Blog

By: Louai Bibi, Advisor Associate

Should I get mortgage protection or life insurance?

If you have a mortgage, your mortgage lender has likely brought this up to you, and for good reason.

It’s important to have insurance when you have people who depend on your income, whether it is a spouse and/or child. It’s also important that you know what you are paying for and how it may or may not benefit you.

Term insurance is generally cheaper, allows for you to cover other insurance needs like leaving behind income replacement for your spouse or ensuring your children experience a fully funded post-secondary education if you aren’t around to contribute to their RESP, and allows you to structure coverage for a shorter, longer or permanent period as insurance needs change.

With mortgage protection through your bank/mortgage lender, your coverage reduces as you pay your mortgage down (which makes sense in theory, until you realize your insurance payment stays the same), the bank is the sole beneficiary of that money and every time you renew or switch lenders, you need to re-apply this coverage to your mortgage and are subject to whatever increase in cost is offered.

These are just a few differences between the two products. More listed in the snapshot below!

Divorce is an emotionally draining time for not only the couple but for their family as well. It can also be a financially devastating time. Putting your energy into your financial wellbeing is essential when going through this big life transition. You will be forced to make life changing decisions in a very short period, and it is important that you know what you are entitled to and where you stand in the marriage, from a financial perspective.

What You Need to Know

1. Find and Compile Your Financial Records – Your first move to protect yourself financially is to make a file of all your financial records. Tax returns, loan documents, retirement accounts, bank accounts, and investment statements. You want to be sure that you are aware of all accounts and liabilities when you go into the divorce process.
2. Assess Your Assets – Make an exhaustive list of all your assets that could come into question when it comes to division of property. Marital assets are any asset or liability that was acquired during the marriage. This includes houses, cottages, land, investments, pensions, personal property (jewelry, art etc.), vehicles, and other types of intangible property (such as intellectual properties). Debts can also be considered marital property depending on the nature of the liability. Typically, assets acquired before marriage remain in the possession of the person who brought them into the marriage. Inheritance and gifts can also be excluded from divorce if the assets have not been used to buy joint property.
3. Open New Bank Accounts – Many married couples have combined finances and use joint bank accounts for convenience’s sake. If you have or if you plan to end your marriage, one of your first steps should be to open new bank accounts in your name that your spouse does not have access to. You should also make it a priority to have any direct deposits updates with your new accounts (your pay cheque, for example) and start paying your bills out of your new individual account.
4. Change Your Will and Update Beneficiaries – Most couples name each other as beneficiaries in their will and on any investment or insurance accounts that beneficiaries are designated. This should be changed as soon as possible. This may not seem like a top priority, but the unexpected happens and no matter how amicable the divorce, it is impossible to know your wishes will be honors upon your death if you do not put it in writing. Investment accounts and life insurance policies can easily have their beneficiaries changed through your advisor. Your will and power of attorney designations needs to be updated by a lawyer.
5. Change your Mailing Address (if applicable) – If you are changing your address due to the divorce, or even if you are splitting time in the family home until the divorce is settled, you should change your mailing address immediately. Whether this is to your new home or if you secure a PO Box, it is important that your mail stay private as you may receive correspondence from your lawyer or information about your finances that your former spouse should not be privy too.
6. Get Credit Cards in Your Name – If you have joint credit card, pay them down and cancel them immediately so that you don’t find yourself responsible for debt that your spouse may accumulate when you leave the marriage.
7. Refrain from Making Any Big Financial Decisions – Divorce can be a long road. Assets may become unavailable to you as you go through court proceedings, or conversely you could end up having to hand over more to your spouse then planned, and it is wise to hold off any making any big purchases or making any irreversible decisions until the divorce is finalized.

The Bottom Line

Divorce is complicated and can be a difficult time, both emotionally and financially. It is always best to work with legal and financial professionals when navigating a divorce to ensure your best interests are being looked out for and that you are being treated fairly as the divorce proceeds.

While uncomfortable to think about, effectively planning ahead for when you are no longer here can save your loved ones a great deal of time, money, and emotional hardship.  Estate planning can be complicated, but there are some basic “must-do’s” that should be regularly updated and reviewed. Below is a simple checklist for making sure your estate plan is up to date.

What You Need to Know

Wills

• Have you created a will?
• Is it updated and current?
• Have you experienced any major life changes since the will was created? This could be a new marriage, divorce, child, death in the family, etc.

