Thursday, October 30th10.5°C
David Allard

Empty nesting: financial issues

Now that the children have ‘left the nest’, it is a good time to step back and take stock of your financial situation.

Being on your own will probably cut household costs to some extent, but there may be other outlays as well depending on activities planned and ongoing financial support for children at college/university.


Setting up a new budget that reflects your new situation is a very good idea. Use this Empty Nesters Budget to give you an idea of where you stand.


Returning to Work

In some cases, a spouse has either given up or not started a career in order to stay at home and take care of children. Now that the children are gone, that spouse may be considering returning to or entering the workforce. Not only will this create additional income, but it may also provide personal satisfaction and an enjoyable use of time. Where a return to the workforce is being contemplated, you need to decide on the time and financial implications. The job being considered may require a return to school for a period of time, which will have implications for the family budget as well as a time commitment. The Lifelong Learning Plan (LLP) can be a way to use your RRSP funds to help finance a return to school.


Investment Portfolio

Now would probably be a good time to set up a meeting to review your investment portfolio to ensure that it properly reflects your current circumstances and objectives. As a general rule, your asset mix should become somewhat more conservative as you get older. As well, if you are planning to support or at least subsidize your children’s post secondary education, some thought needs to be given to which investments should be liquidated and when. If you have RESPs in place, they should be reviewed to ensure that the investments are appropriate and decide on the most efficient approach to liquidation.



Your insurance coverage should be an important integrated part of your financial plan that requires regular monitoring. Now that your children have left home, you may want to meet with your insurance agent(s) to review your current coverage.

Automobile – Every parent is well aware of the high cost of insuring a young person to drive. Now that your children are away from home, you should decide whether they need to be covered on your vehicle or vehicles. If your children are out on their own earning an income, it is probably safe to suggest that they can assume the costs of insuring their own vehicle. If they are away from home at college/university, you should decide whether they still require coverage and, if so, for what time period.

Life – Life insurance is typically used to ensure that dependents/survivors are adequately taken care of after the death of the life insured. Now that your children are either out on their own or in college/university, the need for and amount of coverage should probably be revisited.

Some parents may have taken out life insurance on the life of their children. Most child life policies lapse when the child reaches the age of 18 or extend to age 25 if the child is in full-time school. Policy provisions should be reviewed with your Agent.


Continued Support of Children

There has been a trend in recent years for children to either continue living at home with their parents through and after college/university. These so-called ‘boomerang’ children may find themselves at home as a result of unrealized employment opportunities, failed marriages, debt load or perhaps simply convenience. Many parents don’t mind this situation, at least in the short term, since it provides an ongoing family situation. However, this can serve to derail or at least postpone other objectives that parents may have. As a parent, you need to sit down and candidly discuss this with your children. It is probably safe to assume that most parents are more than willing to provide ongoing assistance to their children to help them through rough patches or to get them established, but the reasons for the support need to be analyzed and positive plans established.


Assisting Grandchildren and Registered Education Savings Plans (RESPs)

You may be in the position where your children have children of their own and you want to provide them with financial support for the future. We all appreciate the importance as well as the costs of post-secondary education. One of the most effective ways to finance post-secondary education is through RESPs. As grandparents, you are able to contribute money to an RESP for a grandchild, which will grow tax free until the child attends college/university. There are numerous rules and regulations concerning RESPs. I can provide you with all the necessary details about the nature of RESPs and how they can be established.


Questions or comments? [email protected]

Weakening global growth worries

The Big Picture

Growth worries persist

Worries about weakening global growth and its potential impact on the US economic recovery roiled markets around the globe this week. Europe continues to be the primary source of concern as most economic indicators have turned down since mid-summer. The most recent piece of bad news came Tuesday when Germany – the eurozone’s largest economy – cut its growth outlook for 2014 from 1.8% to 1.2% and reduced its 2015 projection from 2.0% to 1.3%. In addition to paring back German growth estimates, there has been no pick-up in the country’s level of inflation which remained unchanged from August to September at 0.8%. The combination of falling growth and a lack of inflation has plagued much of the eurozone and news that its strongest country may succumb to the same ills rattled traders on both sides of the Atlantic. They’re worried about the impact a decelerating Europe would have on a still scuffling US economy especially in light of halting Chinese growth. A string of poor economic reports out of the US Wednesday added to the down beat mood as retail sales fell, the producer price index disappointed and a business conditions survey dropped. Two positives came Thursday in the form of US jobless benefits claims which came in at a 14-year low and industrial output which sharply rose. The dose of good news seemed to remind traders that the US economy is moving in the right direction and a sense of calm returned to the markets late Thursday. Traders also seemed to notice US Q3 corporate earnings ahead of the weekend which have been pretty decent with 65% of the companies beating estimates thus far.



Stocks stabilize

North American stocks stabilized late in the week following another wild couple of days filled with sharp ups and downs. For the four-day period covered in this report, the Dow fell 418 pts. to close at 16,117, the S&P 500 gave back 43 pts. to close at 1,862 and the Nasdaq shed 63 pts. to finish at 4,217. In Canada, the TSX lost 175 pts. to end Thursday’s session at 14,052.


