For young couples starting families, buying their first home and/or other real estate. Covers mortgages, credit cards, interest rates, children’s education savings plans, joint accounts for couples and the like.
Achieving financial independence often comes with dreams of a big house on a quiet cul-de-sac with plentiful space and bedrooms for the family. But during a worldwide pandemic, many homeowners have sought to simplify their life and downsize their primary residence.
To help demonstrate what downsizing may look like, we asked homebuilders and homeowners about the steps they would recommend taking if they were to downsize a home.
Here are seven steps to downsizing your home:
Right-Sizing
Accessibility
What Items Do You Use to Support Your Habits?
Do The Hard Things
Have a Financial Plan
Don’t Get Sentimental
Keep Things Only if They Bring You Joy
“Right-Sizing”
At Cullum Homes, instead of downsizing, we call it “right-sizing”! We have been designing and building lock-and-leave luxury homes in this specialized niche market for many years. Steps we would recommend include (1) free yourself from a large lot, pool, landscaping, etc. and the endless expense, upkeep, and maintenance they require, (2) consider a private, gated community with resort access and/or amenities that are maintained by someone else, and (3) before making the move or having a new home built, give careful consideration to the rooms and spaces you want now and might need or want in the future. Don’t become so focused on cutting space that rooms become unworkable. We have actually had clients that cut out too much space, only to return and have us add on later, or build them another larger home! — Rod Cullum, Cullum Homes
Accessibility
As a company that specializes in accessibility lifts, many of our customers are either looking to downsize or reduce the impact of mobility challenges in their homes. Many of our customers find that adding accessibility to their existing home allows them to remain comfortable and surrounded by the things that are important to them. This is often the easiest way to simplify your life. If you do need to downsize, a stair lift can make an in-law suite readily accessible. — JJ Hepp, Arrow Lift Stair Lifts
What items do you use to support your habits?
Having recently downsized our home, we took stock of how we spend our time and what we use in support of our habits. This made donating and discarding unwanted items a lot easier. We also looked ahead at the space we were moving into and how our current furniture and other items would help make this smaller space as efficient as possible. In hindsight, we spend less time maintaining our space and have more free time and a better quality of life. — Steven Brown, DP Electric Inc
Do the hard things
The reality of downsizing a home is that homeowners have less storage space and less living space. Getting rid of things is hard. Doing Goodwill drop-offs or posting items on OfferUp means saying goodbye to lots of memories. But, making the hard decision to part ways with items opens up an opportunity to say hello to a new lifestyle with reduced upkeep and increased savings. Do the hard things that come with downsizing, and your lifestyle will benefit as a result. — Brett Farmiloe, Real Estate SEO Company
Have a Financial Plan
Whenever downsizing is brought to the table, it can be a phenomenal experience. It is quite surprising to learn how you can function on a lean basis, void of clutter and unnecessary items. Continue Reading…
COVID-19 certainly has made 2020 a year to forget for some, and as it wraps up with the holidays and new year, many people are assessing their financial situations and determining the next steps. The good news is it does appear a vaccine and more medicines are on the way. But still, getting these treatments out to everyone and getting the virus under control will still take time, so reopening the economy completely may not happen for several months yet. In the meantime, Americans are trying to manage holiday expenses and future budgets until the tide turns.
Covid-19 savings reallocation opportunity
While it may be no fun to miss out on going to your favorite movie theater on Friday nights, or visiting your favorite theme park during vacation, consider the upside of this. The money you may have spent on all those activities is money you can tuck away for better use. Money you don’t spend as disposable income is money you can turn into either savings or investments. There are ways to use it that can be a return on investment if you do your planning right.
