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Thoughts on Compounding: Too Risky for Red Bull

Ever wondered what even Red Bull considered too risky? Dive into ‘Too Risky for Red Bull’ where our lead portfolio managers,  Michael Brown, CPA, CA, CFA  and  Robert Spafford, CFA  examine the parallels between how founder and former CEO, Dietrich Mateschitz, managed Red Bull and why the same principle applies to identifying high quality companies.

Click here to read more.

The Importance of Liquidity in Estate Planning

This month’s blog post was written by jonah mayles and zak goldman , partners at sterling park..

We often think that creating an estate plan is like a road map. Our clients determine what they want the destination to look like (the size, beneficiaries, and goals of the estate); and our role, as one of several advisors to the client, is to help them navigate the journey by considering potential obstacles that can arise preventing our clients from arriving at their desired destination.

A thoughtful and well-executed estate plan is the most important tool to smoothing this path.  And, part of that estate plan should provide sufficient liquidity to meet the various needs of the estate.  Many families underestimate the need and cost of creating liquidity for their estate.  We often remind clients that their estates will require liquidity regardless of a significant net worth; particularly if that net worth is comprised of illiquid assets (such as real estate or an operating business).

The need for liquidity can arise for several reasons, including estate tax liabilities, charitable bequests, and estate equalization. These estate needs are some of the roadblocks and impediments that can prevent a client from achieving their desired estate destination.

Assessing a client’s net worth is usually a straightforward calculation of assets versus liabilities.  However, determining one’s net worth is a different calculation to determining one’s estate liquidity.  It is important to consider the cost of turning assets into cash for the purpose of funding estate needs.  These costs generally include taxes and professional fees when disposing of assets, taxes on corporate distributions, and the risk of selling assets at an inopportune time.

The costs associated with liquidating assets are often not the primary concern of the client and their family; rather, it is being forced to sell legacy assets that the family intended on preserving for future generations. Once these assets are sold, most families are aware that they will never be replaced.  It is important to understand the various options for creating liquidity and the costs associated with each option to avoid the selling of legacy assets.

For example, a client with real estate assets held in various corporations has several options to create liquidity:

• Disposing of real estate assets – This option will include taxes on the disposition of such assets (often significant when these assets have been held for a long time with significant appreciation in value) and dividend taxes on the distribution of capital from the company to the estate (if the capital dividend account balance is insufficient). Moreover, the family has now disposed of generational assets, and preserving such assets is often a primary objective of an estate and succession plan. Such assets can provide for multiple generations.  However, this is a good option if the family planned to liquidate the real estate assets in the first place.
• Leveraging real estate assets – If the family has unleveraged real estate, they can acquire a loan to fund estate needs, using the real estate as security for the loan. This is a popular initial choice for many families we have met. Primary considerations for this option are the cost of borrowing and, more importantly, how the debt will eventually be repaid.  The tax debt has been paid but the family will now have to repay the bank debt over a significant period or eventually use option 1 and liquidate real estate.  Borrowing costs would be $4,725,000 if a $10M loan is repaid over a 20-year period ($500K per year) at an interest rate of 4.5%.  That would result in an average cash outflow of $736,250 per year (interest and principal repayment).  This option is kicking the “debt can” down the road to be dealt with on another day, and such a deferral can be appealing.
• Cash on hand – This is, of course, the simplest option. Unfortunately, it is also the least ‘available’ option to most families. Many estates lack sufficient cash to cover tax liabilities and other requirements. Even if a family has significant cash reserves, those reserves are often held within corporate structures due to preferable tax treatment.  Accordingly, a family may need $16M – $17M in cash within the corporate structure to net $10M of cash to the estate (assuming a 40% cost of distributing cash from the company).  That being said, families with cash reserves and marketable securities with large inherent capital gains can sometimes combine the cash and donate marketable securities to offset and fund the tax liability of the estate.
• Life Insurance – This option can provide sufficient liquidity at the exact moment it is needed. Of course, health and cash flows need to be considered when considering this option. In addition, the proper structuring of the insurance product and leverage (if used) is essential to ensure that the estate will be receiving adequate proceeds to fund the estate’s needs.  Clients choosing this option rarely need insurance for traditional purposes; instead, it is a question of tax-efficiencies and preserving the family’s assets.  The cost of the insurance will vary depending on the age and health of the insured and whether leverage has been used, but is generally less than the previous options.  However, clients must be comfortable using current capital for a future need.  Used correctly, a permanent life insurance policy can be an estate-planning solution to provide the estate with the required liquidity needed to deal with end-of-life costs and smooth estate disbursements.  Using life insurance within an estate plan can help bridge these liquidity needs by providing a substantial cash payment within 2-4 weeks that can be used by the estate for its various needs, such as estate taxes and other costs and disbursements.

We believe that when choosing how to fund an estate’s particular needs, all options need to be reviewed and considered.  This is a process that should start with determining one’s goal and intentions for their estate.  Once this has been articulated, a roadmap can be devised to guide the estate to that intended goal.  This roadmap will clarify what can hinder the plan and what is needed to mitigate against potential roadblocks.  The importance of liquidity, its cost and timing are foundational considerations to ensuring a successful estate plan.

Terms of Use

By accessing the wealth matters – our insights page, you agree that you have read, understood and agree to be bound by the website terms of use, in addition to the terms stated below.  if you do not agree with this website’s terms of use, please exit from this page, and do not access any other pages on this website.,  cidel bank & trust inc. (including its subsidiaries and affiliates, “cidel”) reserves the right, at its discretion, to change, modify, add, or remove portions of this page, and the information contained herein, without prior notice. ,  information is not legal or other advice,  wealth matters – ours insights publications are intended to convey general information about legal issues and developments as of the indicated date.  it does not constitute legal, tax, accounting, or any other advice and must not be treated or relied upon as such.,  statements made in wealth matters – our insights publications, including the interpretation of case law, are of a general nature only and in no way represent a warranty of the position or accuracy of the law at the time, nor do they pre-determine any position cidel may take with respect to a specific fact situation or particular client matter. furthermore, cidel does not endorse, guarantee the accuracy of, or accept any responsibility for any content written or contributed by third parties who are featured as guest bloggers on wealth matters – our insights, nor does cidel endorse, guarantee the accuracy of, or accept any responsibility for the content of third-party websites or materials that may be linked, quoted or otherwise referenced in these publications.  for greater certainty, cidel does not warrant or guarantee that the information contained on this page is accurate, complete, updated regularly and obtained from reliable sources.,  in making the wealth matters – our insights page available, no client, advisory, fiduciary or professional relationship, including a client-solicitor relationship is created, intended or established. the contents are not a substitute for the user seeking advice from a professional that is familiar with the reader’s factual situation or circumstances., top 7 lessons and insights from a trust and estate tax lawyer, this month’s blog post was written by héléna gagné , partner at osler, hoskin & harcourt llp..

When the acclaimed TV show Succession aired on HBO, many would ask us trust and estate practitioners, “does the show accurately portray real life?” The answer is: it is great fiction, but it is also not that fictitious! At the same time, we might say that if you have seen the Roy Family, you’ve seen one family. While each family has its own realities, dynamics, values, goals, and cast of characters (pun intended!), there remain ubiquitous topics and universal considerations observed in practice, and we thought we would share with you our Top 7 Lessons and Insights!

• Understanding what you own – or the entirety of what you own and under what terms!

First, one should regularly update their personal balance sheet, not only as this could one day serve as a helpful guide to an executor, but also in order to map out and list the entirety of one’s assets. It is too common that we have to assist executors in locating and gathering all of the Estate assets – what about that inactive bank account, or that loan made to your old friend? Or worse, what about these cryptocurrencies that your children convinced you to purchase? Without properly taking digital assets into account in your estate planning, you could be throwing away real “monetary” value. Make sure to identify all of your assets, and in the case of digital assets, to leave a password-protected list of digital assets and digital accounts along with the passwords to access this “digital monetary value”.

Second, one may be under the impression that they own shares of Waystar Royco, but it may not always be as simple as it seems. Is the property owned personally, co-owned or owned as tenant in common, or is it owned in joint tenancy? In the case of joint tenancy, when one joint tenant dies, he or she ceases to be an owner, and the remaining joint tenant continues as the owner. Not knowing how title is held could result in an unexpected result in one’s estate planning.

• Don’t forget about taxes!

A fairly recent Quebec Superior Court decision serves as a good reminder of the risks of forgetting about taxes. The facts of the case are regrettable: Ms. Caron was diagnosed with an aggressive cancer and was instantly hospitalized. She immediately called an estate practitioner to give instructions for her Last Will and Testament pursuant to which she would leave her income-generating real estate properties to her siblings and the rest of her estate to her husband. Unfortunately, Ms. Caron died shortly after having signed her will in the hospital. Nothing in the will provided that these income properties were bequeathed net of tax to the estate. Therefore, the significant tax liabilities triggered upon her death in respect of the large unrealized capital gains on the income-generating properties fell upon the estate and not to her siblings to whom the income-generating properties were bequeathed. As a result, the estate was not solvent, and the remainder of the estate was devoted to payment of the tax liabilities. The intent of the testatrix was put at question in this case in order to interpret the will: but the text was given primacy and the residuary beneficiary of the estate, Ms. Caron’s husband, ultimately did not receive anything from the estate given the extent of the tax liabilities.

Once you have listed what you own, it is important to estimate the tax liability on death or disposition and consider how it may impact your estate planning.

• Do not let “perfect” be the enemy of “good”

Too often I have seen clients asking to postpone the signature of their will for things that can be easily modified by codicil or by redoing their will if need be. A draft will is not a will, nor is an email containing instructions to prepare your will. Do not withhold signing your will once it is prepared. It may not be perfect yet, and you may want more time to rethink certain aspects of it, but you will have a will in place that is at least more reflective of your wishes than your old will or worse, no will at all!

• Who should I appoint as my trustee and executor?

I once heard a practitioner tell his client to choose a person that she would trust with her life even after death. I often wondered whether this was an appropriate standard to set. There are many people I would trust with my life. I know that they would rise to the challenge if we were stranded on a deserted island, but I am not sure whether the same people would be the right choice to administer my estate diligently or if they would even be comfortable doing so. Other professionals may say to choose a person who knows you well enough that when faced with decisions, he or she would know what you would have wanted. There too, I often question whether this is an appropriate ask. If I appoint my brother as trustee of a trust for the benefit of my teenage child, he might know me well enough to know what I would have decided when asked to encroach on the capital of the trust, whatever the reason may be. However, this does not take into account that my brother may have a certain relationship he wishes to preserve with my child, which may prove to be difficult and complicated when he steps in as trustee. I suggest to clients that they consider appointing third parties and professionals, such as corporate trustees, as executors and trustees, and more and more they decide that such appointments may be the key to preserving family relationships.

• Estate planning is also planning for incapacity

It is important to also plan for circumstances in which you are unable to make decisions for yourself with respect to your assets and personal care. As Hayley Peglar, a trust and estates lawyer, recently stated , “Turning your mind to potential future incapacity can give you agency in decisions made on your behalf and soften the impact of a further temporary or permanent incapacity for your loved ones.”

• When have you done your last “Will check up”?

You go to the dentist twice a year and you run on a treadmill at your doctor’s office during your annual medical check up. But, what about your “Will check up”? Many will say that an estate plan should be reviewed every 3 to 5 years. In fact, it should be reviewed at least that often but, more importantly, any time there is a significant life event such as a marriage or divorce, the death of a family member, the birth of a child or a grandchild, or a change in your assets. These events mean it’s time to dust it off and review whether your will is still appropriate for your wishes and estate planning goals in the circumstances.

• Seek professional advice

Despite the countless YouTube videos I could watch on “how to cut my own hair at home”, I still prefer entrusting my hairdresser when it comes to haircare. I would argue that, even though there are simple forms and questionnaires you may find online that may be helpful in getting your reflections started, entrusting an expert is even more important when it comes to something as important as your will and estate planning (not to say that your hair is not important!). Estate planning should involve all the different professionals necessary to advise you, including your financial advisor, accountant and lawyer who will collectively take an integrated approach to ensure that the tax, legal and financial aspects of your estate planning are all well taken care of.

Philip Young on BNN Bloomberg

Our  Philip Young, Portfolio Manager, shared his views on the highly anticipated IPO of Reddit and also answers a question “Do you own Salesforce and or Tokyo Electron?.

We invite you to watch the full segment that BNN Bloomberg have made available on their site by clicking here .

February 2024

Estate tax tips for an american spouse, this month’s blog post was written by stephanie gabor , partner at torys llp..

For a Canadian, marrying an American citizen may have its advantages, but from a tax perspective, an American spouse is complicated and expensive.  Assets owned by the American spouse will be subject to the U.S. estate tax at death – the estate tax is imposed at marginal rates of 18% up to 40% on the fair market value of all assets (wherever situated) owned at death.  Fortunately, with advance planning, it’s possible to manage estate tax exposure while still ensuring that a surviving American spouse has access to – and a significant degree of control over – inherited assets.

For a married couple that includes a Canadian spouse (who is not a U.S. person) and a U.S. spouse (e.g. a U.S. citizen), the following considerations may be helpful in navigating their estate plan:

• U.S. Gift and Estate Tax Exemption . The current (and anticipated) gift and estate tax exemption will provide the backdrop for estate planning for the couple. This exemption refers to the amount that a U.S. person can transfer during life or at death to any person free of U.S. gift or estate tax. [1]  Under current law, the estate tax exemption is $13.61 million (USD), but absent new tax legislation, it will fall by one-half at the end of 2025.  Ideally, the value of assets owned by the U.S. spouse should remain below the current (or anticipated) estate tax exemption, however, the volatility of the exemption makes this a moving target and, as a result, a more prudent approach may be to limit the U.S. spouse’s ownership of assets as much as possible (after taking into account other financial, tax and legal considerations).
• if the Canadian spouse dies first, then the U.S. spouse becomes the sole owner and the full value of the property will be subject to estate tax if the U.S. spouse still owns the property at death; or
• if the U.S. spouse dies first, the full value of the property will be subject to estate tax unless the U.S. spouse can show that the Canadian spouse paid for all or part of the asset or the property was received as a gift (in either case the value subject to estate tax will be reduced accordingly).

A more prudent approach may be for the Canadian spouse to own the asset him/herself. Under the Canadian spouse’s will, if the U.S. spouse survives, the asset could pass to a trust qualifying as a “spousal trust” for Canadian income tax purposes which (if properly structured) would not be subject to U.S. estate tax at the U.S. spouse’s subsequent death (as described in more detail under #3 below).

• Spousal Trust . The will of the Canadian spouse may direct that assets intended to benefit the U.S. spouse pass to a “spousal trust” (which qualifies for the spousal rollover for Canadian income tax purposes) rather than outright.  Provided the U.S. spouse’s interest in and control over the trust are properly circumscribed (as described below), assets held in the trust should not be subject to U.S. estate tax at the U.S. spouse’s death. [2]

The U.S. spouse can be given a significant degree of control over the spousal trust without rendering the trust taxable for U.S. estate tax purposes.  For example:

• The U.S. spouse may act as sole trustee with complete control over the investment of the trust assets;
• The U.S. spouse may be able to determine who inherits the trust fund at his/her death (subject to certain limitations); and/or
• The U.S. spouse may be given the power to make distributions from the trust to him/herself, provided those distributions are for his/her health, education, maintenance and support. The U.S. spouse may be appointed to act with (or may have the power to appoint) an “independent trustee” who would have broad discretion to make distributions to the U.S. spouse for any purpose.

Keeping these strategies in mind when executing an estate plan may help a “cross-border” couple achieve their dispositive goals while minimizing exposure to the U.S. estate tax.

[1] There is additional estate tax relief under the Convention between Canada and the United States of America with Respect to Taxes on Income and on Capital (e.g. for certain gifts to charities).

[2] Assuming it is a Canadian trust, the trust would be subject to the U.S. trust anti-deferral regime, also known as the “throwback tax” and would need to be managed accordingly.

By accessing the Wealth Matters – Our Insights page, you agree that you have read, understood and agree to be bound by the website terms of use,  in addition to the terms stated below.  If you do not agree with this website’s terms of use, please exit from this page, and do not access any other pages on this website.

Thoughts on compounding: no heroes.

Michael Brown, CPA, CA, CFA , Lead Portfolio Manager explains how avoiding drama in investments led to a 20.9% return in 2023.

Click Here to read more.

January 2024

Family and estate law considerations when helping a loved one purchase a home, this month’s blog post was co-authored by  daniel stober , partner, and nikita mathew , associate, at torkin manes llp..

Over the past decade, it has become increasingly common for Canadians to provide financial assistance to family members to help with the purchase of a first home. A recent survey revealed that 35% of first-time homebuyers in Canada received financial assistance from a relative with the purchase of their home [1] .

Before providing financial assistance to a loved one to help with the purchase of a home, however, it is critical to consider the family and estate law implications of such assistance.

In Ontario, the Family Law Act (“FLA”) sets out the process by which property is divided between married spouses upon separation, which is known as the “equalization” regime. In essence, on separation, the spouses will each calculate their respective “net family property”, which is the increase in the value of the spouses’ assets and debts from the date of marriage to the date of separation. Absent an agreement between the spouses to the contrary, on separation, the spouse with the higher net family property figure will owe the other spouse a payment that is equal to half the difference between the two net family property figures (known as an “equalization payment”).

