by John Moakler | Mar 31, 2022 | Uncategorized
March 31, 2022
I also cover this in a YouTube video. Click here to watch!
Now here’s a question you may have never thought of needing to ask yourself: are you really working with a Financial Planner or just somebody who calls themselves a Financial Planner? Well, by the end of this article I’ll have supplied you with all the necessary information needed to determine if your current Financial Planner really knows what they’re talking about – and if the recommendations they’re making to you and your family are correct.
Right now, in so many provinces across Canada, anybody can call themselves a Financial Planner and get away with it.
As an industry, we are asking for reforms and regulations to protect the public from rogue people who pretend to be Financial Planners – the ones whose sole pursuit is selling products, moving onto the next opportunity and leaving many mistakes behind.
When I am in need of a doctor – a specialist – I want to find a doctor that has a number of degrees and designations after their name. I am seeking out someone who has gone to school for a number of years, someone who is a real expert in their field. Ultimately, I’m looking for someone who knows what they are actually talking about.
This same practice should be used when seeking out a Financial Planner to work with. We have similar acronyms after our names that you should be looking for to ensure the person that you are sitting down with is actually a Financial Planner.
So – you want to make sure the person has a business or a math background; additionally, they should have at least their Certified Financial Planners designation (CFP), which is the gold standard when it comes to Financial Planning. The second designation you should be looking for is the Chartered Life Underwriter (CLU) designation. The CLU designation really focuses in on working with business owners and complex estate planning. Those two designations – either the CFP or the CLU – are what’s really required in order to call yourself a Financial Planner.
Starting this year, if you want to enroll in the CFP program, you must already have a university degree – just like lawyers and accountants need to have a university degree, so will Financial Planners. This is just one step of many that the industry needs to take in order to protect the public.
Currently, I am working on a number of client files and you can see during the information gathering process that many business clients have no clue if they are maximizing the effectiveness of their corporation, and whether or not they are paying way too much in taxes to Revenue Canada.
Just to give you an example…
One client I dealt with had a Critical Illness Policy that they owned, but when I reviewed the documents, I noticed that the brother was listed as the beneficiary of the policy. Now, if this was a Life Insurance Policy, that might be correct, but this was a CI policy. So, I explained to the client that they were making the premium payments, but if they contracted a critical illness, the payout would be going to the brother. Boy, were they displeased when I showed them their own documents. Needless to say, they fired their previous Financial Planner since they clearly didn’t know what they were doing.
Life insurance is a no-brainer to have inside a corporation. Time and time again I see business owners owning life insurance policies personally instead of corporately and that is just not being wise.
Why would you take money out of the corporation – paying 30% or 40% in personal taxes in order to pay for the life insurance premiums – when that policy could be inside the corporation?
Plus, depending on which province you are in, you’re using 11-12% corporate dollars to pay those life insurance premiums. And, if you did pass away unexpectedly, the death benefit would be paid into the corporation, at which point your accountant would prepare paperwork to declare a “Capital Dividend” and the life insurance proceeds would come out of the corporation tax-free. What I’m trying to say is: there is no downside to owning the Life Insurance Policy inside the corporation.
So, again, I ask the question: why are business owners still owning Life Insurance Policies personally? Part of the answer is that the person who “sold” them the product didn’t know what they were doing.
Cash flow management is key to running a successful business. However, during my analysis of many client files, I find out that their current Financial Planner has never taken the client through a Cash Flow Management exercise. Never!
In a more recent client engagement, once we took them through a Cash Flow Management exercise, we were able to save the client $33,000 a year in personal cash flow – which meant we reduced their personal taxes by at least $10,000-$15,000 each year. If we hadn’t come into their lives, they would have continued to make Revenue Canada rich.
If you’d like to learn more about working with an actual Financial Planner, and not somebody who is just trying to sell you products, contact me at the coordinates below to apply to become my client. Thanks for reading and always remember: when we design financial plans for our clients, we make sure that your money outlives you in retirement.
For the best life insurance advice and information, subscribe to my YouTube Channel and hit the notifications bell to be notified when we post new videos. The channel allows me to share my passion for personal financial planning and I produce content that I would want to watch – and because of that, I promise to give you 110% effort in every video that I make.
By John Moakler, BMath, CFP, CLU
President and Senior Executive Financial Planner
Moakler Wealth Management
info@moaklerwealthmanagement.com
1 416 840 8544
by John Moakler | Mar 28, 2022 | Uncategorized
March 28, 2022
I also cover this in a YouTube video. Click here to watch!
What is a Tax-Free Savings Account (TFSA) and why should every Canadian citizen have one?
In this blog, I will give you all the necessary facts you need to consider so that you can make an informed decision about a TFSA for you and your adult family members.
