Estate Planning & Wealth Management
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Estate Planning & Wealth Management

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Presentation on estate and planning and wealth management.

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    Estate Planning & Wealth Management Estate Planning & Wealth Management Presentation Transcript

    • MULTI INSURANCE Retirement & Financial Planning Wealth & Estate Planning By: Aleem Visram, HBA, MBA Owner & Financial Advisor avisram@mirfp.com (647) 986-9163 www.mirfp.com
    • AGENDA 1. Investment & Wealth Accumulation 2. Main concerns in retirement 3. Guaranteed Minimum Withdrawal Benefit (GMWB) 4. Segregated Funds
    • Multi Insurance Retirement & Financial Planning Holistic approach to include a customized plan with a broad range of financial planning strategies to cover all your financial needs, including:  Retirement Planning – A solid plan can make the difference between a comfortable retirement and one that is inadequately financed. This includes RRSP, RESPs, TFSAs and Mutual Funds.  Tax Planning – Looking for investment opportunities to help reduce tax liabilities  Estate Planning – Ensuring that you have greater control of your assets and preserve them from unnecessary legal and tax costs upon death  Insurance- Ensuring that you and your family have adequate life, critical illness and disability coverage to provide you with sufficient funds in the event of an illness or death
    • Multi Insurance Retirement & Financial Planning As Independent Advisors we work with all these companies: We will provide you with the best rates available in Canada
    • Aleem Visram  Proven track record of success with over $10 million of assets under management and over 1,000 insurance clients  Aleem Visram has an HBA & MBA from the Richard Ivey School of Business  Certified Financial Advisor by the Investment Funds Institute of Canada (IFIC) & LLQP License  Investment seminars conducted for QFS Canada, Economic Planning Board of Ontario, Network of Indian Professionals (Net IP)  Award winning Part-time Professor at the Schulich School of Business at York University  Over 8 years of Management experience with several Global fortune 100 companies, including Pfizer, American Express, Kraft, Novartis and Tata Beverages
    • What is the difference between an RRSP and TFSA? TFSA RRSP Are your contributions tax-deductible? No Yes Will you pay tax if you withdraw your money? No Taxed as ordinary income Can withdrawn amounts be added to your contribution room for the following year? Yes No How much can you contribute? $5,500, annually regardless of income level Contribution room is based on your earned income, with a maximum of $22,450 for 2013 Will withdrawals affect your eligibility for government benefits and credits such as Old Age Security or Guaranteed Income Supplement? No Possibly – depending on your income level Do you have to close or convert your account at a particular age? No, you can continue saving in a TFSA for as long as you want Yes, an RRSP must be converted to a Registered Retirement Income Fund (RRIF) or annuity at age 71 Where can you invest the money? A wide variety of investments, including mutual funds, stocks, bonds and GICs A TFSA AND AN RRSP ARE BOTH DESIGNED FOR TAX BENEFITS – BUT THEY HAVE DIFFERENT ADVANTAGES
    • Which option would you choose? 1. 9 years of returns of +10% each year, plus one year of -30% returns (doesn’t matter which year) 2. The following stream of annual returns: 7% ; 7% ; 21% ; -7% ; -26% ; 12% ; 7% ; -3% ; 14% ; 36% (i.e. the MSCI world index from 2004 to 2013) 3. 10 years of returns of 6% each year  Avoiding negative returns as opposed to maximizing returns is a key strategy to maximize wealth 5.1% 5.5% 6.0% Avg Return
    • Why take the risk of the market dropping? If you invested in the S&P/TSX in Sept 2008, you would still be waiting to recover your initial investment 5 years later! -33% -11%
    • Fixed Income lowers volatility, but also lowers returns BOND AND STOCK PORTFOLIOS (1941 – 1981)* Source: Ibbotson Associates, FMRCo (MARE) as at September 30, 2009. 6% 8% 9% 11% 3% 14% 4% 5% 7% 10% 0% 2% 4% 6% 8% 10% 12% 14% 16% 100% Bonds 30% Stocks / 70% Bonds 50% Stocks / 50% Bonds 70% Stocks / 30% Bonds 100% Stocks TotalReturn(%) Avg. Return Std. Dev.
