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  • BANKS STEPPING UP SERVICES FOR THE AFFLUENT MARKET
    specialized services with the added perks of Scotiabank owned products and services SIMPLIFYING LIVES CPA had its start in 1974 when its founders were approached by a major Canadian company keen on keeping its top executives focused on their jobs rather than their portfolios The notion hasn t changed greatly over the years Purves says as highly affluent individuals continue to turn to them to handle the complexities their wealth brings As complexity increases we become more and more relevant in the lives of our clients It is really important when you start getting up into that ultra high net worth The issues that they re facing or the planning opportunities that they re able to take advantage of increase Purves says Natasha Fauque private wealth manager Desjardins Group agrees that high net worth clients above all want their lives simplified That s precisely why these individuals and families turn to specialized banking services With more than 2 000 client family group accounts Fauque says its focus is on making high net worth families lives easier by providing access to a wide range of experts She says its inhouse specialists notaries tax specialists and financial planners are on hand exclusively to perform high level assessments on matters such as real estate issues liquidation of assets and selling or passing on a family business A lot of people really want to save time and they don t want to dedicate a lot of time to the process of managing their portfolios Fauque says It gets more complex the more assets you have and I think they want someone to help simplify the process Indeed these specialized services address more complex issues and go beyond basic cookie cutter solutions found with typical financial services Clients often come to their banks with a serious crisis such as how to go about buying or selling a very large business or what to do about a child spending too much money perhaps because of a drug addiction For these types of problems chartered accountants chartered financial analysts lawyers and the most senior bankers in the bank are available immediately to provide effective solutions EDUCATING CLIENTS Effectively supplying advice to clients is an important element to CPA s business as well When dealing with great amounts of wealth Purves says it s imperative to ensure all levels of the family are given the opportunity to learn about their banking options instead of simply abdicating control over to advisors That s really where I think we have from that piece of mind perspective a program and framework that fully educates both spouses as opposed to just one who might traditionally run with the family finances Purves says they go out of their way in extending proper financial education to all members of a family involved Openly offering information to both spouses and their children ensures that everyone is on the same page and that everyone will be comfortable with the services down the road That approach he

    Original URL path: http://privatewealthmagazine.ca/banks_stepping_up_services_affluent.html (2016-04-26)
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  • EVEN THE RICH ARE GEARING DOWN
    to meet your long term lifestyle goals Here s a story about recent client who had just sold his three generation family business to a publicly traded company for 25 million Of this 15 million is in tax deferred shares of the public company leaving him with 10 million in pre tax cash The conversation that followed was a little tricky Here s why He was accustomed to drawing 1 5 million pre tax per year in income out of the business and had a pretty decent lifestyle or burn rate The common shares he received as part of the transaction came with some lock up restrictions and did not generate any dividend income SOUND LIKE A LOT Ten million dollars might sound like a lot but it shrinks to 7 million after tax It s true he can and will invest his 7 million wisely in top notch dividend and capital gains oriented investments Then he can draw a tax preferred cash flow probably in the ballpark of 1 million a year from his investments to equal the 1 5 million in salary he was getting However this is withdrawing his freed up cash at a 14 per cent clip which is definitely not sustainable in the mid to long term I had to caution him at this point of the conversation that based upon his freed up liquid capital he was in danger of potentially too high a lifestyle spending rate This scenario also makes his retirement and lifestyle very dependent on the public company s tax deferred shares he will now be getting as part of the sale I had to inform him that he s got a concentrated stock position risk and he s quite dependent now on the future success of a company he no

