The Wealthy Barber Podcast - #23 — Aaron Hector: Optimizing Your Finances and Estate Planning

Episode Date: August 12, 2025

Our guest this episode is Aaron Hector—Founding Partner of TIER Wealth, President of the Institute of Advanced Financial Planners and a fellow personal-finance nerd like Dave. In this episode, Dave and Aaron explore some of the most overlooked opportunities in Canadian financial and estate planning. From optimizing RESP withdrawals to gifting tax deductions to your kids, Aaron shares smart, actionable strategies that can help families build and preserve wealth more effectively. They also cover timely topics like when to defer RRSP or FHSA deductions, how to handle joint accounts, why every Canadian needs a will and the difference between a beneficiary and a successor holder. Whether you’re just building your financial plan or revisiting it with an eye for tax efficiency, this episode is full of practical tips and clear explanations you can put to use.   Show Notes (00:00) Intro & Disclaimer (00:55) Intro to Aaron Hector & TIER Wealth (04:23) Detailed Optimizations in Financial Planning (07:22) When Should You Defer FHSA or RRSP Tax Deductions? (10:41) A FREE Strategy for Parents to Help Their Kids Buy a Home (Gifting a Tax Deduction) (15:22) TFSA vs. RRSP (17:13) RESP Lump-Sum vs. Gradual Contributions (20:34) Optimal RESP Withdrawal Strategies (26:45) A Simple—But Powerful—Estate Planning Exercise (30:17) Joint Tenancy on Non-Registered Accounts (32:01) Get a Will! (34:44) What’s the Difference Between a Beneficiary and a Successor Holder? (37:23) The Importance of Estate Planning (39:10) Corporate Executors (42:24) Tax Opportunities When the Stock Market Pulls Back (44:49) Are More Grandparents Giving Money to Their Grandchildren? (46:24) Conclusion

Hey, it's Dave Chilton, the wealthy barber and former Dragon on Dragonstant. Welcome to the Wealthy Barber podcast. Well, we'll be hosting some of the top minds in the world of personal finance. Yes, that's to balance me out. The podcast is about making this subject not just easy to understand, but dare I say, even fun, honest. Whether you're trying to fund your retirement, figure out how to build a down payment, save for your kids' education, manage debts, whatever. will be here to help you do it.

Before we jump in, a quick but important note, nothing we discuss here should be taken as investment advice. We don't know you and your personal financial situation, so we're not here to tell you we're specifically to put your investment dollars. We're here to educate, get you thinking, and we hope entertain. But please do your own research and or consult with your financial advisor before taking any action. Hey, it's Dave Chilton, the Wealthy Barber, here with the Wealthy Barber podcast,

episode 23 or 24, I don't remember, but it's getting up there. Aaron Hector is our guest today. I'm very excited to have him on the show. We don't know each other. And we reached out to him to come on the show because we love his material. His articles, his tweets on X, do you still call them tweets? He's very knowledgeable. He looks at the finer details of a lot of financial planning strategies from a number of different angles.

outstanding communicator in the industry he's known as a pretty geeky guy takes these deep dives. I've had a few friends of mine say, is he really your illegitimate son? Because he seems a little bit like you with how deep he goes on a lot of these things.

Aaron recently started a new firm back in May called Tier Wealth. I want to make sure I spell that. It's T-I-E-R. It's not T-E-A-R. We don't want any crying to do with your wealth management. Tell us a little bit about your background, but also about the new firm. Why a new firm? I'm about 18 years into the industry. When I first started,

it was a one-man shop. He hired me because he needed help. And it was pure financial planning. So my roots are not from a sales organization. They're from a company where we were paid solely to provide financial advice. The best place to learn how to be a financial planner is when you're actually doing financial planning work all day long. I agree. So it was the only financial planning? Correct, yeah, yeah. And then, you know, that company was sold. And then acquisition found myself in a bank environment. You know, services change along the way. And for me, I wanted to kind of get back to my roots. I'd been thinking about wanting to launch a company for quite a long time, actually. But man, there's a lot of, lot to consider when you're trying to figure out how do you want to do that and what structure you want to do it. I talked to lots of different outfits because you kind of really have to, if you are, man, managing money, you have to attach yourself to an investment dealer. And it took me a few years, really, of kind of exploratory conversations before. I found the right structure that would kind of let me create a firm to attach to a dealer. It chose key wealth is what it's called. And finally, it felt

like the right partnership. And yeah, so the name tier, it is an acronym actually for tax, investments, estate planning, and retirement planning. And I think if you can hit all four of those categories, that's what people are looking for. So I wanted all our branding to kind of just punch you in the face so you didn't have to guess what we did. We do those things and we do them well. So that. No, I like it. I really do.