Let me start out by saying – in my opinion – I think the government named the account incorrectly. It should have been called a Tax-Free Investment Account or TFIA because most Canadians are under the false impression that they can only have a TFSA at one of the major banks, all because of the word “Savings” in its name.
However, a TFSA is allowed to invest in almost anything, and I will share some ideas later in this blog on what I’m doing with my own TFSA in order to maximize my return by taking on additional risk.
So here is the history of the TFSA
It was first introduced in 2009 and you needed to be at least 18 years of age to open up a TFSA. Initially, you were only allowed to contribute $5,000 of after-tax money. This is key, because the money you are putting into the TFSA has already been taxed in your hands. Gradually, the annual contribution increased to $5,500, and then in 2015 – as a part of an election promise – the annual contribution was increased to $10,000. But, like most promises by politicians, once they got elected, they reduced it again to $5,500. Today the annual contribution sits at $6,000.
Now why is this important to you?
Because if you haven’t opened up a TFSA account yet, and you were at least 18 years of age or older in 2009, then you can put at least $75,500 into a TFSA today.
Each year a new contribution room is automatically created and if you forget or don’t have extra money to put into a TFSA for that particular year, then you get to carry that contribution room forward.
Now, it is very important that you don’t over-contribute to a TFSA. If you put too much into a TFSA, then Revenue Canada (the CRA), will charge you an interest penalty equal to 1% per month on your excess contribution. So be careful when calculating your contribution room.
I also advise you to be aware of this: if you take money out of your TFSA in, say, 2021, then you are only allowed to put that money back into your TFSA the following year – in this case, 2022. Because you were contributing “after-tax” dollars into the TFSA, when you take money out, it is completely tax-free money.
Think about it for a minute, if you were to contribute $6,000 per year for the next 25 years – and you received a conservative 5% net rate of return each year – then you would have a bucket of $300,000 in tax-free money. Plus, if you received a higher rate of return – say 7%, for example – then you would have a bucket of $406,000 in tax-free money.
Now, I did promise to tell you what my strategy is for my own TFSA…
For background purposes, I will share with you that I have a high-risk tolerance – which means that I don’t look at my investment statements when the markets are down. I also don’t look at my investment statements when the markets are up. Why? Because whatever that number is, it is not my number. I am not planning on touching my TFSA for at least another ten or 15 years, so why would I be looking at the value today?
My TFSA is fully funded with shares of a private start-up company. If you research my background, you will know that I initially started my career in the Information Technology world of Corporate Canada before moving into the world of start-up software companies. 18 years ago I left that world to become a Financial Planner. In other words, I know the stats: only one in eight start-up companies survive. So for me, based on my risk profile, I am okay with those odds.
I will tell you it has been over six years since my first round of financing, and I have since participated in three additional rounds of financing; the company I have invested in happens to now be cash flow positive, with plans to possibly go public in the next two to five years.
For the record, I did not tell any of my clients about what I was doing with my TFSA, because it brings with it a higher level of risk than what most Canadians are looking for. So investing in start-up companies is not for everybody, but it’s absolutely something we can talk about.
If you’d like to learn more about TFSAs, contact me at the coordinates below to apply to become my client. Thanks for reading and always remember: when we design financial plans for our clients, we make sure that your money outlives you in retirement.
For the best life insurance advice and information, subscribe to my YouTube Channel and hit the notifications bell to be notified when we post new videos. The channel allows me to share my passion for personal financial planning and I produce content that I would want to watch – and because of that, I promise to give you 110% effort in every video that I make.
By John Moakler, BMath, CFP, CLU
President and Senior Executive Financial Planner
Moakler Wealth Management
info@moaklerwealthmanagement.com
1 416 840 8544
by John Moakler | Mar 24, 2022 | Uncategorized
March 24, 2022
I also cover this in a YouTube video. Click here to watch!
So, what is the super cool feature called Return of Premium and which insurance products offer this coverage? By the end of today’s blog I’ll have not only shared with you how you can get this feature, but I will also warn you about some of its potential pitfalls.
I find insurance policies a necessary evil – but if we can purchase policies that protect us and our families, plus give us an opportunity to get a portion or 100% of our premiums back… Well, sign me up!
There are 3 common Return of Premium options in the marketplace:
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Return of Premium on Death. This is somewhat obvious in how it works, meaning the pitfall is that you have to die to collect. So really this means the money is going back to your estate.
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The Return of Premium that allows you certain risk management products, or in other words the “50% Return of Premium after so many years of coverage.” I will explain later how you can take advantage of this offer
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Finally the Return of Premium that says “Give me 100% of my money back after a certain time period.”
So for Critical Illness Insurance – otherwise known as CI – you can add on the feature of Return of Premium on Death. You’re either going to get a covered policy and receive the CI benefit, or if you die while it’s being processed, your estate will get 100% of the premiums that you paid back, 100% tax-free.
