Longevity & Aging

No doubt about it: at some point we’re neither semi-retired, findependent or fully retired. We’re out there in a retirement community or retirement home, and maybe for a few years near the end of this incarnation, some time to reflect on it all in a nursing home. Our Longevity & Aging category features our own unique blog posts, as well as blog feeds from Mark Venning’s ChangeRangers.com and other experts.

Cross-border death: an administrative nightmare for survivors

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By Elena Hanson

Special to the Financial Independence Hub

How can the estate of your American aunt, who lived in the United States and visited Canada only three times, be considered a resident of Canada? And how can the Canada Revenue Agency tax her estate income while the IRS may or may not be able to collect tax on anything? It gets even more interesting if she held her assets in a living trust or held majority ownership in a private corporation.

I came across this exact scenario and it shows what can happen when moving a trust across the border.

In 2003, Tom and his wife Rose settled their trust. They were both U.S. citizens and residents as well as the beneficiaries and trustees of their trust. Both passed away within months of each other in 2017. Tom died first.

When Rose died, their trust was the beneficiary of annuities and an Individual Retirement Account (IRA), and also consisted of

  • investments in marketable securities,
  • a corporation owning 50% of a condo,
  • the other 50% of the same condo,
  • and some personal property.

Prior to their deaths, Tom and Rose resigned as Trustee, and their niece Anne became the sole Trustee of the U.S. Trust. She also became one of four beneficiaries of the estate upon their passing. Nothing too complex, so far. Right? Except that Anne and the three other beneficiaries happen to be Canadian citizens and residents who never lived in the U.S. or filed U.S. taxes.

What exactly does this mean? Are there tax implications of the trust moving to Canada? The short answer is, yes. Let’s have a quick look at what those implications might be.

First, from the perspective of the Internal Revenue Code (IRC), when Anne became Trustee of the trust in February 2017, the trust moved to Canada but retained something known as “grantor trust status in the U.S.” When Rose died in May 2017, the trust then became a non-resident and no longer held grantor trust status for U.S. tax purposes.

What’s so great about grantor trust status? Typically, moving a trust from the U.S. to Canada would result in U.S. tax on the appreciation of trust assets. Because the trust maintained its grantor status after it was moved to Canada, the trust assets were not treated as sold.

That’s the good news, but here’s the straight goods on how the U.S. tax regime treats the disposed assets held within the trust:
Continue Reading…

Retired Money: The survivorship downside of deferring CPP benefits

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My latest MoneySense Retired Money column is the second part of a series on CPP and survivorship issues. You can find part 2 by clicking on the highlighted headline here: Reconsidering when to take CPP benefits amid Covid-19 risk.  You can find the first part here and yesterday’s Hub summary here.

What’s all that about Covid-19 risk? It’s admittedly a bit morbid but after all, retirement survivor benefits are all about expected longevity and mortality. To the extent Covid-19 provides a slightly higher probability of a spouse passing away before expected, it underlines the fact senior couples need to think about survivor benefits. They should have all along, of course, but this crisis just makes the issue that much more tangible.

The main sources in the column are again retired advisor Warren Baldwin, who personally took his own CPP at 66 in part because of survivorship issues, and TriDelta Financial president Ted Rechtshaffen, who tackled the topic in this recent column in the Financial Post. There he  described the unfairness of CPP and how it may have “effectively” no survivor benefits. He observed that if a couple both collect full CPP and one dies, the other receives a one-time $2,500 death benefit, but loses the entire ongoing CPP benefits of the deceased.

But if the same couple has one person collecting a full CPP benefit and their partner never paid into the plan and collects $0 CPP, if either dies the net result is they will continue to collect one full CPP benefit. The maximum survivor benefit is 60% of the maximum pension, since no individual can collect more than 100% of a CPP benefit. However, if one person currently receives less than 100%, if the partner dies, that person can top up the CPP payment up to 100% out of the amount being collected by the partner.

For most seniors, dropping combined maximum CPP income (at age 65, in 2019) from $27,600 a year to just $13,800 constitutes a huge hit if both partners contributed a lot to CPP over the years. Rechtshaffen suggested these rules “almost provide an incentive to only have one working partner over the years. It hurts couples in which both partners worked full time.” He also made some suggestions on how Ottawa could redress this unfair situation.

Asher Tward, Tridelta’s VP estate planning, generated quotes on a life-only, $14,110 per annum, single-person annuity, no survivorship, with the payment 2% indexed. He found a typical quote for a 65-year old male with 2% indexation was worth $316,000, while a typical quote for a 65-year old female with 2% indexation was worth $355,000. We also asked what it would cost to buy the same annuity with a 60% survivorship payout to the surviving spouse. The relevant comparison is someone with no spouse or who has a spouse with maximum CPP against a person who has a spouse who has no CPP. For a registered annuity for couples like my wife and I, Tward found a joint annuity with 2% indexation and a 60% survivor benefit was worth $358,000, with either partner being the survivor.

So for a couple with maximum CPP, the total “value” is around $700,000. If they can afford it, they could defer collecting benefits by living off RRSPs and other savings; however those assets are fully estate-protected for either survivors or beneficiaries.

“There is a degree of use-it-or-lose-it in the CPP,” Baldwin concludes, adding it behaves somewhat like a tontine, except with no lump sum at the end.