In the event of a spouse’s death during marriage, the surviving spouse may choose to either take the “equalization payment” in the same manner as on separation, or take what is provided for the surviving spouse under the deceased spouse’s Will.

The FLA does provide some special protection to gifts given to a child during their marriage. The equalization regime typically allows traceable gifts to be excluded from the calculation of net family property. However, as soon as a gift is used to purchase, maintain, or improve a matrimonial home, it loses its special status and the value of the gift will be shared equally between the child and their spouse upon a separation, or, potentially, upon the death of one spouse.

Even in the case of unmarried spouses, if a child is living with their partner in the home a parent helped them purchase, there is a risk that their partner could make a trust claim to share in the value of the home upon separation.

Accordingly, without proper planning, the funds you provide to a loved one to help with the purchase of a home could be shared with the loved one’s spouse on separation or death.

One way to protect the funds provided to a child for the purchase of a matrimonial home during a marriage is for the funds to be loaned rather than gifted. This changes the way the sum of money is treated under the FLA, making it a debt to be repaid to the parent. If funds are to be loaned for the purchase of a home, it is imperative that the loan be properly documented. This can be done, for example, through a promissory note that outlines a repayment plan, security for the loan, expectations for repayment and other similar details.

However, the best protection to ensure that a child retains the entirety of a parent’s gift towards a home is for the child and their partner to enter into a cohabitation agreement or a marriage contract (colloquially known as a “pre-nup”). This type of agreement can set out the child and their partner’s explicit intentions as to how to deal with their home upon a separation, including how a parent’s gift should be treated. A properly drafted cohabitation agreement or marriage contract can exclude a gift used for a matrimonial home from equalization on separation or death.

From an estates perspective, it is important to consider the effect of a gift or loan to one child on the overall estate plan. For example, if the parents have two children and their overall plan is to treat the children equally, a gift or loan to one child, or gifts or loans in unequal amounts between the children, must be accounted for in the parents’ Wills in order to achieve equality between the children.

Despite the recent uncertainty in Ontario’s real estate market, it seems likely that assistance from family members will continue to be a key support to young people purchasing homes. It is important that legal advice be sought before any financial assistance is provided to ensure that your legacy is protected.

[1] https://financialpost.com/real-estate/first-time-homebuyers-worried-afford-down-payments

December 2023, the art of giving: navigating donations through private foundations and donor advised funds, this month’s blog post was written by megan duncan, assistant vice president, associate investment counsellor at cidel..

Many Canadians are increasing their charitable giving initiatives as a way to give back to causes that are close to their heart and to create a legacy of philanthropic giving for generations to come. A great amount of wealth will be passed down from one generation to the next in the coming decades, and many families are looking to use this as an opportunity to pass down their philanthropic values, impart virtues and perpetuate the tradition of generosity. Charitable giving can be facilitated through three primary means – direct donations, private foundations and donor advised funds 1 .

Donating directly to charities is a simple and easy way for individuals and families to be philanthropic to qualified donees of their choosing. Giving this way is largely appropriate when donations are made as desired and are not part of a larger wealth planning initiative. Similar to private foundations and donor advised funds, individuals can donate either cash or securities and receive a tax receipt at the time of the donation.

Private foundations are registered directly with the Canada Revenue Agency (CRA) where the donor is responsible for all activities of the foundation (i.e. issuing tax receipts, screening charities to ensure they are a qualified donor as per CRA, remitting grants), including the fiduciary duty regarding management of the funds. One must be aware of the legal, administrative, and ongoing costs and duties of administering a foundation, such as tax filings and reporting requirements. Foundations are public entities and are subject to public disclosure of financial information, board members, trustees, and grants made. As such, private foundations lack anonymity.

Conversely, a primary advantage of a private foundation is that it allows donors to have control over when and where grants are made, subject to the applicable CRA rules and regulations (i.e. each year there is a stipulated minimum donation amount that must be made). Further, the foundation itself may be able to operate charitable programs itself, whereas donor advised funds cannot.

As one can imagine, the administrative responsibilities and regulatory requirements for operating a private foundation are vast and, for those without the necessary time and expertise, can be quite a burden to manage.

A Donor Advised Fund (DAF), on the other hand, is a flexible charitable vehicle registered with the CRA that allows you to grow your charitable assets tax-free and support charities of your choosing without the administrative responsibilities and costs of establishing your own private foundation.  This means more of your effort can go directly toward the causes you care deeply about. The donor receives an immediate donation receipt in the year assets are transferred to the DAF, and can recommend grants from the fund to their preferred organizations and causes over time.

DAFs can be set up quickly and easily, with the Foundation handling the administrative tasks, reporting obligations, and remittance of grants on behalf of the donor. For many individuals and families, not having to undertake such responsibilities is a key advantage to using a DAF. DAFs can be named by the donor and therefore can be as transparent or anonymous as one would like. For families looking to make an impact anonymously, DAFs are the ideal tool.

In the case of private foundations and donor advised funds, the donation of assets into the charitable vehicle results in a tax deduction and the assets can be invested and grow over time in a tax-free manner, furthering the eventual asset base available for donations. In addition to providing much needed resources to support a great cause, this tax relief may be further enhanced if you donate public securities with accrued capital gains.  By doing so, you are issued a charitable tax receipt for the fair market value of the securities but are not taxed on the gain realized at the time of making the donation.  Donating securities in-kind is more efficient to both you and the charity as you receive a larger tax credit and are able to give more to the charity you care about.

Considering the donor’s circumstances and philanthropic objectives, each charitable giving option can provide distinct advantages. Initiating a dialogue between the financial advisor and the client to assess the merits and drawbacks of each giving option marks an important initial stride toward building a lasting legacy of charitable contributions.

1 Cidel is pleased to offer both Private Foundations and Donor Advised Funds. Please contact Cidel if you would like to learn more about how we can help you achieve your charitable objectives.

November 2023

Holding company and estate planning: planning ahead to avoid triple taxation, this month’s blog post was co-authored by héléna gagné , partner, and marc roy , associate, at osler, hoskin & harcourt llp..

There are a number of reasons why one may use a personal holding corporation as a part of her or his estate planning. In particular, it may have received tax-free intercorporate dividends from an operating company which were used to acquire investments in the holding company and benefitting from a deferral of the tax that would have otherwise been payable on those dividends had they been paid to an individual instead of the holding company. It may also be that an individual has transferred assets or investments to a holding company and introduced a family trust as part of a plan to pass property to one’s children while minimizing tax on death by deferring the realization of capital gains to the next generation.

In addition to these deferral advantages, using a holding company may be useful when it comes to making charitable donations in light of the recent changes to the alternative minimum tax (AMT). Under the new AMT rules, only 50% of the donation tax credit for charitable gifts made by individuals is allowed when determining whether the AMT applies and, depending on all the circumstances, can result in significant tax owing despite making a large charitable gift. The AMT does not apply to corporations and making charitable gifts from a holding corporation remains an effective strategy to support important causes in a tax-efficient manner.

There are, however, certain downsides that are important to be aware of. In our Canadian tax system, we have a general principle referred to as “integration” pursuant to which the total amount of tax paid at the corporate level and at the personal level on corporate income distributed to an individual shareholder should come out to the same amount as if the income was earned directly by the individual. However, this principle does not always work out perfectly; when it comes to capital gains earned by a holding corporation, in particular, the total amount of tax that has to be paid is slightly greater than if the capital gain is realized directly by an individual.

A much more important potential downside, but one that can be avoided with proper planning, is the potential for double or even triple tax upon death.

Generally, on a person’s death, there is a deemed disposition of their capital property and realization of any latent capital gains, giving rise to tax on those gains. But there can also be tax at the corporate level (e.g., upon a sale of assets by the corporation), and on the windup of the corporation or on distribution of its assets to an individual who inherits the shares.

Consider a parent who owns the shares of a holding company with investments that have appreciated in value, and who leaves those holding company shares to his or her child in his or her will.

If the parent simply held the investments personally, on death the parent would realize a capital gain on the appreciated value of the investments, which would be subject to tax in the estate in respect of the parent’s final taxation year. The child would inherit the investments with full basis and would only be taxed in the future on any further gains.

With the investments held in a holding company, on the other hand:

• The parent’s estate pays tax on the capital gain in respect of the holding company shares;
• When the holding company sells the investments to distribute their value, it realizes another capital gain and pays tax at the corporate level, effectively taxing the same gain twice;
• If the holding company also makes distributions to the child, the child pays tax on the taxable portion of the dividend received.
• The child will have capital losses in respect of the holding company shares, but the use of those losses is limited and insufficient to offset the additional tax.

This negative outcome can be prevented with good post-mortem planning, but the post-mortem planning can only be executed with good planning during life in anticipation. In particular, it is important to give the flexibility in your will to your executors to proceed with reorganizations of your holdings. The legal structure of your holdings might also be arranged prior to death in accordance with your estate planning goals with an eye to avoiding any tax pitfalls.

Another common situation that is important to plan for is the possibility of cross-border heirs to your estate. Making distributions to a beneficiary in the U.S. or other countries can add numerous layers of complexity. Where a U.S. beneficiary stands to inherit shares of a Canadian holding company, different strategies may be applied before death to prepare and to minimize the risk of double taxation between Canada and the U.S.

Cidel’s team of professionals can assist you in assessing all of your planning needs and can refer you to appropriate tax specialists to address and mitigate these and other potential pitfalls. It is important to involve and coordinate between your lawyer, accountant, tax specialist and wealth management team, who may play the role of chef d’orchestre , and always ensuring a holistic approach to your entire situation and your potential tax concerns.

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By accessing the wealth matters – our insights page, you agree that you have read, understood and agree to be bound by the website terms of use,  in addition to the terms stated below.  if you do not agree with  this website’s terms of use , please exit from this page, and do not access any other pages on this website. , cidel bank & trust inc. (including its subsidiaries and affiliates, “cidel”) reserves the right, at its discretion, to change, modify, add, or remove portions of this page, and the information contained herein, without prior notice.  , information is not legal or other advice, wealth matters – ours insights publications are intended to convey general information about legal issues and developments as of the indicated date.  it does not constitute legal, tax, accounting, or any other advice and must not be treated or relied upon as such. , statements made in wealth matters – our insights publications, including the interpretation of case law, are of a general nature only and in no way represent a warranty of the position or accuracy of the law at the time, nor do they pre-determine any position cidel may take with respect to a specific fact situation or particular client matter. furthermore, cidel does not endorse, guarantee the accuracy of, or accept any responsibility for any content written or contributed by third parties who are featured as guest bloggers on wealth matters – our insights, nor does cidel endorse, guarantee the accuracy of, or accept any responsibility for the content of third-party websites or materials that may be linked, quoted or otherwise referenced in these publications.  for greater certainty, cidel does not warrant or guarantee that the information contained on this page is accurate, complete, updated regularly and obtained from reliable sources., in making the wealth matters – our insights page available, no client, advisory, fiduciary or professional relationship, including a client-solicitor relationship is created, intended or established. the contents are not a substitute for the user seeking advice from a professional that is familiar with the reader’s factual situation or circumstances., october 2023, increasing the surface area of luck.

Can high quality businesses create their own luck? Click here to discover with Michael Brown the role of luck in business and how investors can better position themselves for success.

Navigating the proposed changes to Alternative Minimum Tax (“AMT”)

This month’s blog post was authored by chantal copithorn , partner at pwc canada..

AMT was first introduced in the 1980’s as a way to ensure a minimum amount of tax was paid on income that benefited from certain preferential deductions or incentives.   Since then, there have been minimal changes to the AMT rules. That is, until now.  The 2023 federal budget and recent draft legislation proposed a number of changes to the AMT calculation that could apply in 2024 with the intention of increasing the AMT tax rate, broadening the AMT base and better targeting the AMT to higher income earners.

For background, the AMT applies to individuals (including certain trusts) and is currently calculated as (a) the adjusted taxable income (“ATI”) less an exemption of $40,000, times (b) the lowest federal marginal tax rate (currently 15%) and reduced by (c) certain tax credits.  A taxpayer will pay the higher of their regular tax liability or the AMT tax liability.  To the extent the AMT exceeds the regular tax liability, the excess can be carried forward for seven years and can be credited against the regular taxes payable in those years, provided the regular taxes exceed the AMT in the subsequent year. Each of the provinces also have an AMT.

Proposed Changes

The draft legislation that was issued in August of 2023 proposed a number of changes to the ATI calculation including the following:

• Including 100% of a capital gain
• Including 30% of capital gains arising on the donation of publicly traded securities
• Limiting the deduction for certain interest and financing charges to 50%
• Limiting the deduction for capital loss carryforwards and capital loss carry backs to 50%
• Limiting the deduction for allowable business investment losses to 50%
• Limiting non-capital loss carryovers to 50%
• Eliminate the employee stock option deduction

The proposed changes also include disallowing 50% of non-refundable tax credits including the donation tax credit.

Additionally, the legislation increased the exemption to the second highest tax bracket (approximately $173,000 for 2024, indexed annually for inflation) and the AMT rate to 20.5%.

Certain trusts will now be excluded from the AMT, including graduated rate estates, and the basic exemption will be denied for other inter-vivos trusts (other than qualified disability trusts).

Let’s look at an example to show the impact of the proposed changes to a taxpayer who earns $100,000 of investment income and has a large one-time capital gain of $1,500,000.

Under the current rules, the taxpayer would pay the regular tax and not be subject to the AMT since the regular tax is higher.  Under the proposed rules, the individual would be required to pay the higher amount of AMT being $292,535, of which $12,035 represents excess AMT that will carryforward and can be applied against federal taxes payable in the next seven years.  This situation could arise where, for example, someone sells a vacation property, and does not claim their principal residence exemption.  Depending on whether the individual has significant income in a future year, they may not be able to recover this punitive tax.

Looking at another example, an individual has a capital gain of $5,000,000 in a year and makes a donation of $4,000,000 to a qualified charity.  The result is:

Under the current rules, the taxpayer will pay the regular tax and will not be subject to the AMT.  The proposed rules will subject the taxpayer to the AMT at a much higher amount.  The taxpayer may consider not making such a substantial donation as a result of the additional cost.

Taxpayers considering transformational donations will also be impacted (e.g., a taxpayer making a significant donation in the year of a sale of a business).  The impact of the proposed AMT and whether they can use the AMT carryforward could be compelling and certainly will influence how much they give.  This could cause a negative impact to the charitable sector resulting in less donations.

Since the rules are proposed to apply in 2024, taxpayers could consider triggering capital gains before the end of the year; and/or making certain donations before the end of the year so that the resulting tax impact can be determined under the current AMT rules.

The Department of Finance requested submissions on various tax proposals including the AMT with a deadline of September 8, 2023.  A number of submissions were made but only time will tell whether any adjustments or relief to the draft proposals will be implemented.

Cidel Bank & Trust Inc. (including its subsidiaries and affiliates, “Cidel”) reserves the right, at its discretion, to change, modify, add, or remove portions of this page, and the information contained herein, without prior notice. 

Wealth matters – ours insights publications are intended to convey general information about legal issues and developments as of the indicated date.  it does not constitute legal, tax, accounting, or any other advice and must not be treated or relied upon as such., statements made in wealth matters – our insights publications, including the interpretation of case law, are of a general nature only and in no way represent a warranty of the position or accuracy of the law at the time, nor do they pre-determine any position cidel may take with respect to a specific fact situation or particular client matter. furthermore, cidel does not endorse, guarantee the accuracy of, or accept any responsibility for any content written or contributed by third parties who are featured as guest bloggers on wealth matters – our insights, nor does cidel endorse, guarantee the accuracy of, or accept any responsibility for the content of third-party websites or materials that may be linked, quoted or otherwise referenced in these publications.  for greater certainty, cidel does not warrant or guarantee that the information contained on this page is accurate, complete, updated regularly and obtained from reliable sources., september 2023, today’s executor is a digital executor, this month’s blog post was authored by demetre vasilounis , associate at fasken martineau dumoulin llp..

The estates and trusts world has taken notice of the importance of digital assets—there is no question about that. Depending on an individual’s circumstances, their email messages, files, cryptocurrency or similar assets may have great significance to their estate plan. Therefore, if an individual’s digital assets are something that advisors and clients alike need to consider for every estate planning matter, the estates and trusts industry as a whole needs to start to thinking about how to best plan for those digital assets from a legal, financial and technical perspective.

To learn more about this topic, I read the late Sharon Hartung’s novel Digital Executor: Unraveling the New Path for Estate Planning . Sharon was an engineer who spent many years working for IBM. She began writing about digital assets and estate planning after experiencing challenges administering her mother’s estate. I was drawn to Sharon’s work through her first novel Your Digital Undertaker: Exploring Death in the Digital Age in Canada , which is all about taking an information technology-based project management approach to estate planning. While Your Digital Undertaker is a great book for anyone who is completely unfamiliar with estate planning , Digital Executor is more geared towards advisors who have only just begun to interact with the issues necessitated by digital assets.

The crux of the book is its exploration of the meaning of the term “ digital executor ” relative to the digital assets of the testator’s estate. By way of background, a will can delegate different executors for different types of assets: for example, a literary executor may be appointed to deal with copyrights if the deceased was an author, or an art executor may be appointed to manage the testator’s artwork (i.e. if the estate contains a large quantity of artwork). The idea is that these distinct executors have specific skills or knowledge that will assist them in their specialized roles, and are appointed in addition to the “primary” executor who deals with the other estate assets.

Naturally, one might think that a “digital executor” should thus have exclusive domain over the testator’s digital assets. As the novel points out, there are numerous problems with this idea. For instance, consider that many people’s digital and non-digital lives are very much intertwined. This not only means, for example, that people tend to “do everything” from their phones (such as sending messages, listening to music and even tracking their health), but also that their physical assets are very much connected to their digital assets (for instance, through banking or investing apps). This is also amplified by the fact that with each passing year, and each successive generation of people, the average person’s digital footprint is getting larger and larger ; naturally, this magnifies the role that digital assets play in one’s overall estate planning.

By way of example, in the 20th century, when a testator died, the executor would have been charged with the task of “going through their papers” in a home or work office and discovering information about the testator’s assets , liabilities and other affairs . While such a discovery process may still be relevant for some individuals today, in the 21st century most people’s email accounts would be the primary means of discovering such information. Indeed, email accounts contain all sorts of critical information: relationships with financial services (i.e. banks, insurance companies), outstanding billings (if, for example, the testator ran their own business or practice), or even information about other digital assets (e.g. if the testator held crypto with any third-party service provider ) , among many other things. In an increasingly environmentally-conscious world, it’s becoming far less likely that an individual will preserve this information o n a piece of paper when an email account is simply more accessible . All of this is to say that if the executor is not able to access the testator’s email account due to a lack of planning on the testator’s part, then this could be a colossal issue for the estate.

As Digital Executor points out, the ability to access a testator’s email accounts isn’t just convenient; it’s essential. Therefore, email accounts of the testator are something that an executor would need to be able to access and manage, and accordingly are not something that should be limited to a digital executor. That’s exactly the argument that Digital Executor makes : the term “digital executor” is an invented one, as today’s executor is a digital executor and as such will need to be equipped to handle managing the testator’s digital footprint and its implications for the testator’s overall estate planning.

Of course, as the trusts and estates industry has begun to learn, a lack of proper planning can lead to being locked out of digital assets that could affect the overall ascertainable value of the estate (like email , as described above ) or may themselves have an inherent value (like cryptocurrency). Such planning is important in many ways; even something like neglecting to cancel a testator’s monthly or yearly subscriptions to certain digital services can unnecessarily cost the estate hundreds (or even thousands) of dollars per year.

Digital Executor: Unraveling the New Path for Estate Planning is a great resource for helping advisors learn both the digital assets and overall estate planning questions they should be asking their clients. It’s no secret in any estate planning matter communication is key, and the increasing relevance of this topic will only continue to beget an increasing need for such communication.

August 2023

Alter ego and joint partner trusts, this month’s blog post was authored by  michael rosen , partner at fogler, rubinoff llp.

Alter ego and joint spousal or common-law partner trusts (referred to here more simply as a “joint partner trust”) are unique types of trusts that can provide tax savings and estate planning benefits. In the right circumstances, they can be a useful tool for estate planning purposes. In this blog, I provide a brief overview of their features and some considerations about their use.

Key Characteristics

Alter ego trusts and joint partner trusts have the following key characteristics (note that for simplicity, when I write “spouse” I am including “partner” as well).

• The trust is created during the lifetime of the settlor.

In other words, the trust cannot be created by a will.

• The settlor was 65 years or older at the time the trust was created.

The “settlor” is the person who creates a trust. These trusts are only available to those over the age of 65.

• the settlor (or the spouse of the settlor, for a joint partner trust) alone must be entitled to receive all of the income of the trust, and
• no person other than the settlor (or the spouse of the settlor, for a joint partner trust) can receive any income or capital from the trust.

For an alter ego trust, the settlor is the only person entitled to receive anything from the trust, while the settlor is still alive. For joint partner trusts, the settlor and the settlor’s spouse are the only individuals entitled to receive anything from the trust while either of them is alive.

• The settlor and the trust must be resident in Canada.

A person who is not resident in Canada cannot create an alter ego trust. Furthermore, the trust must remain resident in Canada.

Generally speaking, the residency of a trust is determined based on where the “central management and control” of the trust actually takes place. Therefore, a non-resident trustee should generally not be appointed. This can be an issue if the settlor wants to appoint a child who is not resident in Canada. A trust company may be able to act instead to ensure the residency of the trust remains in Canada.

• For joint partner trusts, both the settlor and the spouse of the settlor can contribute property to the trust.

The CRA has confirmed that two spouses can create a joint partner trust by jointly contributed property to the trust (and no one else contributes). Subsequently, either spouse can continue to contribute property to the trust.

Tax Treatment

Alter ego trust and the joint partner trust get special tax treatment, which is why they are used at all. These features are as follows:

• There are no taxes paid when property is transferred into the alter ego trust.

Normally when a person transfers assets into a trust, there is a deemed disposition and capital gains taxes must be paid on those assets. By default, property transferred into an alter ego trust or joint partner trust does not result in a deemed disposition (although in some circumstances, the person transferring the funds can elect to opt out of this special tax treatment and pay taxes immediately).

• The 21-year deemed disposition rule does not apply.

Normally, a trust is deemed to have disposed of all of its assets on the 21 st anniversary of the trust and therefore would have to pay taxes on any accrued gains in the trust. Alter ego trusts and joint partner trusts are an exception to this rule. Instead, the deemed disposition will occur for alter ego trusts on the death of the settlor, and for joint partner trusts on the death of the survivor of the settlor and the settlor’s spouse.

• The highest marginal rate applies to any taxable income generated in the trust.

This is not a helpful feature, and is in fact similar to most other trusts. These trusts must pay taxes at the highest marginal rate. However, normally trust income is paid to the settlor or the settlor’s spouse, and is then taxed at their respective marginal rate.

Benefits and Drawbacks

Alter ego trusts and joint partner trusts are often used for estate planning and probate planning purposes. In Ontario, probate taxes are called “estate administration tax.” Because trust assets are no longer directly the settlor or contributor’s property, if a will must be submitted for probate, the assets of the trust are not part of the deceased person’s estate and probate tax does not need to be paid on those assets. Furthermore, because the trust continues to exist after the death of the settlor (or the settlor’s spouse), a probated will of the deceased person should not be required and the assets can be accessed more quickly. Finally, it can be helpful when capacity is at issue to have an alternate trustee act instead of someone under a power of attorney.

Other benefits can include privacy (the value of an estate must be listed on a probate application in Ontario, which is technically a public document) and creditor-proofing (a discussion of this is well beyond the scope of this blog).

However, alter ego trusts and joint partner trusts can have drawbacks and therefore are not recommended for everyone. These drawbacks include increased complexity – conceptually, a trust is not a straightforward concept and can be difficult to understand. There also are additional expenses associated with the trust, including the initial setup and annual tax returns that will be required. There are also some negative tax implications, such as a potential mismatch on losses being applied against gains from the settlor’s personal assets and no access to the graduated rate estate rates.

If you are considering using an alter ego trust or joint partner trust or think you might benefit from one, you should talk to your lawyer or professional advisor.

Uncertainty (An Investing Parable)

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Executor Horror Stories and Benefits of a Professional Trustee

This month’s blog post was co-authored by justin irwin, trust officer at cidel trust company, and brodie kirsh , associate at aird & berlis llp..

When preparing an estate plan, there are many factors to consider such as tax efficiency, cross-border issues, beneficiary designations and family dynamics. However, it is also essential to think long and hard about your choice of executor (referred to as an “estate trustee” in Ontario). While advance arrangements are incredibly important, you should be cognizant of the fact that unexpected things may happen. Seeking advice from legal and other professionals can help you anticipate issues that may arise from your choice of executor. The following scenarios aim to illustrate what can go wrong with a choice of executor and why professional assistance can be beneficial.

            Scenario 1: The Unreliable Executor

The deceased prepared a Will naming her son as executor. After she died, her son was convicted of a crime and sentenced to prison and so was unable to act.  The alternate executor named in the Will was also unfit to act. The Will was misplaced and, with neither named executor able to act, the Estate went unadministered for two years. The Estate’s debts and expenses went unpaid, and the bank that had provided the deceased with a secured line of credit took possession of her house and sold it for below market value. To resolve this situation, the family’s lawyer applied to the Court to prove a photocopy of the Will and be appointed as executor. As a result of the delays in administration, the value of the Estate was significantly reduced by taxes, legal fees, and bank fees.

As showcased with this example, it is important to consider all an individual’s qualities and behaviors to determine whether there are any ‘red flags’ that might arise in the course of an estate’s administration. If you are unsure of whether your choice of executor would be a good fit, choosing a professional trustee may be the better option to ensure proper and consistent estate administration. Additionally, a professional trustee will be able to hold the original Will in a safe and secure location to avoid the challenges of proving a lost will.

            Scenario 2: The Family Dispute

The deceased in this scenario left a Will naming one of her three children as executor. When the chosen executor was unable to act, poor communication between the three children caused delays before another one of the children was appointed as executor. Once appointed, the executor paid off the mortgage owing on the deceased’s real estate and completed significant repairs and renovations to sell the property. Unfortunately, sour relationships between the siblings provoked a series of disputes over the Estate. These included the amount the executor paid for professional services and other estate expenses, and a variety of issues involving loans and gifts to the siblings during the deceased’s lifetime. The disputes needed to be resolved via lengthy and costly litigation.

As evidenced in this example, appointing a family member to administer an estate, particularly when one sibling is appointed over another, may cause aggravation and exacerbate any existing disagreements within the family. Professional trustees, however, are not personally invested in the estate or the family’s affairs and are unlikely to have a potential conflict of interest. If you anticipate that family issues may cause future discord, it may be prudent to appoint a professional trustee to act as executor over a family member.

            Scenario 3: The Complex Estate

The deceased died in Ontario without a Will. None of his immediate family lived in Canada, and no other family member would be an obvious choice to act as executor. Beyond the logistical difficulties, the deceased had a complicated Estate for a variety of reasons: (1) he was the majority shareholder of a business and the executor needed to determine the value of the shares to be bought out by his business partners, (2) he owned property outside of Canada, meaning that it would be necessary to deal with foreign jurisdictions, and (3) the deceased was involved in litigation before his death, which the executor would need to resolve. Given this state of affairs, none of the deceased’s family were eager to act as estate trustee.

When someone has a complex estate, it may be challenging for friends and family to administer. Rather than burdening those closest to you with a complex estate administration, a professional trustee may be in the best position to effectively administer your estate due to their specialized knowledge and expertise.

Every person’s needs are different when it comes to estate planning and administration. As seen in the above examples, thinking ahead when it comes to your choice of executor can help you avoid many problems and save significant costs. If there is no suitable choice in your family or group of friends to act as executor, or if the estate will be complex or high conflict, then a professional trustee can provide the necessary experience, diligence, and impartiality. It is important to discuss these scenarios with a range of professional advisors such as lawyers, accountants, and wealth managers to ensure that there will always be a suitable executor who can continue the administration of the estate and any trusts that are included in your Will.

Probate Tax and Probate Planning in Ontario

This month’s blog post was written by  jennifer a.n. corak , partner at minden gross llp..

In Ontario, [1] estates lawyers are routinely faced with questions regarding probate tax and probate planning.  This article discusses some often-asked questions.

What is Probate Tax?

“Probate tax” (formally, Estate Administration Tax) is paid when an application is made for a Certificate of Appointment of Estate Trustee to prove the authority of an executor to administer a deceased’s estate and, if the deceased died with a Will, to prove the validity of that Will (a process often referred to as probating the Will). [2] Whether such a Certificate is needed generally depends on the type of assets owned by the deceased at death, and whether they died with a Will. For example, when an individual dies with a Will, the Will gives the named executor the authority to act; however, third parties sometimes require proof of that authority before allowing such executor to administer the deceased’s assets. The named executor obtains this proof by applying for a Certificate of Appointment from the Ontario Superior Court of Justice. [3]

How is Probate Tax Calculated?

Probate tax is currently calculated as 1.5% of the value of the assets administered under the Will being probated above $50,000. [4]   Therefore, if the assets flowing through a Will had a value of $2,050,000 at the deceased’s death, $30,000 of probate tax would be owing as part of the application (calculated as ($2,050,000 – $50,000) x 1.5%).  Certain asset values are not included in the calculation (e.g., the value of assets that flow outside of the Will and of real estate outside Ontario). Where Ontario real estate is concerned, the value to be included in the calculation is the value less encumbrances.

What is “Probate Planning”? Can Probate Tax Exposure be Minimized?

“Probate planning” is used to describe taking steps to reduce exposure to probate tax. A number of strategies can be employed to do so, but it is important to remember that no two situations are the same.  Each individual must consider their own personal circumstances, including their wishes regarding asset distribution, and should get legal advice from a qualified estates lawyer before engaging in probate planning.  Some examples of probate planning opportunities, as well as high-level comments on each, follow:

• Multiple Wills

In Ontario, a common probate planning strategy is the execution of multiple Wills. As mentioned above, probate tax is calculated based on the value of the assets being governed by the Will being probated. Certain assets would not need a probated Will to be dealt with (e.g., probate is often not needed to deal with shares in closely-held private corporations and personal effects).

This strategy generally separates assets into two categories. One Will (often called the “Secondary Will” or “Non-probated Will”) governs the distribution of assets that do not need a Certificate of Appointment to be administered, and the other Will (often called the “Primary Will” or “Probated Will”) governs the distribution of the remaining assets.  Only the value of those assets that fall under the Primary Will being probated would be exposed to probate tax.  The cost and added complexity of this planning is often weighed against the possible probate tax savings on death.

For example, consider the business owner that holds shares in a private corporation worth $1,000,000, where the other shareholders do not require proof of the executor’s authority to act.  By having a Secondary Will govern the distribution of such shares, probate tax exposure is reduced by $15,000.

• Bare Trust Planning

In Ontario, legal and beneficial ownership can be split, opening the door to bare trust planning using a nominee corporation (the “Nominee”). This strategy involves transferring legal title in an asset to a Nominee while keeping beneficial ownership.  Despite being on title, the Nominee is only an agent of the beneficial owner(s) and the relationship between the Nominee and beneficial owner(s) is generally documented by a written agreement or declaration of trust.  On the beneficial owner’s death, legal ownership remains with the Nominee and beneficial ownership is transferred in accordance with the deceased’s Secondary Will (meaning the need for properly drafted multiple Wills). Set up and on-going maintenance costs should be considered before engaging in this planning.

• Designating Beneficiaries

When beneficiaries (other than a deceased’s estate) are designated on life insurance policies and registered investment accounts, they pass directly to the designated beneficiaries (not forming part of the deceased’s estate) and are not subject to probate tax.

Before designating a beneficiary, consideration should be given to how the designation fits within the overall estate plan (e.g., perhaps liquidity from the registered account is needed to satisfy cash gifts in the Will).  Form and content of the designation should also be considered, as well as tax consequences that flow from it (if any).

• Joint Assets

If assets are held jointly so that they pass automatically to a surviving owner on the death of the first to die, then such assets pass outside of the deceased’s estate and are not subject to probate tax.  This strategy, if effective, would only avoid probate tax on the first death. It is often seen with spouses (e.g., when they own their home as joint tenants, with right of survivorship [5] ).

There are legal considerations before engaging in this planning, particularly when a parent is contemplating adding a child as joint owner. A qualified estates lawyer should be consulted before taking steps to change ownership, and legal advice should be obtained regarding risks associated with joint ownership (e.g., exposure to creditors), and steps needed for this strategy to be effective (sometimes multiple Wills are needed).

With careful planning it is possible to reduce exposure to probate tax, but what may be an appropriate probate planning strategy for one might not be for another. Probate planning should be considered in the context of an individual’s estate plan as a whole, with the benefit of legal advice, and the individual should remember that changes in law, circumstances or the administrative practices of third parties can impact a plan’s effectiveness.

[1] This article focuses on the laws in the Province of Ontario.

[2] an executor may want or need to probate a will for other reasons; this is beyond the scope of this article., [3] if an individual dies without a will, someone would apply to have authority to administer the deceased’s assets., [4] the value of the estate is rounded up to the nearest thousand (e.g., if the value was $2,049,250, probate tax would be calculated on $2,050,000)., [5] as opposed to owning their home as tenants in common., how cidel’s canadian equity team compounds intellectual capital.

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A recap of recent amendments to the succession law reform act: what you need to know*, this month’s blog post was written by  andrea tratnik , partner, trusts and estates group, and damian di biase, student-at-law, at beard winter llp..

Last year, significant changes were made to the Succession Law Reform Act , RSO 1990, c S.26 (“ SLRA ”), which is the primary legislation in Ontario that governs estate law. In particular, effective January 1, 2022, key amendments were made to the SLRA regarding the remote witnessing of Wills, testamentary effects of marriage and marriage dissolution, and validating testamentary documents. These changes, which have had a considerable impact on estate planning, are outlined below.

Parties can continue to use audio-visual communication technology for Will signings

Prior to the Covid-19 pandemic, Wills and Powers of Attorney had to be signed in the physical presence of two witnesses. Emergency measures were introduced during the pandemic to allow for virtual signings of these documents; changes to the SLRA made these measures permanent for Wills and corresponding changes to Ontario’s Substitute Decisions Act, 1992 , SO 1992, c 30 made these measures permanent for Powers of Attorney.

