April 2011
Spring is in the air and the seeds are planted.



Spring.....it's been a long time coming.  Here at the office, with RSP season behind us, we continue to service our clients and welcome new people.  With better weather on the horizon, we have a renewed passion for servicing our clients.  It's our first newsletter of the year and we hope you find it an interesting read!
We've included  a market update and two articles in this newsletter, one is a take on the He said - She said debate for cottage life and the other on RRSP beneficiaries, as it turned out to be a recurring theme with clients we met over the last couple of months.


Please feel free to send this e-mail to you friends and family if you believe they would find our newsletter relevant to their interest or have general questions about our practice.  We endeavour to provide such a high level of service, that you are proud to refer your family, friends and colleagues. 

Market Update


I believe it was T.S. Eliot who said that April was the cruellest month. However, after the horrific March 11 earthquake which hit Japan and caused a massive tsunami which caused unimaginable damage in Japan, a very strong argument could be made for March being a pretty cruel month as well. With nearly 13,000 dead and 14,500 still unaccounted for, powerful aftershocks continue to haunt the country. Further complicating the rebuilding process is the nuclear disaster which is occurring at the Fukushima Nuclear Plant where the earthquake has caused a meltdown in a number of the plant's nuclear reactors, leaking radioactive steam into the atmosphere and oceans.

In addition to the human and environmental toll, there was also an economic toll. The economy and markets ground to a halt and by the time the month was over, the Nikkei 225 was down 8.2%, regaining much of the substantial drops that occurred in days immediately following the quake. Not surprising, it was the Japan equity funds which were hit the hardest in the month, dropping on average 7.2% in Canadian dollar terms.

Also hit were many International and Global equity funds which allocate a significant amount of their portfolios to the region. Further hurting these funds was the continuing European debt crisis. This month, the lucky or unlucky country was Portugal, which saw its 2010 budget deficit account for 8.6% of its GDP. The expectation was 7.3% and the goal for 2011 is to reduce its deficit to 4.6% of GDP. Reducing this deficit will be more difficult now following the resignation of the Prime Minister and the uncertainty in government.

Emerging Markets posted strong gains helped by strong growth in China's manufacturing sector. In Canada, gains in financials were offset by poor performance from the resource sector, despite strong gains in gold, silver and oil, which resulted in a flat performance for the month. Gold prices settled at record highs at the end of Q1 as investors bought gold as protection as the US dollar weakened. Gold for June delivery jumped $15 to end the quarter at $1,439.90 per ounce on the NY Mercantile Exchange. Silver also jumped 22% in the first quarter to close at $37.88, while oil finished the quarter around $107 per barrel. US Markets and bonds were also largely flat on the month.

Should they make the leap to cottage country?

An article by Kelley Keehn and Anna-Kaisa Walker
-Globe & Mail on March 30, 2011


Bob, 71, and Betty, 68, Halifax

The cottage - family haven or financial black hole? This retired couple want to spend their golden years close to the sea, and she wants to move to their vacation home full time. He worries it's too isolated and too much work. Rural bliss or real bummer?



For six years now, we've owned our little lakefront cottage about an hour away from our home in Halifax, near the town of Lunenburg. It's small - about 1,200 square feet - but fully winterized, and I think it would be a lovely place to live full time. It's such a beautiful area, close to the seashore, and I'd love to do more gardening and relaxing with family and friends. My hope is to sell our current five-bedroom, three-bath house, which has become too big for us, and spend about $100,000 renovating the cottage. It's in good shape maintenance-wise, but I'd like to put a walk-in closet and ensuite bath in the master bedroom, replace all the windows and redo the kitchen with a new pantry and laundry area, plus build a garage. The only drawback to living there in the winter is the roads - the house is at the bottom of a hill, and the lane can get very icy if there's a big snowstorm. My son and our three teenage grandsons live about an hour away, and we'd like to keep the property in the family. There's enough acreage for them to build their own cottages, too.



I'd also like to live out my retirement in Lunenburg, but I want to be closer to medical attention. I had a quadruple heart bypass eight years ago, and while I've done very well so far, and Betty is a former nurse, I'm not sure about living at the cottage - it's 20 minutes from the nearest hospital. Emergency vehicles could still get to us there, but it would be easier if we lived in Lunenburg itself. There are a few options there. There's an 880-square-foot condo for $115,000 plus $250 a month in condo fees, but Betty thinks it's too small. There are older homes in the $300,000 range, some of which would need significant upgrading. I'd like to keep the cottage, too, but I don't think we could afford it with the latter option. We could also rent an apartment for about $1,000 a month, and we wouldn't have to worry about maintenance, but the nicer buildings won't take us because we have two small dogs. We'd like to try living at the cottage for one winter to see how it goes, but I don't know if I want to do it long-term.