Our Recommendations

Higher volatility returns

Equities - Warren Hastings, Associate Director, Portfolio Advisory Group wrote: “The week was characterized by a notable return in volatility. This week, through Thursday’s close, the S&P 500 declined 2.3% in USD terms while the S&P/TSX fell 1.2% (CAD). The declines mirrored a 3.6% decline in crude oil prices following reports Saudi Arabia was considering a volume over price strategy in respect of its oil exports. Equity volatility, as measured by the CBOE Volatility Index, spiked, closing at 26.25 on Oct. 15, the highest since 2012, and the same day the US 10-year Treasury yield declined to 2.14% -- a level not seen mid-2013. The sell-off created several attractive buying opportunities in the Canadian equity market, in our view, including select financial, energy producer, and energy infrastructure names.”


All performance data represents past performance and is not indicative of future performance. This publication is intended only to convey information. It is not to be construed as an investment guide or as an offer or solicitation of an offer to buy or sell any of the securities mentioned in it. The author is an employee of ScotiaMcLeod, a division of Scotia Capital Inc. (“SCI”), but the data selection, analysis and views expressed herein are solely those of the author and not those of SCI. The author has taken all usual and reasonable precautions to determine that the information contained in this publication has been obtained from sources believed to be reliable and that the procedures used to summarize and analyze such information are based on approved practices and principles in the investment industry. However, the market forces underlying investment value are subject to sudden and dramatic changes and data availability varies from one moment to the next. Consequently, neither the author nor SCI can make any warranty as to the accuracy or completeness of information, analysis or views contained in this publication or their usefulness or suitability in any particular circumstance. You should not undertake any investment or portfolio assessment or other transaction on the basis of this publication, but should first consult your investment advisor, who can assess all relevant particulars of any proposed investment or transaction. SCI and the author accept no liability of whatsoever kind for any damages or losses incurred by you as a result of reliance upon or use of this publication in contravention of this notice. ® Registered trademark of The Bank of Nova Scotia, used by ScotiaMcLeod. ScotiaMcLeod is a division of Scotia Capital Inc. ("SCI"). SCI is a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund. 

Can executor be a non-resident?

Does it matter if your executor is a non-resident of Canada?

The answer is definitely, yes - the residence of your executor affects the residence of your estate for income tax purposes. As a result, appointing a non-resident of Canada to be the sole executor of your estate would cause your estate to be a non-resident of Canada too and trigger some potentially negative tax consequences:

• A non-resident estate would lose the preferred tax treatment for capital gains and Canadian source dividends that are flowed through to the Canadian resident beneficiaries.

• A non-resident estate may not have the potential benefit of being able to split the tax burden between the estate and its Canadian resident beneficiaries, as is often the case with a Canadian resident estate.

• If a Canadian resident sole executor ceased to be resident in Canada, the estate would be subject to a deemed disposition of all of its assets at the fair market value at the date of departure and subject to tax on any deemed capital gains.

• A non-resident estate could be subject to tax in the country where the executor resides. In certain situations the estate could be considered resident in both countries and subject to tax in both jurisdictions.


If you want to appoint a non-resident of Canada to be your executor, how do you prevent your estate from becoming non-resident? The Canada Revenue Agency Interpretation Bulletin IT-447 Residence of a trust or estate states, “Normally residence of a trust is dependent upon residence of the trustee or trustees who can exercise management and control of the trust.” They also state that the trustee who has management and control of the trust is the person with most, or all, of the following powers or responsibilities:

a) control over changes in the trust's investment portfolio,

b) responsibility for the management of any business or property owned by the trust,

c) responsibility for any banking, and financing, arrangements for the trust,

d) control over any other trust assets,

e) ultimate responsibility for preparation of the trust accounts and reporting to the beneficiaries of the trust, and

f) power to contract with and deal with trust advisors, e.g., auditors and lawyers.


Therefore, to prevent your estate from becoming non-resident you should appoint an executor or co-executor that you can be reasonably assured will always reside in Canada, like a corporate trustee, and specifically assign management responsibilities to them in your will. That way, you will be able to achieve the best of both worlds.


This publication has been prepared by ScotiaMcLeod, a division of Scotia Capital Inc.(SCI), a member of CIPF. This publication is intended as a general source of information and should not be considered as personal investment, tax or pension advice. We are not tax advisors and we recommend that individuals consult with their professional tax advisor before taking any action based upon the information found in this publication. This publication and all the information, opinions and conclusions contained in it are protected by copyright. This report may not be reproduced in whole or in part, or referred to in any manner whatsoever, nor may the information, opinions, and conclusions contained in it be referred to without in each case the prior express consent of SCI. Scotiabank Group refers to The Bank of Nova Scotia and its domestic subsidiaries. ™ Trademarks of The Bank of Nova Scotia.

An income investment you may have overlooked

Investors seeking income often limit their selection to bonds and give little or no consideration to preferred shares. They usually ignore preferreds simply because they don't know much about them.