    Original URL path: http://privatewealthmagazine.ca/rich_gearing_down.html (2016-04-26)
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  • Effective Philanthropy Made Easy
    article I d like to introduce the features and benefits of a charitable gift fund CGF plan an effective giving instrument recently introduced into the Canadian marketplace by the Charitable Gift Funds Canada Foundation CGFCF and some of Canada s major financial institutions A charitable gift fund CGF is essentially a donor advised fund a giving vehicle that combines for the donor immediate tax benefits with the ability to periodically support favourite charities on a flexible timetable Many Canadians derive great joy from charitable giving But as the list of deserving charities grows longer and longer some donors begin to feel overwhelmed by the complexities of active philanthropy With the writing and mailing of annual cheques many of which require explanatory cover letters with hurried decisions at yearend on which of their favoured charities will receive donated shares of appreciated stock or mutual funds with doing the paperwork for those asset transfers to a dozen different grant recipients and then keeping all the detailed records for reference at tax time donors are increasingly looking for ways to simplify the giving process The charitable gift fund is proving itself to be an appealing solution Attractive features of a CGF plan include Individuals and or families are permitted to place irrevocable contributions of personal assets cash securities mutual fund units in a perpetual gift fund account Donation receipts are issued for the full value of the assets contributed in the year a contribution is made Granting decisions can be made immediately or be deferred to a future year Prudent investment management and ongoing administration of contributed assets is handled by the sponsoring foundation usually in collaboration with the donor s investment advisor Earnings generated in the CGF annually become available each year every year to fund worthwhile charitable projects of the donor

    Original URL path: http://privatewealthmagazine.ca/effective_philanthropy_made_easy.html (2016-04-26)
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  • The Family Vacation Property
    may leave the vacation home to one or more family members under the terms of your will Some of the options include granting one or more children the option to purchase the property allowing a child to take the property as part of his or her share in the estate or creating a trust to hold the vacation home under the terms of your will In this case the capital gains taxes can be payable upon death of the last spouse Life insurance can be used to pay any capital gains taxes triggered by the disposition of the property when your estate is settled It also creates a pool of funds to pay children who are not interested in inheriting the property alternatively children who are interested in the property can take out a mortgage to buy out siblings who are not interested In addition life insurance can be used to provide the children with the money necessary to pay for the maintenance and expenses related to the property Since your children will benefit from this insurance coverage consider asking them to pay the premiums If more than one child will own the property they can enter a co ownership agreement to determine when and how they can use it as well as how expenses will be paid Regardless of the succession planning strategy chosen you can minimize capital gains tax on the disposition or deemed disposition of your vacation home either during your lifetime or at death by Ensuring that any vacation home renovation costs are tracked as these costs add to the cost of the property for tax purposes and will reduce any future capital gain Using your principal residence exemption to reduce or eliminate the capital gains tax on the property However only one principal residence can

    Original URL path: http://privatewealthmagazine.ca/the_family_vacation_property.html (2016-04-26)
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  • Consider Your Big Neighbour To The South
    recover the taxes withheld by the CRA through foreign tax credits The IRS has a very well defined foreign tax credit recovery set of rules which when applied correctly to RRSP withdrawals provides an even lower effective net tax rate in many cases a zero tax rate on the withdrawal of the RRSP which can be realized from the U S side of the border NET OF ZERO The planning required to reduce your tax rate as close to a net of zero on your RRSPs or other Canadian registered plans requires a skilled cross border financial planner This is not a do it yourself project The tax savings can be tremendous particularly if you are one of the fortunate Canadians that have say 1 million in an RRSP where the tax savings could reach close to 460 000 over a retirement in Canada There are many cross border planning tax reduction opportunities for business owners who have not yet sold their business and are looking to retire and for individuals that have large stock positions with very low cost basis By applying a combination of Canadian domestic rules U S domestic rules and Canada U S tax treaty rules a competently drafted crossborder plan when implemented may reduce capital gains taxes substantially and in many cases eliminate capital gains taxes altogether Most Canadian advisors are not aware of or have little to no expertise in these cross border techniques Therefore they will generally ignore them when approached by a business owner who wishes to sell out and retire For example a Canadian business owner with a business valued in excess of 15 million was told by his accountant that if he sold the business in the most efficient way the accountant could come up with he would pay approximately 4 million in income tax By reworking the sale of the business using a cross border strategy the tax was reduced to about 2 5 million and there is a very good chance that all of the 2 5 million would be entirely recovered on the U S side of the border through foreign tax credits Consequently this would make the effective tax rate on the sale of this business close to zero for a total effect of tax savings of 4 million This tax saving created solely by a move to the United States is more than enough to fund most people s retirement ESTATE TAX Probably the second most common reason why Canadian advisors tell their high net worth clients to avoid the United States besides dealing with the Canadian exit tax is the fact that they point out the country has an estate tax at death However generally for lack of understanding what these advisors fail to tell their high net worth clients is there are many simple strategies to avoid or eliminate both Canadian and U S estate tax altogether through a cross border planning move to the United States Although the CRA technically does not