Wills should be created with the guidance of an estate lawyer to ensure that your final wishes are correctly documented and carried out. It is vital that a will be regularly updated as it acts as the foundation of your estate plan.

Beneficiaries

• Do all your registered investments have a named beneficiary? This includes RRSP, RDSP, RESP, TFSA, Pension Plans, and Segregated Funds.
• Do all your life insurance policies have a named beneficiary?
• Have you recently reviewed your beneficiaries? Has there been a major life changes such as a marriage or divorce that could warrant a change to your beneficiary appointment?

Beneficiary designations allow for assets to bypass probate (in most cases) and be passed directly to your beneficiary. This is a great money and time saver.

Dependents

• Do you have a family member that you wish to provide an income to after your death?
• Do you have family members that you wish to fund an education for after your death?
• Do you have any family members that have special psychological or physical needs that you would like to provide financial support for?
• Do you have a parent or other relative that you wish to ensure is taken care of financially if you die prematurely?

There are a variety of different financial and legal tools available to Canadians that can help them provide income or support for their dependents when they are gone. Keeping your dependents updated in your will is important as they may change throughout your lifetime.

Executors

• Have you named an Executor of your will?
• Is the Executor up to date? Have you named an alternate Executor in the event your first choice is unable to fulfill the position?
• Has your Executor been made aware of their appointment and been briefed on your final wishes?

An Executor is someone you appoint in your will that will be responsible for administering your estate. An Executor should be someone you trust and also someone who is capable of dealing with the potentially complex responsibilities involved with administering an estate.

Powers of Attorney

• Have you appointed a Power of Attorney for Property? This person will be able to help you with your finances and personal property in the event you are unable to do so yourself.
• Have you appointed a Power of Attorney for Personal Care (Health)?  This person will be responsible for making medical and personal care decisions for you if you become unable to act on your own.
• Are you POA’s aware of their appointment and willing/capable to perform the tasks that will be required of them?

Power of Attorney is a legal document that allows you to appoint someone to help you with your finances and personal care in the event that you feel unable to do so or become mentally incapable.

Financial Planning

• Have you spoken to your financial advisor about structuring your assets in the most tax efficient way to minimize estate taxes and probate fees?
• Have you set aside enough money to cover final expenses, estate taxes, probate fees, and funeral arrangements?
• If you own a business, have you worked with your professional team of advisors to develop a succession plan?
• Have you recently taken the time to calculate your final expenses and potential estate taxes?
• Have you addressed any permanent insurance needs you may have?
• Have you spoken to your advisor about your wishes to make a charitable donation before/after your death?

Your financial advisor will play a significant role in helping you prepare your estate. The above questions are only some of the issues that you may want to bring up to your financial advisor so that they can help you make your estate as efficient as possible.

Your Personal Financial Inventory

Prepare an Inventory of Assets and Liabilities

• Real Estate
• Investments
• Bank Accounts
• Annuities/Life Insurance
• Personal Property (Art, Jewelry etc.)
• Pensions
• Value of Any Businesses You Own and Their Structure
• Digital Assets

Make Sure You Indicate the Location of the Following

• Will and Power of Attorney
• Birth and Marriage Certificates
• Divorce/Separation Agreements
• Insurance Policies
• Deeds
• Safety Deposit Box
• Preplanned Funeral Arrangements
• Trust Documents
• Names and Contact of Personal Advisors (lawyers, accountants, financial planners)
• Executors, liquidators, and trustees

Far too often family members are left scrambling to find important documents and information. Your financial advisor and lawyer can help you collect the above information and organize it for your beneficiaries and executors.

The Bottom Line

Estate planning has a reputation for being complicated, but for most people all it takes is some thoughtful pre-planning. Working with a lawyer and financial professional will ensure all of your bases are covered and your final wishes are carried out. Estate plans should be reviewed and updated regularly.

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There will come a time when you may be incapacitated or leave your loved ones behind. When either of these happens, you do not want to leave your loved ones in limbo about what to do or what will happen to your assets and properties. Proper estate planning is a way of avoiding this. An Estate Plan takes care of your assets and properties when you can no longer do so. All financial and medical decisions are usually contained in an Estate Plan.

Who Should Inherit Your Wealth?

This is a decision you have to make sooner or later in your estate plan. That is why it is always available to update your estate plan every now and then, preferably every 3 to 5 years. The truth of the matter is when it comes to sharing your assets and properties amongst your loved ones, it is almost impossible to make everyone happy with what you bequeath them. The best you can do is make sure everyone you want, gets something, whether or not they are satisfied may be beyond what you can control. You can also make sure your immediate family gets more share than extended family members and friends in that order. You should also try as much as possible to ensure that your children get equal shares of your estate.

