Story - Simple Wealth Transfer

Simple Wealth Transfer

Jim and Sandra had been enjoying retirement for over 10 years when Sandra had a major health scare.  While the outcome turned out fine this incident gave them reason to pause and think about the future.  Maybe it was time to sell their rental property, simplify life and do some more travel.  It was always the plan to pass on the apartment building to their 2 children, but during a recent family meeting they found out that neither one was interested in being a landlord. 

Selling the building was a big step for Jim and Sandra and they were concerned about how to pass this wealth to the kids.  The plan had been to gift the property at some point to avoid probate, but now they weren’t sure what to do.  Should they take the proceeds of the sale and give it to the kids now, or set up an investment in joint ownership?  The income from the building was helping fund their extensive travel so perhaps giving the money away now wasn’t the best solution.

Working closely with Jim and Sandra, Conrad developed a segmented financial plan addressing this one issue.  The plan showed them some options they hadn’t considered.  First there was the issue of capital gains tax on the sale of the apartment building.  They hadn’t considered that before and were shocked to realize that if they had given the property away they were still on the hook to pay the tax.  Problem was they wouldn’t have had the money.  Selling the building would allow them to pay the tax and then decide what to do with the rest.  

One of their biggest concerns had always been the amount of probate they would have to pay.  That’s why they wanted to give the property away before they died. However doing so would leave them short on travel money.  There are also serious downsides to setting up joint accounts that would put their financial security at significant risk. 

The plan recommendations outlined a very specific type of investment product used for estate purposes. Using it, Jim and Sandra could invest the money in a well-diversified portfolio and name the kids as direct beneficiaries.  With this structure they would control the money while alive using it for additional income. When they die, the money passes directly to the kids outside the estate and avoids probate.  An even bigger savings would come from avoiding legal fees by having this money pass directly to their kids.  On the $1.5 million value they expected to net after tax, the estimated savings on probate (in Ontario) was $14,750.  The estimated savings on legal fees was $30,000. 

By implementing these recommendations, Jim and Sandra simplified their life and did more travelling.  They were confident knowing their kids didn’t have to be landlords but could still enjoy a sizable inheritance not reduced by probate and legal fees.  They really could “have their cake and eat it too” all while sitting in a café in France.