Vital stats: Occupations: Both retired; she has been working as a real-estate agent since retiring from nursing 15 years ago

Annual income: $100,000 from RRSPs, pensions, CPP and Old Age Security

Assets: Halifax home, about $285,000; cottage, worth $170,000; net worth (excluding property) about $860,000, including easily accessible investments worth about $60,000

Debts: Mortgage on cottage, $29,000 at 2.75 per cent (current payments total about $15,000 a year)



Financial expert Kelley Keehn:

I'm siding with Bob on this one. A home should be many things - comfortable, affordable, a reflection of your style. One thing it must be is safe - and feel that way. With Bob's medical concerns and the remoteness of the cabin, coupled with the level of snow in your area during the winter, I'm concerned he would feel uneasy.


 I think the idea of trying out cottage life for a year before making a major decision is reasonable. You could also consider living there during the non-snowy months and downscaling to a condo as mentioned.

Betty, you need to bend a little if you'd like to convince Bob to buy into the renos. I'd side with renting in town, but if there truly aren't any decent apartments that will accept your dogs, then buying a smaller condo is your only option. You simply can't afford to fix up the cottage without opting for a smaller place in town (without financing, which would be a terrible idea at your stage in life). Explore the possibility of renting out your empty places to family or friends. And before you do any improvements on the cottage, talk with a tax professional about which property would be most advantageous to be deemed your principal residence. 

Avoid RRSP tax with a proper beneficiary

Preet Banarjee

-Globe & Mail  on March 30, 2011


How would you like it if a parent left the majority of a $1-million estate to strangers he or she had never met and never intended to give a penny to? Sadly, it has happened before, and all that was needed to avoid this disastrous situation was a few minutes spent updating a beneficiary designation. "An ounce of prevention," as they say.

Since it's RRSP season, I'll focus on registered retirement savings plan beneficiary designations, but the same line of thinking holds true for life insurance policies, tax-free savings accounts, registered retirement income funds and other financial products.


When you die, the taxman treats the fair market value of your RRSP as income, which is subject to tax at your marginal tax rate. That means that if you have $200,000 in your RRSP, you can expect a tax bill of between $60,000 and $100,000 depending on how much other income you have that year and the province in which you reside.

You can avoid that tax bill if you pick the right beneficiary. Certain beneficiaries, known as qualified beneficiaries, will be able to receive the funds from your RRSP without anyone paying tax upon your death.


However, consider this scenario: You've left your $200,000 RRSP to your adult son and your $200,000 estate to your adult daughter, with the assumption that on a pre-tax amount, those two parts would be equal.


Since your son is not a qualified beneficiary, but a beneficiary nonetheless, he will receive the $200,000. The rest of the estate picks up the tax bill, however. That means that your daughter could be receiving only $100,000, since the taxes owing are paid by the estate before the daughter receives what is left over. That can make the next family get-together awkward at best.


One of the worst horror stories I've come across was a situation where a man died with a $3-million estate. He had remarried and had three kids. His first wife also remarried and had a child. Both his first wife and second wife predeceased him, and to make a long story short, after a lengthy legal battle, the first wife's child (who didn't know the man from Adam) ended up with the bulk of the estate while the man's own children ended up with about $30,000 to split among the three of them. The mix-up was caused by stale and conflicting beneficiary designations.


The moral of the story: Get your beneficiary designations up to date and make sure what is in your will matches everything else. Life will be much easier for those you leave behind if all your ducks are in a row. Having a qualified beneficiary for your RRSP means you can avoid a big tax bill on the value of your RRSP when you die.


Who is a qualified beneficiary?



-Common-law partner

-Financially dependent child or grandchild who is dependent because of a physical or mental infirmity

-Financially dependent child or grandchild under the age of 18

Issue: 4
Financial Markets
In This Issue
Should they make the leap to Cottage Country?
Avoid RRSP tax with a proper Beneficiary.
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Peter Bailey
Worldsource Financial Management
272 Lawrence Avenue West, Suite 203
Toronto, Ontario M5M 4M1