal life insurance solutions for funding buy-sell agreements. To learn how you can safeguard your business interests and ensure continuity in the face of uncertainty, contact us today.
With a new school year starting up, September marks an important turning point in the year for many Canadians – especially us parents. If you are a parent of a school-age child, something that may be on your mind these days is the cost of post-secondary education. Even if your child has only just had their first day of kindergarten, this is one of those topics where the sooner you address it, the better.
Why your RESP may not cut it
For most of us in Canada, a registered education savings plan (RESP) is the first tool that comes to mind when we talk about tax-sheltered saving for our children’s education. While RESPs are certainly useful and a good place to start, they have their limitations, including a $50,000 contribution limit per beneficiary and maximum 35 years to use the funds. The reality is that the total cost for your child to obtain just a typical four-year undergraduate degree is likely to exceed $50,000. Furthermore, your child may well be global-minded and could choose a post-secondary institution that is not considered eligible under the RESP program.
Is using life insurance a conventional approach to saving for post-secondary education? No.
Is it a smart, tax-efficient approach favoured by wealthy families? Yes, and for good reason!
Using a permanent life insurance policy as a savings tool for post-secondary education is actually fairly simple and can potentially result in considerable tax savings. As the parent, you take out a policy on your child’s behalf with you as the policy owner and your child as the insured. This type of policy has both an insurance component and an investment component, with the latter accumulating dividends. Because you are starting when your child is young, these dividends have a long time to compound and grow the value of the policy. And depending on the amount you apply for, medical underwriting might not even be required!
When it’s time to start paying for your child’s post-secondary education, you have two main options:
The first is to surrender the life insurance policy to access its cash value. This withdrawal may be taxable to the owner of the policy. If so, it will be taxed either at your marginal tax rate or at your child’s marginal tax rate if you have transferred ownership to them (you have the option to transfer ownership of the policy to your child on a tax-free basis anytime after they turn 18). Since your child’s marginal tax rate will typically be quite low, there is potential for significant savings.
The second and preferable option is to take out a loan against the value of the insurance policy and use these funds for your child’s studies. The bank issuing the loan becomes a beneficiary of the insurance policy via a collateral assignment for the amount of the loan, while you or your child (depending on your preference) simply needs to pay the interest on the loan. This approach is advantageous because the growth of the insurance policy’s value will exceed the interest on the loan.
Huge benefits beyond education
Even if your child doesn’t end up using their life insurance policy to fund their education – for example, because they are awarded a full scholarship – there are still major benefits to having it. Life insurance premiums are based on factors such as the age, health and lifestyle of the insured at the time when the policy is created; the younger and healthier the insured, the lower the premiums. As long as the premiums continue to be paid when due, the value of the policy will continue to grow and the premiums will be locked in, regardless of changes in the health of the insured.
If the parents of a healthy two-year-old girl wanted to purchase a $3 million whole life insurance policy on her behalf, the premiums on this policy would be much, much lower than what the same girl would have to pay if she decided to purchase a similar policy at age 30 or 40.
While they are unlikely to appreciate it when they’re younger, this is a significant gift to your child – and future generations – that they will be increasingly grateful for as they grow older and wiser. Wouldn’t you have liked it if your parents had proactively sorted out your insurance needs when you were little?
Ensuring a brighter future
There’s no way around it: your child’s post-secondary education is going to be expensive. The good news is that with advance planning and some outside-the-box thinking, you can invest in your child’s education on a tax-effective basis while at the same time giving them a valuable head-start toward a well-insured, financially secure future.
Whether your child is just learning to walk or currently learning to drive, it’s never too early or late to take advantage of this opportunity. We’d enjoy the opportunity (and have the expertise) to assist you with making smart use of insurance to fund your child’s education, freeing up your time to focus on supporting and enjoying your child’s journey through life.
Since there are too many variables and options to cover in this article – including the amount you want to save per year and your specific objectives – this is something best discussed in person. So we invite you to give us a call (+1-647-808-7700), or send us an email to discuss how we can build a brighter future for your child.
Even if insurance is a topic that puts you to sleep, there is a major change coming in the insurance world deserving of your attention given its potential to significantly impact your wealth and what you are able to pass on to your loved ones.
Unless you work in the insurance industry, there’s a good chance that you aren’t aware of this or haven’t given it much thought.
What’s Happening with Permanent Life Insurance?
On January 1, 2017, new rules will come into effect that will change how permanent life insurance policies – which have both an insurance component and an investment component – provide tax-sheltered benefits.
Broadly speaking, the new rules will result in a general increase in the cost of insurance and a decrease in the speed at which premiums can be paid into a policy.
Although corporate-held policies may be less common than those held by individuals, they offer considerable tax advantages. For corporate-held policies, the biggest change under the new rules is how old you have to be at the time of your death to receive the full death benefit on a tax-free basis. Currently, if you are 73 or older when you die, the full death benefit can be paid out tax free as a corporate dividend to your chosen beneficiaries. Under the new rules, the amount of your death benefit that can be paid out tax free will be partially reduced unless you are 90 or older at the time of your death.
The good news: permanent life insurance policies established prior to January 1, 2017, will be grandfathered under the existing rules. As long as you set up a permanent life policy optimized for the existing rules before the end of 2016, you can lock in your access to the more favourable existing rules. However, some changes to the terms of existing policies may be treated as the creation of a new policy under the new rules and thus take away the grandfathering protection, so it’s important to get everything in order before the deadline.
What Should You Do?
The deadline may still be several months away, but the time to act is now. Insurance companies are experiencing a rush of applications as 2017 draws near and have warned that processing applications may take longer than normal.
The underwriting process – which can take anywhere from a few weeks to several months – must be completed before December 31, 2016 for a new policy to be grandfathered under the existing rules. So, now is the time to start the conversation and get the ball rolling.
You may not find insurance an interesting topic, but in this instance it is a timely topic that offers an excellent way to maximize the wealth that you can pass on to future generations.
We have the know-how and resources to identify the right policy for your needs, help you establish a corporation if required, and work with lawyers and accountants to structure things according to your requirements.
All it takes from you is a phone call to get things started: