My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned.

Tuesday, July 18, 2017

The Best of The Blunt Bean Counter - Taking it to the Grave or Leaving it all to your Kids?

This summer I am posting the "best of" The Blunt Bean Counter blog while I work on my golf game. Today, I am re-posting a July 2011 post (originally written as a guest post for The Canadian Capitalist) on estate planning and the four groups (at the risk of stereotyping) that people seem to fall into, when dealing with their estate.

Next week I will have a re-post of  a blog on accessing the capital dividend account for those of you that have private corporations and then a three-part series on a true summer topic - the tax issues surrounding the sale and/or transfer of your cottage.

Taking it to the Grave or Leaving it all to your Kids?


I am often engaged to provide estate planning. Many "older" Canadians have amassed great wealth (some just through the sale of their home and/or cottage). A 2006 Decima Research study estimated that over one trillion dollars in wealth could be transferred between 2006-2026. After twenty-five years of discussions regarding the distribution of wealth, where an estate will clearly have excess funds when the parents pass away (to be clear, this post is only discussing situations where you are very certain you have more funds than you need to live, not situations where you may have excess funds when you pass away, but are not secure enough to distribute while alive) it is my opinion that the parents should consider partial gifts during their lifetime.


It is my observation from the 25 years of meetings that people form four distinct groups when it comes to distributing their excess wealth:

1. Those that will take their wealth to their grave (or leave it to their pet Chihuahua)
2. Those that will distribute their wealth only upon their death
3. Those that may not be able to afford their grave (as they give and give to their children)
4. The most common, the middle ground of the extremes, those who are willing to distribute their wealth, but in many cases harbour concerns their wealth will be “blown” or lead to unmotivated children.

In this blog, understanding my opinions may be diametrically opposed to some readers, I will talk about these varied groups.

Taking it to the Grave and Leaving Nada to Your Family


For those who wish to take their wealth to the grave, there may be an altruistic or philosophical reason. However, there is more often than not, a deep rooted family issue, and the chill in the room makes it very clear that advisors should stay clear of delving into these family issues (when I initially wrote this post, I was criticized by a reader for saying the advisor should stay clear in these cases. I now think they were correct. I can think of a specific case since I wrote this post in 2011 where I challenged a client on this and they made a change to their will not because they really wanted to, but because the change could possibly help avoid litigation down the road, despite it being distasteful to them). 

Distributing your Wealth upon your Death


In the case of those who wish to distribute their wealth upon their death, the issue is typically philosophical. That is, one or both of the parents feel that their children need to make their own way in the world and that leaving them money during their lifetime will do their children a disservice or destroy their moral compass. This is a touchy area, but I often suggest that if the parents feel their children are well-adjusted, they should consider providing partial inheritances. A partial inheritance can facilitate a child’s dream, such as climbing Mt. Kilimanjaro while the child is physically able, or assist with the down payment on a cottage. The selling point on partial distributions is that the parents can share vicariously in the joy of the experience they facilitate.

Giving your Kids too Much while Alive


In the third situation, the parents spend every spare nickel on their children’s private school, dance lessons, hockey teams, etc., while younger and then assist in buying houses, cars, etc., when their children are older. In these cases I suggest the parents pare back the funds they spend on their children and/or make the children contribute to their own activities. It is imperative the parents impart upon their children that they are not an ATM and that there are family budgetary limits to be adhered to, often easier said than done.

The Balanced Approach


The majority of families fall into the last category. They are willing to distribute their “excess” wealth while alive, but in many cases harbour concerns their wealth will be “blown” or lead to unmotivated children. Dr. Lee Hausner, an advisor to some of the wealthiest families in the United States, suggests in various articles of hers that I have read, that parents do not transfer money during career-building years so the children learn to be productive members of society. Children should be taught they have choices to make (ie: distribute money for one thing they want but not three things they want) and they should learn to be philanthropic amongst other things. I think this advice stands on its own whether you are one of the wealthiest families in the United States or just a family that has been lucky enough to accumulate more assets then you will ever require.

How one distributes their wealth is an extremely private issue and each individual has their own thoughts and reasons for their actions. However, in my opinion, where you have the financial wherewithal, you should consider making at least partial gifts during your lifetime.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.

