A year-end financial checklist

If there was a time for high-net worth Canadians to reflect, take stock of their wealth and tick key items off their year-end financial checklist, this would be it.

Adapting your financial strategy—taking into account the developments of the past year—is as important as ever, despite the social distancing measures in place that may make consulting with your advisors more challenging.

Use our year-end checklist to help mitigate your tax burden, better understand your portfolio and ensure you have the protection your family needs for a financially successful 2021:

???? Set new financial goals

A good place to start is to reassess your financial plan. Are you still on track to meet your goals? Maybe you have extra cash to invest as a result of reduced spending in 2020. Maybe the pandemic has accelerated your plans to retire. How does your financial plan need to change—if at all?

Other questions to raise when reassessing your financial situation: Does your current plan align with your family’s financial realities and needs? Has your income situation changed over the past year?

If you and your family are philanthropic, how would making donations or starting a family foundation help you build a lasting legacy and improve your personal financial situation? A foundation account could be an additional tool to mitigate tax liability.

???? Invest in understanding your portfolio

Markets were on a roller coaster ride for much of the year. As part of planning for the next market cycle, take the time to review the past year’s investment results with your PM (which should be an annual habit, notwithstanding the pandemic).

Ask them to explain their asset mix strategy for a pandemic and post-pandemic world. What was a good investment in the past, may not be going forward. Are you comfortable with their approach? Make sure you understand the market developments of the past year and don’t be shy to ask questions to get up to speed.

Remember that as a client, you should always be in the driver’s seat and understand the investment decisions being made on your behalf.

???? Review your tax strategy

Next on the checklist is to review your annual employment, investment and other sources of income for the past year. If you face a potentially hefty tax bill, you may benefit from strategies such as tax-loss selling to crystallize investment losses before the December 29th, 2020 deadline and help offset capital gains to reduce your tax bill for the year.

There may also be new tax credits that you could leverage to glean savings. For example, the federal government recently announced a simplified process to claim work-from-home expense deductions of up to $400, without providing detailed expense reports or providing a T2200 form signed by an employer confirming your remote-worker status. It may not be a large deduction, but it’s worth knowing about.

At the same time, if you received COVID-19 benefits personally or for your business, be prepared to verify income or revenue. The Canada Revenue Agency has been aggressively auditing some organizations that received relief benefits such as the Canada Emergency Wage Subsidy. Having your records in order will take the stress out of any future visits from the tax department.

A few other tax considerations: If you split income with family members or have a family trust to which you’ve made a prescribed rate loan this year, be sure to make the annual interest payment by Jan. 30th, 2021, to avoid running afoul of CRA rules. If you pay income tax by installment, make sure your payments are up to date.

Lastly, we wrote earlier in the year about the current low interest rate environment creating the right conditions for tax structures such as estate freezes, in some situations. Speak to your PM and accountant to determine whether a new tax-planning approach could help minimize both your short- and long-term tax burden.

???? Review your insurance coverage

Book time with your insurance advisor to conduct an annual review of your policies and coverage.

If your circumstances have changed over the past year, you may want to increase or decrease coverage in certain areas, or explore new wealth-planning options through life insurance.

As the COVID-19 crisis has reminded us, protecting our loved ones and ensuring we have adequate employment income and health coverage in the event of a catastrophic illness or injury, is critical.

???? Make time for estate planning

COVID-19 spurred many Canadians—in particular seniors—to make rapid-fire estate planning decisions at the pandemic’s peak. Others may still be working to get their affairs in order.

Now’s the time to take a deep breath and review your estate plans with your personal financial team. Review and update your will and powers of attorney for property and personal care. Consider discussing your estate plan with your children or heirs, and possibly involving them in the wealth succession process to ensure they’re prepared to eventually inherit what could be a life-changing fortune.

Lastly, as we noted in an earlier blog, be prepared to ‘stress test’ your estate plan to flag any issues that may be different than what you understand or intend to happen after you pass.

One area that is often overlooked: capital gains tax liabilities on assets in holding or operating corporations, or properties. You’ll want to have a liquidity strategy to account for any looming tax liabilities, which could include plans for potential asset sales, borrowing against estate assets or using life insurance, to fund the tax.

As the past year has reminded us, being prepared is the best way to gain peace of mind.