    Original URL path: http://privatewealthmagazine.ca/consider_big_neighbour_south.html (2016-04-26)
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  • Going Private With Your Investments
    tolerance for risk and their investment horizon Many encourage clients to seek independent financial advice through fee based advisors tax advice from their accountants and estate planning assistance from their lawyers All of these activities are not associated with the sale of the investment or embedded in the investment management fees LOWER FEES Another benefit of being a private client is lower fees Distribution fees or financial planning fees trailer fees commissions and wrap programs make retail fees much higher than private client fees A recent academic paper revealed that the average Total Expense Ratio TER is 2 2 per cent 1 Most private investment firms have fees that are on average half of that A savings of one extra per cent per year for a 1 million portfolio means a 10 000 reduction in fees This can add up dramatically over the years Private client fees are also more transparent It can be very difficult to unpack and analyze retail investment fee structures Although fees are listed in simplified prospectuses and in other legal documents retail investment companies do not generally provide an ongoing account of the fees they deduct from individual investor accounts In other words when you receive your statements you know the investment company has deducted fees but the amount and nature of the fees are unclear This lack of fee disclosure is contrary to the direction towards which most industries are moving These days many service providers offer extensive breakdowns of their fees on their client statements With retail fund statements retail investment firms deduct the money from your account and you have no idea how much you ve paid Generally private investment management firms have simple fee structures because they charge only for investment management and minimal expenses Some firms send quarterly invoices or statements so you know exactly what you ve paid your manager Your accountant may also advise that your investment management fees are tax deductible ATTRACTIVE ALTERNATIVE Even though becoming a private client is an attractive alternative to retail investing a direct relationship or lower and more transparent fees should never be a reason to move your investments The key reason should always be quality investing strong performance long term and absolute and investment manager accountability Firms delivering strong performance results often demonstrate several characteristics These include a primary focus on investment management management of the intake of funds active investment management versus indexing a disciplined focus on the long term Firms that create these conditions often attract the best talent and talent and effort are important drivers of above average performance Size and managed intake of money affect performance Retail funds often take in large sums of money when times are good and vice versa when times are not so good There is considerable evidence in the investment management industry that large assets under management can have a negative influence on performance results because managers are forced to find places for large sums of money which can lead to investing

