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Satish Rai, Chief Investment Officer, TD Asset Management shares his outlook and thoughts on where investors can seek opportunities in the current low growth environment.

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A couple of weeks back, my very talented research team released a study called the Sun Life Canadian Health Index. Now in its second year, its mandate is to measure what Canadians think about a variety of lifestyle choices related to health, and how their actual behaviours line up against their intentions. There are so many things that get in-between what we want to do for our health and what we can actually bring ourselves to do. Given the important links between health and personal finance, these barriers can have significant consequences.

One example: While 53% of Canadians believe that a major health condition would have a “big, perhaps permanent impact” on their personal finances, just 58% of Canadians are preparing or are prepared in case they get sick. And just 8% of Canadians told us they have a written financial plan that covers health-related issues such as insurance and risk management.

This is worrying. The need to prepare for a serious health event should be part of every financial plan. Talk to your advisor about disability insurance, critical illness insurance, long-term care insurance and personal health insurance. (A bit of obvious disclosure here; Sun Life Financial is in this business. You can find a summary of these products and how they work at sunlife.ca.)

But what these national numbers miss is that people think about health differently. Views can be driven by age or circumstance. Very often they’re informed by an existing health condition. Our research has surfaced a better way to look at Canadian opinions by organizing them into five categories:

1. The Overconfident are younger, and more likely to be male. They view their health as strong, but that is not to say that they’re making healthy behaviour choices. Even though they could, they’re not prepared to start living a more healthy life. This group is estimated to make up 26% of the adult Canadian population.
2. The Health Strivers are typically middle-aged or older and they’re more likely to be female. They’ve taken responsibility for their health, they’re making good choices and they report above-average health. One-quarter of Canadians are in this group.
3. The Overextended are in the early- to middle-stage of their career, for the most part. This group is more likely to be male. Regardless of whether they want to make good health choices or not, they face too many competing priorities for their time and energy to do much about it. This represents 19% of the population.
4. The Resilient are older and more likely to be female. As much as they place a high value on a healthy lifestyle, they face a pre-existing health condition. Obviously that has a negative impact on just how healthy a life they can lead. This is 17% of Canadians.
5. The Inhibited are younger and more likely to be female. Many of these folks struggle with stress, and they lack sufficient self-confidence to join a gym for example. With the right support system, these Canadians are willing to work on a healthier lifestyle. But presently, they report feeling marginally less healthy than the average. A remarkable 12% of Canadians are in this group.

Broken down into these segments, the results provide added insight.

Among the Overconfident, 53% believe a major health condition would have a big, perhaps permanent impact on their personal finances. Six in 10 are preparing or are prepared for a serious illness. And 6% have a written financial plan that covers health-related issues such as insurance and risk management.

Among the Health Strivers, the results are 39%, 75% and 15% respectively. The Overextended scored: 63%, 41% and 3%. The Resilient scored: 50%, 57% and 8%. The Inhibited scored: 66%, 47% and 5%.

The Health Achievers are significantly less likely – relative to the national average – to believe that a major health issue would have a big, perhaps permanent impact (39% vs. 53%). They’re more likely to say they’re prepared (75% vs. 58%) and that they have a written financial plan that covers health-related issues such as insurance and risk management (15% vs. 8%).

On the other hand, the Inhibited and the Overextended are more likely to believe a health issue would have a big, perhaps permanent impact (66% and 63% respectively). They’re less likely to be prepared (47% and 41%) and to have a written financial plan that covers health-related issues such as insurance and risk management (5% and 3%).

Know anybody that falls into either of these two categories? A bit of friendly advice might not be out of order.

I love quotes.

So, let’s start with a great line from self-help expert Dr. Wayne Dyer, “When you change the way you look at things, the things you look at change.” This is the perfect phrase for today’s topic: Stress.

There are three certainties in life: death, taxes and the Maple Leafs missing the play-offs. But if we were to add a fourth, stress would be next in line.