    • 30-Year Fixed Income Bull Run is Nearing its End What Got Us Here, Won’t Get Us There •Source: Bloomberg, as of December 31, 2011. 1 2 3 4 5 6 7 8 9 10 1995 1999 2003 2007 2011 Yield(%) Govt. of Canada Bond 10 Yr Prov. of Ontario Bond 10 Yr Canadian Corp. Bond A 10 Yr 3.4% 3.0% 1.9%
    • Little Left After Tax & Inflation 1.9% 3.0% 3.4% 1.02% 1.6% 1.8% Net of Interest Income Tax -1.9% -1.3% -1.1% 2.9% 2.9% 2.9% 46.4% 46.4% 46.4% •Sources: PC Bond Research, Bank of Canada and Bloomberg, as of December 31, 2011. – Assumes a marginal tax rate of 46.4% which is the top rate for Ontario in 2011. Gross Yield Federal Government Bonds Provincial Government Bonds Corporate Bonds Net of Inflation
    • •Foreign equity: MSCI EAFE Index •Global equity: MSCI World Index •Emerging markets equity: MSCI Emerging Markets Free Index •U.S. equity: S&P 500 Index •U.S. small cap. equity: Russell 2000 Index •Canadian equity: S&P/TSX Composite Index •Canadian small cap. equity: Nesbitt Burns Small Cap Index •Canadian bond: DEX Universe Bond Index 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 U.S. equity 38.0% Emerging markets 57.2% Canadian bond 10.2% U.S. small cap. 8.9% Canadian bond 8.7% Canadian small cap. 50.2% Emerging markets 16.8% Emerging markets 31.2% Emerging markets: 32.1% Emerging markets: 18.6% Canadian bond 6.4% Global equity 33.5% Canadian equity 31.7% Canadian equity 7.4% Canadian bond 8.1% Canadian small cap. -4.9% Emerging markets 27.8% Canadian equity 14.5% Canadian equity 24.1% Foreign equity 25.9% Canadian equity 9.8% U.S. small cap -17.9% Foreign equity 28.8% Foreign equity 20.0% U.S. small cap. 0.4% Emerging markets 3.8% Emerging markets -7.0% Canadian equity 26.7% Foreign equity 11.5% Canadian small cap. 14.3% Global equity 19.6% Canadian bond 3.7% U.S. equity -23.3% Canadian bond 9.2% Global equity 18.1% Canadian small cap. 0.4% Canadian small cap. 1.1% Canadian equity -12.4% U.S. small cap. 20.5% U.S. small cap. 9.7% Foreign equity 10.7% U.S. small cap. 17.9% Canadian small cap. -1.4% Global equity -26.9% U.S. small cap. 4.6% Canadian small cap. 17.4% U.S. equity -5.9% U.S. equity -6.4% Foreign equity -16.8% Foreign equity 13.4% Canadian small cap. 7.4% Global equity 6.7% Canadian small cap. 17.6% Foreign equity -5.7% Foreign equity -29.8% Canadian equity -1.6% U.S. small cap. 14.6% Global equity -10.2% Global equity -11.6% Global equity -20.7% Global equity 8.9% Canadian bond 7.1% Canadian bond 6.5% Canadian equity 17.4% Global equity -7.5% Canadian equity -33.0% Canadian small cap. -19.0% U.S. equity 14.4% Foreign equity -11.2% Canadian equity -12.6% U.S. small cap. -21.3% Canadian bond 6.6% Global equity 6.4% U.S. equity 2.4% U.S. equity 15.4% U.S. equity -10.5% Emerging markets: -41.4% Emerging markets -19.9% Canadian bond -1.1% Emerging markets -28.2% Foreign equity -16.5% U.S. equity -22.9% U.S. equity 5.3% U.S. equity 2.8% U.S. small cap. 1.9% Canadian bond 3.8% U.S. small cap -16.5% Canadian small cap. -46.6% Do you know which asset class will lead next year?