More particularly, testators and witnesses may continue to use audio-visual communication technology to satisfy the requirement that they be in the presence of each other for the signing of a Will or Power of Attorney. This option may assist testators who have poor health or mobility issues by enabling them to participate in estate planning fully via platforms such as Zoom or Microsoft Teams. In order to proceed with a virtual signing, at least one witness must be a lawyer or a paralegal.

Electronic signatures on Wills and Powers of Attorney are still not permitted. Virtual signings require wet ink signatures and involve the use of counterpart documents.

Marriage no longer revokes Wills, but spousal gifts and executor appointments are revoked upon separation

Formerly, a Will was automatically revoked by marriage. As a result of the SLRA changes, marriage no longer revokes a Will.  The result of this amendment is that testators who have Wills preceding a marriage will not have to re-make or re-sign their Wills in order for such Wills to remain in effect after marriage; they will, however, need to consider whether they wish to make changes to the terms of their Wills to provide for their new spouse.

While marriage no longer revokes a Will, any testamentary gift made to a spouse, and any appointment of a spouse as executor or trustee, will be revoked upon separation. This revocation formerly applied only upon divorce.

A spouse will be considered to be separated from a testator if, before the testator’s death, they were living separate and apart as a result of the breakdown of their marriage for a period of three years, they entered into a valid separation agreement, or either a court order or a family arbitration award was made in the settlement of their affairs arising from the breakdown of their marriage.

Spouses who are separating but still intend to give testamentary gifts to each other will need to update their testamentary documents to ensure these gifts are not revoked.

Spousal entitlements no longer apply to the separated spouse if the deceased dies intestate

If a person dies without a Will, their estate will be distributed in accordance with the intestacy laws set out under the SLRA. Generally, a person’s spouse and children are the primary beneficiaries under an intestacy and, formerly, the SLRA made no distinction between spouses and separated spouses.

Separated spouses are now excluded from being able to receive spousal entitlements on an intestacy. A spouse will be considered separated from the deceased for this purpose in accordance with the same criteria set out above.

While this change may prevent some unwelcome consequences, it remains advisable to have a Will in place to adequately address all testamentary intentions.

Improperly executed Wills can now be validated through an application to court

Previously, a Will was not valid if it did not comply with the formal signing and witnessing criteria set out under the SLRA.

However, parties may now apply to the Superior Court of Justice for an order that an improperly executed Will is valid and fully effective. The Court may grant the order if it is satisfied that the document sets out the testamentary intentions of the deceased.

This amendment may assist in situations where – due to timing issues or otherwise – a document was not executed properly but testamentary intentions are clear. Despite this relieving provision, it remains advisable to meet all formal requirements when signing a Will.

For more information on these changes and for further assistance in your estate planning, please reach out to your wealth consultant and/or a lawyer.

* A modified version of this article first appeared on Beard Winter LLP’s website on March 31, 2023.

Incapacity planning: who decides when you cannot, this month’s blog post was written by  hayley peglar , partner at weirfoulds llp..

Incapacity planning refers to addressing circumstances in which you are unable to make decisions on your own behalf while you are alive. Turning your mind to potential future incapacity can give you agency in decisions made on your behalf and soften the impact of a further temporary or permanent incapacity for your loved ones.

This post focuses on Ontario’s framework for two key realms of decision making: property and personal care. In general, when you are unable to make these decisions, they are made by either your attorney [1] under the terms of a power of attorney document or they are made by a statutory or court-appointed guardian of property. [2] The Substitute Decisions Act, 1992 (the “ SDA “) [3] sets out the framework for powers of attorney and guardianships of property and of personal care/the person.

Decisions about Property

Decisions about property include those concerning a person’s assets and liabilities of all forms, including, e.g., cash and investments, real estate, corporate interests, digital property, and taxes.

The SDA permits a person (referred to as the “grantor”) to grant a continuing power of attorney for property. A continuing power of attorney is a document which gives authority to the attorney to manage the grantor’s property even once the grantor has lost capacity to make decisions about their property. The attorney will be able to do on the person’s behalf anything in respect of property that the person could do if capable, except make a will, subject to the conditions and restrictions set out in the power of attorney.

What happens if a person does not have a power of attorney for property in place? If a certificate is issued under the Mental Health Act , [4] the Public Guardian and Trustee will be the person’s statutory guardian of property unless and until they are replaced. [5] If no certificate has been issued under the Mental Health Act , it will be necessary to start a guardianship application.

Any person [6] may apply to the Ontario Superior Court of Justice to seek to be appointed by court order as an incapable person’s guardian of property. Guardianship applications take time (often months, and sometimes even years) and can cost in the tens of thousands of dollars (and much more if the guardianship is contested). A guardianship application must be served not only on the allegedly incapable person and the Public Guardian and Trustee, but also on their spouse or partner, children who are at least eighteen, parents, and brothers and sisters (if these people are known). Depending on your family dynamics, this may not be consistent with your wishes about who is given notice of your incapacity. While guardianships play a crucial role in the protection of incapable adults, they require a public court process, when you may wish for your personal circumstances (such as your medical circumstances and financial circumstances) to be kept private. The court might appoint someone as your guardian you would not choose yourself.

Decisions About Personal Care

Decisions about personal care include those concerning health care, nutrition, shelter, clothing, hygiene and safety.

What happens if a person loses capacity to make personal care decisions without a power of attorney for personal care in place? While the Health Care Consent Act identifies substitute decision makers for medical treatment where there is no attorney for personal care or guardian of the person, decisions relating to other personal care matters are not clearly provided for by legislation. It may be necessary for a family member or friend to apply to the court to have a guardian of the person appointed. As with a guardianship for property, such an application may be expensive, time consuming, invasive, and at odds with your personal preferences. [7]

Your attorney for property and your attorney for personal care do not need to be the same person. As a practical matter, if a person has lost capacity to manage property and personal care, it is important that the attorneys for property and for personal care are able to work together cooperatively.

The Importance of Legal Advice in Incapacity Planning

While there are standard form powers of attorney available online, reliance on these “one size fits all” forms can be risky.

A lawyer can help to ensure your power of attorney documents are legally valid and have your intended effect. A lawyer can also help you to understand the options you have when preparing a power of attorney document. For example, a power of attorney for property can be drafted to be immediately effective or effective at a specified date or when a specified contingency happens (such as a declaration of incapacity). [8]

A lawyer can also explain the duties and obligations of an attorney for property and attorney for personal care, and the risks of misuse of a power of attorney document. This will help you identify who you trust to fulfil these important roles.

Planning Ahead

Incapacity planning gives you a voice in who makes critical decisions about your life when you are unable to make these decisions yourself and can avoid the stress and expense of a court proceeding.

[1] In the context of powers of attorney, “attorney” refers to the named substitute decision maker, not a lawyer.

[2] in addition, the health care consent act, 1996 , so 1996, c 2, sched a, as amended (the “ hcca “), sets out a hierarchy of substitute decision makers for medical treatment decisions. see s. 20 of the hcca ., [3] substitute decisions act, 1992 , so 1992, c 30., [4] mental health act , rso 1990, c m7, as amended., [5] sda , s 15. there is a process to replace the public guardian and trustee as statutory guardian of property., [6] other than a person who provides health care or residential, social, training or support services to an incapable person for compensation. there is an exception for spouses, partners, relatives, attorneys for personal care, and attorneys for property., [7] an application for a guardianship of the person must be served on the allegedly incapable person’s children aged sixteen and over., [8] sda , s 7(7)., a note on the silicon valley bank failure.

Arthur Heinmaa, CFA, Chief Investment Officer, examines the rapid failure of the Silicon Valley Bank.

Click here  to read more.

Why making a will should be a priority

This month’s blog post was written by  anna  alizadeh , head of wealth planning at cidel..

It has been said that the two certainties in life are death and taxes.  It is therefore no surprise that planning for these certainties has become an increasingly popular topic.  Typically, planning for death and taxes involves executing a last will and testament (i.e., a will), which is a legal document that designates how your assets will be managed and distributed after death.

It can be daunting to think about one’s own death and how to divide assets among loved ones.  But there are several reasons why it is imperative to have a valid will in place, including the ability to choose a guardian for one’s minor children; protecting and planning for minors’ inheritance; avoiding unnecessary headaches for family members; making desired charitable donations; and minimizing probate fees and taxes.  Further, planning ahead provides the ability to choose a trusted executor/trustee to carry out one’s wishes.  A trust company, like Cidel Trust Company*, can be appointed as an executor/trustee to reduce the burden and potential liability of estate administration on family and friends.

Just as importantly, making a will allows an individual to choose the persons or organizations they wish to leave money to and in what amounts.  However, if an individual dies intestate (i.e., without a will), the distribution of their estate is governed by the specific intestacy rules of the province in which they are domiciled, which rules may not be on par with the person’s wishes.  In Ontario, for example, the laws on intestacy are set out in Part II of the  Succession Law Reform Act .  The  Succession Law Reform Act  provides for a list of individuals, in hierarchical order, to whom the law presumes the deceased would have wanted to leave money.  For example:

• if you are married and have no children at the time of your death, your spouse will inherit your entire estate;
• if you are married with children, your spouse will first inherit a “preferential share” of the value of your estate and the remainder of the estate (if any) is divided among your spouse and children (how the remainder is split depends on the number of children you have).  The regulations made under the  Succession Law Reform Act  were recently amended to increase the value of a surviving spouse’s “preferential share” from $200,000 to $350,000 where a deceased died intestate on or after March 1, 2021;
• if you are not survived by a spouse or any issue, your estate is distributed to your closest living blood relatives (for example, parents would take priority over all other living relatives. If your parents are not alive, your siblings will inherit your estate in equal shares. If your siblings are not alive, your nieces and nephews, etc.); and
• if you have no next of kin, your estate will escheat to the Crown (i.e., your property will become the Crown’s property).  This is quite rare.

In the event of an intestacy, common-law spouses do not have the same statutory rights to an estate as married spouses.  However, while the law provides a roadmap as to who should receive an intestate person’s estate or a share thereof, a common-law spouse, an unhappy family member, or a multitude of other persons can nevertheless come after the estate and fight for a piece of the pie.  It is therefore best to make a will and avoid the costly and time-consuming litigation that would ensue in the case of an intestacy.

Many difficulties can arise because of insufficient or improper estate planning.  Making a will and ensuring one’s estate planning is up to date can prevent a myriad of adverse outcomes after death, including complicated estate administration and costly litigation.  If you have any concerns or questions about the current status of your estate planning, please contact your Wealth Consultant to discuss your options.

* Please contact your Wealth Consultant to learn about how Cidel Trust Company, a federally licensed trust company, can assist with the administration of your estate.

Welcome to Cidel’s New Trusts & Estates Blog, Wealth Matters – Our Insights

There has been an unprecedented transfer of wealth from one generation to the next in recent years.  In addition, people are living longer and, more and more, we are seeing complicated estates as a result of individuals and families moving to or owning assets in different jurisdictions.  As a result of these new realities, there is an ever-increasing need to have appropriate strategies in place to address concerns of conveying wealth to the next generation, aging, and maintaining a family or business legacy.

At Cidel, we are committed to empowering our clients with practical knowledge in the areas of trusts, estates, capacity, and succession planning to allow clients to navigate through these sensitive considerations.  Wealth Matters – Our Insights will bring together trusted legal, accounting, and other professionals to discuss interesting topics that are relevant to you.

We invite you to  subscribe  to Wealth Matters – Our Insights to receive our monthly blogs.  You can unsubscribe at any time.

January 2023

Cidel global equity strategy q4 2022.

Charles Lannon, CFA, discusses Cidel’s Global Equity Strategy and new investments made in the last quarter of 2022. He elaborates on equity performance for 2022 and shares his views on the outlook for 2023.

Click here to read.

December 2022

Cidel discussion with bnn bloomberg.

Ryan Elliott, one of our Toronto based Wealth Consultants, was invited by BNN Bloomberg for a discussion on inflation, how the markets are reacting to key data and how Cidel positions client portfolios for success in current market environments. The discussion is a wide ranging one covering topics that clients have brought up with our team in recent weeks. We invite you to watch the two segments that BNN Bloomberg have made available on their site by clicking here.

November 2022

Q3 2022 newsletter.

We are pleased to present our Q3 insights and commentaries.

Click here  to read it in full.

October 2022

How we invest at cidel.

Autumn reminds us of heading back to school. Therefore, with the back-to-school feeling in mind we are going back-to-basics about how we invest at Cidel.

Click here   to read more.

August 2022

Cidel newsletter | august 2022.

Please enjoy our teams insights, commentaries and Cidel In The News.

Q2 Global Equity Commentary

The dominant narrative in the market this quarter was, unsurprisingly, a debate surrounding whether or not the global economy would fall into recession, when that might be, and how severe?  

Humans are Poor Prognosticators – Commentary

If you are feeling uneasy or anxious about the current state of the markets, you’re not alone. Our latest post is a reminder that, in the long-run, things almost always work out for the better.

Read More .

Q1 Quarterly Report

This report covers topics including Cidel’s performance summary, our estate planning overview, a breakdown of stock rivalries and more. Enjoy!

Q1 Global Equity Commentary

Equities had a memorable first quarter of 2022, but entirely for awful reasons.

Early in the quarter markets exhibited weakness as they continued to digest the reality that persistent inflation was helping to bring the era of extreme central bank and fiscal liquidity to a close.  

February 2022

International conflict: time to change course, click here to read arthur heinmaa’s, chief investment officer, views on the russian invasion of ukraine., january 2022, q4 2021 cidel global equity strategy commentary.

Our Charles Lannon, Senior Vice President and Head of Equities,  provides his commentary on our Global Equity Strategy. He begins:

“2021 was another year of double digit returns in global equities, with the MSCI World Index returning 22.3% in U.S. dollar terms (or 21.2% in Canadian dollar terms). This strong annual return is consistent with a sharp rebound in both economic growth and earnings. It is projected that global GDP growth in 2021 will come in around 5.9% the best result in well over a decade.”

December 2021

Cidel’s $40 000 donation to salvation army.

We are ending the year on a charitable note. Our partnership with the  Salvation Army of Barbados  has progressed over 20 years and we are happy to support them once again.

Our ethos of corporate social responsibility has led us to create The Children First Trust charity. This year we felt the need to make a more significant contribution and expand our efforts to include more families in need.

Read the full article here.

October 2021

Q3 quarterly report.

Our Q3 2021 Quarterly Report is out!

This report covers topics including Cidel’s performance summary, our partnership with TwinRiver Capital Group, a podcast recording from our Latin American team and more. Enjoy!

Click here to read it in full.

TwinRiver Capital Fund Launch

Our partnership with  TwinRiver Capital Group  marks a new milestone.

We have just announced the launch of the Cidel-TwinRiver Global Impact Fund (the “TwinRiver Global Impact Fund” or the “Fund”).

This new Fund offers investors exposure to companies working intentionally and pro-actively on making a positive social and environmental contribution.

Click here  to read the full details.

August 2021

Q2 quarterly report.

Our Q2 2021 Quarterly Report is out!

This report covers topics including Cidel’s performance summary, our acquisition of Lorica, a recording on timing the market and more. Enjoy!

New Partnership with TwinRiver Capital, A New Platform to Deliver Societal Impacts and Financial Returns

Cidel Asset Management Inc. (Cidel) and TwinRiver Capital are pleased to announce our new partnership.

“Cidel is very excited to be a founding partner with TwinRiver, and to support the growth of this important new firm.  We see the growing demand for impact products from our clients.  We are confident that the TwinRiver team is uniquely positioned to deliver on the promise of impact investing for both individual investors and institutions,” said  Henry Perren , President of Cidel.

TwinRiver is focused on serving a new generation of private, public and philanthropic investors looking to make a positive difference with their capital. The TwinRiver platform will provide those investors with opportunities to achieve tangible social and environmental impacts alongside financial returns – the “twin rivers” of a future financial system.

Read the full press release here .

Cidel’s Ben Arrindell Wins Award

Cidel’s  Ben Arrindell  has been awarded the Commander of the British Empire (CBE).

He has received this award for his contributions to the international business services sector in Barbados.​ Ben, while also Deputy Chairman of Cidel Bank & Trust, is an ‘in-demand’ speaker on the international tax circuit. He is advisor and consult to many institutions; one being the United Nations Committee of Experts on International Cooperation in Tax Matters.

No one is more deserving of this award than Ben, who, over the last 30 years, has made significant contributions to the development of international business policy in Barbados.

Cidel Sponsorship of CAUBO

Cidel was proud to sponsor the Canadian Association of University Business Officers (CAUBO) Annual Conference that took place June 15-17, 2021.

This annual conference is CAUBO’s flagship development event, with sessions focusing on trends and hot topics in higher education.

More information can be found  here .

Cidel Asset Management Inc. to Acquire Lorica Investment Counsel Inc.

Cidel Asset Management Inc. (Cidel) and Lorica Investment Counsel Inc. (Lorica) are pleased to announce that they have reached an agreement under which Cidel will acquire 100% of Lorica.

Lorica brings to Cidel exceptional talent and a client base that comprises about  $900 million  in assets. The current President of Lorica,  Gary Morris , will assume leadership of Cidel’s Fixed Income team. “I am excited to work with the portfolio management team at Cidel and look forward to providing clients with quality solutions and leveraging the additional resources that Cidel has to offer” says Gary.