Building a emergency savings fund
The worst thing that could happen to you during a pandemic is getting laid off; in which case you will need savings to get by. Unemployment during the pandemic hit a high of about 14.4% back in April. But even if you’re still employed, sudden expenses like HVAC repairs, car repairs, and doctors’ visits still happen. When they do, you’re better off not putting all of those expenses on your credit card, or borrowing money from high-interest loans to pay for them. Instead, consider setting aside about $20-50 per week or per paycheck, let that money sit in a savings account untouched, and over time you’ll see it grow to potentially hundreds if not thousands of dollars in savings. And these savings should not be used for regular expenses like gas or rent, unless you’ve lost your job. But instead, prioritize sudden emergencies like car accident expenses or pipe burst repairs for these savings.
Use the time to refinance and tackle debt
Another thing you can do with extra savings is apply them to any outstanding debt accounts you have. Now one thing to note is that some debts such as federal student loans had payments suspended and interest rates set to zero. Continue Reading…
A third of Canadians were financially unprepared for the pandemic, and more than 75% think Covid-19 has impacted their mental health, according to a Manulife Debt Survey released late Tuesday. Young people are particularly concerned that their hopes for home ownership are slipping out of reach: two thirds of Canadians served who do not own a home worry about saving for one.
A whopping 36% said they worry significantly about saving for a home, while 28% are concerned about supporting their children through post-secondary education (28%) and 28% about saving for retirement.
On average, Canadians have been allocating nearly half their income to essentials like food and housing since COVID-19 began, with 58% of homeowners and 54% of renters worry about making payments.
Manulife Bank CEO Rick Lunny
“Debt can negatively impact mental health and leave Canadians feeling like their financial goals are unachievable. The pandemic has made that even more pronounced,” said Rick Lunny, President and CEO, Manulife Bank. “It’s so important to have financial flexibility, especially when one looks at purchasing a home – it’s easy to feel stressed. Financial conversations are essential to identify opportunities, what matters most and help you stay on track, no matter the financial environment.”
A financially unprepared population
The survey found 35% admit they were financially unprepared for the pandemic. 74% believe their financial situation has been impacted as a result of the pandemic and 69% of them say the impact has been overall negative: 42% worry that it may take them over a year to recover to pre-COVID-19 levels.
One in four are struggling to keep up with their bills, with one in six laid off due to COVID-19: an equal number say they would have been laid off had it not been for the wage subsidy provided by Ottawa.
Some have flourished
The survey reveals a sharp disparity in how the pandemic has impacted us, with some flourishing as others have been devastated. Manulife views this as evidence of a K-shaped recovery narrative. On the one hand, while Canadian on average, appear to be saving more compared to a year ago (16% of after-tax income, on avg. vs. 14% in Fall 2019), 24% have been saving absolutely no after-tax income compared to the same period last year. Within the indebted population there has been a significant increase in the proportion of those who say everyday living is the cause of their debt: 24%. This suggests more Canadians who are in debt are struggling to make ends meet, even if fewer Canadians (27% debt-free vs. 21% on Fall 2019) are now in debt overall compared to a year ago.
Finally, the U.S. election season is behind us. But a new presidential administration typically means changes in the taxation landscape, and President-Elect Joe Biden is sure to follow suit. In fact, a Biden presidency may have certain implications for a number of people on this side of the border.
One of the proposals in his election campaign may prove especially punitive to Canadian taxpayers, especially those who hold U.S. real property or any U.S. publicly traded securities in Canadian- or U.S.-based investment portfolios, RRSPs, RRIFs or TFSAs. (Think of your shares of Apple or Microsoft, which have seen a great deal of growth in recent years with quarterly dividends literally dripping into your accounts!)
Tax implications at death diverge in the 2 countries
Hopefully, most Canadians are aware that the tax implications at death tend to diverge when it comes to Canada and the United States. In Canada, capital assets of the person who dies are subject to deemed disposition on the person’s terminal tax return, unless those assets are jointly held with a surviving spouse or they go to a trust designated to the surviving spouse. If the latter two conditions apply, there will be a tax deferral and the tax to be paid only happens when the surviving spouse dies.