Stress is one of those emotions that we spend endless hours coping with and even more time trying to conquer. In an era of trying to do more with less, juggling driving the kids, etc., life is coming at us at warp speed and carrying with it a suitcase full of angst, anxiety and apprehension.

It’s easy to stress. It’s a natural reaction triggered by uncertainty, fear and the unknown. The challenge has been, and always will be, how do we deal with it?

There are countless ways to combat stress. I’m sure each of you has your own preferred method depending on the type of stress you’re confronted with. For some, simple relaxation or meditation will take the edge off anxieties. For others, confiding in a friend or therapist may be the right course of action. Visualization, aromatherapy, acupuncture, exercise, journaling, or just enjoying a good laugh can be great ways to deal with your source of stress.

But what if instead of managing our stress, we learned to eliminate the triggers that cause it? Finding the root cause, as opposed to treating the symptom, can be a lot easier when you change the way you look at things.

There’s no shortage of research papers and stats on stress. For example, a University of Cincinnati study claims that 85% of what we stress about never happens. Another report estimates it’s as high as 92%. Regardless of the number, there’s no question there’s some merit to the message behind these stats.

Here’s what I believe:

60% of what we worry about never happens. An example of that might be losing your job and worrying that you won’t get another one – you will.

30% of what we worry about has already happened and there’s nothing you can do about it. This falls into the “just let it go” category.

10% of what we worry about is the real deal. Certainly health issues or situations where stress can’t be avoided (intense encounters) would fall under this umbrella.

The best way for you to test this theory is to write down all the things you’re worried about right now. Call it your “stress list.” It could be anything from how the boss is going to react to your presentation to what the results are going to be from your annual physical. List anything from trivial little worries to serious big issues.

In one column itemize the worry (e.g. “Boss will be upset with my presentation”). In a second column list what you believe the result might be (e.g. “Boss will give me the cold shoulder for weeks”) and in the third column under the heading “Reality,” list what actually happens.

This exercise may seem crazy, but if you track your stress list you’ll soon find out
that much of what you stress about never happens. It may take up to six months before you have the answers, but trust me you will get answers and be pleasantly surprised by the results.

For the record, I’m not trying to minimize the 10% of serious stress related issues – far from it. But I am suggesting you spend less energy worrying about the things you have no control over.

Remember, if you change the way you look at things, things you look at change.

Global equity markets were volatile for much of the year. After beginning 2011 on an optimistic note, prices slid lower through the summer and fall and many stock indexes finished the year with double-digit declines. Notably, the U.S. was the world’s best-performing major stock market in 2011. Despite the relative strength of the Canadian economy, our equity market was down, thanks in part to the weakness in natural resources stocks. In contrast, high-quality bonds posted good results as investors sought the safety of government securities.

The year’s challenges came from several sources. Early in the year, political uprisings in North Africa and the Middle East and Japan’s devastating natural disaster rattled investor confidence. Later, rising inflation in emerging markets, especially China, led central bankers to take steps to cool their heated economies, raising additional concerns about the pace of global growth. The summer’s protracted political wrangling over the U.S. debt ceiling and the decision by Standard & Poor’s to remove the triple-A rating on U.S. government debt also weighed on investor sentiment.

By far, however, the biggest issue fuelling investor fear throughout 2011 was the ongoing sovereign debt crisis in Europe. What began as anxiety about the debts of smaller countries such as Greece expanded to encompass major nations like Italy and France and raised significant doubts about the viability of the euro currency and many of the region’s banks.

The impact of these concerns on market psychology was clear, as wary investors eschewed riskier assets, including stocks, in favour of perceived safe havens. The price of gold, for example, reached an all-time peak of nearly US$1,900 per ounce in mid-August, although it corrected significantly later in the year. The U.S. dollar strengthened against many other world currencies, including Canada’s. Investors flocked to U.S. and Canadian government bonds, driving up prices and reducing their yields even further.