    • … or what region will lead? Canada U.S. U.K. Europe Japan Asia 1998 -1.58 38.01 23.48 43.16 15.60 2.16 1999 30.43 14.37 13.68 10.88 66.28 53.18 2000 19.04 -5.93 -9.74 -4.24 -30.39 -34.59 2001 -8.39 -6.35 -10.22 -17.50 -24.90 4.06 2002 -12.44 -22.91 -15.36 -21.12 -9.83 -10.17 2003 26.72 5.26 9.93 16.66 13.40 18.57 2004 14.48 2.81 12.21 12.76 7.96 9.03 2005 24.13 2.29 6.40 7.78 22.92 18.79 2006 17.26 15.35 32.59 34.90 1.66 31.69 2007 9.83 -10.53 -9.15 -0.38 -19.59 13.12 2008 -33.00 -23.29 -36.98 -31.26 -10.68 -37.94 LEADING REGION •Source: Fidelity Management & Research Company as at December 31, 2008. Expressed in CDN$. Indices used: Canada: S&P/TSX Composite Index; U.S.: S&P 500 Index; U.K.: FTSE All Share Index; Europe: MSCI Europe ex-U.K. Index; Japan: TOPIX Index; Asia: MSCI AC Far East ex-Japan Index. AVERAGE ANNUAL RETURNS (%)
    • Or which sector will lead? 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Consumer Discr. 34.89 26.37 -20.53 -4.40 -23.25 13.55 6.59 -1.56 21.57 -17.25 -28.23 Consumer Staples 31.12 -20.38 15.91 -2.21 -3.93 -3.14 3.97 3.09 21.12 1.33 -5.47 Energy 12.27 15.64 11.11 -1.00 -7.09 4.47 19.20 25.43 18.73 11.12 -23.73 Financials 20.91 2.96 15.40 -11.32 -16.96 15.18 9.32 8.68 24.84 -21.31 -43.20 Health Care 46.34 -15.14 31.76 -7.58 -18.70 -1.07 -1.55 6.08 11.21 -11.04 -3.33 Industrials 15.45 21.23 2.94 -10.19 -23.09 14.42 10.86 9.01 19.42 -1.30 -29.86 Information Tech. 80.57 89.51 -39.43 -25.12 -39.33 22.44 -5.05 1.79 9.83 -1.70 -31.07 Materials 7.33 22.07 -9.03 1.46 -5.28 20.23 9.40 16.17 29.62 14.01 -38.53 Telecom 63.44 35.68 -38.42 -20.59 -29.41 3.84 9.29 -11.99 33.23 4.21 -17.14 Utilities 33.28 -17.73 28.99 -17.02 -16.41 6.61 19.79 10.45 37.30 4.21 -12.85 AVERAGE ANNUAL RETURNS (%) WORST PERFORMERSBEST PERFORMERS •Source: Ibbotson. Annual returns by sector based on the MSCI World Index, as of December 31, 2008. Expressed in CDN$."
    • People invest based on emotions •Source: Globe & Mail, August 19, 2011. •Source: Toronto Star, August 19, 2011. Media headlines are influencing client decisions
    • How much do you need for retirement?  The average Canadian over age 65 spends $51,000 per year  Old Age Security and CPP only provide an average of $13,272 per year  You need a gross pre-tax earnings of approximately $90,000 per year to receive a net after tax income of $51,000 per year  The CURRENT average life expectancy of a male is 83 years and a female is 85 years  If you live to the average Canadian age and spend the average $51,000 per year, you will need $1.5 million to $2 million in retirement income
    • What are your top priorities in retirement? 78% 86% 87% 87% 86% Income Continuation Capital Preservation Inflation Protection Control of Investments Access to Capital Somewhat, Very, or Extremely Interested Source: Aegon Retirement Readiness Survey 2013 For Canadians, risk management is a top priority
    • Guaranteed Minimum Withdrawal Benefit (GMWB)
    • Guaranteed Minimum Withdrawal Benefit (GMWB) with Empire Life 12 Segregated Funds  Up to 80% equity exposure (3 funds) to maximize your growth potential 5% Income Base Bonus  5% Income Base bonus applied to the Income Base each calendar year no with withdrawals are made5 Triennial Resets  Income Base, Bonus Base, and Death Benefit Guarantee6 automatically reset independently every three years on the policy anniversary Industry Unique Features  Automatic Income Resets and Retirement Income Privileges give you flexibility with your retirement income Tiered Payout Rates  Single and Joint Tier income is now available as early as the year the Annuitant6 turns 55
    • The Empire Life GMWB Guaranteed Income for Life •19 Inflation Protection  With Automatic Income Resets you automatically become eligible for your new Lifetime Withdrawal Annuity (LWA) percentage when the Annuitant7 crosses into the next age tier Flexibility  Retirement Income Privileges allows you to discontinue your income payments and receive your deferral bonus, then restart income at any time Competitive Fund Fee Rates  Lower Guarantee Withdrawal Benefit fees can lead to greater potential return on investment and greater guaranteed income Low Minimum Investment  $10,000 minimum investment required for Class Plus 2, including TFSAs. 100% Death Benefit Protection  100% Death Benefit Guarantee1at no additional cost
