Ageing at different paces

Margot, an Executive in the high-tech sector, and Dan an Executive Director for a small not-for profit were high school sweethearts and married right out of university. Dan and Margot started working with Hall Wealth Counsel when Dan came into some money at the age of 31.

While saving for their retirement, we advised Dan and Margot to: 

• Maximize RRSP and TFSA contributions on an annual basis to take full advantage of the tax advantaged accounts.
• Use Margot’s higher contribution room to contribute to a spousal RRSP to balance out income in retirement since Dan earned significantly less than Margot.
• Later, as Dan and Margot had savings over and above what they could contribute to the tax-advantaged accounts, we advised Margot to pay for all the household expenses, so that both Dan and Margot would have excess funds to put to non-registered savings. Had Dan shared in the household expenses, only Margot would have accumulated excess funds to save and she would have earned additional investment income which would be taxed in her hands at a higher rate of tax.
• Eventually, Dan and Margot also put in place a spousal loan to transfer further funds to Dan so that more investment income would be earned in his hands and further balance out the wealth.

They’d been clients for a long time when Margot received a grim diagnosis. At the age of 57, two years before she and Dan had planned to retire, she was told she had Lou Gehrig’s disease and would have only about 2 to 4 years to live.

Following her diagnosis and knowing her prognosis for survival was short, we undertook some steps to accommodate their, now divergent, life needs and protect their wealth from excess taxes.

• We started withdrawing from her RRSP to a RRIF (RRSP Meltdown) since her taxable income was very low after diagnosis when she was receiving a non-taxable disability payment.
• The meltdown of her RRSP reduced the balance that would transfer to Dan upon her death, thereby reducing Dan’s minimum RRIF payments and helping preserve his OAS payments (prevent/reduce OAS claw-back).
• We projected and confirmed that their capital could withstand Dan staying in their marital home while Margot moved to long term care. Dan, then 59, was not ready to move to a retirement home or long term residence with Margot. Nor, was he ready to undertake downsizing given all the care responsibilities for Margot and his desire to spend as much time with Margot as possible during her remaining time. 
• After Margot’s passing, we assisted Dan with settling the estate with minimal probate since he was named beneficiary on her RRSP, their accounts were held jointly, with right of survivorship and her TFSA passed to Dan as successor annuitant to preserve the tax-free status of her pool of capital once it transferred, rather than simply naming him as beneficiary and the funds coming out of the TFSA to Dan’s hands and now being a taxable source of capital.
• Dan has substantial wealth and is still trying to determine his legacy – where should the money go when he passes. Dan and Margot have three nieces and nephews, who are financially secure and who already stand to inherit significant sums from their own parents. Dan is in the fortunate position to be able to define the impact he’ll leave on his community. His challenge is deciding whether to make one significant donation to a particular cause, or make several, more modest, legacy donations to various causes.