Arthur Heinmaa , Cidel’s Chief Investment Officer explains that Cidel’s business has grown significantly in recent years and with changes in the market, fixed income investing faces the need for even more resources and talent. “Our clients continue to look for innovative solutions for income investing. Gary and his team are ideally positioned to complement and build on Cidel’s capabilities”

“The goal is first and foremost about building capabilities for clients and adding the best talent to our team. We look forward to welcoming Lorica and its clients to Cidel and are excited about the new opportunities that will result.” According to Cidel’s Chief Executive Officer,  Craig Rimer .

The transaction is subject to regulatory approvals and is anticipated to close in  June 2021 .

Click here to read the Press Release.

Our Q1 2021 Quarterly Report is out!

This report covers topics including Cidel’s performance summary, investment team research, a recording of our ESG strategy and more. Enjoy!

Q4 Quarterly Report

Our Q4 2020 Quarterly Report is out!

This report covers topics including Cidel’s performance summary, vaccines on investing, a recording of our investment conference and more. Enjoy!

Strategic Planning The Do’s, The Don’ts, The Vital Things to Watch!

We recently held the second event in our Not-For-Profit Series.

Our Christy DeCosimo and Catherine Jackman sat down virtually to speak with Hugh MacPhie, a highly experienced Not-For-Profit advisor.

The presentation focused on the art and science of strategic planning.

Presentation Video

Presentation Slides

Harvard Business Review Article Link

December 2020

Barbados office | operation christmas.

Our Barbados office partnered with Lions International​ for ‘Operation Christmas’ to supply household goods and food for 200 families.

They worked together to fill these hampers with food, toiletries and other essential household goods.

Watch our Barbados team in action !

Canadian Investment Institute Virtual Conference

We were pleased to be a sponsor, and our Catherine Jackman a speaker, at the Canadian Investment Institute.

This event aimed to educate trustees in the pension sector.

Catherine co-presented on the ripple effects of low rates, insights from Japan’s “lost decade” and considerations for pension plans.

Follow us for event details here .

Foundations, Endowment & Not For Profit Investment Summit

Our own Catherine Jackman and Christy DeCosimo spoke at the virtual  Foundation, Endowment & Not For Profit Investment Summit on December 3, 2020.

This event highlighted the use of effective investment strategy to mitigate risks, achieve better portfolio performance and meet a not-for-profit organization’s stated mandate.

Our team gave an enlightening presentation on corporations, society and the shifting dynamics.

See our team in action.

November 2020

Cidel bank & trust donates.

The holiday spirit begins at Cidel Bank & Trust Barbados with a donation of $25,000 along with 40 tablets to children in need.

The donation was made recently at the Salvation Army’s Reed Street headquarters. It is part of the Bank’s ongoing outreach efforts to assist schools and vulnerable groups within the surrounding area of its Collymore Rock location.

Some students either had no access to online classrooms or had to use their parents’ cellphones to access online classes – a situation that was not tenable.

Cidel is proud to say our donation will not only help with the current learning situation but also for further years of education in Barbados.

Read the full article here .

Cidel’s Annual Investment Discussion Panel

Last week we hosted our Annual Investment Discussion.

Our event ended with a panel of Cidel experts who discussed the key factors, risks and the impact of the election as well as COVID-19.

Click Here to watch the 20 minute discussion.

Cidel Sponsorship of CPA Alberta Forum

Cidel has sponsored  CPA Alberta ‘s Annual Forum that covers industry news.

We are proud to promote an event that is about looking forward and exploring the possibilities.

Click Here for more information.

Q3 2020 Quarterly Report

Our Q3 2020 Quarterly Report is out!

This report covers topics including Cidel’s performance summary, a podcast on ESG, award nomination outcomes and more. Enjoy!

October 2020

Cidel wins digital innovator of the year.

Cidel continues to look for client centric solutions and the partnership with ERI and its OLYMPIC Banking System which started in 2016 has allowed Cidel to continue to be a major player in the UHNW space.

  The implementation of the OLYMPIC Banking System achieved a number of positive outcomes:

• Cidel eliminated 3 existing systems resulting in a significant annual cost savings both in license costs and IT support.
• The system enabled client relationship managers to focus on building client relationships instead of building reports. This helped Cidel grow its AUM even during the initial stages of the implementation
• Reduced the amount of time spent on regulatory reporting required by OSFI, OSC, SEC, FACTCA, AML.
• Increased the accuracy and timeliness of performance reporting, including attribution analysis, to clients
• Allowed flexibility in reporting through the use of a data warehouse instead of using pre-programmed stock reports.
• Enabled the implementation of a new client facing website eliminating the need to use a third party vendor.
• Allowed STP trading and settlement at multiple custodians in multiple jurisdictions. Trading staff were able to focus on trading instead of trade settlement.
• Introduced enhanced security features to align user access with securities legislation requirements.
• Integrated the bank functions into the wealth management operations allowing clients to quickly access loan facilities
• Decreased the amount of time that auditors spent during Cidel’s annual audit.

Our committed partnership with ERI implementing our OLYMPIC Banking System has led to this huge success for both companies. The solution has already been chosen by more than 300 financial institutions and banks worldwide. ERI with more than 30 years of expertise, also won the Best Banking System category for 2019 at the Systems in the City Financial Technology Awards (London, United Kingdom), out of 10,000 votes from across the industry and a total of 121 nominated companies.

As an example of the efficiencies obtained from using the new system, Cidel Asset Management has processed, for a single client, over 77,000 individual trades and settled the trades with multiple custodians. This entire operation was done without a single error or a failed trade. The error free implementation & strong investment performance gave the client confidence to increase his allocation to us in the succeeding months.

Cidel Bank Canada has over 175 employees in its offices in Canada and abroad and oversees over $14 billion of client assets.

Click to read the OLYMPIC Banking System Press Release .

Not-For-Profit Webinar

During October, Cidel was joined by leaders in the Not-for-Profit (NFP) community for a virtual session on governance.

Our guest speaker, Don McCreesh, a Not-for-Profit (NFP) governance expert, was hosted by Cidel’s Christy DeCosimo and Catherine Jackman.

Many NFP organizations have faced increased stakeholder concern with governance policies and fundraising during the pandemic. Governance is more key than ever.

For Cidel it was a wonderful opportunity to celebrate the great work that these organizations do across Canada and elsewhere. It is a privilege for us to be involved with those who work so hard to build stronger communities which is near and dear to our firm culture.

Cidel is proud to contribute to worthy causes and even more proud of our staff who use their own time to volunteer.   Whether it is coaching hockey, serving meals at shelters or working on boards – we should all celebrate the great accomplishments and critical role NFPs play.

A big thank you to Don, to our attendees and to all the volunteers and staff at NFPs who are so dedicated to their missions.

Click here for the presentation.

September 2020

Soundness of banks ranking.

Are you aware Canada has been ranked SECOND in Soundness of Banks by the  World Economic Forum ?

We have the same value as Finland at the top spot!

See the full ranking of countries​ .

August 2020

Q2 2020 quarterly report.

Our Q2 2020 Quarterly Report is out!

This report covers topics including Cidel’s performance summary, non-profit organizations, award nominations and more. Enjoy!

Cidel Bank & Trust Charity Partnership

Our Barbados office sprang into action this month to help 250 vulnerable households.

Thousands of Barbadians have been impacted by widespread job loss due to COVID-19. Cidel Bank & Trust’s humanitarian project ballooned into a major partnership with the Lions Clubs of Barbados.

It was a matched donation and the substantial funds raised through the staff project was matched by Cidel Bank & Trust. This donation allowed for the purchase of essential food items, fresh fruits and vegetables, as well as personal care products for entire families. A special component of the initiative included the distribution of 12 electronic tablets for students in affected homes who required the devices to continue their education online.

Families were selected using the Lions Clubs’ registry of persons in need. Cidel employees were also asked to identify affected households whose main breadwinners had been laid-off during the national shutdown or worked in sectors that remain closed due to the halt in tourism and international travel. All of this was possible based on the help of Shonda Forde, a long-standing member of the Lions Club.

For Carol-Ann Smith, President of the Cidel Staff and Activities Committee, it was a satisfying moment as she joined other employees and Lions Club members preparing over 250 care packages. She added: “COVID-19 has shown us just how fortunate we are. We had great participation from all our staff and we are really pleased with the outcome.”

Ryle Weeks – President of Cidel Bank and Trust commented that“This is one of our biggest projects to date and we wanted, as a company to give back to our communities and demonstrate our commitment to this country. We are fortunate as a company because none of our employees have been impacted by jobs cuts. Our staff are still employed full-time and at full pay and we believe it was incumbent on us to share with others during this difficult time.”

View the full news story here .

Chambers Award

We are honoured to receive, for a third year, the Chambers and Partners High Net Worth Award.

Cidel is considered by 2020 sources to be a “big player in the private client space.” One commentator describes it as “one of the best available in Canada,” while another highlights that “they have some good people working there and they are a go-to for investment and trust services.”

In an interview one person had this to say:

“They are my favourite, they stand out absolutely,” an interviewee enthuses; “I love to refer clients there, they give the best personal service and they provide help to clients all the way through. They are so responsive and thoughtful. They truly stand out to me, they are a leader for banking and trusts.”

We feel very proud of our achievements and will continue to provide great services​ to our clients.

Women of Distinction Awards

We have been a proud sponsor of the YWCA Toronto Women of Distinction Awards for the past 3 years and as an event that raises a substantial amount of funds for the organization, we were saddened to learn that, due to this difficult and unprecedented time, it had to be postponed.  To help the organization meet the huge shortfall, Cidel, along with other event sponsors, moved forward with their sponsorships, as a 2020 donation to YWCA Toronto.

YWCA Toronto’s mission remains to provide safe and supportive spaces for the most vulnerable women and girls in Toronto.  The programs that would have directly benefitted from the funds raised still need support, and the added threat of COVID-19 has increased the need.

Please consider joining Cidel in the support of YWCA Toronto and  Click Here if you are able to do so.

Wealth Professional Awards Nomination

We are pleased to announce that our team has been nominated for The SIACharts Inc. Award for Digital Innovator of the Year​.

The awards process includes an industry-wide call for nominations, research, finalist submissions, and winner selection by a judging panel comprising independent experts in the wealth management and financial advice industries.​

We are incredibly excited to be recognized among the top in our industry by the  Wealth Professional Awards.  This event has been running 6 years and is the leading independent awards event for the wealth management industry.

Q1 2020 QUARTERLY REPORT

Our Q1 2020 Quarterly Report is out! This report covers topics including Cidel’s equity strategy, pension plans, non-profit organizations and more. Enjoy!

Reflecting on Experience

Click Here  to read a message from our Chief Investment Officer.

The Coronavirus and the Markets: Asking the Right Questions

February 2020, q4 2019 quarterly report.

Cidel’s Q4 2019 Quarterly Report is out! This report covers topics including impeachment, Japanification, non-profit organizations and more.

Click here to read

December 2019

Founder’s awards recipients.

The Founder’s Awards are given to members who have made ‘an exceptional and outstanding long term contribution to the Society above and beyond that normally expected of a member through office in his or her branch or elsewhere in the voluntary life of the Society’.

Congratulations Amanda Lashley for being a recipient of the 2019 STEP Founder’s Awards!

Is the Western world at risk of Japanification?

Speaking at the  Canadian Investment Review ’s 2019 Defined Benefit Investment Forum in Toronto on Dec. 6, Charles Lannon, head of equities atCidel Asset Management Inc., discussed whether Europe and the United States are destined for a similar fate as Japan.

Click here to read:

Lessons from Japan

Over the past few weeks, Cidel has hosted several events where Charles Lannon, Cidel’s Head of Equity Research shared Lessons From Japan .

He addressed whether or not there are learnings for the rest of the world from Japan’s decades of slow growth and very low interest rates. Click here to read:

November 2019

Cidel to manage canadian equities for atb.

Cidel Asset Management has been appointed to manage Canadian equities for a leading Canadian financial institution. We are excited to partner with ATB Wealth, the wealth management arm of ATB Financial, as sub advisor to their innovative investment platform.

ATB Financial is an Alberta-built financial institution that serves more than 750,000 Albertans from over 300 locations. Cidel looks forward to a successful partnership.

October 2019

Q3 2019 | quarterly report.

Our Q3 2019 Quarterly Report it out with highlights on ESG Ratings and Fixed Income Strategies.

Q2 2019 | Quarterly Report

Our Q2 2019 Quarterly Report is out and highlights Cidel Executor Services and Multi-Asset Class Strategies.

Click Here to Read

STEP Private Client Awards

We are delighted to announce that Cidel Asset Management has been named a finalist for the award of Investment Team of the Year for the 2019/20 STEP Private Client Awards to be held in London U.K. on September 25th, 2019.

Inbound Investing into Mexico

Cidel was invited to participate in the conference “Inbound Investing into Mexico – Implications of USMCA, Tariffs and Other Trade Barriers”.

Armando Ramos, Senior Wealth Consultant and Director was part of the panel that discussed the implications and opportunities of the USMCA Treaty. Armando talked about the investment opportunities that Canada offers to Mexican HNW individuals and families as well as the good environment for investing in Canadian private equity funds.

The event was organized by ACG Toronto. ACG is the premier association for driving middle-market growth in the Private Equity and M& A industry

Cidel Celebrates 20 Years!

Cidel is proud to celebrate its 20th anniversary this year!

We continue to forge ahead with an uncommon commitment to personalized service by approaching every challenge as an opportunity to make life simpler for our clients.

Cidel’s Annual Women’s Event

Cidel was pleased to host our annual women’s event over lunch last Thursday for clients and investment professionals at The Hazelton Hotel.

The panel discussion was on mental health and social media, with a focus on the effect of technology on children and adolescents. Our panel featured Dr. Ian Chen, Adolescent Medicine Specialist.

Business Families SIG Elections

The Chair of STEP Worldwide, Simon Morgan congratulated Cidel Bank and Trust, Vice President Amanda Lashley, who has been elected as a committee member of Business Families Global SIG Steering Committee.

Amanda has been a STEP member since 2003 and is actively involved in the Barbados STEP Branch where she chaired from 2014-2017. She is also a member of the STEP Caribbean Steering Committee and Chaired the 2018 STEP Caribbean conference which was held in Barbados.

The Business Families SIG (Special Interest Group) provides a community for practitioners, who work with business families and a platform for education, training, continued professional development and the expansion of field networks and support. The group focusses on what makes business families distinct, their particular challenges, and how best to address these. The group aims to marshal expertise, promote best practice and champion the practice area.

This STEP worldwide appointment and is a big honour and validation of Amanda’s hard work and expertise.

Barbados Squash Masters Event

It has been said the world can be united through music and sport. Squash certainly proves that true as one of the great international sports. Cidel has supported squash in Barbados through advertising, volunteer time and active participation over the past 12 years.

Pictured here is Paul Mcleod, Cidel’s CFO ready to play a match in the International Masters Squash tournament being held at the Barbados Squash club. The 13th year of the tournament has been its largest ever with players travelling from Canada, Untied States, England, Germany, Denmark, Norway, Scotland, Trinidad, Bermuda and BVI to play and enjoy Barbados. 135 players from 8 different countries.

Q1 | Quarterly Report

Q1 Quarterly Report is out. Hope you enjoy!

Click Here to Read 

February 2019

20th anniversary.

On February 4th, at the Sandals Royal resort in Barbados the Prime Minister and Minister of Finance and Investment, Mia Amor Mottley addressed the dignitaries, friends and staff in honour of our 20th anniversary. Adrian Meyer – Deputy Chairman of Cidel Bank and Trust Inc, spoke of the history of Cidel and Craig Rimer Chief Executive Officer brought greetings from Canada and thanked everyone for their contribution to the success of the business.

Q4 | Quarterly Report

Our Q4 Quarterly Report is out. Hope you enjoy!

Click Here to Read 

January 2019

42nd annual forecast dinner.

Cidel was proud to continue our support for CFA Society Calgary  as sponsor of the Forecaster of the Year at the 42nd Annual Forecast Dinner. It was a good evening hearing from Willis Sparks of Eurasia Group , Paul Smith, CFA , President & CEO of the CFA Institute, and our panelists: Jackie Forrest , Todd Hirsch and Larry Berman .

Cidel 16th Annual Foundation, Endowment & Not For Profit Investment Summit

Great exposure for Cidel!

We are one of the sponsors of the Foundations & Endowment Investment conference taking place in Toronto on January 30th – 31st 2019.

Environmental, Social, and Governance (ESG) information has received increased attention from investors in recent years. As of 2017, 75% of major companies around the world produced some form of Corporate Social Responsibility (CSR) report, up from 19% in 2002.

In these articles Cidel Asset Management explores the Rise of ESG disclosures and takes a closer look at why Corporate Governance matters.

To read more   Click Here

December 2018

A message from our chief investment officer.

Click Here to read a message from the Chief Investment Officer to our clients.

On the Road

Cidel’s investment research and portfolio management team travels the world to learn more about firms and industries and to interview senior management.

Philip Young is presently travelling in Asia and has sent along some insights.

To read more about Philip’s travels Click Here

November 2018

Market implications of potential presidential impeachment.

Cidel discusses market implications of potential presidential impeachment!

At Cidel, analyzing the risks to … While we view the potential impeachment of President Trump as unlikely at this time, the odds may have marginally increased and we are monitoring factors that could change our view….The likelihood of the President being impeached remains low. but the odds of it becoming a political discussion point are higher with the results of the recent mid-term election. The Republicans did retain their majority in the Senate, but no longer hold the largest number of seats in Congress.