However, equal doesn’t always mean fair. A lot of family disputes over inheritance arise due to the fact the testator does not bequeath his or her assets and properties to the children in an equal manner. There will be strife and division amongst your children. It may even disrupt the probate process. Your children may decide to challenge your Will. No one wants animosity among their children when they’re gone. You can seek the advice of an estate lawyer to properly advise you on how to go about it and how to prepare for such happening in your estate plan. Most times it is advisable to sit your children down and explain why you have decided to share your estate unequally among them. Explaining your rationale may help prevent potential strife and animosity. However, if you know the child with the greater share may be bullied, then it is best to keep it to yourself.

How To Legally Donate Your Wealth to A Charity Without It Being Contested by Your Relatives

Donating your wealth to charity is a normal thing done by people. However, it is not without its issues, especially when family members feel entitled to your wealth more than the less privileged. The first step to avoiding this is engaging the services of a lawyer to make your estate inaccessible to your loved ones after your demise. It is your wish, so you have the right to make it, whether it is acceptable to your loved ones is another issue entirely. When your loved ones disagree with your bequest, it affects the probate process as they may decide to challenge it. Challenging your Will means they have to prove that you were not of sound mind when bequeathing your estate to charity. Therefore, you should ensure you follow all legal requirements of estate planning in your province and territory. It is advisable to go the way of using a Trustee to manage and disburse the funds to charity. Using a Trustee restricts the charity fund to existing on paper only. It will also be difficult for your loved ones to challenge because the charity funds are managed by a third party who is not a family member. You can also set up a foundation that will draw money from an alternative source in your estate plan. This also takes is beyond the reach of your loved ones.

How To Keep Family Members from Suing Your Estate and Getting Your Wealth by Way of Court Order.

The wishes in an Estate Plan are usually a subject of dispute among family members who got along fine before your death. This is sometimes not totally your fault. You can blame it on human nature. However, if your Estate Plan was not legally made, it can be contested by any family member which may lead to your wishes not being carried. To avoid this, you have to make your Estate Plan lawsuit-proof. Here are some tips on making that happen:

Go For a Trust Rather Than a Will

When you create a Trust, it does not go through the process of probate which usually involves the Courts. This limits the chances of it being contested by unsatisfied family members. The Trustee will be in charge of managing your Estate instead of an individual.

Go For a Corporate Executor

It is tempting using a family member as an executor, especially when you are sure there would not be any form of rancour regarding your assets. If you decide to go for a Will instead of a Trust, using a family member as your executor may give rise to hate against such a person or an abuse of power by such a person. A corporate executor will be a neutral executor and it is less likely to be an issue amongst family members.

Make Sure You Are of Sound Mind and There Is No Undue Influence

This is a legal requirement that makes your Will lawsuit-proof. If you make a bequeathal that does not go down well with a family member and it is established that you were not of sound mind when making the Will, it could render it void. You may wish to do both physical and mental evaluation before signing the Will. The same goes for undue influence. Ensure that you make your Will of your own free will.

Do Not Forget The “No Contest” Clause

The “in terrorem” clause as it is known is a perfectly legal clause that states that any family member who tries to contest the Will forfeits his or her inheritance. However, you should leave something reasonable for the people you know are likely to contest the Will for this clause to work.

Make Provisions for Disinheritance

If you are not bequeathing anything to a family member, it is advisable to state in your Will that you are not bequeathing any asset to such person. You can also leave a letter or memorandum detailing your rationale for the disinheritance. However, be careful of stating the reason for disinheriting the person, especially if the reason can be said to be against public policy. Each province and territory have their governing laws when it comes to disinheritance. However, note that you cannot disinherit your minor children and your spouse, except there is a binding Prenuptial Agreement.

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Probate is the process of getting your will approved by the courts. This process validates your will and allows your executors to distribute your assets.  However, probate can often be an expensive and long process. Each province has probate fees which can end up being quite substantial on a big estate. Probate can also cause serious delays in the distribution of assets from the will because once a will is probated it becomes public record. This means that it can be contested and potentially delayed while the courts settle any disputes. The good news is that with proper planning, it is possible to minimize or even eliminate the number of assets that have to go through probate.

