Family Trusts 101

One of the most common misconceptions people have about family trusts is that they’re only for incredibly well-off families. That couldn’t be further from the truth. Keep reading for our introduction to family trusts and how they can be beneficial to you!

What is a family trust?

A trust fund or family trust is a legal agreement two parties in regards to assets to be passed on. A trust can contain money, stocks, real estate, and/or other assets.

There are three parties involved in establishing a trust fund:

The settlor or trustor – this is the person or entity who establishes the trust fund with the initial contribution. This can be a company, family member, or even a family friend.
The trustee(s) – the person, people, or entity responsible for the management and administration of the trust fund. Typically this is a financial institution or legal entity, though in some cases it may be a family member.
The beneficiary/beneficiaries – The person or people that will receive the benefits of the trust, usually children and/or grandchildren of the person who established the trust.

While the specific roles of each party will vary between different types of trust funds, they are required in every situation. There is a huge variety in the types of trusts available, including living trusts that become effective right away, revocable trusts that allow you to keep control and ownership of your assets, and irrevocable trusts which allows you to transfer ownership and control of assets over to the trustees.

What are the benefits?

There are a number of different benefits for setting up a family fund for both the settlors and the beneficiaries. For certain types of trusts, once an asset is placed in the trust it no longer belongs to the settlor. This means that the settlor would not be required to pay income tax on money made off of those particular assets. For beneficiaries, there is a similar benefit. Since assets within the trust do not belong to them, beneficiaries would still be eligible for things such as student aid.

One of the greatest benefits may be a sense of security for the beneficiaries. As opposed to handing out a single payment that could be wasted and spent irresponsibly, a trust can be set up with certain stipulation for beneficiaries. For example, you can dictate that the beneficiaries may receive a monthly or yearly payment as long as certain conditions are met. Furthermore, you can make specific guidelines on how the money can be spent (education, investments, etc.). A family trust is a great way to ensure that your children and grandchildren receive the maximum benefit from what you’ve passed on to them.

Is it right for me?

As mentioned earlier, trust funds are not exclusively for those who are well-off. Anyone who has assets that they would like to protect for future generations would benefit from at least exploring the option of a family trust. There are limitless options for family trusts, allowing you to choose something that best meets the needs and wants of you and your family. Don’t be afraid to explore your options!

For more great advice on family trusts and estate planning, contact the team at Liu & Associates today!

RESPs: What you should know

It’s no secret that the cost of a university education continues to increase every year. Planning for your child’s education now allows you to save as much as possible to give them a step up when it comes to post-secondary costs.

What is an RESP?

RESP stands for Registered Education Savings Plan. These are plans that allow parents to put aside money for their child’s education. RESPs aren’t limited to just a child’s parents. Any adult is able to open up and contribute to an RESP on behalf of a child.

The first iteration of an RESP dates back to 1974. The program was overhauled in 1998, with the Canadian government now contributing to RESPs as well through the Canadian Education Savings Grant (CESG). Some provincial governments also contribute to RESPs through various savings grants.

You can open up and RESP through most financial institutions and some scholarship dealers as well.

Are there any restrictions?

As mentioned above, anyone is able to open and contribute to an RESP. However, there is a lifetime contribution limit of $50,000. While there is no annual contribution limit, CESG can only be received on the first $2,500 contributions per year.

These are some of the general restrictions that apply to all RESP accounts. Individual RESP providers may have different requirements, so be sure to do your research when choosing a provider.

When should you start saving?

As with any type of financial planning, the sooner you start saving the better! Contributing to an RESP early on will ultimately lead to your child having more money saved up for their education. You can contribute to an RESP for up to 31 years after it’s been opened, providing plenty of time to accumulate savings.

There’s no time like the present to start thinking about saving for your child’s education. Liu and Associates offers personal financial planning services to help you reach your goals in a timely and efficient manner. Make an appointment with one of our accountants today!

What age should you start saving for retirement?

Roughly half of all Canadians have some form of savings that they plan to use in retirement, not including any pension or social security that may (or may not) be available to them. While this may seem like a lot, it is not nearly enough! Many people procrastinate the process of putting away paychecks– even if you have a sizable savings account, your money could be earning you more than the modest interest offered by most banks. Keep reading for a few retirement savings tips from Liu & Associates!