Q3 2018 | Quarterly Report

Our Q3 Quarterly Report is out. Hope you enjoy!

September 2018

Cidel is awarded step gold employer partner status.

Cidel is awarded STEP Gold Employer Partner status

We are proud to announce that Cidel was named a Gold Employer Partner of the STEP Employer Partnership Programme in Canada, South Africa and Barbados!

STEP is the global professional association for practitioners who specialise in family inheritance and succession planning. STEP works to improve public understanding of the issues families face in this area and promotes education and high professional standards among its members. Full STEP members, known as TEPs, are internationally recognised as experts in their field, with proven qualifications and experience.

Achieving Gold accreditation is a testament to the strength of policies, practices and structures that Cidel has implemented to support its growing Private Wealth offering.

Speaking about the accreditation, Amanda J. Lashley, Vice President, Trust & Legal Cidel Bank & Trust Inc. said,

“Cidel Bank & Trust Inc., has enjoyed a long-standing relationship with STEP and is honoured to have achieved gold accreditation with the Employer Partnership Programme. This solidifies Cidel’s commitment to developing its key resource; its people.

“In our pursuit to encourage continuing education and ensure that we as a company strive to provide the highest professional standards within our trust, corporate and investment team, we firmly believe that being affiliated with an organization such as STEP is demonstrative of our commitment to academic and professional excellence. This will ensure that we stay current and are equipped to service our clients globally.” Jenni Hutchinson, Head of Employer Partnerships for STEP, said “Cidel is to be commended on the way that it supports its staff by means of the very good learning and development provision it has in place. This, backed by a supportive, strong leadership and positive learning culture, ensures that all staff are given the encouragement that they need to achieve their potential”.

KARL ON BNN – AUGUST 2018

Cidel’s Karl Berger, Senior Wealth Consultant and Director was a guest at BNN Bloomberg discussing his thoughts on the case for investing in Canadian stocks for the long haul. In this BNN interview, Karl states a strong argument can be made for staying in Canadian stocks.

August 2018

Q2 2018 | quarterly report.

Our Quarterly Report is out – Looking back at Q2 and moving forward into Q3, with the impact of tariffs, yield curves and forward earnings. Hope you enjoy!

Cidel named as one of the leading Canadian Private Banks by Chamber and Partners

We are proud to announce that Cidel was named one of six “Recommended Private Banks-Canada” in the High Net Worth 2018 Guide issued by Chambers and Partners. Cidel was the only privately-owned bank that was recognized; the other ranked firms are the private banking units of Canada’s 5 largest financial institutions.

According to the guide, Cidel “is very strong on the investment management side, has a trust business and offices in Toronto and Calgary”, and “They do client services like no one else on the street. They have expertise at a level no one else in the city has. They know what they’re doing”.

Chambers and Partners’ annual High Net Worth Guide is specifically aimed at the international private wealth market, and covers private wealth management work and related specialisms, like private banking, in key jurisdictions around the world.

Cidel is an international private bank focusing on Asset Management, Planning, Structuring and Trust, and Specialized Banking. Cidel combines the scale of a large global bank with the continuity and genuine commitment to service of a boutique firm.​

Click here to read more

Geoffrey Matus – Honorary Degree

Cidel is pleased to congratulate our Chairman Mr. Geoffrey Matus who received an honorary degree from the University of Toronto, June 20th, 2018 for his exceptional work in the education and health care industries. In conferring this degree he was recognized for all his efforts and impact that he has had on all those that have worked with him. Congratulations Geoff, from all at Cidel for this significant and well-deserved honour recognizing your relentless and tireless efforts for the betterment of others.

Benefits Canada – Arthur Heinmaa

Arthur Heinmaa, Chief Executive Officer of Cidel Asset Management joins industry experts in commenting on currency and how it impacts institutional investors.

Click here to read the article that explores exchange rates at a time of uncertainty around everything from trade deals to monetary policies.

February 2018 Newsletter

Click Here:  http://cidel.com/newsletters/february-2018/ 

February 2018

Cidel’s Quarterly Report is out – a look back at 2017 and our investment team’s key themes for 2018.

November 2017

Charles lannon on bnn – november 8 2017.

Cidel’s Senior Vice President, Portfolio Manager and Head of Global Equities Mandate Charles Lannon was a presenter at this year’s national conference of the Portfolio Management Association Canada. In this BNN interview from the conference, he discusses how to find value in global equities. Click here to watch.

Q3 | Quarterly Report

Our Q3 Investment Report is out – Looking Back on Q3, Looking Forward at Q4, and spotlights on active vs. passive and global infrastructure.

Click Here to View 

October 2017

Karl berger on bnn – october 10 2017.

Karl Berger, Cidel Senior Wealth Consultant and Director, was guest host on BNN’s ‘The Street’ last week. In this clip he discusses the Federal Reserve and expected upcoming changes.

September Newsletter

An inspiring piece on the Invictus Games plus spotlights on distressed investing, cancer research and why you should question widely held investment maxims.

Click Here:  http://cidel.com/newsletters/august-2017/ 

September 2017

August newsletter.

Cidel’s August Newsletter – A Coda to Summer: Jimmy Buffet, your kid’s sports, and kale salads.

Click Here:  http://cidel.com/newsletters/august-2017/ 

Q2 | Quarterly Report

Our Quarterly Report is out – looking back on Q2, what’s on our radar for Q3 and spotlights on our trust services and the Fed’s balance sheet.

http://cidel.com/downloads/QuarterlyInvestment/QuarterlyInvestment.html

June Newsletter

Cidel’s June Newsletter – Steves Schwarzman and Jobs, Lefty’s insider trading issues and the myths of working philanthropically.

Click Here:  http://cidel.com/newsletters/june-newsletter/ 

May Newsletter

Cidel’s May Newsletter – an interesting range of perspectives on pricing

Click Here:  http://cidel.com/newsletters/may-2017/ 

RamsayTalks

Gerard Baker, Editor-in-Chief of the Wall Street Journal speaks at a Cidel sponsored RamsayTalks event. Baker discussed America and the world in the age of President Trump.

Click here to watch

Cidel’s Q1 Quarterly Report is out: looking back, looking forward, and spotlights on artificial intelligence and the rise of populism.

March Newsletter

Our March newsletter looks at Toronto’s rise as a VC hub, Henry VIII’s role in Brexit, and why you see so many puffer jackets.

Click Here:  http://cidel.com/newsletters/march-2017-newsletter/

Natixis appoints Cidel Asset Management

Cidel has been appointed portfolio sub-advisor for the NexGen Canadian Dividend Fund, by Natixis Global Asset Management Canada. We are looking forward to continue building on our relationship with Natixis and expanding our sub-advisory business in Canada and around the world.

http://www.businesswire.com/news/home/20170306006401/en/Natixis-Global-Asset-Management-Canada-Announces-Funds

February Newsletter

In our February newsletter we feature an interview with a uniquely modest private equity manager, Howard Marks of Oaktree Capital, and a remarkable Canadian medical device that lets blind people see.

Click here:  http://cidel.com/newsletters/february-2017/

February 2017

Our Q4 Quarterly Report is out – our investment team’s quick take on the important stories of the prior quarter and what could impact portfolios looking forward, plus more in-depth analysis of important themes or presentations we think might interest you.

http://cidel.com/downloads/QuarterlyInvestment/Index.html

January 2017

January newsletter.

The first Cidel Newsletter of 2017: a look at Uber and AirBnB’s beginnings; an intimate account of mental illness; the magic of thinking long-term when investing; and a timely list of ways to keep your productivity going strong through the new year.

Click Here:  http://cidel.com/newsletters/january-newsletter/

Karl Berger on BNN – January 16 2017

Here is a clip from Karl Berger’s (Senior Wealth Consultant and Director) appearance on BNN last week. Markets are reacting to Trump’s victory with expectations of significant economic growth and higher interest rates. In our view, Trump’s victory represents uncertainty. http://www.bnn.ca/video/top-canadian-stocks-no-matter-what-trump-does-or-doesn-t-do~1032234

December 2016

December newsletter.

Our last newsletter of the year: Dalio on Trump, Tiffany’s troubles, and the best books of 2016. See you in 2017!

Click Here: http://cidel.com/newsletters/december-2016/

November 2016

Rob spafford on bloomberg tv – november 18 2016.

Click  here  to watch Rob Spafford on Bloomberg TV’s “The Daily Brief.”

Karl Berger on BNN – November 18 2016

Click  here  to watch Karl Berger on BNN’s “The Street”, discussing the causes and implications of the U.S. dollar hitting 14-year highs.

Trump Wins the Presidency: What should investors think?

We never really expected to write the words “President Trump” in any commentary but that is where we are today.  It has been an emotional rollercoaster that has left many clients, friends and family concerned, disheartened and perhaps afraid. It is at moments like this that we have to distance ourselves from the passion of the moment and reframe the issue.  Emotional considerations aside, where is the real risk? The bottom line is this: in the aftermath of the Trump victory we have greater uncertainty which will entail lower economic growth rates and higher premiums for risky assets.

During the past few years we have witnessed a continued movement in market prices towards safety, resulting in a considerable sacrifice of potential upside. Corporations have continued to amass record amounts of cash as a cushion against another downturn. Investors have withdrawn money from equities and sought the perceived safety of fixed income.  In Switzerland, where I write this commentary, the entire yield curve is negative, meaning investors buying Swiss government bonds in fact pay for the privilege instead of earning from it. Even investing your money for 50 years in Swiss bonds yields nothing. With the election of Trump it is unlikely that any of these situations will change soon.

In general, things never turn out as badly as you fear they might. Even if President Trump wants to enact some of his election promises, he will have to work through Congress to get the bills passed. In the past we have certainly seen many governments and presidents come and go without a dramatic impact on businesses.  The problem today is that we can easily envision a number of bleak outcomes. Initially, as with Brexit, we suspect that the markets will stabilize because very little will change in the short run. But leaving aside social and moral judgements, we believe that in this economic environment, the investment risks are somewhat greater – not so much from a legislative perspective but from an economic policy perspective.

For us, the real concern is what will occur in the event that slower US growth slips into a recession?  Let’s look at how this could play out over the next few years. First, we expect that at some point during the next year Trump will announce a replacement for Janet Yellen, the current Chair of the Federal Reserve, whose term expires in February 2018. Unless we are pleasantly surprised, her replacement could be someone without the experience or credentials that all Federal Reserve Presidents in recent memory possess. Moreover, Trump has indicated that he would like to reform the Fed, which may well compromise its traditional independence. It is likely that the replacement will be much more beholden to the President and even the Republican Party, which implies a greater focus on inflation and less on the goal of full employment.

Second, if the economy moves into recession, what will be the likely policy response from President Trump? The average decline in interest rates during previous recessions has been about 5%. The Federal Reserve does not have the ability to drop rates further. Previously we would have expected the government to step in and increase spending to stimulate the economy.  However, it is more likely that a businessman and Republican will try to restore confidence by cutting spending in a recession, when government revenues are declining. The result would be a more pronounced recession. The result could be a long and particularly nasty economic slowdown. We are not forecasting this outcome; however, the possibility of such a scenario is higher now.

For investors, managing risk though judicious equity selection and geographic exposure will be even more important as uncertainty rises. Investors can not blithely assume that the US economy will be the engine of growth that it once was because the possibility of policy mistakes is higher. Our expectation is that economic growth will continue to disappoint and be revised lower and interest rates as a consequence will remain low. At Cidel, we will re-examine our allocations and individual investments in light of this event, as we continually do, to determine appropriate changes in this new environment.

Healthcare Stocks: Is a recovery on the horizon?

The US 10-year bond yield climbed almost one quarter of a percent to 1.83% amid increasing expectations that the Fed was on the cusp of a second interest rate hike in the US this cycle and that problems arising from negative interest rates marked a low point for yields-pressured bond markets. This expectation undermined equity markets, with the MSCI World falling 2%. The Canadian Dollar weakened against its US counterpart.

Historically, the healthcare sector has been popular with growth investors, and for good reason.  Positive long-term demand trends due to an aging population, combined with significant barriers to entry underpinning the ability to raise prices combine to offer the prospect of above average earnings growth, largely independent from the economic cycle. This combination should have particular appeal in the current environment of moribund growth and weak pricing power, however the sector has been underperforming the broad market significantly. What are the issues frightening investors, and what can we expect going forward?

Two main factors are causing investors to question assumptions around the historical business model of pharmaceutical companies, particularly their ability to raise prices at will: political pressure from government, and commercial pressure from large scale drug purchasers.

The US Government is the largest payer for prescription drugs, so it has a vested interest in the trajectory of drug prices. However, elections create the potential for a change in the balance between the various competing interests. The Republican platform is largely focussed on replacing the Affordable Care Act with some alternative offering patients greater choice and reducing the burden on employers. Hilary Clinton’s goals include improving the Affordable Care Act, and improving Drug Affordability. Proposals to increase affordability include  making it easier for generic/biosimilar drugs to get to market, creating a watchdog to ‘respond’ to excessive price hikes in older drugs, and allowing Medicare to directly negotiate for drug prices. While both platforms could result in changes, the ability to pass legislation obviously depends largely on who controls Congress, so if gridlock persists, any radical overhaul is ultimately unlikely. However, due to pre-election uncertainty, it’s no surprise that investors are avoiding the sector until the outcome is known.

Additionally, there are state-level initiatives which create uncertainty in future earnings potential for the pharma sector. Most prominently, Proposition 61 in California proposes mandated best pricing for state employees/retirees. While it seems likely to pass, how drug companies will respond remains to be seen. In our view, any proposal to impose direct Medicare price controls are the most concerning for investors, although the current system has already resulted in concentrated buyers negotiating with drug companies, demanding and receiving considerable economies of scale.

This increasing pressure by drug purchasers (insurance companies and their Pharmacy Benefit Management agents) to reduce net drug prices is the second serious source of pushback to pharma earning potential, and it seems to be intensifying and affecting additional areas. For example in diabetes treatment, Novo Nordisk (a former portfolio holding) recently revealed that an inability to get sufficient pricing on its new drugs to offset negative pricing on older treatments, caused a 50% cut in its medium term growth target. In our opinion, this ongoing pressure from purchasers is a bigger fundamental concern than political headlines.

So where next? The consensus from a recent healthcare conference we attended is that the sector should perform better post-election, although the pricing environment will likely remain tougher for some time. Given that price increases more or less fall 100% to the bottom line, valuations will likely adjust downwards, and it’s not clear that this process is complete. However, while price pressure is a challenge for the industry, the inexorable increase in healthcare costs is a real longer term challenge for government finances, and any ability to reign them in without hampering innovation would be a welcome ‘big picture’ development.  In any case, change always creates opportunities, so Cidel – and investors – will be on the lookout.

October 2016

Is it time timing and market efficiency.

September saw equity markets close to their all-time highs, with gains in both Canada and the United States. For the third quarter the MSCI was up 5.25%, the TSX was up 5.45% and the S&P 500 was up 4.23%. The bond market was also up by 0.44% for the same period.   Despite positive equity market returns, clients and institutions remain concerned as the US election approaches.

The most common question that we get from clients is – what changes we are going to make to portfolios ahead of the US presidential election? With emotions running high many clients feel that preemptively moving to a cash position may be a prudent decision. Stepping away from the emotions associated with the presidential candidates, we can examine this question from the perspective of market timing and market efficiency. The answers provide an interesting insight into markets and returns.

Make no mistake about it, aggressively timing the market does not add any value to investment returns – in fact it is a big detractor to long term performance. Constantly bouncing from cash to a fully invested position only makes money for the brokers. For market timing to be successful, a trader (notice we didn’t use the word investor) must identify the correct moment to exit the market and ALSO identify the correct moment to re-enter the market. In addition, the trade must cover all the commissions and taxes that are associated with the decision. Over long periods of time equity markets tend to rise, so by timing the market you are also swimming against the tide of growth. The likelihood is that all those factors will work against any market timing strategy. So under what conditions would such a strategy be successful if at all?

The answer lies in the arena of market efficiency. At Cidel we believe that markets are semi-efficient, which means that markets incorporate all public information into prices and that if there are gains to be made it is from insights uncovered through detailed proprietary research. Putting this into perspective, ask yourself how many people in the market don’t know that Donald Trump is running for president, and that there is some possibility that he may win. Of course most people know this fact and have been incorporating this possibility into the prices of assets, not only in the US but across the globe (e.g. recent gyrations of the Mexican peso).  For any trading strategy to be successful, a trader must have access to information that is not public or, in this case, have an insight into Trump’s presidency that other traders do not possess. So a position on Trump or no Trump based simply on personal opinion is unlikely to yield any edge.

If there is an edge to be gained, it is likely in the form of scenario analysis. By that I am referring to possibilities that the market has not priced in because they are not widely considered. For instance, consider the following possibilities. What if Trump drops out of the running prior to the election date? What if Trump wins a narrow majority in the electoral college but loses the vote? Will the electors vote with the win or will they vote contrary to the pledge? What if Clinton wins by a landslide and the Democrats also win majorities in the House and Senate? By working through these scenarios we can get an idea of what markets are likely to do and how we would respond either by buying or selling a specific stock(s). Scenarios combined with our proprietary equity research give us the opportunity to react quickly if there is an exaggerated market movement, no matter how brief.

