Getting everything you deserve – YOUR INDEPENDENCE MATTERS
Published by Terry McIntyre on Sep 30, 2015
I am currently involved in three situations where people thought they could learn all they need to know about investing, their taxes and properly setting up their financial life structure from the internet and TV. They can do much better. While these are three different situations, there are commonalities.
All three involve a disabled person, investments and ODSP (Ontario Disability Support Program). All are looking at the best way to keep as much money in the family, pay less tax and most importantly take care of those with disabilities.
1) In the first situation a person owns a home and is planning to sell it. He/she is planning to use the net difference, after the mortgage is paid off, for future needs. The plan with mental health professional assistance is to apply for ODSP. The order of events is tantamount.
We are working to invest in a way as to not reduce their ODSP. We know that you are allowed to own a house and collect benefits but if you are already an ODSP recipient, selling your house will reduce your support. We are looking at selling the house first, protecting the net difference in a RDSP (Registered Disability Savings Plan) and/or a Henson Trust. Then apply for ODSP. We want to be able to have the disabled person with as much independence as possible through protecting their assets and not reducing their income.
2) In the second situation a retiree has 3 children. His/her main assets are 1/3 RRIF and 2/3 house. One of these children has a disability and is collecting ODSP. Under the current plan, when the parent passes away, the RRIF would be cashed in and the house would be sold; then split the proceeds between two of the children with the promise they will take care of the third with the disability. They are worried that if the disabled person directly receives this money the ODSP would be reduced.
Let’s put some numbers to this for an example. If the RRIF is worth $200,000 and the house $400,000 there would be $600,000 total to work with. Cashing in the RRIF would lose half to tax ($100,000), leaving $500,000 to be split amongst the children - $166,666 each if the parent passed away today.
The current rules allow a parent’s RRIF to rollover to a disabled person’s RDSP. This would transfer without triggering a taxable event, saving $100,000 in taxes. The children now would have $200,000 each (an extra $33,334 per child).
The RDSP will grow tax sheltered, leaving more due to the absence of tax. The two other children should then structure their inheritance to be in tax advantaged investments, allowing them more growth because of less tax.
This parent can leave more to the children by using a proper disbursement structure and allow the children to keep more of their inheritance when investing with a tax advantaged way.
3) The third situation is a parent with a disabled adult child living in the home. Again there is a RRIF, a house and three children. The house is set up to have renters.
We are again looking at leaving the RRIF to the disabled child to rollover to an RDSP and looking to a lawyer to set up a Henson Trust inside the will. We will work with ODSP to be sure this is sheltered from cutting into the ODSP benefit leaving more to the child to meet their needs.
We are also looking at setting up an effective tax strategy for the income from the rental income. Using a house mortgage that will allow this person to take some money out of the house and invest to create income in a tax advantaged way: using the loan and household costs to offset as much of the rental income as possible.
This mortgage should not be a traditional mortgage. They need a mortgage that allows the maximum cash management for the client, with the ability to do the following:
Track expenses – combining the mortgage with the rental chequing account so all of the rental expenses and income can be managed from a single account. This makes it easy to track interest and maintenance costs for taxation purposes.
Access equity - use the equity accumulated in the property (up to the borrowing limit) to finance repairs, address income needs or possibly purchase additional properties.
Potential to accelerate debt repayment – have the rental income flow directly into the account. This can potentially pay down debt faster and save thousands of dollars in interest costs.
We will bring in the professionals we require to get this right for each situation. I am just giving a quick overview of the structure, products and processes we are looking at. This planning can be quite complex, requires creativity and a thorough understanding of the process or products needed.
Between the three we will be bringing in lawyers, accountants, real estate professional, lender, disability health workers, working with the government ODSP department and any other professionals needed to get it right. Bringing in the right professionals is a smart way to set up a structure to keep more for themselves.
Two of these people have come through the Making Our Seniors Matter group (check out their radio show on my website). Getting in at the start of the process with the proper professionals will allow us to get it right at the outset, allow all involved to sleep at night and have the money where it should be in the most tax effective way.
Tax is the largest expense in our lives. Proper structure can help to reduce this incredible drag on our lives.
These structures have SLEEPABILITY and create INDEPENDENCE.
YOUR INDEPENDENCE MATTERS and if you want to see what a truly independent investment/insurance advisor can do for you, call me at 905-846-9060, ext.3838, email me at Terry.McIntyre@manulifesecurities.ca or visit my website at www.terrymcintyre.ca