In the U.S. non-American citizens are taxed on the market value of their U.S. assets held at the time of death if the total value of such assets exceeds USD $60,000. Interestingly, that $60,000 threshold was set up back in the 1980s and is not subject to any adjustment for inflation. This clearly demonstrates that foreign taxpayers are quite low on the priority list for policy makers in that country.
In addition to this incredibly low filing threshold, there is no deferral permitted upon the death of the first spouse. There is also a presumption that the person who died, the decedent, owns 100 per cent of the couple’s property and must be taxed on the entirety of the couple’s U.S. assets in excess of the $60,000 exclusion.
Now this is where salt gets rubbed into the wound. The executor of the will may be required to look back over the preceding three years – prior to the passing of the person – to determine if they had gifted in any of those years. If so, the value of the gifted property would have to be brought back for tax purposes.
Canada-US Income Tax Treaty provides some relief for Canadians
Luckily for Canadians, the Canada-U.S. Income Tax Treaty overrides harsh provisions of American domestic law. For example, Article 29-B of the Treaty allows taxpayers to avoid U.S. taxation (but they still must file tax returns if the value of the estate exceeds the $60,000 exclusion) if the worldwide market value of the property of the deceased is less than USD $11.58 million (2020 rates). That exclusion is doubled if the assets are jointly held with a surviving spouse. But this generous escape hatch is not automatic; the person in question, a U.S. non-resident, must file their non-resident estate tax return within nine months of the date of death.
Now, let’s get back to the recent U.S. election outcome and why it matters to Canadians. With Joe Biden as President of the United States, that exemption of USD $11.58 million is expected to be lowered quite significantly, and may happen as soon as January 1, 2022. In fact, it may even happen in 2021 following Biden’s inauguration, although it is unlikely that exclusion would be the first tax reform the administration will choose to focus on.
At this point, we do not know how much the exemption will be lowered. Based on changes to the U.S. estate tax over the past two decades, it has already been adjusted at least three times. In 2003, it went from $600,000 to $1 million, then in 2009 to $3.5 million and one year later in 2010 to $5 million. It is likely that the exemption will revert to either the 2009 or 2010 level, subject to adjustment for inflation. Continue Reading…
There are numerous life insurance mistakes Canadians are making, and who qualifies better to talk about these mistakes than life insurance experts? We asked numerous life insurance experts to weigh in on the top life insurance mistakes they have seen throughout their careers.
You can find a summary of their replies in the above chart, with more detailed explanations following in their segments (% shows how often a particular mistake has been mentioned).
The top three mistakes are:
1.) Putting off your life insurance purchase until it is too late, or not getting life insurance at all (especially in your younger years).
2.) Not doing a needs analysis and not understanding all possible risks resulting from being underinsured.
3.) Not leveraging the benefits of a permanent life insurance policy due to its higher cost, though there are numerous benefits to this product in the long run.
Tony Bosch, Development Hub Financial
Tony Bosch – Executive Vice President Broker Development Hub Financial
“Life insurance is a key component in most financial and estate plans”
Three key mistakes people make when purchasing life insurance:
Not doing a needs analysis: The first step in any life insurance purchase should be to do a proper needs analysis. People often fail to look at the big picture when buying life insurance. The calculation of how much insurance you need should be more detailed than just having your mortgage paid off or replacing a certain multiple of your income. In determining your life insurance needs it is necessary to determine what amount is actually necessary to “allow your family to maintain their standard of living and pay off outstanding debt”under “less than ideal circumstances,” factoring in that the grieving process and the time to recover emotionally may take several months or even years. Life insurance should provide “financial confidence.” allowing a family time to adapt and adjust to life without a loved one.
Product selection: Life insurance, unlike most forms of insurance, can come in a variety of payment options from low cost term insurance to permanent policies that can build substantial tax sheltered cash values and can help solve estate planning needs and/or serve as an alternative investment. The problem arises when the product selection overrides the need. Clients with a limited budget may be attracted by product features causing them to choose a permanent product with a lower face amount than is required. A family with three kids may like the idea of a shiny sports car but may need a mini van. It is critical to first define the amount of protection required and then choose the product or combination of products that meet this need within a given budget.