Similar issues with OAS

OAS presents a similar issue: at just over $7,000 a year, it would have a value around 50% of CPP: about $150,000, so why not collect as soon as possible? Continue Reading…

Retired Money: A new CPP calculator, and why I took my CPP at 66

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MoneySense.ca: Photo created by senivpetro – www.freepik.com

My latest MoneySense Retired Money column has just been published and looks at CPP survivorship issues. Tucked in there I reveal for the first time my personal decision to take the Canada Pension Plan at age 66, which I did last summer a few months after reaching that

It was more of a cash flow issue in light of the fact that just prior to this, my wife had left her full-time and well-paid job in the transportation industry. But I mention another consideration: the quirky CPP survivorship rules. Now I realize most couples in their 60s don’t dwell on our mortality much if they are in good health and keep care of themselves. And bear in mind my decision was long before the Coronavirus pandemic, which disproportionately affects seniors.

The first of a two-part series on this issue you can find by clicking on the highlighted headline: When is the best time to start taking your CPP payments?

We will look at the followup tomorrow.

Normally, those ready to retire contact Service Canada to get a record of past CPP contributions. They send you benefit estimates (both for CPP and OAS) some months before you turn 65 but you can also obtain this information before or after by visiting Canada.ca. There you can find a CPP/OAS calculator provided by Ottawa, providing an estimate of expected sources of income.

Doug Runchey and David Field team up on a new CPP calculator

While OAS is straightforward, optimizing CPP is surprisingly complicated, so much so that Doug Runchey (one of the country’s preeminent experts on both programs) provides calculation services to help individuals make optimal decisions on timing the start of benefits. Runchey used to be at Service Canada, so is intimately familiar with the ins and outs of the timing of receipt of these programs. Continue Reading…

Are you creating Loneliness in your future?

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Empty park benches… waiting for YOU to fill them up!

By Billy and Akaisha Kaderli, RetireEarlyLifestyle.com

Special to the Financial Independence Hub

I’m a little troubled.

Twice now in the last year, two friends of almost four decades have confided in me that they no longer have an interest in making new friendships. The man said “It’s too much work” and the other, a woman, said she is “without enthusiasm or desire for it.”

Couple that with the fact that my friends and I are all proceeding to the milestone age of 70.

Articles abound on how loneliness is an epidemic and adds to our health problems. Loneliness feeds on itself creating terrible self-talk (what do I have to offer? What would I talk about, anyway? It’s not safe to express an opinion, and besides I’m not up on the news …) that keeps us housebound.

A recent article about a study in the UK says hundreds of thousands of people often go a week without speaking to a single person. Nearly half of all the seniors interviewed said they’d feel more confident to head out each day if they knew their neighbors. This begs the question … why don’t we know our neighbours?

Why aren’t we looking into the eyes of people we live next to and giving them a smile? Or talking about the roses in their gardens, or the pup they walk daily?

Are we just so afraid of each other that we cannot afford to make small talk anymore? I have lived outside the US for many years now, and forgive me for asking … But is this chatting up a stranger considered impolite these days? Or hazardous?

Two more first-hand experiences

Some years back I witnessed two of my relatives in curious circumstances. One elderly aunt said “I don’t need any more friends. I have my husband, my church group, children and grandchildren. Why would I need more?”

To myself I responded “Do we have so many friends that we can’t squeeze in another one? Someone who can make us laugh, or teach us something? Who in the world has too many friends?”

Another elderly relative, on the way to breakfast after church, had a well-dressed gentleman say hello to her and something about “what a nice day it was” — and she was aghast.

She responded, “Do I know you? Why are you talking to me?”

To me this situation was incomprehensible. It seemed obvious that the man meant no harm and he was actually on the way to his car in the restaurant parking lot – right where we were – after finishing his morning meal.

Heads up here

If loneliness is the epidemic disaster that health studies say it is, then maybe we could prepare for this ahead of time.

Ask yourself how might we be part of our own problem here? Or if you are inclined to take action, I have a couple of suggestions below which you might find useful. Continue Reading…

5 financial benefits of having a healthy lifestyle

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By Morgen Henderson

Special to the Financial Independence Hub

Most of us have been given medical advice to eat healthier and get regular exercise, and there are certainly daily benefits to these choices, like feeling more energetic, having a better mood, and experiencing less pain. But we don’t always consider the financial benefits of a healthier lifestyle.

Although spending more money upfront on things like organic food and gym memberships or other fitness activities might seem like it doesn’t fit into a frugal financial lifestyle, the money you’ll save both in your monthly spending and in the long run makes the initial costs well worth it.

1.) Cheaper insurance later in life

When you get older, you may need life or burial insurance (if you don’t have it already), and being healthy will help you get better rates for your policy. Living in an unhealthy way may lead to health problems down the line. Although it’s still possible to get it, it can be more difficult to get funeral insurance for pre-existing conditions (also known as “final expense” and “burial” insurance). For instance, if smokers need insurance, but they now have lung cancer, it may be hard for them to find a policy, and if they do, it may cost them more.

2.) Lower health care costs

Health care companies often charge higher premiums for people with pre-existing conditions or chronic health problems such as hypertension and diabetes, and sometimes also for smokers. Beyond that, if you have a chronic health condition, you’ll need to pay more out of pocket for prescriptions, doctor visits, and medical treatments. While not all such conditions are preventable through healthy living, many common ones — diabetes, heart disease, certain types of cancers, and osteoporotic hip fractures, to name a few — are.

The World Health Organization found that “physically active individuals in the USA save an estimated $500 per year in health care costs.” That’s based on data from 20 years ago, so savings are even higher today.

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3.) Less spending on filler foods

Choosing whole foods over packaged, processed foods like chips and other snacks means you’re getting more nutrition for your dollars. Changing your snacking habits can help you do this. And adjusting portion sizes to meet what your own body needs will also help shave down your spending on food.

What’s more, cutting out other indulgences many people regularly consume, such as tobacco and alcohol, will save money each year that you can redirect to retirement savings or other investments. Healthier eating habits and reduced substance use will affect your budget now, and your health care costs later. Continue Reading…