And so it's not the only financial planning anymore. Is it if you're associated with your business? It evolved over the years. Yeah. So we implement as well as give advice. I mean, it's interesting because I love the few only planners, but the one challenge is the people walk out the door at the plan and will they execute on it? And when they turn to the industry to help with execution, will the industry participant follow the plan or will they end up deviating? So now you're able to take care of it from soup to nuts and off you go.

Correct. Yeah, including tax preparation too. And the integration between tax every facet of personal finance is huge. just like being able to really wrap our hands around that total relationship. You know, one of the things I most admire about you is that you don't take things at face value. You tend to take a deeper dive. Are there ways this can be done a little bit differently to optimize the situation, et cetera? We spoke once because I was looking into the RESPs and maybe the best way to optimize

if you have a lump sum available and you were very helpful there. We'll talk about some of those ideas today. what trained your mind to kind of think along those lines, not just to go down the accepted path, but to look for other routes? It's a good question. I think starting young in a fee-only environment, you kind of have to get into the weeds

because people are paying you directly to provide that level of advice. I've never shied. I've always been the kind of person where if I came up against a roadblock or something, my first instinct isn't to just call. someone in to help me and give me the answer. I want to figure it out on my own. Over the years, you know, I've become really quite comfortable and, you know, reading the detailed fine print,

whether it's on like government websites that explain how plans work or even like to the level of reading legislation as it's being rolled out. I like being the first to talk about new idea and things like. Absolutely. Absolutely. It was launched a couple of years ago. Geez, like I was right in the thick reading the legislation, the draft legislation and everything and putting presentations together and talking about it. So I think it's just the willingness to read the detail, whereas a lot of people, I think, you know, they're going to look for an answer and they're going to click the top result on their Google search, and it's going to bring you to an article that someone else has written. But they're not going to put in all the different

levels of detail that you're going to get if you go to kind of the source document. I think it's just, you know, a willingness to get to that level of detail. And then just the practice of, I'm sure you know this, the practice of writing, it really has a way of forcing you to be crisp. Because if you're going to put something out in the public, geez, you don't want it to be wrong. And it's funny how as you're thinking through your, what you want to write, how you start to question yourself sometimes. It's like, oh, is that?

the exact way that works. And if you're not 100%, you don't want to put it into print. So you've got to go and you got to work, right? You've got to figure it out. So that's how, I guess I'm hardwired. Well, and you do a marvelous job because there's a lot of moving parts. And oftentimes doing one thing differently impacts another variable.

And that impacts a third variable, et cetera. So you have to pay a tremendous amount of attention to this. And you made a great point early. Tax ties into all of this. And for the most part, doesn't get the proper weighting. in a lot of decision analysis and a lot of the things that people do. No, I'm looking forward to chatting about this.

Let's start with the FHSAs. That's really what kind of got me back into the space was my frustration over the penetration rate of the product in the first 12 months when so few people kind of grabbed a hold of it because it's a marvelous product and I know that you're a fan of it. But I want to ask you a couple specific questions.

When people put monies into an FHSA or for that matter, an RRSP, they don't have to take the tax deduction in the calendar year that they put the money in. When is it advantageous not to? And very few people realize this, but even among the few who know it, almost everybody still takes it the year they put in.

When shouldn't you? So I think this is going to be more relevant for the FHSA even than the RRSP because of the general demographic age of when people are going to be using these accounts. So why wouldn't you take the deduction in the year? usually it's because your income in that year is quite low and your relative benefit because it's a deduction, it matters where you're at in those progressive tax rates, right? So if you're at a very

low tax rate and you know that in the upcoming years, you're likely to be in higher tax brackets, then saving that tax deduction to lower your income from a higher point, it's going to pay back for you. But then, you know, you have to kind of balance that with the time value of money, right? Because say you're in a 30% bracket now and you think you're going to be in, call it a 45% bracket, but maybe it's four years out from now. Is it worth waiting four years for that extra 15%? What would you do with that money in that period of time? So you have to kind of, you have to think about both the length of time you're going to be waiting

and the magnitude of that benefit that you're going to get by waiting. The other situation is family planning. You know, if I'm talking to clients about this, I want to know not only are you up for a promotion in the upcoming years or are you expecting a bonus or is your income going up, but are you planning to have kids? It's very important because they're in Canada, there's income tested government provided benefits, right? All of a sudden, you're not just looking at the change in tax rates, you're looking at the change in benefits as well. And so if you're starting a family next year, maybe, you know, the wife is pregnant, and you have clarity that you're going to have a child or even you're going from two children to three children even, like having an additional child, the relative benefit of a tax deduction when you have children adds to the payback on that deduction. So a couple of reasons why you might choose to defer that tax deduction. The child benefit is not given a lot of thought on the RSP front either, but it really matters.

It can make a very big difference. And you're right. With the FHSA demographic, it comes into play a tremendous amount for sure. By the way, speaking of having kids, you have twins. And I have started a rumor that you had twins intentionally because you wanted to A, B, test various strategies. So you're going to go one route with one and one route with another and see which turns out. Is it true? That's why you had twins.