EARNING POTENTIAL

Throughout all professions and ways to make a living, you will always make less at the start than later in your career. This fact of life leads people to put off savings until their annual income grows beyond their needs. While you can afford to make larger contributions when you make more money, investing small amounts earlier on can actually be more beneficial. Therefore it is always better to start saving for retirement at as young an age as possible!

STICK TO THE PLAN

Now that you know you should have been investing yesterday– whether you have saved anything or not, you should make a detailed plan for your priorities. Is there a specific item or activity that you are saving for? Do you hope to start a business? Dreaming of retiring in luxury? There are many different paths leading to each of these anything else you can imagine. The only way you will achieve this goal is by following your financial roadmap!

INTEREST & DIVERSITY

From a Tax Free Savings Account (TFSA) to a Retirement Savings Plan (RSP), there are no shortage of good options for saving your money at any age. Beyond these low-interest, non-volatile investments, there are also innumerable services that claim much higher returns– albeit, for a considerably higher risk (including losing your savings entirely). Look for modest interest rates or programs that support your personal values, but always beware putting all of your eggs in one basket. “Diversify your portfolio” by splitting up your investments between two or three different accounts that each offer different advantages.

The above tips are only a brief survey of the many ways you can make the most of your retirement. Whether you are just starting out or you are already an established professional, contact or visit Liu & Associates today for a full rundown of all retirement investments available to you.

The 5 Biggest Retirement Planning Mistakes You Can Avoid

Planning for your retirement is arguably one of the most important financial goals you’ll ever undertake. Unfortunately, it’s easy to make a mistake now that might hurt your financial security down the line. The good news? These mistakes are easy to avoid! Read on to learn five common mistakes when it comes to planning for retirement, and how you can avoid them.

1. Not Having a Plan in Place

According to a study done by the Employee Benefits Research Institute, 48% of workers have not calculated how much money they need to save for retirement. How can you reach your destination if you don’t know what your destination is? Don’t worry – this isn’t something you have to do on your own. A chat with a financial planner can be hugely beneficial and can set you up with a roadmap to a happy retirement.

2. Not Saving Early Enough

So many people mistakenly think they’ll have plenty of time to save for retirement. Unfortunately, this usually isn’t the case. Life always finds a way to throw a wrench in your plan. Whether it’s your mortgage, your car payment, or your child’s tuition, there is always going to something eating up your budget. So when is a good time to start saving for retirement? Right now! It’s never too early to start thinking about your future.

The second part to this is the fact that people simply aren’t saving enough money. $60,000 isn’t going to cut it if you want to retire for more than say, a year. While it can be hard to switch your saving habits, think about it as redirecting priorities instead of sacrificing.

3. Not Diversifying Your Investments

While we’ve all heard the saying, “don’t put all of your eggs into one basket”, many people don’t follow this advice when it comes to their investment portfolio. Not diversifying your investments opens you up to more risk if something were to happen to your (one) investment. A diversified portfolio minimizes risk while maximizing your return.

4. Thinking You’ll Always Work

It’s not uncommon to hear the phrase “If I didn’t work, I’d go crazy!”. If someone is planning to work well into retirement, even if it’s just part time, they may not think they need to save as much. Don’t assume this! There are many different reasons why someone may not be able to work (medical issues, taking care of a family member, etc.), so it’s nice to be prepared for all situations.

5. Dipping Into Your Retirement Account

Your retirement fund is not – and should not be treated as – a regular savings account. Many people think that it’s no big deal to borrow money from your retirement fund if you plan on paying it back; however, taking money out means that it loses it’s ability to grow and compound. Compound interest is a powerful thing, so make sure you’re not missing out on extra savings!

If you’re interested in talking with an experienced financial planner about your retirement, give Liu & Associates a call!

How to Plan for Retirement

Transitioning into retirement takes careful planning, so make sure you give yourself as much time as possible to prepare. While financial planning may seem daunting, there are many resources available to help ease the stress. Read on for a couple of tips on things you can do ahead of time to make sure that when the time comes for you to retire, you are ready to go!

Apply for Government Benefits

It’s a good idea to learn the timelines of certain government benefits, like CPP, so you can make sure you get your payments on time. Applications for CPP can take up to nine months, so be sure to look into any other pension plans or programs you’re going to be applying for.