Monday, July 17, 2017

Book Giveaway Winners!!

Thank you to everyone who completed the financial/wealth survey linked to my June 19th blog post. The response was great.

The winners are:

1. Richard S.

2. Kelly A.

3. Ken S.

4. Bruce R.

5. Cindy H.

Since I do not publish last names for privacy purposes, there may be more than say one Richard S. However, if you were a winner, you will have already received an email informing you that you won a book and asking you for address details. So if you are a Richard S. that did not win, sorry about that.

Tomorrow I start my "Best of the Blunt Bean Counter" series for the summer.

Monday, July 10, 2017

Gone Golfing for the Summer of 2017

This summer, I will again be posting a “Best of The Blunt Bean Counter” blog each week; so I can spend some time golfing and enjoying the good weather with my family. I am really looking forward to a golf trip to Cabot Cliffs in Nova Scotia later this summer, as it was ranked as the best new course in the world in 2015 and is now constantly ranked as one of the best courses period in the world. I am sure this trip will result in a blog post with pictures.
European Club Golf Course Ireland

As this is now the fourth year in a row that I have posted my "Best of" during the summer, as I stated  last year, maybe at this juncture, a more appropriate title should be; "The Sort of the Best of The Blunt Bean Counter".

Anyways, you can read them again if you wish and if not, I won't take it personally.

Next September, will mark the blogs 7th anniversary. As I noted in my blogger got the blues post last fall, it is getting difficult to keep this blog fresh and for me to keep writing each week or so. I thus will use the summer to consider a couple suggestions people have made to me to re-energize the blog and myself (including one from my son and daughter to do a sort of Blunt Bean "let me tell you" editorial type post), so we shall see where that goes. While I am navel gazing, enjoy your summer.

Monday, July 3, 2017

What High Net Worth People Really Want from Their Financial Advisors

In my experience, the best investment managers that my firm and clients work with stress three particular investment themes.

They are as follows:

1. Maintenance of lifestyle
2. Protection of Capital
3. Growth of Capital

I don’t think the above mentioned priorities were picked out of thin air. These are the true concerns of high net worth individuals and were discussed in a 2012 Forbes Magazine article titled  “What High Net Worth Investors Really Want" by Andrew Klausner. While this article is now almost five years old, I still find it as applicable today, as when it was written five years ago. I would also suggest that even if you are not a high net worth person, these priorities would still be important to you.

The Forbes article was based on the results of a Cerulli Associates/Phoenix Market International survey.  The survey found the top nine 9 things that high net worth individuals are looking for from their advisors (and the percentage of respondents that listed each item as being the most important) were as follows:

1. Maintain lifestyle in retirement – 31.4%

2. College education funding – 19.6%

3. Protect current level of wealth – 14.6%

4. Aggressively grow wealth – 14%

5. Leave an estate for heirs – 9.8%

6. Charitable giving – 4.2%

7. Minimize income and capital gains taxes – 2.4%

8. Improve household cash flow – 1.9%

9. Better manage market risk – 1.9%

It is somewhat surprising, maybe even shocking, that beating the market is nowhere to be found on this list. I find this interesting since when you hear people talk about their investment advisors results, they are often bragging about how they beat the market. Maybe these are just the type of people I noted in my blog post on investment bravado.

If you were surveyed, would your three top selections be maintenance of your lifestyle, protection of your capital and growing your wealth (college funding is typically a higher priority in the U.S. than Canada, so I moved it arbitrarily down the list. But with the increased costs to attend University in Canada, it is likely a high priority for Canadians, but I am not as sure as high as for Americans)? If not, you may want to revisit the priorities you have for your advisor and yourself.

Book Giveaway


Thank you to everyone who has completed the financial/wealth survey linked to my previous blog posting. The response has been tremendous. I will announce the five winners the week of July 17th.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.

Monday, June 19, 2017

Book Giveaway and Financial Survey

I have been writing about financial and wealth trends for over six years. Today, I provide a link to a survey about how these trends are affecting you personally. I would appreciate it if you would complete this survey. To provide incentive (at least I hope it is incentive since you are reading my blog) I will giveaway five copies of my book Let's Get Blunt About Your Financial Affairs to those who complete the survey. The survey will take you between 3-5 minutes to complete, so it is not time consuming and you will have the opportunity to receive a summary of the survey. I would suggest the survey is most applicable to those in their mid-forties and older.

