For those of us who focus on estate and financial planning, particularly on the left coast, the last few years have featured a cavalcade of change. 2011 featured changes to how Powers of Attorney must be set up and what they can do, along with the introduction of a new healthcare document called an “Advance Directive” that allows you to dictate your healthcare choices in advance along the lines of a Living Will. 2013 marked large scale changes to family law in beautiful B.C., such as extending property rights to common law spouses and changing how property gets divided in the event of a divorce. This year (2014) saw massive changes to Wills law, including a change on how things get divided if you die without a Will, what happens if two people die around the same time and removing the automatic revocation of your Will upon marriage, to name just a few.
Despite the significant changes already in place, there more still to come. This time they’re coming from the Federal Government and will affect more than just those people who cheer for the Canucks. Fortunately, we’ve been told of these tweaks to the system several years in advance so that we get a chance to either prepare for the inevitable (such as under the new tax rules for how trusts set up in your Wills) or to take advantage of a final chance to buy life insurance and annuities that will continue to qualify under the current rules even under the new regime. Here’s a little bit about each.
In my last article, I wrote about some of the steps you could take to wreak legal and financial chaos on those you love. I originally wanted to also include those important steps you could take to also drag down the family business / farm or start a family squabble that could hopefully last for generations. When I started writing, however, I quickly saw that this needed an article all to itself, as the opportunities seem almost endless. Even so, I won’t have time to address the extra level of problems that can arise if your immediate family aren’t the only owners of a business.
Most of the mistakes regarding your estate planning if you own a businss can be broken down into 3 main areas:
• Working really had to build a successful family business / farm then putting no effort into the logistics of how the company will operate without you and how to make things work at that point without your children engaging in a bloodbath;
• Failing to think about taxes and other expenses that can cripple your business, force your heirs to sell out or result in a much higher tax bill at your death than anyone deserves; and
• Not getting the proper legal documents and advice in advance.
Now that you know how the OAS pension clawback is applied and its actual effects on your bottom line in after-tax dollars, I want to pass along ways you can organize your affairs so that you can get (and keep!) as much of your Old Age Security Pension that is humanly possible. Since a lot (but not all) of these techniques focus on keeping your taxable income down, you might also save some income tax dollars, too, if you’re not careful.
Before diving in, I realized that there was one additional situation where I see seniors taking an unwanted sojourn into the clawback zone that merits comment: the curse of the saver. If you are one of those thrifty and savvy investors who actually grow their incomes during retirement, you could unwittingly end up in the clawback zone at some point. Even if you don’t become a regular inhabitant, you still may be an occasional visitor during years you report significant capital gains. Accordingly, this article is written for those of you as well in the hopes of keeping your visits to this unpopular destination as infrequent as possible.
If you really want to light a fire in belly of most middle class retirees, I strongly suggest turning the conversation to how their OAS pensions are reduced if their taxable incomes top about $71,000 as of July, 2014. More specifically, they will lose $.15 for every dollar in taxable income they receive above that point until, if they make enough, their entire OAS pension of $6,618.48 (what most long-time Canadians receive if they take their pension as soon as possible as of May, 2014) is a thing of the past. I plan to use this and a subsequent article or two to explain how the claw back works and some steps you can take to minimize the impact. Today’s offering will set the stage and explain why dividends may not be as good as advertised when the claw back comes calling.