When do you need a power of attorney?

Hopefully, you’ll never suffer an illness or disorder that seriously impairs your cognitive functioning. But if you ever suffer such a condition, you may lose the ability to manage your finances – from paying bills to making investment and income decisions. And you could be vulnerable to financial fraud. This is when you want a power of attorney, or mandate in Quebec. Power of attorney is a legal document, and “attorney” is the person you appoint to conduct your financial affairs, which can be your spouse, a family member, friend, professional or trust company.

Leaving more to your heirs

Imagine a $1 million estate including $200,000 of stocks in a non-registered account, a $300,000 Registered Retirement Income Fund (RRIF) and vacation property valued at $500,000.

But it’s not $1 million to the heirs. There’s a $100,000 capital gain on the stocks and a $300,000 capital gain on the vacation property. At a 50% marginal tax rate, tax payable is $25,000 on the stocks, $75,000 on the vacation property and $150,000 on the RRIF. Total tax bill: $250,000.

Now the question is how it’ll be paid.

When life changes, so do financial plans

The federal government has recently taken away several tax advantages enjoyed by individual Canadians and businesses, from ending tax-free switching of corporate class funds to removing key benefits of income sprinkling. Though some immediate tax-saving methods are gone, tax-deferral methods remain – and that may be the next best thing.

Deferring tax is not just a matter of postponing the inevitable. In fact, it offers three potential benefits. First, you keep more money to support your current lifestyle. Second, when investing, deferring tax means that more of your money is working for you, to grow and compound. Third, you often gain control over when to pay the tax, which may be at a time you’re in a lower tax bracket.

When you own a business

If you’re a business owner thinking of retirement, finding a successor isn’t your only concern. You need to determine whether you want to remain involved with the business. For some owners, it’s an easy decision – they’re ready to make a clean exit.

Retiring gradually

According to the 2016 census, one in five Canadians aged 65 and over were working, with 30% of this group working full time. Some continued in their regular jobs, while others became consultants, entrepreneurs and new business owners.

Although many seniors work strictly for income, others are motivated by the wish to keep physically and mentally active, enjoy social interaction or have a sense of purpose. Whatever the reason, working during the traditional retirement years always involves several components of financial planning.

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