As we look ahead, it is fair to say that the situation in Europe remains uncertain and could take years to resolve. However, it is encouraging that European Union leaders are now taking steps to address the region’s challenges. Other positive factors include low interest rates and continuing economic growth in North America, Asia and emerging markets.

Investors can also take comfort in the strong performance of well-run corporations around the world, with many reporting healthy earnings, increasing dividends and buying back shares. The divergence between companies’ good results and their reduced share prices has led many experienced investors to conclude that today’s markets present attractive buying opportunities. Warren Buffett, for example, expressed his confidence in the future by buying significant positions in several businesses, including an $11 billion stake in IBM.

In my view, these developments underscore the importance of sticking with a well-diversified portfolio of high-quality investments, in a mix that’s tailored to your individual needs. Meanwhile, the new year is a good time to review your investing plans and your objectives. I look forward to having this discussion with you over the next few months.

In closing, I would like to thank you for your business. It has been a pleasure to work with you over the past year and I look forward to continuing our partnership in the weeks and months ahead. All the best to you and your family in 2012.

Finding a decent return in life insurance, with Joe Heider, Dawson Wealth Management; Adam Sherman, Firstrust Financial Resources; and CNBC’s Dennis Kneale & Sue Herera.

Not any time soon, thanks to a persistent deflation-reflation cycle. So buckle your seat belt.

It is not a stretch to liken the stock market action of the past decade to a roller coaster. Let’s call it the deflation-reflation ride – a cycle of debt deleveraging and asset price deflation leading to central bank reflation (QE1 and QE2) and asset price inflation. There seems to be no flat ground. It has been all up or all down.

We have seen this cycle play out twice since 1998: first among corporations in the early 2000s, and more recently among consumers. Soon it will be governments. In fact, this is happening in Europe, as well as in the United States at the state and local government level.

Where did this deflation-reflation cycle come from, and when will it end?

The Internet bubble ride

First we had the Internet bubble during the late 1990s, which followed a reflationary response by the U.S. Federal Reserve (the Fed) to the Long-Term Capital Management (LTCM) hedge fund liquidity shock. This so-called tech bubble was fuelled in part by an era of “creative” accounting, which eventually brought the P/E ratio on the S&P 500 up to 48 (which was three times the historical norm). Then the bubble burst, and the S&P 500 declined some 53% from March 2000 to October 2002 as corporate valuations plummeted back down to earth. This decline was further compounded by 9/11, as well as several major accounting scandals (Enron, WorldCom).

The Fed responded to this downturn with aggressive monetary easing. Alan Greenspan, then Fed chairman, lowered short rates to 1%, steepened the yield curve and brought real (inflation-adjusted) rates below zero. Then, in 2003, the globalization boom took off, lifting emerging market stocks and commodities, as well as almost all U.S. stocks (especially small caps). In fact, by my analysis, in 2003 an incredible 98% of all stocks went up.1 And so another thrill ride was under way, from late 2002 to late 2007, driven by global growth and ample liquidity.

This liquidity surge was the result not only of an easy Fed but also of a significant relaxation of bank lending standards. This was, after all, the era of “no-doc” lending. The result of easy credit and rising home prices was a housing bubble in the U.S.

The housing bubble ride

By 2005, the market’s volatility had plummeted, creating a sense of complacency among investors, and with it a great buildup of debt among banks and consumers. But then the music stopped and the housing bubble burst, and down went the roller coaster again. The S&P 500 lost some 57% from October 2007 to March 2009 as a massive deleveraging took hold among banks and households that nearly brought the financial system to its knees.

But then, in 2009, the Fed and the rest of the world’s central banks responded once again, only this time not just with lower rates but also with quantitative easing. As a result, liquidity soared and growth came back, thanks also in no small part to a massive fiscal stimulus by China. Once again the roller coaster went up, with the S&P 500 rallying some 100% from March 2009 to May 2011.
Then, six months ago, the roller coaster turned down once again, on weaker growth, a retreat of the liquidity wave and a debt crisis in Europe. The S&P 500 declined some 20% in the span of only a few weeks. Global markets declined even more.