What You Need to Know

There are a number of planning strategies that can be used to bypass or minimize probate. Below are some common strategies to make your estate as efficient as possible.

1. Beneficiary Designation on Registered Assets – RRSP, RPP, TFSA, RRIF, LIF, and LIRA are all considered to be registered assets. This means that the CRA allows for a direct beneficiary designation. If there is a spouse, they are entitled to roll registered accounts into their own names. If there is no spouse, then the investor can name an alternative person to leave the money to that they designate directly on the investment account. Money left to a beneficiary bypasses probate and passes directly to the appointed person.
2. Designating a Beneficiary on Non-Registered Assets – Typically, non-registered assets do not allow a beneficiary designation and automatically go to your estate to be probated. Segregated funds can be used to designate a beneficiary on non-registered assets.  Segregated funds are a life insurance product that are solely sold by life insurance companies. While the MER’s can be a little higher on segregated funds, they offer many of the same investment options that some mutual fund companies offer. Therefore, if non-registered money is invested in a segregated fund, they too will pass probate.
3. Trusts – Any assets left to someone in trust automatically bypass probate.  There are a variety of trusts that are all used for different reasons. Trusts can be more complex than the options listed above, but they can be a very effective planning strategy that allows you to assign a trustee to manage the money.  However, it’s important to note that setting up a trust can be expensive. If avoiding probate is the sole reason for the trust, then it may be prudent to add up the costs of each to see which makes more sense.

The Bottom Line

Probate costs and hold up can be minimized with proper planning and guidance from a professional.  It is important to note that on registered and investments and segregated funds without a named beneficiary, the assets automatically go to the estate. This means they would be subject to probate.  It is a good idea to review your beneficiary designations regularly to make sure they are up to date.

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Many people tend to neglect the insurance part of their portfolio, but it is one of the most important tools you can have as a part of a financial plan.  Just like your investments or other assets it should be reviewed regularly to ensure it is still protecting you in the ways that you need it to. The steps below will help you get started on your own life insurance audit.

What You Need to Know

Step 1: What is the Purpose of My Current Coverage?

Ask yourself what purpose the life insurance serves you and your family. Your insurance could be used for any of the following purposes:

• Debt Elimination
• To Fund an Estate Strategy
• Income for a Survivor or Dependent
• To Fund a Buy Sell Agreement Between Business Partners
• Investment
• Charitable Donation

It is essential that the type of insurance you own is compatible with your plan for its proceeds. For example, if your intent is to leave the insurance proceeds to a charity upon your death, a term policy would not make sense as it’s possible the term would be expired years before your death. This should be the first part of your review. A trusted financial advisor can help you determine if your current coverage is suitable, and if it is not, what options are available that could better carry out your last wishes.

Step 2: Do My Beneficiaries Need to be Updated?

Beneficiaries are typically named when a life insurance is purchased, and they determine who will be eligible to receive the proceeds of the policy upon your death. Therefore, it is important to regularly review who your named beneficiary is.  Marriage, divorce, and death of a loved one are all reasons to do a review of your beneficiary and potentially assign a new one if necessary. Beneficiaries can be individuals, a corporation, business partners, a registered charity, or your estate.

Step 3: Have I Experience Any Major Life Changes?

Insurance needs change as life changes. Major life events warrant a total insurance review. Examples of life changes can affect your insurance needs:

• Marriage
• Divorce
• Purchasing a Home
• Birth of a Child
• Owning a Business
• Death of a Partner
• Gaining custody of a dependent
• Taking on significant debt

You may find your insurance need is greater than when you initially purchased your life

insurance policy.

Step 4: Have I Reached Any Financial Milestones?

Have you paid off your mortgage? Paid off your business loan? You may not require the same amount or type of insurance policy.  Reaching a big milestone like this could mean you could be better served by different type of policy. For example, if your $5 million business loan was covered by a term policy of the same amount, you may no longer require such a high face value. It may be more beneficial to convert the policy for a smaller amount (i.e… $1 million) to a more permanent policy.

Step 5: Have My Premiums Changed?

This is particularly relevant when it comes to term policies. At the end of a term, a term life insurance policy automatically reviews. This can drastically increase the premium. Since policies renew automatically, it is possible your premium has increased since purchasing the policy.

The Bottom Line

As a rule, you should do a life insurance review every 2-3 years.  You may be surprised at how much your life has changed!  Your life insurance advisor can help you review your policies and make recommendations based on your ever-changing situation.

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