Starting today? Yes. I think that's a great, yeah. Now, you wrote an article once that I thought was very good on parents helping out the kids by lending the money to take advantage of the FHSAs. And I really like the opening part of the article where you're talking about,

not everybody can help their kids to the extent that we're reading about in the papers. Like we're saying, oh, he's giving them $100,000, $200,000 to their down payment. Most Canadians can't do that. They're a struggle saving enough for their own retirement, for heaven's sakes. This may be a way that parents can,

get involved, make a difference and make it affordable. Walk us through the strategy. Basically, one of the nice things about the FHSA is that you can make your contribution and then immediately make a withdrawal. If you have a purchase agreement and you're buying a house, the money doesn't need to stay in that account for 90 days like it would if you were putting money into your RSP and using the home buyer's plan. So if you look at a parent who has to look after their own retirement planning and maybe, you know, they're like a lot of Canadians don't have buckets of money, if their kid is in the process of buying a house, they maybe can't say, I can't, I just don't have the ability to give you the $8,000 or the $16,000 to put in your FHSA, but because they need it for their own retirement.

But I could give it to you for a short period of time. you could fund your FHSA very quickly withdraw it again and give it back to me. And it's kind of an in and an out. And so they haven't given the money. But what happens for that child then is all of a sudden they've got it $8,000 or if they've got carry over from a prior maybe $16,000 tax deduction, that then that child can use to lower their income in that year or a future year. And, you know, if, you know, that might be worth, you know, 30% or 35% or, you know, it depends on where the child's income will fall.

But there's real tax savings there. Agree. That, you know, I, and you say you're gifting a deduction to your kids. And it doesn't really take a financial outlay on the parents' side. So I think that's a pretty cool way that parents can help kids. Yeah, I agree. And when you think gifting deduction, normally you have to give up something on the gift from, but they're really giving up the opportunity cost of the money,

and it's such a short period of time. It's irrelevant to the analysis. Yeah, and you look back, and to use your number 35%, let's say it is 16,000. You're talking 5,000 in change, but also going back to the child benefit, it could be even more than that. And so that's a lot.

And again, almost foolish not to go that route, even for parents who are lucky enough to be able to help them with the down payment. Doing this in addition can make a tremendous amount of sense if the monies aren't there elsewhere. So, no, I love it. And you've done a great job, drawing attention to that. Do you see a lot of people do it? I'm sure in your practice,

but are you hearing much about it out there in the real world? No, I haven't. Sometimes you have the idea and you don't know if anyone's paying attention or not, but I hope so. The other thing that I kind of got frustrated with when the FHSA was rolled out is a lot of people kept saying this is only an account for wealthy people. And sure, there are plenty of parents in plenty of parents in my practice that gift annual contribution amounts for their kids. This strategy we just talked about is one. Another one is just if someone themselves doesn't have, you know, they've got their down payment elsewhere, you could borrow on a line of credit to fund an FHSA and then withdraw

it right away as a qualifying. Absolutely. I'll get your tax deduction. And you've only paid interest on a line of credit for maybe a week, right, to make it all happen. So there's like short-term planning that you can do that doesn't require gobs and gobs of extra money to make it happen. No, that's an absolutely outstanding idea.

I laughed when you were saying, you put these ideas out there, but you never know even when they're good if they're going to get pick up. For years and years and years, I've spoken about how people in group RRSs should take advantage of the max, but often because they don't have any

competitively priced products available. They have high-cost mutual funds, no low-cost index funds, for example. Just go to the max and then set up a self-directed RSP and choose the less expense. And everybody always goes, great idea, they never do it. And they often don't transfer out the monies every year that they're allowed to transfer out

to get into the lower cost product. So much like the idea you're advancing, I think it's a wonderful idea. It'll be interesting to see if it gets picked up. But I'm going to hammer it home. In fact, I'm going to do a video on it and give you no credit whatsoever and just make it sound as though I came up with it. No, of course I will. You know I will.

Okay, the RRSP versus TFSA debilet, we've covered a lot on the podcast. We'll spare our listeners going through. through that whole thing again. But is there anything that you think is missed a lot in that debate, for example, the child benefit? That would be one for sure. Just because people always focus on their tax rate, not necessarily looking at the benefit side. I think it has been hammered. It should be equivalent outcomes long term. If you're reinvesting your refund on your RSP contribution, that's the thing that I just don't think happens all the time, right? Sure, they're supposed to be more or less the same outcome over the long term if you're in similar tax