Will the ride stop?

The irony is that investors have had to endure these massive swings in stock prices for over ten years, and right now have little to show for it. Today the stock market is more or less where it stood a decade ago, and almost any other asset class has beaten stocks over this time frame, from bonds to gold to cash. The action is frustrating enough to make even the most seasoned investor consider giving up on investing in stocks.

Why are we stuck in this deflation-reflation spiral? In my opinion, the past decade or so has been part of a major unwinding of debt, first among corporate balance sheets, then among households and now among governments. Whenever deleveraging takes place, it is by definition deflationary. Balance sheets are literally being deflated, either through liquidation or an erosion of value. Stocks and other risk assets don’t like deflation (but Treasuries do). Earnings go down during deflation, along with stock prices. But then the central banks have responded when the pain gets to be too much to bear, and balance sheets and asset prices eventually get reflated again. It’s the cycle of reflation and (eventually) releverage leading to bubbles, which then burst, leading to a spiral of deleveraging and deflation. Deflation-reflation: that is what this cycle is all about.

Which begs the question, when can we finally get off this roller coaster and go back to the good old days of investing, when a well-diversified portfolio could achieve reasonable returns in up markets, while helping to protect against downside risk in down markets?

I think it won’t likely happen until all this debt has been purged from the system. The corporate sector has already done this, and today companies are lean and mean and flush with cash. Since 2008 it has been consumers who have been purging themselves of debt, either by choice, through higher savings, or by force, through layoffs and foreclosures. Some progress has been made, but in all likelihood more time will be needed for the cycle to fully run its course.

This leaves the government. Since 2010, it has been the state and local governments that have been going through fiscal austerity, driven by the unwinding of fiscal stimulus and a reduction in tax revenues. Now with the Super Committee trying to come up with a deficit reduction plan, chances are that we will have some form of fiscal austerity at the federal level as well.

And, of course, we all know about the debt deleveraging in Europe.

The combination of a still-retrenching consumer and now potentially a retrenching government suggests that the forces of deflation and deleveraging are going to be with us for some time to come. This suggests further downside pressure on risk assets. However, offsetting these deflationary forces are more and more hints from the Fed that some sort of renewed reflation effort may be coming, most likely in the form of a QE3 consisting of large-scale asset purchases of mortgage-backed securities.

And it’s not just the Fed. The Bank of Japan has committed to more asset purchases, as has the Bank of England. And even the historically hawkish-sounding European Central Bank has been buying Italian debt and has been expanding its balance sheet. On top of that, Brazil has been cutting rates, along with Australia, and now even Indonesia.

So it is entirely possible, if not likely, that a new reflation ride is starting that could lift stock prices all over again. In fact, I suspect that the sharp rally in the stock market since October 4 is due to a renewed perception that the Fed is about to become proactive again with its monetary policy.

So the deflation-reflation cycle continues. Hopefully, we are embarking on another reflationary wave now, but until imbalances have been worked off, the cycle will likely continue. Some day it will come to an end, and markets will become stable again. But my guess is that it won’t be any time soon. In the meantime, the roller-coaster ride continues. Right now there are few good options, and you need to have realistic expectations regarding returns and volatility. In these times it makes sense to have a diversified portfolio and an investment plan that you are comfortable with and can stay with throughout the roller-coaster ride.

Frank Van Waterschoot didn’t panic and sell during the 1987 stock market crash. His advice? Reinvest your dividends and only invest in what you know.