    Original URL path: http://privatewealthmagazine.ca/going_private_investments.html (2016-04-26)
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  • Private Residence Clubs Owning A Piece Of Paradise
    ownership The timeshare industry was probably the first concept of shared vacation ownership Some dating back to the early 1960 s were converted motels or hotels and sold in crowded meeting rooms to people on vacation in or around the area Tainted for years by unethical developer sales methods some of which are still out there the arrival of the most respected hoteliers like Four Seasons Fairmont Marriott Starwood Disney Hilton and others created a much higher level of industry stability and rapid growth While many people buy timeshares to take advantage of the opportunity to trade their time into other resort destinations the owners of private residence clubs usually focus on having a home away from home where it s more like having the use of the largest suite in a luxury class resort with up to four bedrooms and complete kitchen facilities as well Private residence club ownership usually involves a multi week deeded interest in a wellbranded luxury property Depending on the developer they range from a one sixteenth to a one quarter share of ownership of a residence Floor plans range from one to four bedroom residences from the low 200 000 s to the high 800 000 s per deeded interest based on location view and floor plan selected Prices can appreciate 35 per cent from pre construction phase to fi nal phase Often sold as a real estate investment buyers would be better advised to look upon private residence clubs as an investment in the continuing benefi ts of a luxurious vacation lifestyle Traditionally members have use of their residence club on a rotating calendar assuring equal access to prime season versus owning the same week every year or an open reservation system working on a first come first serve basis The use and costs of fractional ownership is shared with other owners who annually pay a portion of the maintenance taxes management refurbishments etc These rates are set by your resort s Home Owners Association which consists of elected owners who should have the same interests as you A deeded ownership and title to a fractional share means the owner can leave the property in a will transfer to another individual and sell it TRADING WITHIN THE FAMILY If your club is part of a luxury hotel chain that has other private residence club locations members of that resort may be able to exchange a portion of their time on a reciprocal basis However because private residence clubs are somewhat new some of the major brands only have a handful of locations at present but that will change over time With most resorts not all weeks are considered high season which results in different purchase price levels You may not be able to trade your low season for a high season Because of the ever expanding but currently limited number of private residence clubs with any one brand prospective buyers should visit the resort to be sure they will want to own and

    Original URL path: http://privatewealthmagazine.ca/private_residence_owning_paradise.html (2016-04-26)
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  • Tailor-Made Benefits Plans For Top Executives
    IPP s status is revoked it immediately turns into a retirement compensation arrangement The formerly registered IPP will forward 50 per cent of assets to CRA on behalf of the plan member These funds will be refunded to the RCA plan member at a later date when money is withdrawn from the RCA On withdrawal of funds from the RCA taxes will be paid at the RCA beneficiary s marginal tax rate In the worst case scenario CRA may not permit the assets from the IPP to be rolled over into an RCA and taxes will be charged on all assets held in the former IPP Heavy interest charges may be levied by CRA for overdue taxes owed by both the IPP sponsor and member of the plan plus there may be large fines charged for noncompliance If an IPP is in violation of the Pension Benefits Standards Act 1985 provincial acts or the Income Tax Act individuals can be guilty of an offence and can be fined up to 100 000 or imprisoned for a term not exceeding 12 months or both In addition a corporation sponsor of an IPP that is convicted for violating these acts and regulations may be fined up to 500 000 WHERE IS THE IPP TIDAL WAVE COMING FROM Currently there are more than 9 000 registered IPPs across Canada representing approximately 1 billion of total assets invested In the year 2000 22 million Canadians filed tax returns Of those 598 700 2 7 per cent of tax filers earned more than 100 000 in T4 income Potentially an additional 600 000 business owners and executives have the ability to pay themselves T4 incomes of more than 100 000 if there is a tax incentive such as the IPP for them to do so The richest 10 per cent of Canadian families have an average net worth of 980 903 accounting for 53 per cent of national wealth in 1999 At that time 72 per cent of the 420 billion in RRSPs was owned by the top 20 per cent of affluent families This 20 per cent also owned 94 per cent of the 92 billion invested in stocks outside RRSPs and 81 per cent of the 80 billion invested in mutual and investment funds outside RRSPs In the 1990s there was an explosion of self employment in this country Currently there are 2 3 million self employed Canadians and 1 1 million active incorporated businesses in Canada With 75 per cent of Canada s one million businesses employing fewer than five people it means most of the IPPs in this country will be created by owners of Canadian controlled private corporations looking for a strategy to take money out of their corporations in a tax effective way In 2001 the average Canadian worker was 39 years old The creation of an IPP only makes sense for individuals aged 40 and over earning 100 000 or more IPP yearly contributions at 40 years old

    Original URL path: http://privatewealthmagazine.ca/tailor_made_benefits_plans_executives.html (2016-04-26)
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