A discussion of some of these trends and why they are important is provided below by Jonathan Townsend, the National Wealth Advisory Services leader for BDO Canada LLP.


Canadians Feel Financial Strain From Different Directions

By Jonathan Townsend

Recently, the trend of Canadians providing multi-generational financial support has come up as an emerging issue. At a time when many of us should be preparing to retire peacefully, numerous people have signed up for additional financial obligations such as housing, education, and health care—not for themselves—but for their children or parents. This added burden, along with longer life expectancies is putting considerable stress on many Canadians.

In a recent Globe and Mail article, 44% of millennials expect to receive financial assistance from their parents to purchase their first home. Many of them consider home ownership a priority; however due to increased housing prices many cannot fund the purchase independently. Instead, millennials are relying on their parents to make home ownership a reality.

Conversely, the parents of baby boomers are living much longer. Many of them may have not saved enough or are facing unexpected medical conditions which require special care or assistance. Again, many Canadians, especially baby boomers are stepping up to the plate. They are taking care of housing and health care costs for their parents, which have considerable costs. In a recent study by CIBC, it is estimated that these costs average $3,300 per year for a caregiver, and amounts to an estimated cost of over $6 billion to the Canadian economy.

The added financial commitments may not have been part of many Canadians financial planning. The time, energy and money being used to support parents and children is putting a huge strain on funding many of our own retirements. Significant numbers of Canadians are nowhere close to hitting their targeted retirement nest egg because their investment returns have not been what was expected in large part because of the cost of financially caring for their children and/or parents. While research shows it is physically and mentally beneficial to work longer, many people need to work longer, out of financial necessity, to support the family and fund lifestyles and retirement.

For those lucky enough to have cashed in on sky-high real estate prices in some Canadian cities or for those who have received an inheritance, they have decisions to make regarding the net proceeds of downsizing or their inheritance and how much goes to their children or parents.

It’s admirable that many Canadians are taking care of their families’ financial needs but it may come at a cost. BDO Canada is exploring these changes and added expectations that we are facing to see how it is impacting our retirement and financial planning. We invite you to participate in this national survey, which will form a report outlining the key insights we uncover. Respondents will be entered into a draw to win one of five, Let’s Get Blunt about Your Financial Affairs books, written by Mark Goodfield.

Complete the survey now by clicking this link. Please note the book giveaway link is at the end of the survey and takes you to a different location so that your survey comments remain confidential.

Jonathan Townsend is the National Wealth Advisory Leader at BDO Canada LLP. If you have any questions, please contact him at 519-432-5534 or jtownsend@bdo.ca.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.

Monday, June 12, 2017

The Taboo Of Money - I Will Not Talk About It- Part 3

As discussed in my blog post last week, I suggest you consider a frank discussion with your beneficiaries about your will. Today I conclude that discussion with the final four reasons you may wish to consider holding a family meeting.

The Benefits of Having a Family Meeting


The following are the final four benefits of having a family meeting about your will.

5. Giving the Kids what They Really Want

We all have a tendency to assume we think we know what assets our children want. In many cases we are correct, however, in others we are way off base. A family meeting allows you to discuss individual assets to ensure the assets are given to the child who really appreciates and wants the asset. That is not to say that whatever a child wants they will get. In some circumstances more than one child may want the same asset and if you intend to equalize your will equally, the equal proportion may be distorted by allocating assets according to your children’s likes and dislikes.

The determination of the wants of family members will often revolve around larger assets such as cottages.  Some children may have an attachment to the family cottage while others may not; or maybe you are not sure whether any child would want to take over the property when you pass. A meeting provides the opportunity to raise the issue for your children to decide amongst themselves if they will want to sell the property, share the use, or have one child inherit the property. Sometimes the meeting may bring you to the realization that the issues surrounding the second property are so divisive that the prudent decision would be to sell the property.

Don't forget to sweat the small stuff! I have spoken to many corporate executors from the big banks over the years, and they often comment that family disagreements are as likely to occur over personal and sentimental items as they are over large assets such as cottages or even money.

