INVESTMENT, TAX AND LIFESTYLE PERSPECTIVES FROM RBC WEALTH MANAGEMENT SERVICES Volume 1, Issue 2 A Global State of Mind What you need to know about diversifying globally PLUS: • Buying a vacation property south of the border • Factoring in a U.S. currency outlook From the Desk of the CEO Welcome to the second issue of RBC Wealth Management Perspectives. We are very pleased with the tremendous feedback that we received on our inaugural issue and look forward to continuing to present topics that interest you most when it comes to the management of your overall wealth. As such, the articles featured in this issue directly reflect what you told us you wanted to see. When thinking about your long-term goals, what do you envision? Ensuring that your family is taken care of, both now and in the future? Considering a second property in a warmer climate? Or perhaps you want to learn how to buy art? In this issue, we take a closer look at economic events impacting the world today to provide insight to help with your financial decisions tomorrow. In light of current economic market uncertainty, it is more important than ever to plan today to safeguard your legacy for tomorrow. The articles “Creating a Will that accurately reflects your wishes”, “Using jointly held assets as an estate planning tool” and “The many lives of life insurance” explore insurance and wealth transfer strategies to ensure your assets end up in the hands of the intended beneficiaries as efficiently and effectively as possible. With our evolving global marketplace, opportunities to invest outside Canada are becoming increasingly more attractive. The article “A global state of mind” highlights current investment trends that support the case for ‘going global’. Shifting focus closer to home, the articles “Factoring in a U.S. currency outlook” and “Buying a vacation property south of the border” examine how the current macroeconomic climate is having an impact on the U.S. dollar and how Canadians are taking advantage of favourable prices and a strong Canadian dollar by buying U.S. real estate. However, as the article “Understanding your U.S. residency status” stresses, Canadians should be aware of how much time they spend in the U.S. for it could create U.S. tax and reporting obligations on income. Similar to purchasing real estate in the U.S., when it comes to the world of art collecting, it pays to do your research. The article “Bottom line on art: Buy what you love. Love what you buy” looks at the importance of being patient when discovering your artistic taste and making your first purchase. Once again, I encourage you to contact your RBC Wealth Management advisor about the topics featured in this issue and to explore other ways to address your various wealth management needs and goals. David Agnew CEO, RBC Wealth Management Canada RBC Wealth Management Canada PERSPECTIVES 2 PAGE 20 PAGE 4 PAGE 19 PAGE 26 CONTENTS Creating a Will 4 that accurately reflects your wishes ............................4 Using jointly held assets 7 as an estate planning tool ..........................................7 A global 10 state of mind ...........................................................10 Buying a vacation property 16 south of the border ..................................................16 Factoring in a U.S. currency 19 outlook ...................................................................19 Understanding 20 your U.S. residency status ........................................20 Volume 1, Issue 2 – Fall 2011 Top year-end 24 investment tips .......................................................24 by: RBC Wealth Management Services The bottom line on art: www.rbcwealthmanagement.com 26 Buy what you love. Love what you buy. .....................26 Questions or Comments: The many lives Email [email protected] 29 of life insurance .......................................................29 3 RBC Wealth Management Canada PERSPECTIVES Creating a Will that accurately reflects your wishes top ten tHInGS that RBC Will and Estate Consultants look for when reviewing Wills any people avoid thinking about estate planning. than drafting documentation. Estate planning professionals It reminds them of their mortality and involves encourage their clients to consider a host of practical Mconsidering subjects that may seem unpleasant and matters. These can include the intricacies of relationships somewhat remote from the immediate priorities of day to day between family members, the potential complexities of estate living. If you’d rather not contemplate what will happen to your administration, tax, corporate ownership and family law issues. assets when you pass away and whether you have provided You may be surprised by some of the scenarios RBC Wealth adequately for family members, you’re not alone. Management Services’ Will and Estate Consultants discover when Even when you have taken the time to consult legal and they’re conducting estate planning reviews with clients. Their goal accounting professionals to set up an estate plan, draft a Will is to ensure that the client’s planning incorporates the current and consider the most effective strategy for the ownership of law and accurately reflects their wishes. So, does your estate plan your assets and how to pass them to your heirs, critical issues accomplish what you set out to do, in a practical and tax-effective can get missed. An effective estate plan involves much more manner? Consider the following Will drafting pitfalls. RBC Wealth Management Canada PERSPECTIVES 4 CREATING A WILL THAT ACCURATELY REFLECTS YOUR WISHES Does your Will distribute the residue of your estate? Have you considered whether U.S. estate tax could have an People forget to name the beneficiaries who impact on your estate? If your estate could be will receive the residue of their estate. In exposed to U.S. estate tax, it’s important to obtain 1 general terms, ‘residue’ is defined as those 4 professional tax advice on this aspect when you’re assets left in your estate when debts have been setting up your estate plan. Your potential exposure paid and specific assets have been distributed. If you forget to U.S. estate tax could depend on a number of factors including to name beneficiaries to receive the residue of the estate, the nature and location of your assets, the value of your worldwide those remaining assets could be distributed according to assets, your U.S. tax status and the planning you undertake during the rules of intestacy in the province or territory where you your lifetime. There are strategies that can help you minimize your live. This may mean that family members who you didn’t exposure to U.S. estate tax. By reviewing your estate plan regularly, intend to benefit could receive a share of your estate. you can ensure that you’re up to date with changes to legislation and the current exemption thresholds. If you don’t consider U.S. Have you left assets to your spouse in your Will if he or estate tax implications as part of your estate plan, you could be she survives you? If you don’t provide for a exposing your estate to additional tax liability and reducing the surviving spouse in your Will, your spouse inheritance that your heirs will receive. 2 may be entitled to apply for compensation under the applicable provincial or territorial Strange as it may seem, people sometimes attempt to leave assets law. In Ontario, for example, this is called an ‘equalization that they don’t own to their beneficiaries. This could payment’. The benefit to which your spouse will be entitled be the case if you transfer a property into the name and the time period within which he or she can apply 5 of one of your children but continue to live there. Or, varies by jurisdiction. If you don’t leave assets to your you may forget that you’ve placed assets in a joint surviving spouse in your Will, even inadvertently, you account with a right of survivorship and include those assets in could expose your family and your estate to the expense of your planning when you’re preparing your Will. Those assets, in taking legal action to remedy this situation. This can cause most cases, will pass to the surviving joint tenant on your death delay in administering the estate and distributing the and won’t form part of your estate. For more information, see the assets, and you may not be taking advantage of some of following article on ‘Using Jointly Held Assets as an Estate Planning the tax deferral opportunities that are available when you Tool’. When you’re planning, consider the assets that will pass leave assets to your spouse. outside of your estate and don’t include them in your Will. If certain trust provisions in your Will are drafted Have you considered whether the gifts you make to your children inappropriately, you could be accelerating could end up in the hands of a daughter-in-law or the payment of capital gains tax. This son-in-law? It may not be the first thing you consider 3 could happen, for example, in the wording 6 when you’re planning your Will, but it’s a scenario of clauses intended to create a spousal that can occur. Consider including a ‘survivor clause’ trust in your Will. To qualify as a spousal trust, only the requiring that the beneficiary must survive you by a period of spouse can receive income or capital from the trust time in order to inherit. If the inheriting child passes away shortly during the spouse’s lifetime. The trust is created for the after your death and you haven’t included a ‘survivor clause’ in benefit of the spouse, so assets going into the trust are your Will or have named a contingent beneficiary, the bequest valued at the deceased person’s original cost rather than you have made could pass to your child’s estate to be distributed the fair market value of the asset at the date of death.