A Critical Illness Policy can also be designed with a term to the age of 75 – meaning you will have coverage from now until 75, and you can add on a 15+ years ROP on Surrender. So while you are alive, after paying premiums for 15 years, you can decide to either continue to pay the premiums each year, or you could ask for 100% of your money back tax-free. In this case, you are either going to get a covered CI benefit, and if you don’t, you qualify to receive 100% of your money back. This is what I call the Cadillac version of CI.
There is another Critical Illness Policy for business owners that is kind of cool.
It is called Shared Ownership CI. This means that the Corporation pays the premium for the CI benefit and you personally pay the premium for the ROP on Death and the ROP on Surrender. Why is this cool? Because after 15+ years you can decide to surrender the policy and not only will you get back all the premiums that you paid personally, but you also get back all the premiums that the corporation paid – you get them all back personally and it is 100% tax-free money.
With Personal-Individual Disability Policies you can add on an ROP feature that allows you to receive back 50% of the premiums that you have paid if you haven’t claimed on the Disability Policy. This feature usually kicks in for every eight years you own the Disability Policy, and continues all the way up to the expiry date for the coverage. So if you haven’t contracted this policy, and you hit your eighth, 16th, or 24th anniversary, then you will receive 50% of your premiums back. The best part? That is 100% tax-free money.
If you’d like to learn more about how you can incorporate the ROP feature into your Risk Management Coverage or if you have already decided that you need to get the coverage in place, contact me at the coordinates below to apply to become my client. Thanks for reading and always remember: when we design financial plans for our clients, we make sure that your money outlives you in retirement.
For the best life insurance advice and information, subscribe to my YouTube Channel and hit the notifications bell to be notified when we post new videos. The channel allows me to share my passion for personal financial planning and I produce content that I would want to watch – and because of that, I promise to give you 110% effort in every video that I make.
By John Moakler, BMath, CFP, CLU
President and Senior Executive Financial Planner
Moakler Wealth Management
info@moaklerwealthmanagement.com
1 416 840 8544
by John Moakler | Mar 21, 2022 | Uncategorized
March 21, 2022
I also cover this in a YouTube video. Click here to watch!
If you have children and your plan is to leave them the bulk of your estate, how do you make sure – in the case they get married and then divorced – that their ex-spouse doesn’t get 50% of the assets that you left for your child? Today I’m sharing with you a key strategy that will fix this problem.
Here’s the thing, you can leave money “directly” to your child, but if they are married or get married in the future, they “commingle” this money – along with other assets they have to enjoy their lifestyle with their spouse – and end up getting divorced, their ex-spouse could end up with 50% of the remaining money that you left your child.
So how do we correct this problem?
The solution is something called a Testamentary Trust. You can’t go out and set one up today, but it is created upon your passing and must be designed properly inside your Will.
Back when Jim Flaherty was the Federal Finance Minister, he took away a key feature of Testamentary Trusts, and so, some lawyers – who are not familiar with the Financial Planning Benefits of a Testamentary Trust – sometimes give the wrong advice about not using this strategy in your Wills.
Here are some key Financial Planning Benefits of a Testamentary Trust:
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It is set up upon the death of an individual.
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The Trust is considered an “Individual” for Tax Purposes – which just means it has a separate tax return.
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For the first three years of the Trust’s existence, it has graduated tax rates the same as an individual.
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Provides for Income Splitting with the Beneficiaries.
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Creditor Protection.
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Family Law Act – Divorce.
In this blog, I’ll be drilling down into those last three Benefits.
Income Splitting
Let’s use me as an example. I have 3 children, and let’s assume my estate is worth $3M upon my passing. I have set up Testamentary Trusts in my Will for each of my children and my future grandchildren. That means each of my children would get $1M in their Testamentary Trust.
Now, as I write this, none of my children have children… at least, that I know of! However, down the road when they do have children, they could take money out of the Testamentary Trust in the name of the grandchild. Now you’re taking the money out on your grandchild’s tax return, who should be in a lower tax bracket, thereby reducing your overall tax bill. So when it comes to income splitting or what some accountants like to call “income sprinkling,” this strategy is very strategic.
Creditor Protection
If you leave money in your Will directly to your son, and he ends up getting sued, then the lawsuit can go after the money that you left your son. However, if you leave the money to your son in a Testamentary Trust, and your son then gets sued, the lawsuit can’t go after the money in the Testamentary Trust. This is huge.
Family Law Act – Divorce
As I mentioned earlier, if you leave the money directly to your daughter, and she ends up getting married and then divorced, then the ex-spouse could end up with 50% of the money you left to your daughter. However, if you left the money to your daughter in a Testamentary Trust and she gets married and divorced, then the ex-spouse will end up with nothing from the Testamentary Trust. Now, the spouse might be able to go after the cash if your daughter commingles the money from the Testamentary Trust, so it comes down to making sure she is educated properly.