brackets. But like how many people take their refunds and then use it to fund a vacation or something like that, right? Yeah. But the flip side of that is how many people raid their TFSAs at some point because they can get at it and taken out. And so that's the downside on the other thing. You know, behavioral economics comes into play so, so much here. It's too bad, by the way, that when faced with this decision, because let's be honest with housing costs where they are, a lot of people can't do both. They're having to prioritize to what they think is the better of the two containers to build up a retirement fund. It's too bad that we don't have clarity routed because your future tax rate with time withdrawal is the key variable in the

analysis. And of course, there's no way of knowing that. I like to say if you're on the fence and you can't decide TFSA because of the flexibility, that it's easy to take money out of a TFSA and move it into an RRSP a couple years later. You go in the other direction. It doesn't really work. because you've got the taxable straw. Yeah, and I think you're seeing a lot of the advisors out there go that route, saying let's go TFS early. You might be in a lower tax bracket too at that point, that you're early in your career to your point about FHSA is,

but also you keep the flexibility. And so if you're on the fence going TFSA to me, that makes a lot of sense. RESPs are a subject that I'm fascinated by. You and I've chatted about it once on the phone. And I think you've done a wonderful job here to shining a light on some things. oftentimes now, not a high percentage of times, but more than we used to see, grandparents were in a pretty lucky position.

You know, they're 75, they're 80, they're 85, they've got more money than they know they're going to need, they're looking for ways to be impactful, and they're saying, let's fund our grandkids, our ESPs, and oftentimes they can put up to 20, 30, $40,000 in the RSP out of the gate. What is your thinking on that and where the tradeoffs come with taking advantage of the government grants, et cetera, what makes them? sense mathematically. I did a pretty deep dive on this. And I looked at it under the lens of if someone had actually like a full $50,000 and they could, which is the lifetime maximum amount that

you can put into an RESP. If you could do that on day one, should you? And the reasons why you would is because your ability to then, you've moved it into an account that benefits from tax-free compounding until, you know, in the time of withdrawal, there's some tax at that time. So being able to have your investments grow and grow without the impact of tax each year is powerful. So the larger amount that you can get compounding earlier on will pay off. But then when you do that, you forego the Canada Education Savings Grant, which allows, you know, a 20% free money from the government on the first 2,500 per year of contributions.

So you're allowed to put in, yeah, you're allowed to put in the full amount earlier, but you then don't get as much money from the government. So where does the math kind of lead you then? You know, I believe in the front loading concept for the reasons I said before, but giving away access to the grants is painful. So it kind of depends ultimately on what your rate of return might be. But if you kind of said, let's pick a reasonable return, five, six percent. something like that, it proved to be probably the most optimal to roll money in over five or

six years. So you're still, it's kind of like a part way approach. So you take advantage of front loading it to an extent, but then you hold back a certain amount so that you can still get the government grants for, you know, four or five, six years. The other approach that I would say, if you're a little bit more risk-averse and you don't like the idea of kind of putting all your eggs in one basket at one time, you could put in 16,500 in the first year and then you get the grant for that first year. And then that still allows you to put in 2,500 annually thereafter. Full grants for the full time. That's a pretty good approach. Yeah. That's the one I see most often from the people who are fortunate enough to be in that position, although some people

have worked out the math like you and come out maybe 30 to 35,000 based on different sets of assumptions seems to make a lot of math sense too. But you made a very important point earlier. depends on your assumed rate of return. And obviously, if you were going to be doing this, and markets were very cooperative, especially out of the gate and average 9%, etc., then you would have been better off to put as much in as you could early. But it's interesting that we have a lot of people contemplating this now. And again, they're a very fortunate position. You also have written and talked about withdrawal strategies for RESPs. You're one of the first people I know who's ever tackled that. And it's something that probably should have received more attention in the past.

from a tax perspective, it's important how you go after that money. And you've also added to that by talking about some things you can do when you take the money out that make a lot of sense for your children. Walk us through that. I think it's important to understand that within an RESP, some of that money is the money that you've contributed into it, and that can always come out without tax. Tax-free. It was tax-paid money you put in, so it comes out tax-free. The growth on your investments is kind of categorized separately,

as is the government grant money. So those two things are taxable to the student when they're in post-secondary making withdrawals. Right. So you kind of inside there have money that's tax-free when it's withdrawn, money that's taxable when it's withdrawn. You kind of got, you should do some thinking about, you know, how much income do we want reported

on the student's tax return and, you know, mapping out like a four-year plan to say how much income do we want in each of those four years to hit the student's tax return. But it starts at the beginning with understanding what's the composition of the account. Like you've got to figure that out to be able to put a plan together. So if you did make the 50,000 of contributions and then over the course of, you know, 18 years, the account had grown and plus the grants by another 50, you have 100,000. Half is taxable. Half's not taxable. You've got 50,000. dollars of income that you need to think about, you know, which years are you going to draw that