Pay off Your Debts

In an ideal situation, you’d have all your debts paid off before you retire. This will allow your retirement income to stretch farther. Make sure to speak to a financial planner to learn how you can manage your debt and pay it off quickly.

Calculate Your Monthly Retirement Income

The Government of Alberta has created a calculator that will help you determine your retirement income, based on a number of factors like:

CPP contributions
Employer pension
RRSP contributions
Annuities
Savings
etc.

Make A Budget

Take some time to sit down and figure out how much you need to make ends meet once you enter retirement. Once you’ve established this number, compare it to your monthly retirement income. If it matches – great! If not, you know that you’re going to need to find ways to either save more money, cut your spending in retirement, or boost your retirement income.

Start Saving Now!

Contrary to what many people believe, you are never too young (or old) to start saving for your retirement. Compound interest is a young saver’s best friend, and is the best way to grow your money long term.

Talk With A Financial Advisor

It’s important to sit down with a financial advisor to chat about your retirement. A financial advisor can help you create a plan that will let you meet your income needs in retirement.

To book an appointment with a certified and registered financial planner, contact Liu & Associates today!

RRSPs vs TFSAs for Retirement Savings

It’s never too early to save for retirement. And it used to be very simple – open a Registered Retirement Savings Plan and saved as much as you can. Maybe if you’re a lucky high-earner with no debt or other liabilities, you are able to contribute to your retirement with investments beyond an RRSP. But, for the average earner, RRSPs are the way to go. Then in 2009 Tax Free Savings Accounts come along and now low and mid-level earners have options. Read on to find out the pros and cons of using RRSPs and TFSAs to save for your retirement.

RRSPs

We’ll start with the old classic. Basically, a saver will make contributions – which are deducted from their taxable income – to their RRSP and the money will appreciate tax-free while it sits there and waits for you to retire. Taxes on your investment are paid when you make a withdrawal from your savings. This can have several advantages:

Depending on your current income and the income you have upon retirement, you could defer paying higher taxes on your contributions in favor of paying a taxes on your withdrawals at a lower rate when you retire. However, this presupposes your income at retirement will be less than it is now.
Tax-upon-withdrawal often incentivized people to leave their RRSP investments alone until they need them in retirement.

TFSAs

The new kid on the block – TFSAs – are the opposite of an RRSP. Contributions are not deducted from your taxable income – meaning no tax refund. However, once you’ve paid the upfront income tax on your contributions, your money grows and can be withdrawn at any time, tax-free. This can provide some flexibility:

This money is available to you at any time, which can be great in an emergency, but also may backfire as making withdrawals for short term needs or immediate needs detracts from retirement savings goals.
Paying the income taxes now on your TFSA contributions also make sense in you plan to be in a higher tax bracket when you retire and begin to make withdrawals.

This is a simplified explanation of the main differences between using TFSAs or RRSPs – there are lots of other angles to consider your how your investments may affect Old Age Security clawbacks or your Canada Child Tax Benefit. The tax accounting experts at Liu & Associates will guide you through your retirement and tax planning options.

How To Retire When You Want

We all know the value of saving money, but sometimes it is hard to think past short-term goals like a tropical vacation or designer clothes. When we do set our minds to the long-term goal of comfortable retirement, one question comes to the forefront: how much should we save?

While there is no single answer to that question, there are many strategies available to guide your financial planning towards a secure and fruitful retirement.

TIMES ARE CHANGING

The traditional concept of retirement has transformed from a pension- and government-supported life beginning at the age of 65, to a dynamic process based on your place in the workforce and your ability to make the most of your savings. While it is true that more Canadians are staying in the workforce longer, career-based retirement benefits are on the decline and cost of living increases are outpacing income increases.

Circumstances vary person-to-person, but it is estimated the average Canadian will need hundreds of thousands of dollars to maintain a comfortable retired life. This places a new importance on opening RRSP and tax-free savings accounts as early as possible, as well as other tactics such as leveraging current low interest rates into future savings.

WE CAN HELP

Sound financial planning can make a major difference in your later years– for both you and your family. Securing your future by talking with a financial advisor can put your mind at ease now, while maximizing your chances to live out a stable and adventurous retirement. The earlier and more often you save, the better.

No matter what your place in life or career, Liu & Associates can help you determine your needs and put you on the path to achieve your retirement goals. Contact Liu & Associates today.