By April Fong. MoneyVilla.ca | The Toronto Star

Buy-and-hold investing is like that vintage designer dress that’s hanging at the back of the closet. We’re just not ready to part with it. Once a gem, now it looks antiquated.
- Rocco Faiella

With low confidence in today’s markets, some say buy-and-hold is dead. Is this age-old investment strategy, popularized by investing guru Warren Buffett, no longer applicable?

WHAT IS IT?

Investors who employ a buy-and-hold strategy seek out assets they are comfortable holding for a long period of time. They stick with their positions, regardless of short-term fluctuations in the market.

HOW DOES IT WORK?

A major difficulty of buy-and-hold is selecting which stocks to hold for the long run. The strategy stems from the belief that stock markets have historically always increased in value. During a bull market, such as that seen in the 1980s and 1990s, buy-and-hold benefits most investors.

WHAT ARE THE ADVANTAGES?

As it requires fewer transactions, buy-and-hold investing means lower fee costs.

Money managers and strategists also point out the approach is fairly simple and doesn’t require worrying about day-to-day fluctuations. As such, some argue that buy-and-hold is still an average investor’s best bet.

“When people raise the topic of buy-and-hold, that also automatically brings into the conversation the strategy of market timing,” says Peter Drake, vice-president of retirement and economic research for Fidelity Investments Canada.

“But successfully timing the market is something that individual investors consistently don’t do well.”

LOOKING CLOSER

The recent downturn and market volatility have shaken buy-and-hold investing to its core. In the current market environment, the strategy just isn’t profitable, argues Vincent Delisle, portfolio strategist at Scotia Capital.

“Buying and holding, keeping stocks forever, made tremendous sense when looking at the economy with glasses of the 1980s and 1990s. It’s given people a false sense of comfort,” Delisle says.

“But since 2007, we’ve had a completely different situation. Valuations are going down, not up. Buy-and-hold investors have been very frustrated.”

Others note the increasing amount of up-to-the-minute financial information has made people more anxious about their portfolios. This has hampered investor appetite for holding onto stocks.

“People have to try to minimize the daily noise from the media and emotionally accept that what happens every day is inconsequential,” says Rocco Faiella, president of Faiella Financial Group.

Still, investors can’t just marry their stocks and refuse to sell them.

Drake adds that investors should work with their financial advisers to adjust their portfolios, according to their age and income. The key, he says, is to buy and hold according to a long-term investment plan and to avoid knee-jerk emotional reactions if markets tumble.

Irwin Michael, portfolio manager of ABC Funds, says his firm has fine-tuned the buy-and-hold strategy. It takes a “deep value” investing approach, looking for dirt-cheap stocks and holding until they hit a set target price.

“If you’re too patient, quite often you’ll miss out on opportunities. You have to look at a modified buy-and-hold strategy where you keep the discipline, but be opportunistic at times,” Michael says.

“You have to know what you’re playing for. Buying and holding is really in the eyes of the beholder.”

HOLDING ON TO BUY-AND-HOLD

Frank Van Waterschoot hasn’t forgotten the 1987 stock market crash.

He had only recently started investing in stocks, while working in Johannesburg, when markets around the world plummeted.

“I was in Europe on a business trip when that happened. I couldn’t do anything about it,” says 65-year-old Van Waterschoot, who now lives in Oakville.

“By the time I got back to Johannesburg, the stocks had dropped so much that they would have been worth half. So, I thought, there’s no point in selling.”

The turmoil passed.

Two years later, when Van Waterschoot moved his family back to Canada and had to square up all his positions, he made a nice profit “because I hadn’t panicked years before,” he says.

It was an important lesson that’s helped the retired logistics professional weather the ups and downs of the stock market for about 35 years. Van Waterschoot has never given up on his buy-and-hold investing strategy — despite rocky markets in recent years.

His key tips? Reinvest your dividends and only invest in what you know.

Van Waterschoot says he has held shares and compounded his earnings in Molson, now Molson Coors Brewing, for 15 years simply because he likes drinking beer.

“Most of my mistakes were when I went off the path and didn’t follow my instincts,” he says.