If you’d like to learn more about how to set up a Testamentary Trust in your Will, contact me at the coordinates below to apply to become my client. Thanks for reading and always remember: when we design financial plans for our clients, we make sure that your money outlives you in retirement.
For the best life insurance advice and information, subscribe to my YouTube Channel and hit the notifications bell to be notified when we post new videos. The channel allows me to share my passion for personal financial planning and I produce content that I would want to watch – and because of that, I promise to give you 110% effort in every video that I make.
By John Moakler, BMath, CFP, CLU
President and Senior Executive Financial Planner
Moakler Wealth Management
info@moaklerwealthmanagement.com
1 416 840 8544
by John Moakler | Mar 17, 2022 | Uncategorized
March 17, 2022
I also cover this in a YouTube video. Click here to watch!
What is the difference between Group Disability Insurance coverage at your place of work versus an individually-owned Disability Insurance policy? Well, in this blog I’ll be sharing with you the key differences between the two plans, so you can make sure you have all of the important features.
Now, if something happened to you last night and you couldn’t work today, the question I always ask is… what is going to be your monthly paycheque?
If this happened to you, the best way to address the issue is something called Disability Insurance – it will step in to become your paycheque for the rest of your working life.
With a Group Disability Plan at work, you are limited to the features that have been negotiated by someone in the Human Resources Department or the Benefits Department. Depending on where you work, you might have what are called “Flex Dollars” that you are allowed to use when designing your Benefits package. These Flex Dollars can be used to purchase Life Insurance, Disability Insurance, and Dental or Medical Plans.
The key mistake I sometimes see people make is that they use some, or all, of their Flex Dollars to pay for their Group Disability Plan. This is such a mistake because if you use your Flex Dollars to pay a portion or all of your Group Disability Plan, and then you go on a disability claim, any money that you receive would be fully taxable as regular employment income. However, if you don’t use any of your Flex Dollars to pay for your Group Disability premiums, and then you go on claim, then any money that you receive would be 100% tax-free money.
So this is a huge no-brainer: would you rather have fully taxable income or tax-free money?
Also, if you are an incorporated business owner, you must make sure that you pay for your disability premiums with personal tax dollars, otherwise you would have the same issue of taxable income versus tax-free income if you went on claim.
Both plans usually allow you to add in a Cost-of-Living Allowance – otherwise known as COLA – which means that once you go on claim, your benefits each year would go up by the Cost of Living and would be indexed to inflation. This is good.
HERE’S THE THING: every Group disability plan in Canada has one huge flaw with it – it is called “Own Occupation.” Now, most of you reading this blog probably haven’t read your benefits plan in years, but if you read the fine print in your Group Disability Plan, you will find that if you go on claim, then you have “Own Occupation” for the first two years of your claim. That means that in the first two years of your claim, the insurance company CANNOT make you do any job other than the job that you were doing the day before you became disabled.
Here’s the catch: in all Group Plans in Canada, after being on claim for two years, your definition of “Own Occupation” changes to “Any Occupation,” and the insurance company can now force you to do “Any Job” that you are able to perform, and with it, any money you make is subtracted off the Disability Benefit that you are receiving.
Here is how we fix that problem with your Group Plan
You can purchase a “cheap and cheerful” Individual Disability Policy, however, I would include a two-year waiting period before the benefit kicks in – so your Group Plan would cover you for the first two years. Then, when the definition changes in the Group Plan, we turn on your Individual Disability Insurance Plan with “Own Occupation” to solve this problem. This turns out to be very cost-effective because of the two-year waiting period.
Only an individual plan can have the following feature: Return of Premium (ROP). I recommend you do a calculation of the cost of this feature versus the payback. This works like clockwork: every 8 years, if you haven’t filed a disability claim, then you get 50% of the premiums back that you paid and you receive this money “tax-free”. So either you get a disability and you receive the monthly benefit, or you get 50% of your money back.
If you are a professional, like a doctor or dentist or you have a university degree or a Masters, then you will qualify for additional discounts on your Individual Disability Insurance.
If you’d like to learn more about Disability Insurance or if you have already decided that you need to get the coverage in place, contact me at the coordinates below to apply to become my client. Thanks for reading and always remember: when we design financial plans for our clients, we make sure that your money outlives you in retirement.
For the best life insurance advice and information, subscribe to my YouTube Channel and hit the notifications bell to be notified when we post new videos. The channel allows me to share my passion for personal financial planning and I produce content that I would want to watch – and because of that, I promise to give you 110% effort in every video that I make.
By John Moakler, BMath, CFP, CLU
President and Senior Executive Financial Planner
Moakler Wealth Management
info@moaklerwealthmanagement.com
1 416 840 8544