out? And if the student is, you know, working or not working, you might have to be kind of strategic on, you know, trying to do that in an optimal way. And the thing that I kind of put in my article was the fact that, you know, every Canadian can earn a certain amount of, or can report a certain amount of income on their tax return without paying tax. And, you know, call it about 16 years. grand before with paying zero tax, students can bring forward even more because they've got tuition tax credits that are going to offset other higher amounts of income. But if you can design the withdrawal plan to stay within the 16,000 per year of income for the student, then you're saving all those tuition credits for once they're out of school and

they're working. And it gives them a real boost in early career. Yeah, there's lots of design thinking that should happen with RESPs that I don't think actually happens. Like how large the RESP account is going to dictate, you know, how aggressive you are on withdrawing the income or the taxable side of it. How long the educational program is going to be? Like, are they on the track to become a doctor? And you're going to have six, seven years, eight years, or is it like a two-year diploma program? All of these different moving parts, I think it just tells the reason why you should think about it in advance and kind of try and model the plan on a go forward basis.

You know, it's interesting. I personally think what we're talking about right now is much more important than it's been perceived to be. Like, you can save thousands and thousands of dollars by properly planning to take the money out of the RESP. And for the most part, the financial planning community, the financial advisor community hasn't really got involved in this at all. Most individuals just kind of do it willy-nilly,

but this is important stuff. That's a lot of money. And to your point, that's money you can give the child, either through the deferring credits or actually the money saved on taxes to start them out as they move forward or to help them with student debt

that we're seeing more and more of in Canada. I think we both should try to shine a light on this even more because it just does not seem to get any attention. I agree. And I think just to make one more point on the RASPs that I think is, just enormously misunderstood how it actually works is if the student isn't claiming their tuition credits on their tax return, there's always this question that comes up when you're filing

the tax return. Do you transfer those credits to the parent so that they can claim the credit? Or does the student save them for the future? And most people out there assume that you want to transfer it to the parent because they're going to get a higher payback from that. Nuh, doesn't work that way. It's not a deduction. The level of income doesn't matter. The only thing that matters is, do you have tax to pay at all? I think if parents properly understood that the dollar amount is the same, whether it's the

child claiming it eventually or them claiming it now, they might make different decisions. But I think that misunderstanding between deductions, and credits it comes into play here because if you explain it to parents a lot of them will say oh geez i don't need to take that tuition credit let's save it until they're out in the workforce working and give it to them um so it's just there's no right or wrong answer to how that you know what decision is made there it's just understanding what the decision is that you're making yeah completely agree with all of that in fact it's funny you know as i follow you over the last couple of years you and i agree on everything and uh you know

That's why the reads I had you odd, because you and I tend to see things in a very like-minded way. You're also very good, and I know I'm giving you a lot of compliments here, but you're very good at thinking holistically. You really do challenge yourself and come at this from all angles and what can go wrong and what can the exceptions be. You were saying off there just before we taped. There's exceptions to everything in personal finance. I mean, it's why writing is so difficult because you're trying to make sure that you cover them off without boring a heck out of people with an article that was supposed to be expert. words is now five X words, but you want to misleet. So you have to learn to be succinct to what's important and what way to give it. It's all very, very challenging. Speaking of a challenging

area, estate planning, you've done a good job moving over there with your writings and talking a lot about different things you do. But the piece I liked most was you talked about the very basic exercise that you put your clients through, very healthy in my mind. I've often said that in Canada, when I see all these people's finances, they don't do good estate of planning versus bad or bad versus good. They don't do any. There is no estate planning being done by the vast majority of Canadians. I think you'll really help our listeners by just walking them through why you do that basic exercise and what it is. So it starts with having a crisp net worth statement that lists every account you have and every account like bank accounts, investment accounts,

RSPs, TFCs, you go down the whole list, properties, etc. Cars. Don't forget. And this isn't hard. You should know what accounts are you. It's not hard. And then for each one, so you list the account, you list the balance, for each one make three columns. And in column one, it's joint tenancy. So is the account or the vehicle or the house held in joint tenants? And if it is, and like with your spouse, if it is, when you pass away, your spouse, your spouse, is the surviving joint tenant, ownership transfers to them. It's, and it's easy. And it doesn't end up in your estate and your will has no jurisdiction over that.

That's important. Then, no probate. Exactly. And then look at your registered accounts. Have you named a beneficiary? Have you named your spouse as a beneficiary? If you have, then again, it goes directly to them. And your will has no jurisdiction over it.

and it doesn't form part of your estate and not held up in probate. And then what's left after you've kind of identified those two areas is the stuff that you own on your own. So you're the only person on the account or, you know, the only person where our vehicle is registered. And that is what ends up in your estate. That's what your will has jurisdiction over. That's what's going to fall into probate. It's a really useful exercise because you see it line by. line by line how it works.