Van Waterschoot adds that he and his wife do not have a pension. But in recent years in their retirement, the couple has been able to buy a condo in Florida and travel to Japan, Singapore, Thailand and South Africa.

None of that, he says, would have been possible without allowing his portfolio to grow over the years.

Acting as an executor can be very challenging. Just ask anyone who has been a executor in the past and many will tell you it can be very time consuming, emotionally draining, difficult and seem like it never ends.

You should give this responsibility to someone knowing that the task will be time-consuming and stressful. Once someone begins the process of dealing with the estate assets, they are legally bound to complete the job, and can only be relieved of the responsibility by a court order. No one can be forced to act as the executor.

Executor’s Duties

Below you will find a list of things that executors need to do. This list is far from exhaustive but illustrates how important it is to choose a good executor. Remember, settling your estate is not an honour. It is work. Choose your executor carefully to ensure that he or she can handle the job.

1. Immediately After Death
   • Arrange for organ donation
   • Arrange for funeral:
   • Review Will with lawyer
   • Arrange for care of dependents and pets
   • Find and secure all assets: Home, Contents of home, Other real estate, Personal property, Business, Vehicle, Perishable goods, Safety deposit box
   • Obtain insurance for any vacant real estate.

 

2. Very Soon After Death
   • Pay for funeral
   • Find all ongoing expenses and debts
   • Stop all unnecessary expenses: Subscriptions (magazine, theatre), Health care (home care), Memberships (gym, club, sports, auto, professional, etc), Entertainment (cable, satellite, websites), Communication (telephone, cell phone, Internet), Insurance (auto, disability).
   • Forward mail
   • Notify all holders of assets: Bank, Broker, Investment advisor, Insurer.
   • Notify all service providers: Utility companies, Landlord, Property maintenance
   • Cancel credit and debit cards
   • Review all documents relating to assets: Property insurance, Mortgage, Lease, Business, Investment.
   • Review all documents relating to financial obligations: Contracts, Divorce or separation agreement, Court orders.

 

3. Soon After Death
   • Institute plan for securing and managing assets until sale, disposal or distribution
   • Re-register or transfer ownership of all assets to the estate
   • Obtain valuation of all assets
   • Prepare inventory of assets and liabilities
   • Obtain probate
   • Schedule payment of all debts.

 

4. Within Weeks of Death
   • Meet with all beneficiaries of estate
   • Maintain or initiate legal actions on behalf of the estate
   • Defend legal actions against the estate
   • Advertise for creditors
   • Collect life insurance
   • Arrange for transfer of assets passing outside the estate: Registered investments, Jointly held accounts and land.

 

5. Remaining Estate Settlement Process
   • Maintain records of assets and estate administration
   • Sell assets, as appropriate
   • Collect debts
   • Pay debts
   • Litigate or settle all claims by or against the estate
   • File outstanding tax returns (including terminal return)
   • File estate tax returns
   • Obtain tax clearance certificate
   • Obtain interpretation of Will
   • Distribute assets according to the Will: To individuals, To charities, To trusts.
   • Claim executor’s fees
   • Obtain releases from beneficiaries.

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Far too often, this is done too casually and without enough thought. More importantly, as your circumstances change, like marriage, divorce or children, you should consider reviewing your beneficiaries to make sure you have the right people designated.

Taxation of the RRSPs/RRIFs at death

The first place to start in understanding whom to list as a beneficiary is to understand the taxation of these contracts at death.

The general rule for an RRSP or RRIF is that the value of the RRSP or RRIF at the date of death is included in the income of the deceased for the tax return for the year of death. There are three exceptions to this rule where the tax can be deferred if the beneficiary of the RRSP, RRIF, or estate is:

1. the spouse (includes common-law partner)
2. financially dependent child or grandchild under 18 years of age, or
3. financially dependent mentally or physically infirm child or grandchild of any age.