    • GMWB: Lock in the market gains with the added guarantees Age Market Return Market Value Protected Value Income Bonus Base Guaranteed Death Benefit 50 0% $500,000 $500,000 $25,000 $500,000 54 25% $713,139 $600,000 $35,657 $713,139 57 25% $997,181 $855,766 $49,859 $997,181 60 -8% $1,075,351 $1,200,526 $53,768 $1,075,351 63 20% $1,449,840 $1,361,829 $72,492 $1,449,840 66 -26% $1,786,082 $1,739,809 $89,304 $1,786,082 69 -5% $2,068,538 $2,143,298 $103,427 $2,068,538 71 -10% $1,861,684 $2,543,479 $104,277 $2,068,538 Based on a $500,000 non registered investment at age 50 and historical returns  Worst case scenario, at age 65 bonus base of $875,000 with an annual payout of $35,000 for life and the remaining death benefit tax free
    • What about a GMWB in an RRSP or RRIF? RRRIF GMWB $80,000 $50,000 $73,600 $50,000 $67,712 $50,000 $59,680 $50,000 $52,505 $50,000 $48,560 $50,000 $38,564 $50,000 $22,908 $50,000 $14,621 $50,000 Based off $1,000,000
    • Get it before it’s gone! Originally 7 companies in Canada offered the GMWB: Currently only 2 companies in Canada still offer the GMWB
    • Mutual Funds vs. Segregated Funds Segregated Funds Mutual Funds Maturity Guarantee YES NO Death Benefit Guarantee YES NO Ability to Reset Guarantees YES NO Potential for Creditor Protection YES .. Some provinces for bankruptcy only Taxation Time weighted distribution Distribution to all shareholders equally Fund Distributions Reinvested in the fund Monthly, quarterly annually Client reporting Semi-annually Semi or quarterly
    • Original Investment 1,000,000 FMV drops 10% 3 yrs. later $900,000 (upon client’s death) Non-Reg DSC Fee (5.0%) $50,000 Probate & Estate Fees*** $54,500 (5.45%) Net Proceeds $795,500 Bypass Probate* No Tax Implications FMV + Top-Up $1,000,000+ $1,000,000 minimum Keep Seg Fund** Collapse DSC Free $1,000,000 minimum•* Only if a beneficiary is named •** Assumes spouse/common-law partner is named as successor owner and annuitant. •*** Cost will vary from province to province and on the complexity of the estate. Segregated Funds (GIFs) 100% Death Benefit Guarantee • 100% of Deposit Value or • Market Value or • Previous Guarantee Reset Value Mutual Funds vs. Segregated Funds Mutual Funds
    • The unbeatable Segregated Fund Advantage! •25 EXAMPLE OF SEGREGATED FUNDS:  October 12, 2000: $500,000 deposit  August 21, 2009: Annuitant’s death  Market value: $298,458 RESULT:  Amount paid to the beneficiary: $500,000  $201,542 over the market value  Paid in 12 days  Bypass probate, DSC and Estate fees
    • What happens when I die?  The value of your RRSP/TFSA is paid to the beneficiary you have designated.  The RRSP can be transferred to a surviving spouse on a tax free basis. However, once the surviving spouse dies the entire RRSP value is fully taxable as income to the beneficiary or beneficiaries  If there is no beneficiary, the RRSP is paid out to your estate. The beneficiary of the estate will have to pay taxes on the full amount as taxable income. For example, if you have $1 million in RRSPs, when you and your spouse die, your beneficiary will need to pay taxes on the $ 1 million, i.e. $480,000 in income taxes, since you will be in a 48% marginal tax bracket with this income. You can get a life insurance policy to cover you in the event of death to avoid your beneficiaries paying taxes on your estate
    • Estate Planning  All of your assets can be rolled over to your spouse upon death tax free  On the second death, all of your assets EXCEPT your Life Insurance and your Primary Residence are taxable (passes in kind to your children if they do not have a primary residence)  The tax is calculated from the adjusted cost base (ACB or original purchase price) to the fair market value (FMV) on death of the second person (i.e. deemed disposition)  The difference between the ACB- FMV is taxed as follows: - 50% of all capital gains on investments, real estate, etc. are considered taxable income - 100% of Registered Investments (RRSPs, RRIFs, LIRA, Pension Funds, DPSP) are considered taxable income
    • Estate Planning Example Consider Bill Smith, age 68 and Janice Smith, age 67, a retired married couple. They want to leave their estate to their children, Mary age 35, married homeowner with 2 kids and Jason, age 32, bachelor living in a condo downtown. The have built up a sizeable estate which includes the following: Value of Smith Estate today: Principal Residence: $500,000 (purchase price of $150,000) RRSPs: $350,000 (ACB of $150,000) GICs: $250,000 (3% interest rate) Stocks, Bonds: $250,000 (ACB of $100,000) Cottage: $300,000 (purchase price of $100,000) Total Estate Value: $1,650,000 Unfortunately, Bill and Janice were hit by a drunk driver and die in a car accident . How much in taxes do their children, Mary and Jason have to pay to inherit their parent’s estate?