Perhaps the easiest way to think of preferred shares is that they are shares which behave like a bond. A preferred share represents an ownership interest in a corporation, just as common stock does. But it also produces a reliable stream of income -- in the form of a pre-set dividend -- very much like the interest paid on a bond. The price of a preferred moves with interest rates, like a bond's price. When interest rates rise, the price of the preferred falls, and when rates fall, the price rises.

The same independent services that rate bonds, namely, Canadian Bond Rating Service Inc. and Dominion Bond Rating Service Inc., rate many preferred issues -- from highest quality (P-1 or PFD-1) to speculative (P-5 or PFD-5). And, like bonds, most preferred shares can be "called," or retired, by the issuer. In most cases, the call price is above the par value (price at which shares are originally issued).

Preferreds are well-suited to relatively conservative investors. They are also useful for more aggressive investors who want to balance a portfolio heavily weighted towards growth stocks. The income from preferreds can boost the current yield on shares of companies that usually reinvest their earnings in their fast-growing businesses rather than pay dividends.


Preferred shares offer the following attractions:

• High Yield Preferred shares typically yield one to three percentage points more in dividends than common stock issued by the same company. Since dividends are paid quarterly, many investors purchase three or more preferred issues with different payment dates to assure themselves a monthly dividend cheque.

• Liquidity Many preferred issues are listed on the major stock exchanges, making them easy to buy and sell. Most preferred shares are issued at par values of $25, putting them well within the reach of individual investors. Older issues trade above or below their par value depending on interest rates and other market conditions.

• Safety Preferred shares rank senior to common shares -- that is, preferred shareholders' claims for dividends and corporate assets (in the event the company is liquidated) come before common shareholders' claims. If a company runs into serious financial problems, the board of directors may vote to reduce or skip the preferred dividend without placing the company in default. But most preferred stock is "cumulative," so missed dividends accumulate and must be paid to preferred shareholders before any dividends are paid to common shareholders. (Keep in mind, though, that preferred stock is junior to all the company's debt. Bond interest payments take priority over preferred dividends and bondholders would get paid off first if the company were dissolved.)


The dividend on some preferred issues can be increased by the board if the company does especially well and the common stock dividend rises to a certain level. Such issues are called "participating" preferreds and usually command a premium price. Most preferreds are "non-participating"; their dividends never change, regardless of how high the common stock dividends rise.

Retractable preferreds have a fixed term which means the investor has the right to sell the shares back to the issuing corporation at a certain price on predetermined dates. The investor is, therefore, guaranteed a selling price. These shares are most attractive to investors who require a steady income and are concerned about the preservation of capital.

Convertible preferred shares offer income-oriented investors a chance at capital appreciation, too. These are preferred shares that can be exchanged for a specified number of common shares. The trade-off is that prices of convertible preferreds typically fluctuate more than those of non-convertible issues. They are probably not for investors who value a relatively stable share price.

One major advantage of investing in preferred shares is the dividend tax credit which eases the tax burden on dividend income. Essentially, all dividends collected on Canadian companies are eligible for this tax credit.

With this in mind, quite often preferred issues are an excellent alternative for producing income as compared to other interest-bearing investments which are fully taxed.

If you think preferred shares may have a place in your portfolio, check with your ScotiaMcLeod advisor. Because of all the variables associated with these securities, expert advice is essential to choose both the right type of preferred share and the right issue.


This publication has been prepared by ScotiaMcLeod, a division of Scotia Capital Inc.(SCI), a member of CIPF. This publication is intended as a general source of information and should not be considered as personal investment, tax or pension advice. We are not tax advisors and we recommend that individuals consult with their professional tax advisor before taking any action based upon the information found in this publication. This publication and all the information, opinions and conclusions contained in it are protected by copyright. This report may not be reproduced in whole or in part, or referred to in any manner whatsoever, nor may the information, opinions, and conclusions contained in it be referred to without in each case the prior express consent of SCI. Scotiabank Group refers to The Bank of Nova Scotia and its domestic subsidiaries. ™ Trademarks of The Bank of Nova Scotia.

TM Trademark used under authorization and control of The Bank of Nova Scotia. ScotiaMcLeod is a division of Scotia Capital Inc., Member CIPF.

Read more Navigating Your Wealth articles


About the Author

Jeff Stathopulos, CIM, CFP, Portfolio Manager

After two decades in the financial services industry, Jeff's experience as an advisor and branch manager define his approach to providing customized financial planning, estate planning, and managed income solutions. Key to this approach is a thorough understanding of the unique challenges and goals that exist in every client's life. He is a partner in Navigation Wealth Management.

Jeff holds the Certified Financial Planning and Chartered Investment Manager designations. He lives in Kelowna with his wife Tanya, and their two (almost adult) enterprising children.


You can contact Jeff by email at [email protected]


The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet presents its columns "as is" and does not warrant the contents.

These articles are for information purposes only. It is recommended that individuals consult with a financial advisor before acting on any information contained in this article. The opinions stated are not necessarily those of Scotia Capital Inc. or The Bank of Nova Scotia. ScotiaMcLeod is a division of Scotia Capital Inc., Member CIPF.

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