The Definitive Guide to Protecting, Investing, and Transferring Wealth.
This book is based on my experiences working with many families developing and implementing plans to build, preserve and transfer wealth.
I hope you enjoy the first chapter!
CHAPTER 1: INTRODUCTION—MEET THE CAST
It was the usual opening day for our father’s summer cottage, the May 24 weekend. As I sat on the deck that overlooked the bay, I thought back over the history of our cottage and our family in Honey Harbour.
Dad’s parents built their cottage in 1922. In those days, it took thirteen bumpy hours by car to get there from the city. It was worth it, they say, even with five noisy boys roughhousing most of the way. Today that same ride takes just an hour and a half from Toronto, most of the time, although the last ten minutes are still bumpy.
My parents were in their late thirties before they could afford their own land in Honey Harbour. They found a beautiful spot about a mile north of the Musquois River, and they used to spend an hour getting there from the marina by boat. There’s still no road access to the cottage, but with today’s faster boats, we can make the same trip in under twenty minutes.
Some relatives and family friends had also bought land nearby and built their own cottages, so over the years, my brother, sister, and I had plenty of friends with whom to pass the time swimming, water-skiing, boating, and windsurfing—all the experiences that made life on the bay so enjoyable.
As adults, we’ve all brought our spouses and children to our cottages as well, and they too have fallen in love with Honey Harbour.
On opening weekend, we usually celebrate the arrival of another great season, but this time there was a lot of sadness in the air. Our father had died over the winter. He’d been very sick, but still it was hard to accept that he was gone. And here we were at the cottage he’d built and had now left to us kids.
Of course, we weren’t kids anymore. I’m forty, and I’ve been married to Sandra for ten years. We have a three-year-old son named Connor, and a baby girl named Paige. My older brother, David, is fifty and married to a very patient woman named Alice. They have two kids of their own, a couple of wild teenagers named Scott and Jan. My sister, Sally, was the baby of the family, but even she’s thirty-five now and still single. I like to tease her about both.
We all used to get together with my cousin’s family every Saturday morning at alternating cottages for a big breakfast, and we decided to keep up the tradition started by our parents.
The first Saturday breakfast was at our cottage, with David and me on cooking detail. Aunt Lorraine came over with my cousin Mark, who’s about sixty-three. Uncle Jim had passed away seven years earlier.
We had our normal discussions regarding what had happened to the cottages over the winter, what work we needed to do, and how it would fit into everyone’s vacation plans for the summer. Aunt Lorraine was the one who first brought up the subject of Dad’s will. He had left everything equally to we three kids, and it was an inheritance that included mutual funds, an annuity, limited partnerships, a house, and, of course, this cottage.
Aunt Lorraine wondered what we planned to do with our “sudden wealth,” and when no one had any specific plans, she suggested that we talk to our old family friend across the bay. We kids had all called him “Uncle Wayne” for as long as I could remember, even though we weren’t related. He and his wife lived in Honey Harbour all summer and travelled to Florida and Europe for part of the winter each year.
According to Aunt Lorraine, he had helped her sort out her financial affairs when she was widowed and had continued to give her good financial advice.
Sally wasn’t sure she wanted to talk about finances at all. “I feel guilty about the money I’ve received so far, and even about being here at the cottage,” she said. “It just doesn’t feel right to have Dad’s money and the things he worked so hard to get.”
David nodded, and I understood what she meant too. However, Aunt Lorraine said she’d spoken with Dad many times about his estate. Sure, he’d done a lot of careful financial planning, but he also had lived a good lifestyle and had no regrets. He would want us to enjoy the money, she said, and to use it wisely.
That won Sally over. “I guess we should do some planning. Let’s talk to Uncle Wayne.”
I had to borrow some tools from Uncle Wayne in order to put our floating dock in the water, so I told the others I would ask his advice when I saw him later that day.
Aunt Lorraine turned to Mark and said, “You should listen in on any advice he gives.”
Mark looked a little shocked. “What are you talking about? You’re not sick are you?”
“No, I’m fine,” she said. “Don’t worry. It’s just that I was golfing with Uncle Wayne last week, and we started talking about how hefty estate taxes are. He mentioned that when someone receives an inheritance, they don’t pay tax on the proceeds; however, any tax owing does need to be paid by the estate of the person who passed away. He said that one way to pay as little estate tax as possible is to give some of my money away before I die. I figure I have a few extra dollars that I don’t need, so I want to give you some of your inheritance now, but I don’t want you to blow it.”
“Gee, Mom, are you sure you can afford it?”