Many wills do not properly address personal and sentimental assets. The reason for this is typically twofold:

1. The parents assume naively that the children can deal with these assets, especially where there is little real value to them.

2. Where personal assets such as art and jewellery have significant value, the parents do not wish to pay income tax on the disposition of these assets or, have no idea of the tax consequences of disposing of these assets. Consequently the assets are ignored in the will. This creates future problems as the executor is required to report the value of these assets for both probate and income tax purposes and may face penalties if he/she does not report the assets and pay the taxes.

It is thus important for you to discuss these items at the family meeting or at a separate informal meeting. Where there is no clear agreement over who should get a personal asset, you can have the beneficiaries’ rank the assets one to ten and the assets are then allocated to the beneficiary with the highest ranking. Alternatively, you can undertake a lottery and the assets will be distributed in your will according to the lottery results.

The key is that you should address these personal items, as if you leave them unaccounted for in your will, the possibility that they could become contentious is very large.

6. Succession Plans for the Family Business - Keeping it Going

Where there is a family business, the succession of that business is one of the most important issues facing the family. The value of their estate and hence the value of the assets in the will are directly correlated to the value or succession of their business.

In my opinion, the succession planning decision is so large in importance with the potential to be so divisive that it should not be part of any family meeting discussing your will. For family succession issues, is it often best to bring in outside specialists to work with the family.

However, if all the children will be given equal shares in the business, the topic can be brought up as part of the family meeting. If you have already made it known to your children that you had decided to leave the business to one child or only some of your children who work in the business and that you plan to equalize the other children with cash or other assets, the topic should be broached.

However, parents must understand that the value of the business can fluctuate wildly over the years, with the result being that the child(ren) who inherit(s) the shares may in essence have inherited a significantly larger asset than the other child(ren). Alternatively, the shares of the company may prove to be worth substantially less than the assets distributed to the other child(ren) if business conditions cause the value of the business to diminish. The parent will have no control after their death on the potential disparities in value. I have seen situations where asset distributions were equal at the time of death, but the inherited business grew astronomically and the children who did not inherit the company shares felt wronged by their parents. Consequently, this topic needs to be discussed and explained at the meeting. You need to make it absolutely clear to your children that the company value could go up or down and that they must understand these valuations are beyond your control and that is one of the uncertainties of your will and an issue that may continue on beyond your death.

­7. Helping your Kids plan their Future

It is also a kindness to your beneficiaries to let them know, generally, what they can expect as an inheritance. Even if it is not your intention to gift money or assets over to them while you are alive, at least they can get a sense of what their financial position will be so they can arrange for their own lifestyle and retirement planning. If you are aware that your child is expecting a large inheritance, and you are planning to leave most of it to charity, it is only fair to let him know so that he/she does not overextend himself financially on the assumption that he will someday be wealthy. On the other hand, if your child is living very frugally in order to save for a retirement, and you know that you will be leaving her enough that she will be well off in retirement regardless of her savings, it is fair to her to let her know so she can "live it up" a little! This is a very contentious issue that I wrote about previously in this blog post.

­
8. Children's Roles in Administering the Estate

A side benefit of a family meeting is that you can broach the topic of your executors. Assuming you wish one or more of your children to be your executor(s), you can use the meeting to discuss the responsibilities and the burden of being named an executor of the will. You can explain the duties of the executor and determine if the child you wish to be an executor is willing to undertake the position. If he/she is not, you will then have to consider whether you hire a corporate executor or name family friends or business associates.

You could also take advantage of the opportunity to discuss whether you wish a family member to be your power of attorney of your assets if you become incapable of managing your affairs, and whether you wish to appoint a child to be responsible for your medical affairs or living will, should you also become incapable of making medical care decisions.

A meeting provides our children with some clarity towards their inheritance. Obviously the clarity is still somewhat murky, as there are several variables such as life expectancy, health, re-marriage, changes in wishes etc. However, it still provides some direction for your children’s own financial planning. If you intend to provide partial inheritances while alive, this is very important information for the children to be aware of, if these partial inheritances are significant.

This concludes this mini-series (excerpts from my abandoned book). I hope it provided some food for thought.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.