Ultimately, it is knowing how to manage the risk/opportunity associated with unexpected news that generates returns, rather than trying to aggressively time an event for which the whole market is prepared.

Arthur Heinmaa, CFA

Arthur Heinmaa on Bloomberg TV – October 6 2016

Click  here  to watch Chief Investment Officer Arthur Heinmaa on Bloomberg TV.

September 2016

Rob spafford on bnn – september 29 2016.

Click  here  to watch Rob Spafford on BNN’s “The Close.”

Karl Berger on BNN – September 14 2016

Click  here  to watch Karl Berger on BNN’s “The Street.”

Stock Buybacks

Global equities produced modest gains in August, with emerging markets continuing to perform well. 10-year bond yields climbed as investors continued to fixate on the outlook for US monetary policy.

When considering what to do with cash not earmarked for internal investment, corporations have two basic options for returning it to shareholders: either to pay a dividend or to repurchase shares in the market. Market analytics firm FactSet notes that US firms bought back $166.3 billion in shares in the first quarter of 2016, an increase of 15.1% over the same period last year. To put this into context, FactSet calculates that this represents a “buyback yield” of 3.3% for the S&P500 index. Should investors care?

The debate over the relative merits of dividends and buybacks can generate surprising levels of passion in the hearts of finance practitioners. Academics would argue that, assuming a company’s share price is fairly valued, there’s no real difference – if company A paid a 10% dividend while company B bought back 10% of their shares, shareholders in company B wanting immediate income could sell 10% of their holdings to have the same amount of cash and proportional interest in the company as their counterparts in company A. Without selling, their percentage interest in the company would have increased by 10%, so while the total value of the company would be unchanged, the value of each holding would be 10% higher. Logistics company Expeditors International described it as the corporate finance equivalent of a Miller Lite (“Tastes Great/Less Filling”) commercial.  In the real world, however, there are some more nuanced factors to take into consideration.

When buybacks initially rose to popularity in the 1990s, dividends were taxed at a higher rate than capital gains – a bias that created a clear argument in favour of buybacks. After the tax treatment of dividends was reformed, this argument evaporated, though buybacks didn’t. A popular justification, particularly considering broader market supply and demand for equities, is that ongoing buyback activity creates a natural demand for stock and can act as a tailwind to share prices. Goldman Sachs expects $450 billion in total share repurchases during 2016, creating the largest single source of demand for US equities. However, buybacks invariably dry up in a sharp market downturn. Ideally, a company would buy back stock when its share price is trading at an overly depressed level and stop (or issue stock) when shares are overvalued. Canadian insurer Fairfax Financial is one of the few companies that (tries) to do this.

There are counterarguments, of course. Firstly, many companies buy back substantial amounts of shares to offset incentive shares issued to management, leaving the total number of shares outstanding unchanged while simultaneously downplaying the income statement impact of share options. More broadly, share repurchases can interact with badly designed management incentive schemes to encourage decisions not necessarily in the shareholders best long-term interest, for example aggressively buying back shares rather than investing in a long-term project, or borrowing large sums of money to finance buybacks. While the mathematical justification certainly exists in the current low interest rate environment, the potential for unintended consequences down the road exists as well.

At Cidel, we ultimately have a bias in favour of dividends not least because of their tangible nature, however, a solid understanding of a company’s sustainability and underlying cash flows is the most important basis for sound investment decisions.

Spotlight on our Balanced Portfolio

Cidel Asset Management Inc. manages the Toron AMI Balanced Strategy.

Toron AMI’s Balanced Portfolio fund is designed for a broad range of investors as a complete portfolio solution. Investors benefit from access to the firm’s multiple investment strategies in one balanced investment. Read the Fact Sheet for a full overview of this strategy.

For information about performance, view this summary from the eVestment Database.

Note: Toron AMI and Benchmark performance is gross of applicable management fees.

August 2016

Helicopter money.

Over the course of July, equities shrugged off their Brexit inspired swoon, with the MSCI World Index gaining just over 4%, largely upon the perception that central banks would act to offset any economic impact of the UK decision. The Canadian dollar fell modestly against its US counterpart, and the yield on the US 30-year treasury fell 10 basis points.

While it is generally accepted that the various programs of Quantitative Easing (QE) – injecting cash into the economy by buying bonds – carried out by Central Banks have been successful in terms of supporting the economy, it’s also apparent that they haven’t delivered the boost to growth and inflation some of their more enthusiastic advocates hoped for. Likewise, the move to impose negative interest rates seems to some extent to have been counterproductive thus far, due to the negative impact on commercial bank profitability. Obviously believers in the maxim “if at first you don’t succeed”, many opinion leaders are now advocating even more out-of-the-box policies- particularly the concept of ‘helicopter money’.

While it creates a fantastic mental image, helicopter money is actually a metaphor put forward by economist Milton Friedman and popularised in a 2002 speech by Ben Bernanke when he was a Fed Governor. The basic concept is that if the central bank created money and gave it to the government, which in turn used it to invest in infrastructure, say, or cut taxes, the resulting boost to aggregate demand in the economy would stimulate growth. While this sounds in effect the same as QE, there is a crucial difference. In a QE program, the central bank is exchanging one asset (cash) for another (bonds issued by the government). The government still has to repay those bonds, albeit now to the central bank rather than the previous private sector holder. While the mechanics could take several forms, a program of helicopter money would effectively supply fresh cash to the economy but with no corresponding government liability. From the perspective of the private sector, QE leaves their net assets the same but alters the mix; helicopter money on the other hand serves to increase their net assets.

On paper this sounds like a good idea- public spending and a boost to people’s incomes should have a stronger direct economic impact than relying on some spill over from higher asset prices arising from QE. Likewise the absence of incremental government borrowing reduces the risk of upward pressure on interest rates. However as is always the case there are a number of significant potential pitfalls (setting aside questions of the legality of such action). The credibility of central banks lies to a large degree on their independence from the government, and a perception that they are in reality subject to political influence could therefore threaten the effectiveness of future actions. Short term success in stimulating the economy could also take government focus off attempts to enact more difficult longer term reforms. Finally, the achievable boost to demand is debatable if any increase in household income is perceived to be one-off in nature- for this reason spending on infrastructure and so forth is preferable to a one off transfer payment to members of the public.

Overall it is likely that the risks to central bank credibility will prevent a wholehearted adoption of helicopter money. Certainly the Bank of Japan, considered by some the most likely candidate to put it into practice, recently disappointed markets with their failure to do so. That said the temptation is there and will intensify should the current underwhelming growth trends persist. Overall we return to the sentiment expressed in last month’s note- the importance of selectively investing in companies with underlying business characteristics that give them control over their own destinies.

Rob Spafford in Wealth Professional – August 19 2016

Click here  to read a Wealth Professional article on the global appeal of Canadian telecoms, featuring our portfolio manager Rob Spafford.

Karl Berger on BNN – August 15 2016

Click here  to watch Karl Berger on BNN’s ‘The Close.’

Arthur Heinmaa in Canadian Business – August 8 2016

Click here  to read this Canadian Business magazine about investing in a low interest rate environment, featuring our Chief Investment Officer Arthur Heinmaa.

Keep your eye on the bond market

For the quarter ended June 30th, equity markets returns were up slightly from the previous quarter and are now positive for the year. Year to date, the S&P returned 3.28%, the MSCI 0.12%, the TSX 9.8% and bonds 4%.  Of course the big news was the result of the Brexit vote and the stunning decision by the citizens of the UK to leave the European Union. This result continues to reverberate across financial markets with equity markets almost recovering their losses following the vote. In contrast however, the global bond markets have not returned to their pre-Brexit levels. This month we will look at what this decline in yields might mean for the economy and investors.

Thirty years ago interest rates stood at over 15% and many people were losing their homes because they were unable to afford the higher mortgage payments due to increasing mortgage rates. Never in their wildest dreams did anyone expect to see today’s 10-year Canadian bond rates at 1% and 30 year bond rates at 1.60%. In the week after the Brexit vote long term (30 year) yields dropped by 0.45%, an amazing move in the bond market, and they remain at those low levels. What is implied by these interest rates?

The first implication of these low rates is that global growth will remain muted. The economy will stumble along, but it is unlikely that we will return to the 3% growth rates of the past. Low interest rates over the past 8 years have encouraged companies and individuals to spend/consume today, essentially bringing forward consumption from the future to today. The direct consequence of that policy is to dampen demand in the future. Anyone who really had an intention to spend or expand has already done so, and hence lower demand lies ahead. Lower demand will translate into anemic growth.

The second implication is that inflation is expected to remain low. Many market observers forecast increasing inflation rates as both the Fed and European Central Bank embarked on quantitative easing and central bank balance sheets expanded. This has not proven to be the case, and indeed the market is now forecasting that the first interest rate increase will now take place no earlier than 2019.  Without sufficient demand the economy will fall chronically short of potential, resulting in little or no inflation. Therefore, we shouldn’t expect inflation to push interest rates higher.

The third implication, which is actually more of a question, is why the government is not spending on needed infrastructure projects. Adjusting for inflation, long-term Canadian and US interest rates, i.e. the borrowing cost for the government, are at or below zero. In many other countries interest rates are below zero even before inflation adjustments. It would be reasonable to assume that there should be some infrastructure investments that would produce a benefit that is greater than zero. As most of us would agree, public transportation would be high on the list, as would road repairs. Unfortunately however, there seems to be little will for governments to spend money – even at these low interest rates.   Until that changes don’t expect the growth picture to change.

In this low growth environment it is more important than ever to be selective about the securities you purchase because tepid economic growth will not bail out a struggling company, and indeed it will serve to exacerbate the financial implications of corporate mistakes.

Arthur Heinmaa, CFA CEO, Cidel Asset Management Chief Investment Officer

Karl Berger on Bloomberg TV – July 12 2016

Click  here  to see Karl Berger on Bloomberg TV, discussing investing in global markets.

Craig Rimer in Wealth Professional – July 7 2016

CEO Craig Rimer is featured in this Wealth Professional article. Click  here  to read about what sets Cidel apart from the ‘Big Five’ Canadian banks.

Comments on the UK Referendum

In a huge surprise, the UK voted to leave the European Union.  This decision immediately reverberated through global financial markets with Sterling dropping over 10% versus the US dollar, dropping to a 31 year low, equity markets declining over 5% and the 30 year bond rising 4%.   To put things in perspective, the Dow Jones Industrials were up 500 points in the previous 5 days and are expected to lose 500 points at today’s opening.  Where financial markets will settle is still unknown but we wanted to share some of our initial thoughts on this historic day.

1. Is this the beginning of another financial crisis?

This is not another Lehman.  The voting results surprised yesterday’s consensus, resulting in dramatic short term moves in the market but this decision in no way undermines the financial system.   The banking system today is better capitalized and less leveraged than at any time in recent memory.   This vote is not the same as the financial crisis of 2008.  Investors should not liquidate their portfolios thinking that we are on the brink of a financial collapse.   What we have experienced is a global repricing of financial assets based on the prospects for lower growth in the future.

2. What are the key things to consider?

In our view there are three important features of this vote to consider.  First, the vote is clearly a vote against the establishment.  Almost universally economists, business leaders and academics supported and campaigned for the remain side.  Despite the reasoned, logical arguments put forth by the remain side, voters rejected those arguments and instead sided with the populist anti-immigration anti-Europe leave campaign.  Indeed those cheering the results are none other than Donald Trump, Marie  Le Pen and Frauke Pettry (Alternative for Germany) all of whom are campaigning as the anti-establishment candidates in their countries.

Second, there was a dramatic split between the young (under 35) and the old (over 60) with the young voting almost 75% in favour of remaining in the EU and an equally large portion of the older population voting to leave.  In the abstract this result is disheartening because the younger population will have to live with a decision that they clearly did not want.   Only time will tell if this decision lingers in the minds of younger voters when it comes time to make decisions on pensions and healthcare for retirees.

Third, there was a large split in the vote between the large urban areas and the rural areas.   London, Edinburgh, Liverpool and  Manchester all voted to stay with the bulk of the smaller regions voting to leave.  The polarization of voting was remarkable and we think it is an indication of how the smaller regions believe that they have been bypassed in this new era of globalization.

This pattern of voting is not unique to the UK.   It is likely that we will see a similar pattern in Spain on June 26th and in the US this fall.  This polarization between the young and old, urban and rural and the establishment and populists will only increase political uncertainty in any future election.   All of which will make it riskier for corporations to make longer term capital commitments.

3. What are the consequences for the economy?

Overall we should expect lower growth in the future.   In times of market turbulence we regularly look at what is happening in the fixed income markets to validate or refute what is happening in equity markets.   The US long bond dropped from a yield of 2.56% to 2.39% in the space of a few hours.   It might seem like a minor move but in fixed income markets this move is nothing short of remarkable.  It is a clear indication that the expectation will be for lower growth and lower rates for a longer period of time.

The reasons for lower growth are straightforward and both are rooted in the uncertainty surrounding the timing, terms and conditions of the UK exiting the euro.  Corporations in Europe or doing business in Europe will be more cautious and will delay or slow investment in that region until the terms of business are clear.   Given the size of the European economy this will have an impact on the prospects for global growth.

For the individual, particularly in Europe, our suspicion is that they will be more risk averse and accumulate savings rather than spending or investing.  This situation will act as a brake on growth and might drive interest rates even lower throughout the European area and the rest of the developed world.

4. Should I adjust my portfolio?

The answer is no.  The instinct to run to cash is always powerful in times of uncertainty and it is important to fight that sentiment and stick to a disciplined plan.   Rarely do short term emotional decisions work out well.   One can’t trade on yesterday’s prices so the decisions must be based on what the prices are today and more importantly what they might be in the future.  Hence, the important activity will be to incorporate this new reality into our valuation models and make appropriate changes to holdings and asset allocations if required.

The past 24 hours have been unlike anything we have seen since the UK withdrew from the European Exchange Rate Mechanism (ERM).    We will continue to monitor markets and will make changes to your portfolios only if it is warranted by valuation concerns and not emotion.

Please feel free to contact your Cidel Consultant if you have any other questions.

Arthur Heinmaa Chief Investment Officer, Asset Management

Karl Berger on BNN – June 21 2016

Charles lannon in the financial post – june 16 2016.

Charles Lannon was interviewed by the Financial Post. Click  here  to read about our view on the current bull market, and some of the holdings in our Global Equity mandate.

Stephen Caldwell in The Globe and Mail – June 15 2016

Portfolio manager Stephen Caldwell gives The Globe and Mail some of his favourite stocks in the healthcare sector. Click  here  to read.

Mind the (GAAP) Gap?

May saw a rebounding US dollar adding to returns on US assets for Canadian investors. Other international markets made some headway too. The strong US dollar pressured several commodities, although oil worked its way higher. Despite experiencing some volatility, US long bonds ended the month largely unchanged.

US companies are required to file audited financial statements prepared according to Generally Accepted Accounting Practices (GAAP), determined by the Financial Accounting Standard Board (similar requirements exist in other countries). However, companies may also report earnings on a pro forma basis, incorporating adjustments to GAAP earnings to reflect what they would like investors to see as the company’s underlying earnings power. While it is true that investors should be looking forward to a company’s future earnings potential and not focus on short term, ‘one-off’ developments, it would not be cynical to think managements use pro forma earnings to paint the most flattering picture possible, a task made easier by the relative freedom to decide which adjustments to make. Currently the spread between GAAP and pro forma earnings for the S&P 500 is running at 30%, a difference last seen in the third quarter of 2009 when companies were still cleaning up their books after the financial crisis. Combined with the current anaemic level of earnings growth, commentators are increasingly concerned that companies are becoming more aggressive in papering-over deteriorating fundamentals. Likewise the Securities and Exchange Commission (SEC) has made it clear that they intend to question more companies about how they arrive at their pro forma figures, indicating that they will be placing this issue under increased scrutiny. Should investors be concerned?

While a degree of caution makes sense, a review of historical trends and a closer look at the current situation would argue against overreacting. Firstly, 20 companies alone account for in excess of 50% of the pro forma/GAAP spread; secondly, oil and gas impairment charges are, as would be expected, running at high levels. Finally, the spread between pro forma and GAAP estimates hasn’t been a great predictor of future market performance; indeed, the divergence is often greatest around a market bottom, when companies are writing down all sorts of assets in the middle of a recession. However, conclusions drawn from the aggregate picture don’t necessarily hold when looking at individual stocks. It’s always important to be aware of accounting issues, whether or not the market is paying as much attention as it should.

At Toron AMI, our investment process explicitly includes a review of earnings quality and the appropriateness of adjustments included in pro forma numbers. We accept the case that genuine one-off events, such as restructurings, should be considered (although a surprising number of companies exist in a world of rolling restructurings), but we take a highly skeptical view of certain common non-cash adjustments. First, adding back the cost of management stock options as a non-cash expense is debatable because ultimately these options result in dilution to existing shareholders or a cash outflow to buy back shares and offset the dilution. Second, we are cautious about adding back the amortisation of acquired intangible assets because the intangible itself was purchased with shareholder funds; it’s almost like adding back depreciation of fixed assets.

While some degree of pragmatism is ultimately required, we take care to consider any material adjustments in pro forma earnings in our valuation work. By incorporating this discipline into every investment decision we make, together with consideration of management track records and other key factors, we focus our attention only those investments offering a favourable balance of risk and reward.