    • Estate Planning Example Value of Smith Estate:  Principal Residence: $500,000 (purchase price of $150,000) $350,000 gain * 50% capital gains taxable= $175,000 taxable income  RRSPs: $350,000 (purchase price of $150,000) $350,000 taxable income  GICs: $250,000 (3% interest rate) Not taxable income, interest was taxed in the year received  Stocks, Bonds: $250,000 (purchase price of $100,000) $150,000 gain * 50% taxable capital gain= $75,000 taxable income  Cottage: $300,000 (purchase price of $100,000) $200,000 gain * 50% taxable capital gain = $100,000 taxable income Total Taxable Income: $700,000 Jason and Mary will be in a 48% marginal tax bracket and will need to pay $336,000 in taxes on their parents death.  To cover the tax burden, the parents could have bought a joint last to die life insurance policy for only 10% to 25% of cost of total taxes payable!
    • Estate Planning- Will  Any assets passing through the will are subject to probate and legal fees (approximately 3% - 6% of asset value)  It is advisable to reduce the assets going through your will and instead do it through an appointment of beneficiaries (RRSPs and Life Insurance) or joint tenancy (Real estate)  If you die without a will, all of your assets will transfer to your estate on death and the will be allocated to your family according to the intestacy provincial laws  It is important to have a will to ensure that the distribution of your assets is according to your wishes  Speak to a lawyer to ensure that your estate goes to the right people
    • Protecting your Retirement Plan Health Risks: Premature Death, Critical Illness, Disability, Long Term Care Solutions: Various Insurance plans Longevity Risk: (Outliving Money) Solutions: Life Annuity; Variable Annuities (Guaranteed Lifetime Withdrawal Benefit) Investment Risks:  Asset Allocation / Diversification  Capital / Income Guarantees Solutions: Segregated or Mutual Funds Estate Risk:  Taxes payable on death or estate generational transfer Solution: Joint Last to Die Insurance and Will
    • Questions? Contact me: Aleem Visram, HBA, MBA Owner & Financial Advisor E-Mail: avisram@mirfp.com Website: www.mirfp.com (647) 986-9163
    • Footnotes 1 Benefit guarantees are based on the sum of the total deposits reduced proportionately for withdrawals. 2 If the 100%/100% option is elected a minimum of 15 years to the maturity date is required to ensure net deposits are guaranteed at 100% Maturity Benefit. Deposits made in the 15 years prior to the maturity date are guaranteed at 75% Maturity Benefit. 3 Source: Morningstar Direct and Empire Life June 2013. MERs are category median and Class A Empire Life segregated funds 4 Provided there are no Excess Withdrawals. 5 Income Base Bonus is a notional amount added to the Income Base if no withdrawals are made in that year. 6 Death Benefit Guarantee resets are only available until the Annuitant’s, or if the Joint Tiered LWA Option is elected, the older of the Annuitant and the Joint Life’s 80th birthday. 7 Annuitant’s age refers to the youngest of the Annuitant and Joint Life if the Joint Tiered LWA Option is elected. Withdrawals before the year the Annuitant, or if applicable, the Joint Life turns age 55 will be considered an Excess Withdrawal. 8 Loyalty For Life became effective January 9, 2012. Contract Owners must have Empire Class Segregated Fund units on the date of the management fee credit in order to receive it. The management fee credit will be used to purchase additional Fund Class Units and will be allocated proportionately based on the Market Value of each Fund(s) that the client is invested in on December 31st of each year (or the last valuation date of the year, if earlier).
    • Important Notes  Past Performance is no guarantee of future performance.  This presentation reflects the views of Empire Life as of the date presented. The information in this presentation is for general information purposes only and is not to be construed as providing legal, tax, financial or professional advice. The Empire Life Insurance Company assumes no responsibility for any reliance made on or misuse or omissions of the information contained in this presentation. Please seek professional advice before making any decision.  A description of the key features of the individual variable insurance contract is contained in the Information Folder for the product being considered. Any amount that is allocated to a segregated fund is invested at the risk of the contract owner and may increase or decrease in value. ® Registered trademark of The Empire Life Insurance Company. ™Trademark of The Empire Life Insurance Company. Policies are issued by The Empire Life Insurance Company. Multi Insurance Retirement & Financial Planning (MIRFP) September 2013