She smiled and answered that she could and would still be able to live very well for the next twenty years, and maybe even longer.
I said I would call Mark after my visit with Uncle Wayne.
WHAT TO DO FIRST?
I went across the bay in our tin boat to borrow the tools from our parents’ good friend, Uncle Wayne.
Uncle Wayne met me at the dock and helped tie the boat so we could go up to his cottage for our customary beer. We talked about my father for a while, and how much we’d both miss him. Uncle Wayne laughed and said he’d especially miss golfing with Dad, since he was the only person he could beat every time at the Honey Harbour Golf & Country Club. I brought up our dilemma, that we all didn’t know what to do with our new found wealth.
Uncle Wayne said, “I thought you might ask me about this, and I’ve done some thinking about it. Do you three still plan to get together with Mark for breakfast every Saturday morning this summer?”
“How did you know Mark needs financial advice too?” I asked.
He mentioned his conversation with Aunt Lorraine and suggested that we use our Saturday morning breakfast ritual to discuss strategies for our inheritances. I felt that was a good idea since weekends were designated as family time when everyone could use the cottage. We knew we eventually had to sell it in order to divide up its value for the estate, but in the meantime, we had agreed to share all the weekends and take individual weeks for our holidays during the summer.
Next, Uncle Wayne wanted to know what everyone had done with their inheritance so far. I answered that we’d each received some cash, and that mine was sitting in the bank. I didn’t know about the others.
“I see I have my work cut out for me,” said Uncle Wayne. “Okay, first make sure that none of you say a word to anyone about inheriting. People will come out of the woodwork with all sorts of business schemes, and they may possibly want to borrow money. In a worst-case scenario, you may become a target for criminals who think that you are better off than you really are. Today, modesty can be a virtue, and it’s certainly the safest way to go.
“Next,” he continued, “be sure to tell David, Sally, and Mark that for the short term, until we come up with individual long-term plans for each of you, they should be looking both at the safety of the money and at the interest rates they can earn.
“If you deposit the money at your bank or trust company in a savings or chequing account, it’s guaranteed by the Canada Deposit Insurance Corporation (CDIC), but only to a limit of $100,000 per person per financial institution (bank or trust company). That means if you wind up putting $120,000 into a bank account and the bank fails, you will lose $20,000. So banking your entire inheritance in a traditional account is not necessarily safe. Also, the interest rates paid on these accounts are notoriously low, in the range of 1/4%.”
Uncle Wayne gave me a moment to process this information and then continued. “Here’s what I’d recommend. For the first little while, put 95% of the money, or more, into a high interest savings account at a major bank or financial institution. These types of accounts also qualify for the $100,000 CDIC insurance, they pay higher interest than savings and chequing accounts, and they are liquid in about three to five business days if you need the money. Also, many financial institutions have several options within them, so you can spread out the investment to achieve the $100,000 CDIC insurance, if that’s important to you.”
“Makes sense,” I said. “I’ll tell the others. Is there anything else we should do before next Saturday morning?”
Uncle Wayne said to develop what he calls a “Double O” list. We were to make a list of what we own (assets) and what we owe (liabilities), including all RRSPs, pension plans, insurance policies, money owed on credit cards, mortgages, and the like. He also suggested we gather up all our pertinent papers, including past income tax returns, plus our wills and powers of attorney. And last but not least, he suggested we make a list of our monthly income and expenditures.
By this time, we had finished our second beer, and I realized I had a lot to tell Sally, David, and Mark. I thanked Uncle Wayne, and as I motored home to get started on the floating dock, I summarized the key points so I wouldn’t forget any important details:
- Don’t tell anyone about your inheritance or sudden wealth.
- Initially put about at least 95% of the money in a high interest savings account as a cooling off period so you can think and make plans.
- Leave just enough money to cover your regular expenses in your chequing account.
- Make a list of what you own (RRSPs, cash, cars) and what you owe (mortgages, loans, credit cards). In addition, draw up a list of your monthly income and expenses, and gather all personal documents, such as wills, powers of attorney, mortgage documents, insurance policies, tax returns, pension plans, and other personal and financial documents.
For more information, you can refer to Preserving Wealth: The Next Generation – The definitive guide to protecting, investing, and transferring wealth by Jack Lumsden, MBA, CFP®
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Jack Lumsden, MBA, CFP® Financial Advisor, Assante Financial Management Ltd.
This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please make sure to see me for individual financial advice based on your personal circumstances. The information provided is for illustrative purposes only. Commissions, trailing commissions, management fees and expenses, may all be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. Please read the Fund Facts and consult your Assante Advisor before investing.
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