And then once you see those things that are still ending up in the estate, you can start analyzing that and you say, is there any reason why this account couldn't be held in joint tenants or this vehicle when we go to renew the registration? Why don't we both go in and get the second spouse added to the car? I tell you, it's pretty annoying if you have to probate just for a car. So, like, why would you put yourself through that requirement if it's pretty easy, you know, just to both go in and change the registration on a car? And getting the clarity around this is important because I think a lot of people, they draft a will and they just kind of assume that everything's going to fall into it. But if you hold most things jointly or have named beneficiaries on accounts, the will on the first else to pass, it might not do a whole lot.

Agreeing. Often it doesn't, yeah. It's just a matter of having clarity. And once you have clarity, you can make decisions, you can change the registration of accounts to streamline, to make it easier for your surviving spouse who's going to be grieving and probably doesn't need a whole bunch of extra, you know, pain in the butt administrative paperwork to do. And the other thing that people trip up on this is, let's see, had a non-registered investment account that's in your name only. the act of just adding another joint account owner does not need to trigger a tax event. So that original account owner should still declare all the investment income on that return. So you haven't changed the tax. Yeah, they're the beneficial owner until they pass away.

Exactly. And then there's, but then of course, there is, then there are tax consequences there for a time of death. There are. Yeah, yeah. You can't avoid that when the second person passes. But you can kind of fix the flow of the estate by adding a joint tenant on an account without needing to trigger tax at that time. And you're not changing who's reporting the income going forward either. You're just fixing the estate piece.

Okay, but here's an important question on that. So it's a non-registered account. It's an investment account. And let's say it has a number of stocks in it that have pent up capital gains, unrealized gains at this point. And so Spouse A put Spouse B on a. as a joint tenant. So, but spouse A passes away. Are those capital gains taxable at that time?

They don't have to be. There's kind of an automatic tax-free deferral when the spouse is surviving there. But if the beneficial owner is that spouse who's passed away, you can choose on the final tax return if you want to trigger those gains as being taxable or not. But in most cases, I think you defer the tax and you roll it over. And then the surviving spouse, you know, has the money and the investments in their name. They can make their own decisions on when to sell it later on. Yeah, that's very interesting.

And you're right. People do get tripped up on that. Walk us through some of the other mistakes you see most frequently in the estate planning end of things. Not having a will. No, geez. Don't get me going. It's basic. It's basic.

50-something percent of Canadian adults don't have a will. That is a disaster waiting to happen. I'm constantly harping on people who don't have wills to get wills. I think a lot of people also think it's not important for younger people to have wills. Oh, I tell you, it is just as important for someone who's 20 as it is for someone, well, just as important. Maybe that's a bit of a stretch. But it's still very important at a young age. Not only that, but health directives.

Like, it's a different name for these documents in every province. In Alberta, it's a personal directive. in Ontario, I believe it's power of attorney for personal care. But a lot of times people don't have those documents in place either. So if you have an incident and you're in the hospital and you're in a coma or who knows, you can't make your own personal decisions, who can assist in that? Those are important, whether you're 20 or 60 or 80 and they're not always in place. So like it's just a matter of, you know, getting the foundational stuff in place.

and then making sure you review it, you know, every so often, like, you know, every five years or so, dust it off, give it a read, does it still make sense? You know, something that I see quite often is an executor is named who is older, and there might be provisions for minors where a trust is going to need management for maybe it's like 10, 15 years until the money is distributed. Is that person you've named going to be capable to do that function for the next 15 years or so? Maybe to think about who you're naming these capacities. I just said in the video that when you're reviewing your will, make sure you're reviewing your executive decision as well.

Because relationships change, that person moves away. As you say, their age may come back into play, all of these types of things. So I couldn't agree with you more in all of that. You've got to be very careful that you're thinking this through. And I think going back to your net worth statement, start of your process, I always advocate for having a comprehensive net worth statement with your will that's pointing the executor to where do I find all this? What am I dealing with?

It puts it all in one spot. It can really ease their stress and make their job a lot easier going forward. A lot of people also, like their will might say, I may leave a memorandum of wishes, you know, a list of instructions. But then they never actually make the memberrand of wishes either. That sounds like something I would do, actually. That sounds like something I would do. Okay, can you walk through our listeners about the difference between a beneficiary and a successor holder?

Yeah, sure. So this is relevant when you have a spouse. So when you have a spouse, certain accounts allow you to make a choice, whether you want to name that spouse as a beneficiary or a successor holder or successor annuitant in certain accounts. Essentially, the difference here is when you name a beneficiary, that person who you've named, is entitled to the money out of the account, but they don't get the account itself, right? So, like, for a TFSA, beneficiary, your TFSA gets closed, they get the money, but they've got the money outside of a TFSA arrangement.

If you name them as a successor holder, they receive your TFSA, the entire account itself. They become the de facto owner on the day that you pass. way, which if you've got a, you know, husband and wife, and they've each got 100,000 in their TFSA, as a successor, that survivor now has a $200,000 TFSA, as opposed to 100,000 of their own TFSA and 100,000 in cash outside. So the successor is obviously the way to go here. For sure. On TFSA accounts, on RIFs as well, you, and, you know, if you have a pension plan, a lith, which is this, you know, succeeding account to Alira.

