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              holistic planning
         Disability insurance is probably more important than life insurance because the odds of becoming disabled are much higher than dying.
Should they house hunt?
RT: It really is a lifestyle question. If they want to stay in their current neighbourhood, it might mean continuing to rent. If they want to buy a property, they might have to look in a different neighbourhood outside of the city. Given where housing prices are in Toronto, it might start to get out of their range or make things really tight.
MA: The average price of a two-bedroom home in Toronto is around $942,000. So if they’re buying the aver- age house, and putting $600,000 down, they only have a $342,000 mortgage. It’s really not that expensive, though moving and land transfer tax are additional expenses.
But houses are a lot more expensive in their current neighbourhood — likely $1 million plus. Also, they’re probably not going to put all $600,000 down. Plus there’s double land transfer tax in Toronto. They’d get a rebate on some of that as first-time homebuyers.
Since they’re living in an apartment, they have to factor in the cost of different furnishings. There are also expenses for the baby and an emergency fund while Natalia’s on maternity leave.
RT: If they make a down payment of $200,000, or 20%, they’ll still have some leftover money, which could ease things if Natalia doesn’t go back to work right away. MA: There’s also a whole conversation about taking the inheritance and buying a matrimonial home with some- one who’s common-law. In Ontario, the property rights are very different for common-law versus married. In common-law there is no matrimonial home. So, if separ- ated, the one whose name is on the title or the lease can kick the other one out. Property should be owned/rented jointly or as tenants in common to avoid this. There are a lot of little mines around this idea of buying a house.
LL: They don’t need to rush and buy a house. There are too many variables. Natalia is considering a career change. That means Wilson is responsible for bringing in income. If they can’t live renting right now on two incomes while saving, they’re not going to be able to afford the house in Toronto.
If it’s really a priority to have the house, they’ve got to make some lifestyle changes. While Natalia’s still work- ing, they should try living on one income and fully put the other aside to increase the down payment or have an emergency fund.
Investing the inheritance
LL: Natalia should max out her TFSA. Since she’s never contributed, she has room for $69,500. If she’s been keeping the inheritance in a bank account or GIC, then she’s been paying taxes she didn’t need to. Also, if she had invested in one of the more conservative balanced funds when she turned 18, she could have more than doubled her money.
RT: When you look at the full amount of the inheritance, they need to break it down and decide what it could be used for. If they’re buying the house, how much should they set aside for the down payment? For the short-term outlook,
you probably want to be in something more liquid and safe. How much could be earmarked for the future, whether in an RRSP or TFSA? Then you want to keep a longer-term investment horizon where you’re looking for more growth. But that all needs to be explained to them if they don’t have any experience investing — as well as the risks.
LL: Since Natalia has no investment experience, she should have her money invested in a balanced fund that is 50/50 or 60/40 equities to fixed income to start.
MA: Longer term, if Natalia’s going to be out of work, possibly changing careers, look at income-generating investments. You can get Canadian dividend income with- out paying taxes. The mechanics of the dividend income gross-up and tax credit are as follows: an eligible dividend (from a publicly traded corporation) is grossed up by 138%. So $1,000 in dividends becomes $1,380 on your tax return. You then receive a credit of 6/11 of the grossed-up part (in this case, 6/11 × $380 = $207.28). This credit is applied against your taxes owing. The bottom line is, in Ontario, you can earn almost $50,000 in Canadian dividends and pay no taxes due to the dividend tax credit.
Pension plans
MA: Natalia’s first option is to leave it where it is. She could also transfer it out to a locked-in retirement account (LIRA), much like an RRSP. Or, depending on what career she goes into, she may be able to transfer that pension. Let’s say she goes back to school and ends up working
at a university or hospital. Providing the new employer allows for the transfer in, she could use it to buy back years of service in the new plan.
RT: She needs to understand what the benefits and risks are of either leaving the money in the pension or taking it out at the commuted value. By leaving it in the pension, she gets the certainty of the known amounts, when she’s going to get them and how long they’re going to last. However, she takes the risk of the pension provider’s abil- ity to honour the payments.
With the commuted value, she gets more control over her investments. She can control the taxation because she can defer a little longer if she doesn’t need the funds. If something were to happen to her and Wilson is desig- nated as a beneficiary, then the full value of the assets roll over to the common-law partner. The biggest risk with the commuted value: she won’t have the certainty of the known payments and timing.
The average price of a two-bedroom home in Toronto is around
                        ZELJKOSANTRAC / ISTOCKPHOTO
MA: With Natalia uncertain about her career, I would say, “Leave it in there. You’re likely still going to get contribu- tions while you’re on mat leave, so just leave it. We’ll dis- cuss once you’ve made the decision on what you’re doing with your career.”
 Right now,
the key thing for them is getting
their budget in place, getting them think- ing on the same page, and covering off financial risks in insurance and estate planning. AE
“I try to delve into the nastier side of planning
to make sure these things are in place in the event something terrible happens”

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