Monday, June 5, 2017

The Taboo Of Money- I Will Not Talk About It- Part 2

As discussed in my blog post last week, I am going to post small excerpts of a book I was writing on money taboos which I have abandoned. Last week I suggested you consider a frank discussion with your beneficiaries about your will. Today I discuss four of the eight benefits I see in having a family meeting to discuss your will; I discuss the final four benefits in next weeks blog post.

The Benefits of Having a Family Meeting


The following is a brief summary of what I believe to be the main benefits of having a family meeting about your will:

1. Avoiding Future Conflict - and Litigation!

Fans of Charles Dickens' Bleak House will of course remember the fictional case of Jarndyce and Jarndyce in which generations of family members fought over a large estate until the estate was completely consumed by legal fees. If you don't discuss your will with your children, any perceived actual or perceived inequalities in your will cannot be explained rationally to them, and conflict and estate litigation might well result. Of course, the kids might "lawyer up" despite your best efforts, but at least you have done your best to avoid it!

One of the key reasons for even considering a family meeting to discuss your will is the opportunity it provides for you to outline in a rational manner and hopefully in a calm setting why you have left certain assets to certain children, to charity or to whomever else you have decided to leave assets. It is a bit of a guessing game whether you will have properly perceived what your children perceive as inequalities; but in most cases, it will be obvious.

2. Explaining Intentional Inequities

An example of an obvious and deliberate inequity is where you have left more money to one child than to the others. Where you have left more money to one child (perhaps he or she makes less money than the other children), you can use the meeting to explain why and explain that it has nothing to do with loving that child more, you are just helping him since they have not been as fortunate as the other siblings.

The fallout on this decision may come from two sources. Most of us are familiar with the biblical parable of the prodigal son, in which the first son asks for his inheritance from his father early, blows through all the cash and then goes back to his dad for more. Rather than telling his son to suck it up and support himself, the dad then dishes out even more to the prodigal son, leaving his hardworking younger son angry. Remember that there may be reasons why the children are not equally successful - perhaps the least successful one is also the laziest and most unmotivated of the children. The others may question why they are being penalized in your will for their sibling's lack of performance. It is your right to give your money to whomever you wish, of course, but you should expect at least some resentment from the other siblings should you wish to proceed with this course. Be prepared to justify your decision.

Secondly, and more surprisingly, fallout may not come from the children who are not receiving equal inheritances, but from the child receiving the additional money. They may feel insulted that you feel they have been less successful, and embarrassed by your desire to give them extra help, rather than regarding the extra allocation as compassionate recognition that they require some additional financial assistance.

3. Avoiding Unintentional Inequities

There may be less obvious inequities. There may be consequences arising from your legacies that you did not anticipate, creating unintended conflicts between your family members. For example, in striving to be fair, you may bequeath a cottage or other secondary property to all your children equally, without realizing that doing so actually creates a burden on those of them who do not want the cottage but will be required to pay for its upkeep. You may also miss the opportunity to consider other ways of disposing of your assets, perhaps by intervivos gifts that will ultimately minimize taxes.

4. Clarification of Prior Gifts and Loans

Many of my clients have wanted to help out their kids during their lifetimes by providing them with a little (or a lot) of extra cash. The money might be used for a down-payment on a property, for education or to bail out a child who hits a bad financial spot. The most important thing is that the child must know whether the money was a gift or a loan and whether that money was expected to be an "advance" on the inheritance. How to intend to characterize these gifts or loans is an important issue to discuss in the family meeting, especially where you want to avoid an unintentional inequity if you were to die without making your intentions down and where one child has already received a significant portion of your estate.

The above issue can often be dealt with by utilizing a “hotchpot clause” in your will. Over the years, a legal concept now commonly known as a “hotchpot clause” has evolved to deal with the equalization of the beneficiaries of an estate, where one or more of the beneficiaries have already received money during their parent’s lifetime. When a hotchpot clause is inserted in a will, the clause will prevent a beneficiary (typically a son or daughter) from “double dipping” where the parent intended any money advanced during their lifetime to be considered a pre-payment of an inheritance, rather than an advance over and above an intended inheritance. See this post I had on the hotchpot topic for more information.

Next week I conclude this series with the final four reasons to consider a family meeting.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.