But on those accounts, you're able to also name a successor. And similar idea here, rather than your spouse receiving the money and then having to roll it into their RSP. And, you know, there's steps that you need to do and there's timelines that the surviving spouse needs to abide by. If they're the successor on the RIF, they just become the account owner. Like the day, the day that someone passes away. way, you can't screw it up. It's usually the right way to go. I would say on that one, there are circumstances where this is probably getting a little too into the weeds, but from tax planning perspective, you have a little more flexibility as to whether you want to leave

some of that income on the deceased tax return, if it's a beneficiary versus a RIF, because a RIF is really just to a completely automatic process. But because it's automatic, usually that's what people want. They don't want to have to deal with any more completely. complexity than they need to. But yeah, like to drill it down into the most simple way of thinking about it, the beneficiary you give the money, successor you give the account. That's like the simplest way you can explain it. No, that's very, very well done. Do you enjoy estate planning and doing all those types of things? I've actually really ended up liking helping people on that front. I find it's probably one of the most high value places that we focus our time in our

Sean. And it is so underserved, I think, across the industry. And this is kind of an interesting. That exercise that I do with my clients where we have the three columns and we map it all out, if I'm having like a whole like ravine meeting and we're talking about their net worth and their investments and their tax and everything, often I'm having that conversation with a husband and wife across the table. And in most relationships, there's, the spouse that kind of takes the lead on finances and then there's the passenger and that passenger spouse may be looking at the artwork or you know not paying close attention to the whole meeting but i tell you when we're going through the estate schedules and says if your spouse dies

and this is what's going to happen all of a sudden they perk up because that's that's real life that's the important stuff that they need to know is am i am i looked well looked after if my spouse who has taken charge on our finances is no longer there. What's that going to mean for me? So just I've seen it so many times. That's the thing that draws the most attention for a lot of people. And it just shows the importance of it too. Completely agree.

We've seen it in our videos. When we put our videos out on estate planning, despite the fact that the younger generations don't tend to gravitate to them, the older generations watch them so closely, they're our biggest numbers. Just explaining things like probate. In fact, it's been fascinating to learn how few Canadians know probate is. They have no idea what the word means, what the process is all about. So it's crazy.

What do you think about corporate executors? Do you think that for some people, they can be a worthwhile move? I've always advocated for them for larger, more complex estates because I've seen too much family friction when you have gone the other route. I think a lot of people think it's kind of like a four-letter dirty word almost because of the fees. They scare people away. but I'm a supporter of them. I am. I think in the right circumstances, there's absolutely really good reasons why you'd want to use them.

Business owners, you know, being able to manage that business and then the sale process or carry it on any complex assets that are hard to evaluate, you know, what they're worth and if they're hard to sell, not having someone who has the skill set to do the job correctful. Like, you think the fees are expensive for a corporate executor. The fees, if you make big mistakes through an estate process, like, just the penalties, the interest, everything, the headaches. Like, if you make screw-ups, it can be years to fix these issues. And then the family conflict is another big one. Like, if you have siblings that are in conflict, like, by naming one, you're just asking for them to have arguments in the future.

And the other thing I think that goes without a lot of attention is that if you're naming your friend or your child or whoever to act in that capacity as your executor, they're allowed to charge a fee. Yes, they are. And they might charge a fee that's similar to their or higher than a corporate executor is going to charge. So there's nothing saying that like it's a savings of money either. so yeah like I'm a big supporter of them when they make sense a few years ago I worked with an estate lawyer here in Calgary and I asked her to provide me with all of the agreements that she has for all the different you know trust companies that that they had experience working with in their law office and then me and my colleague we analyzed this and we put you know all the pricing arrangements and the comparables so if I had a estate of like $4 million, I could get a printout of like the top charges, 12 options there. Yeah. And you know what's interesting, a lot of them, especially for the larger estates,

will go off their stated rates. They're very flexible and they'll negotiate. And I think in many instances it ends up being a good deal. Now, speaking of executors, I will never be an executor. I say to everybody, no. When they asked me to be their executor, I say, not a chance. In fact, we taped a video today and I said, let me summarize the jargon of estate planning for you.

You don't want to be an executor. You don't want to be a trustee, but you really want to be a beneficiary. That's kind of what you really need to know at the end of the day. So, no, I'm like you. I find the estate planning help you give people very rewarding. And a lot of people go in there not knowing anything, and they realize that, okay, I can understand this. I've often said about it, it's not too tricky, but it's tricky enough.