Choosing a solution based on price and/or convenience rather than contract guarantees and flexibility: A simple example may be purchasing loan or mortgage insurance through a lending institution. Although this may seem like an easy and convenient solution, it may require additional underwriting at the time of claim, which could result in a claim being denied. A basic renewable and convertible term plan underwritten by an insurance company may take a little more time to set up, but in most instances provides a better and more flexible policy that can adapt to your changing needs.
Life insurance is a key component in most financial and estate plans. Working with an experienced and trusted independent advisor will help make sure you and your family get the life insurance you require with the flexibility to adjust to your changing needs.
Michael Liem, Canada Protection Plan
Michael Liem – Canada Protection Plan Regional Vice President
“Don’t put it off until it is too late.”
Putting it off until it is too late: Even though Canada Protection Plan can help get life insurance for people with medical or lifestyle issues, I think it is always best to get insurance when you don’t need it and when you are healthy. It’s not how much you can afford, but rather how healthy you are that gets you the best insurance options.
Not telling anyone about your life policy: People get a life insurance policy but when they pass away, some beneficiaries don’t even know about it. I always suggest that advisors should acquire contact information for the beneficiaries and where possible, introduce themselves because these beneficiaries will most likely be contacting the advisor to make a claim.
Regularly reviewing a client’s policy: So many advisors provide the initial policy but never review them. People’s lives are constantly changing and they may need to adjust or add more coverage. If an advisor never contacts their client, then they should not be surprised when the client switches their business to another advisor.
Lawrence Geller, L.I. Geller Insurance Agencies
Lawrence Geller – President of L.I. Geller Insurance Agencies
“Everyone has asked to either renew the existing policy or buy a new policy.”
Of the many people who have assured me over the years that they only needed life insurance for a maximum of 10 years, every one has asked to either renew the existing policy or buy a new policy to replace the one that was renewing. Even then, most have deluded themselves by thinking that they would not need the coverage when the term of the contract ended, and almost all have wanted coverage at the end of the term.
Not a single client who bought a guaranteed paid up whole life policy has ever told me that they made the wrong choice of coverage, although many have told me that they wished that they had purchased a larger amount of life insurance.
Daniel Audet – Vice President Assumption Life
Daniel Audet, Assumption Life
“Don’t gamble on being uninsured.”
The top life insurance mistake, from a consumer’s perspective, has to be the choice to gamble on being uninsured (or underinsured).
LIMRA reported a year ago in 2019 that 32 per cent of Canadian households do not have any life insurance coverage, while 56 per cent of Canadian households do not have any individual life coverage. Everyone would agree that there are more pleasant things to consider and address than the risk of dying prematurely, and that may be the reason why so many Canadians are shying away from a proper assessment. More likely, the observation comes from a knowledge gap of the risk and associated loss. Many Canadians would not necessarily consider themselves as gamblers, meanwhile the chosen approach of not buying insurance (or not buying enough) is very similar to that of a gambler’s behavior. The gambler “invests” a little wager with a small probability of a large payoff. In comparison the non-insured “saves” paying a small premium hoping he/she wouldn’t die with a significant financial burden. Both types of gamblers have small amounts involved when compared to what is at stake, and the odds of the event, while relatively small, can have a significant impact. They are just at both ends of the spectrum: the casino gambler hoping for the big win, and the life gambler neglecting to consider the major financial loss.
Turning a blind eye to the needs of paying final expenses, replacing income, paying off the mortgage, or paying the estate bills, and choosing not to be insured (or underinsured) is essentially just like gambling the financial state of the loved ones left behind. Several Canadians, when asked why they do not own life insurance, have stated they could not afford it (27 per cent) or that they had other financial priorities (25 per cent). Continue Reading…
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