Who should be the Beneficiary?

For obvious reasons, there are tax benefits to naming your spouse, dependent children/grandchildren under the age of 18 or dependent adult children who are mentally or physically inform.

That being said, anyone can be named the beneficiary. Most often, it is the spouse, children or the estate that are named but it does not have to be that way.

Your spouse as the beneficiary

The spousal rollover provision allows a spouse that is listed as the beneficiary to rollover the amount of the deceased’s RRSP into their RRSP without any tax consequences. Obviously for planning purposes, it is wise in most cases to list a spouse as a beneficiary.

Dependent child or grandchild

If a financially dependent child or grandchild under the age of 18 is the beneficiary of the RRSP, the dependent child under the age of 18 can roll the RRSP into an annuity that pays the child to the age of 18. For example, a 7 year old who is the beneficiary of a RRSP can have the RRSPs rolled into an 11-year annuity, which would spread the tax over an 11-year period.

Dependent infirm child or grandchild

For dependent infirm children, the amount received can be transferred to an RRSP set up for the child, meaning the funds will not be taxed until the funds are withdrawn. It is important to weigh any tax savings against the practical issues related to having funds go into the hands of an infirm child.

Other considerations:

What happens to the Home Buyers Plan at death?

If there is an outstanding balance remaining in the RRSP home buyer’s plan, the outstanding balance will be included as income on the deceased’s final income tax return unless the spouse was named as beneficiary and had taken out a home buyer’s amount at the same time. In this case, the beneficiary has two options:

1. the outstanding amount can be added to the final tax return of the deceased spouse or,
2. the entire RRSP, including the Home Buyers’ Plan balance, can be rolled over to the beneficiary’s RRSP.

RRIFs and Beneficiary Designations

When you are converting your RRSP to a RRIF, you are setting up a new contract and you must designate a beneficiary at that time. If you assume the RRSP designation would continue to apply, that would not be the right assumption.

Successor Annuitant for RRIFs

For RRIFs, when naming your spouse as beneficiary, you are given the option of having your spouse receive the RRIF as a lump sum or choosing your spouse as the “successor annuitant” to the RRIF.
If a successor annuitant election is not made, the deceased’s RRIF will be collapsed causing a disposition of the investments in the RRIF followed by a rollover to an RRSP or RRIF of the surviving spouse. There may be several disadvantages to this. It may not be a good time to sell the investments in the RRIF or there may also be selling costs to consider. Also, there is the issue of preparing all of the paperwork at a difficult and stressful time for the surviving spouse.

The successor annuitant designation is effortless. The spouse simply takes over from the deceased and continues to receive RRIF payments in his/her place. The investments in the RRIF are not affected by this, as there is no need to execute a new contract.

Probate Fees

One key benefit is if a beneficiary is designated in the RRIF contract, the RRIF value will not be included in the calculation of probate fees on death. While probate fees are not as significant as income taxes, such a simple step will ensure that there is more available for your beneficiaries.

Giving money to charities

The most significant changes affecting estate planning relates to the ability to receive a credit of up to 100% of taxable income for donations made through a Will. This means that the tax on RRSPs and RRIFs arising from the death of the annuitant can be avoided completely if a donation equal to the value of the RRSP or RRIF is made in his/her Will.

This is a great opportunity for individuals to donate money to their favorite charity that would have otherwise gone to the government in the form of taxes.

RRSPs, RRIFs and estate planning

As you can see, the designation of the beneficiary in your RRSPs and RRIFs is one of the most important factors in how much taxes you are going to have to pay at the time of death. Yet, it is astonishing how many people make this decision without regard to the overall estate plan or simply forget to designate a beneficiary.

When setting up a RRSP or a RRIF, it is crucial that you make good beneficiary choices. It is equally important that you review the beneficiaries in the RRSPs, RRIFs and through your will from time to time. If you haven’t done this in a while, review it sooner than later.

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