And so you have to know the subtle nuances. And someone like you who's working on the front line and doing it all the time can pick up on all of those. Okay, I'm not going to keep you too much longer, but I do want to mention a couple other things you've written about. You talked once about during market pullbacks. That can present some opportunities to someone who's on top of things. Go ahead with that. Yeah, so I think the opportunities here is just understanding that there are different accounts that have different tax characteristics. A lot of this is around tax. So if you're in a situation where you have TFSA contribution room is a good example.

The market has fallen by, say, we're in a correction, market's down 20% and you have to take your RIF withdrawal out. You know, every time this happens, there's a whole bunch of people complaining about needing to take money out of their RIF in a depressed market. Right. Well, really, if you look at the RIF, the RIF is a big basket of future taxable income.

And if the size of it is smaller, you can extract that minimum payment out. You're taking a larger percentage of that account out because it has shrunk. And then you're moving it across into a TFSA. And then, you know, in most cases, the market does quite well after correction. And then you're taking care of the uptick in the market in a account that has better tax characteristics. Same idea for people who, you know, maybe they were. consultants and they had a professional corporation or something, they've got money in a corp that they're looking to draw down over the next five or six years, it's going to end up

in a non-registered account or a TFSA in the future. All of a sudden, market has shrunk the size of that account. You can take out, you know, a dividend. Yeah. We'll move it into an account that's going to be better off on the upside. And it's just a way of kind of thinking strategically in those moments, I think, about where the tax bill is going to lie. and where the recovery is going to be better held. You said that very well, that last line. People do this very poorly. I think for some reason, our wiring makes a struggle with this.

There's something about taking it out, and your point about the riff is bang on. People get more and more upset when the markets are down and they have to do, but your angle of moving into the TFSA makes perfect sense. But we're not wired to kind of grab this. You don't have to spend it. That's exactly the point. You don't have to spend it.

No, I love that piece. Are you seeing a lot of grandparents giving money directly to grandkids now? I'm seeing a ton of this relative to 10 and 20 years ago. Yeah, absolutely. It's coming up quite often. In particular, you know, when they know that they've got ample money and there's going to be a state left over, they want to help their grandchildren to get started in their life because it's going to be a lot more meaningful today than it will be when they have ultimately passed away in the future.

You know, giving with the warm hand instead of the cold warm. And I think there's a lot of appetite for us. I've also encouraged at sometimes, you know, if I'm reviewing someone's will and they say in the will, I'm going to get $25,000 to each of my grandkids, I'll ask the question. Like, do you need to wait until you die to do this? Could you do it now? And then just maybe you clean up the will and take them out so there's fewer interested parties at that time and you've advanced a payment. And you can articulate why you're giving the money and what you'd, hope that they do with them and, you know, give them some direction on that.

I've often told clients, give them a, give them a letter along with this gift to, you know, say what you'd let them to do and, you know, and you know what's going to happen? Grandchildren are going to say, thank you. I so appreciate this and you're going to have the chance to feel good about the gift as opposed to just like, otherwise you're gone. Like you're not going to hear it, right? I thought you're going to say, they're going to say thank you. I so appreciate this and then not do any of the things you suggest.

suggested they do with the money. That could happen too. But no, I couldn't agree with you more. I think you're bang on. All right, as we wrap up, I want to give you a very sincere compliment and tell a quick story, rewriting the wealthy barber. I'm working on it. I'm in the chapter on homeownership and the various ways to try to build the down payment. We've already taken full advantage of the FHSAs and I'm looking at do you go TFSA or do you use the RSP with the home buyer's plan. I'm online. I'm talking to experts in the field. I don't quite agree with the answer I'm getting back 85% of the time. And I'm thinking, geez, I got to trust my instincts here, but I don't want to go against all these people who think that they're right. Do I try

chat GPT? And this is a sincere compliment. I thought, no, I'm going to phone error. Because if anybody out there will have studied this to the end degree and brought some common sense and good math skills to it, it's him. And I called you up. And I'm really glad I did because you said, no, you're on the right track here. That to get the down payment as quick as possible, you use the da-da-da-da-da. And we won't bother getting into the weeds here. But it's a tribute to you that instead of using Google, and I thought, okay, there's one guy here I know who will have Ben Felix probably has due. So there's maybe two guys who probably research that. But no, you're really doing a lot of people, a lot of good with your writings, your teachings, the way you get into the details, you deliver things in a very

common sense way. I love your state planning exercise. That kind of basic thing can be such a difference maker for people going forward. And I wasn't surprised when you said both spouses, even if one typically isn't, are paying close attention. I wasn't surprised at that at all. So well done. You're doing a wonderful job. You're welcome back on the show anytime and keep up the great work.

Thank you so much, Dave. It's an honor to come on the pod and just thanks for asking me. I've been a fan of yours for a long time. So this is a, it's a thrill. It is. So thank you. I think my book is older than you. So that's really upsetting to me.

I'm not happy. about that. Anyway, thanks again, and I'm sure we'll chat soon.