Should I Stay or Should I Go?

A rebounding Canadian dollar saw gains on international equities translate into modest losses for the month of April. Commodity prices and related shares did well, although the sustainability of their outperformance is an open question. US 10-year Government bond yields moved modestly higher.

On June 23, British citizens will take to the polls in a referendum over ‘Brexit’ – whether the UK will remain a member of the European Union – a decision with important ramifications for both sides.

Among those favouring Brexit, there is undoubtedly some nostalgia for a bygone age of ‘warm beer and cricket’. However, advocates also point to the costs (both direct and indirect) of EU membership, which have been estimated as high as 11% of GDP. Obviously estimating indirect costs (e.g. those due to ‘excessive’ regulation, etc.) is highly subjective. Particularly concerning for London, a financial hub (financial services are 12% of UK GDP), are EU proposals to introduce a financial transaction tax, among other regulations. Another concern is the impact of immigration from EU states. Although the UK’s ability to attract young, well-educated EU immigrants was a significant factor in the OECD’s reappraisal of the UK’s trend growth rate from 1% to 2%, this favourable view is far from universal – the last general election saw significant defection of traditional blue-collar support from the Labour Party to the Eurosceptic UKIP. Finally, there is a sense that the EU will inexorably move toward ‘ever closer union’, leaving the UK increasingly marginalised; therefore leaving now is perceived as the lesser of two evils.

In the other corner, supporters of the status quo point to Britain’s trade privileges as a member of the sizeable EU market and to the ability of financial firms based in London to operate in EU markets with a ‘single passport’. Proponents also emphasise the benefits of immigration, pointing to studies that EU migrants are net contributors to public finances. Brexit would have an immediate negative impact on the economy, and subsequent growth, they claim, would not offset it. Finally, it might not be as easy for the UK to preserve the current trade benefits with the EU as Brexit advocates assume. The potential for a yes vote is causing concern in Brussels, not least because of its potential to spread to other members.

The demographics of support for the two camps are interesting. ‘Remain’ is most popular with the younger 18-29 year old cohort, whereas ‘Leave’ is the choice among those 50+. Given that different age groups have different propensities to vote this could lead to an outcome quite different from that suggested by polls. Similarly, support for staying in the EU is strongest in the highest socio-economic group, and strongest for leaving in the lowest – a reminder that individual circumstances can cause the day-to-day impact (real or perceived) of events to vary significantly.

Polls currently read neck-and-neck, with marginal gains in favour of exit. Online betting markets, however, are pointing to a decisive vote in favour of remaining in the EU. Should the vote favour Brexit, the UK would have 2 years to negotiate a new relationship with the EU, during which the status quo would continue to apply. If two years pass without agreement, membership will cease unless an extension is agreed upon. Although a leave vote will not result in immediate changes to the UK’s status, the subsequent period of uncertainty could well have a negative impact on the economy and Sterling. While Toron AMI’s global portfolios are currently underweight in the UK market, we have an open mind and are watching closely, ready to take advantage of any opportunities arising over the coming months.

Pierre Bouchard on BNN – May 3 2016

Click  here  to watch Pierre Bouchard on BNN’s ‘The Close.’

Stephen Caldwell on BNN – April 20

Click  here  to watch Stephen Caldwell on BNN’s ‘The Business News.’

Pierre Bouchard on BNN – April 14

Karl berger on bnn – april 1.

Click  here  to watch Karl Berger on BNN’s ‘The Close.’

Rob Spafford on BNN – February 19

Click  here  to watch Rob Spafford on BNN’s ‘The Close.’

Karl Berger on BNN – February 11

Click  here  to watch Karl Berger on BNN’s ‘The Street.’

Negative Interest Rates ahead?

Looking solely at the returns for the quarter ended March 31 st , equity markets hardly changed from the beginning of the year: the S&P returned 0.60%, the MSCI -0.90% , the TSX +4.5% while bonds returned about 1.5%. However the quarter was in fact quite volatile. Equity markets declined over 10% at one point, oil hit a new low at $26.05 and corporate bond yields spiked to levels not seen since 2009. It would have been easy to lose money trying to time the ups and downs of this market. The best results were achieved by resisting the urge to trade.

Media reports and investors focused on the movement in equity markets, but the prevalence of negative interest rates across the globe is an even bigger story. Not long ago, negative interest rates seemed related to concerns over the possibility of a Greek default. However, their persistence, and in some cases their adoption as an explicit monetary policy tool, has real implications. Currently, there is about $7 trillion in bonds which trade at negative yields – not an inconsequential sum. An investor in Switzerland could purchase a 5-year bond for CHF103.50, earn no interest and receive CHF100 in 5 years’ time – in effect locking in an annual interest rate of -0.70%. In other words, investors pay CHF3.50 to guarantee CHF100 in 5 years. This situation is entirely foreign to Canadian and US investors.

In Canada, we view current interest rates as extraordinarily low at 0.70% for a 5-year government bond. However, we are a high-yielding country! Most investors would be surprised to discover that among developed countries, only the US, Greece, Portugal and Iceland offer higher yields; even Spain now yields less than Canada. As a result, Canadians should not be so quick to assume that our interest rates will move higher soon and any further economic weakness and Canada may find itself joining the negative interest rate club. But in the global search for yield, Canada currently offers a compelling investment opportunity – positive yields, especially for European institutional investors, for whom negative interest rates are a fact of life. Rather than charge small depositors a negative interest rate, European banks have partially absorbed the interest cost and raised service fees.

So, what does this situation mean for most investors?  First, negative interest turns conventional financial wisdom on its head. For example, although deferring taxes on investments has generally been advisable, in the world of negative rates this is no longer the wisest course of action. In fact, you may want to accelerate your tax payments – a dollar today is worth more than it will be in the future. Shrewd Swiss citizens have attempted to prepay taxes, but the government has now forbidden paying anything but current taxes. This is but a small window into the world of negative interest rates.

Second, and most importantly, investors must consider how this kind of interest rate environment impacts retirement plans. Many simple retirement calculators blithely assume that fixed income returns will work out to their long term averages of about 6% per annum. Given the current interest rate levels (0.70% 5 yr. – 1.40% 10 yr.), those returns are simply unrealistic. Even at today’s interest rates, many investors are losing money after taxes and inflation are taken into account. To achieve higher rates, investors must consider corporate bonds, preferred shares and alternative investments as part of their overall bond allocation. Our team is focussed on finding companies with the ability to increase dividends at rates well above inflation and on constructing preferred portfolios that avoid common mistakes with this asset class, thus reducing potential future problems for our clients.

Negative interest rates, once considered a historic anomaly, have become a common fixture in today’s fixed income markets. We can no longer assume that Canada will follow its own path to higher rates. To be successful, investors have to consider the implications of negative rates to understand how to alter their current portfolio or what action to take if Canadian rates fall, gulp, below zero.

Conversation Series: Research Trip to Japan and Singapore

Listen here to an internal interview with Charles Lannon, the head of Toron AMI’s Global Equity strategy. He has just returned from a research trip to Japan and Singapore and in the interview he discusses his trip, including the general mood among business executives, the economy, and the companies he met with.

If you have any questions, do follow up with your relationship manager or contact [email protected] for more information about the Conversation Series.

Disclaimer: Past performance is not an indication of future results. The content contained in this document is for information purposes only. It is not intended as an offer or solicitation for purchase or sale of any security or financial instrument, nor is it advice or a recommendation to enter into any transaction. All individuals should obtain specific professional advice.

The Presidential Cycle

With the Republican and Democrat nomination processes drawing to a close, campaigning for the November US election will soon begin in earnest. Given the current frontrunners, it certainly promises to be an interesting few months, to say the least. Should investors care? A theory which was once in vogue described the Presidential Cycle, where pre-election promises and fiscal initiatives designed to bolster voter sentiment led to a stronger market in the election year and the preceding one, while the reversal of those initiatives in the following two years led to weaker returns. Certainly there is some intuitive appeal to the theory. It did seem to hold true  for a while, which of course led to its gaining popularity, but as is often the case over a longer period its effectiveness has become less compelling- 2008 was an election year, for example. Whether this is a case of mistaking correlation for causation or a reflection of changes over time in the structure of the US economy is an interesting topic for thought.

Considering the election year specifically, research by Deutsche Bank shows that since 1960, the fourth year of the presidential election cycle has seen the S&P 500 produce a capital return of 6.5%, versus a rise of 7.9% for all years; excluding 2008 the respective figures become 9.1% and 8.8%- a negligible difference. Looking within the year, work by Ned Davis Research shows that stocks tend to struggle during the first half of election years, bottoming on average in May. The timing of a more constructive market environment tends to coincide with emerging clarity as to who the eventual winner will be, regardless of who it is.

Overall, while we do not advocate making investment decisions on any short term or seasonal theme, we think it’s reasonable to expect some pick up in volatility in the run up to the election, especially given the likelihood of some controversial policies being floated. Our base case though is that as in the past once a better picture emerges of who the eventual winner will be, it will be discounted as the outcome and the election will fade as a source of investor uncertainty (no doubt to be replaced by something else!) Of the two most likely candidates, Clinton is generally felt to represent the status quo and as a result be the most ‘market friendly’; Trump on the other hand is a bit more of a loose cannon but the fact of the matter is that any presidential legislation has to make it through Congress; an extended period of gridlock would be the likely result, leaving investors to focus on the broader fundamental picture.

February 2016

Happy new year.

Global equity markets started the New Year on a glum note as December’s optimism turned to disappointment as stocks around the globe sold off in January. By some accounts this was the worst start to the year since the 1930s, although a rebound mid-month pared losses. Government bonds posted gains, due in part to “safe haven” buying. The Canadian dollar hit a low against its US counterpart, dipping below 0.69 before rebounding to just short of 0.72 at the end the month.

Overall, sentiment has turned more negative on the outlook for global growth, but it is always difficult to determine in the short term whether this caused markets to fall or vice versa. Policymakers have been active, with the Bank of Japan adopting negative rates on new deposits and the Fed starting to sound a bit doubtful about their outlook and, by implication, the timing of further rate increases. The VIX index, a closely watched measure of market expectations of near-term volatility embedded in S&P 500 stock index option prices, rose sharply before settling back to the 20 level (about its average level since inception in 1990 – the low to mid-teens level that persisted for much of last year being very much an anomaly).

So what, in reality has changed? The decline in oil prices accelerated back in October of last year, and Chinese shares have been in more or less constant free-fall for the last 6 months. While earnings growth for US companies has ground to a halt, this was expected and doesn’t appear to be worsening.

What appears to be at work is that investors are increasingly considering the broader implications of what until now have commonly been viewed as discrete events. In particular, the ability of companies exposed to commodity prices to service their often considerable debt loads has led to concerns over a looming pick up in defaults, and the exposure of the banking system to losses. More broadly, persistently low inflation and a subdued growth outlook has investors pondering the build-up of corporate debt over the past few years.

While we do expect corporate debt levels to be an issue for 2016, we certainly do not anticipate a debacle like 2008 since there is currently no problem with the enormity of the US mortgage market and the magnifying effect of difficult (or impossible) to value financial instruments. That’s not to say that the market won’t be prone to fits of uncertainty however, and an uptick in loan losses could reasonably be expected to pressure bank lending at the margin. A stabilisation in commodity (particularly oil) prices is, in our view, an obvious catalyst for a more constructive market environment as it will help in assessing the magnitude of whatever credit issues there are; it’s probably not a coincidence that stocks and oil both bottomed on the same day in January.

In conclusion, there probably will be some credit issues and other surprises in store for 2016. However given the strength of bank balance sheets (in the US at least), any problems should be manageable and contained to companies that have painted themselves into a corner through bad financial planning. Toron AMI’s portfolios have limited direct commodity exposure, and those companies with exposure have a solid financial profile. Likewise our emphasis on balance sheet strength and durability of cash flows leads us to invest in companies that are well positioned to take advantage of any opportunities 2016 might bring.

January 2016

Conversation series: preferred share opportunity.

Listen here to last week’s open conference call, where we discussed the Canadian preferred share market. Preferred share returns were down significantly in 2015, listen here to learn about the opportunity this presents.

We welcome your questions and suggestions for next month’s call. Send them in to [email protected] .

Rob Spafford on BNN – January 18

Click  here  to watch Rob Spafford on BNN’s Market Call!

Sound and Fury, Signifying Nothing

The end of the year is a good time for a moment of reflection to consider your successes and failures as an investor. An objective review of investment decisions, performance and risk is a cornerstone of a good portfolio management process. Let’s look at some lessons of the past year and talk about a couple of key risks for 2016.

2015 can be summed up with a quote from Macbeth; “…full of sound and fury, signifying nothing”. The S&P was up only 1.5% and 10 year US bond yields were up only 0.06% to 2.26%. The Canadian market performed poorly with the TSX down just over 8% and the 10 year yield dropping 0.30% to finish the year at 1.45%. The route to these results was tumultuous as both equity and bond markets experienced some of their largest intraday moves in history.

During 2015, three unforeseeable events had huge portfolio implications for unprepared investors. The first was the almost 17% drop in the Canadian dollar – the second largest drop ever. Toron AMI always advocates that investors maintain consistent exposure to assets outside of the Canadian market. In 2015, this discipline helped your portfolio generate good returns in a difficult environment. The lesson? You need to access the deepest, broadest set of investment opportunities to take advantage of the risk reduction that portfolio diversification provides.

The second event was when the Swiss central bank abandoned its pledge to limit the appreciation of the Swiss Franc vs. the Euro. While this had a limited impact on your portfolios, it speaks to the issue of central bank credibility. If investors start questioning a central bank’s commitment to a policy, it makes a central bank’s ability to shape investor expectations even more difficult. The lesson? You can’t always count on central banks to keep their word and should incorporate that uncertainty into your portfolio construction and asset allocation.

The third surprise was the further 20% drop in oil prices – along with the overall commodity index. Early in 2015 there was so much optimism that oil prices would rebound, that many investors plowed large percentages of their portfolios into energy, only to see dramatic losses. It was not being wrong that torpedoed these investors; it was the size of the position relative to their overall portfolios. The Toron AMI exposure to energy had only a small impact on your portfolio, more than offset by other investments. The lesson? A properly diversified portfolio limits the damage from a single large economic event: “risk not thy whole wad”.

Looking forward to 2016, it seems there is more uncertainty than we have seen in years. Any number of unanticipated factors could easily alter the economic outlook materially and invalidate even the most thoughtful forecasts. In no particular order, some things we are thinking about: • What would a Trump/Cruz presidency do to markets? • Is OPEC going to change its oil price policy? • Will the US consumer continue to spend? • What if we have more terrorist events in the US and Europe? • Can the Chinese government continue to orchestrate growth? • Can commodities rise without an increasing Chinese growth rate? • What if the Federal Reserve raises interest rates too quickly? • Why is productivity not recovering?

You can drive yourself crazy thinking about all of the potential risks. The key is to ensure that no single event dominates the return on your portfolio. It is this risk management ethos that continues to be central to our portfolio management approach: we spend as much time thinking about risk as we do thinking about returns. If you get the risk management process right, the returns will look after themselves.

I wish all of you a happy and prosperous 2016.

Arthur Heinmaa, CFA Managing Partner

Commentary on Recent Market Volatility

Chief Investment Officer Arthur Heinmaa offers commentary on recent market volatility:  Read Here

December 2015

Conversation series: airbnb and the travel industry.

Listen here to last week’s open conference call, where we discussed AirBnB and its competitive threat to the travel industry. You may be surprised at what you hear!

We welcome your questions and suggestions for next month’s call. Send them in to [email protected] . 

Stephen Caldwell on BNN – December 8

Watch here to see Stephen Caldwell on BNN!

History didn’t end in 1989

Global markets and interest rates broadly finished November close to where they started, masking some volatility over the course of the month. The Canadian dollar weakened against its U.S. counterpart in sympathy with commodity prices.

It has been almost 30 years since Francis Fukuyama’s essay ‘The End of History?’ put forward the thesis that the end of the Cold War and the victory of Western liberal democracy heralded a much less eventful era for geopolitics. While that seemed like a reasonable expectation as the Berlin Wall was dismantled in 1989, anyone who has been paying the remotest attention in recent years would conclude that it has turned out to be a rosy tinted forecast indeed.

Recent months have seen events happen around the world that underline how fortunate so many of us are to live our lives in relative peace and harmony. Nobody knows what the future will bring, but how should we as investors consider the impact of what we will term ‘crisis events’ on our portfolios? While the human impact is all too real, and it is reasonable to expect an economic impact to shaken consumer confidence, what does this mean for markets?

The evidence strongly suggests the financial market impact of ‘crisis events’ is fleeting and largely a short-term reaction to headlines rolling across the screen. A study by Ned Davis Research looked at a sample of 50 crisis events dating back to 1907 and stemming from both financial and geopolitical developments in order to measure the immediate and subsequent impact on the Dow Jones Industrial Average Index. The study found a mean loss of 6.8% in the immediate aftermath of the event, but what about the long term?

The study showed that despite immediate losses, the markets showed mean gains of 3.7%, 5.2%, 9.0% and 14% over the subsequent 22, 63, 126 and 253 days respectively. The three events with the biggest market impacts (the 1907 collapse of Knickerbocker Trust, the 1929 Crash and Black Monday in 1987) were all financial in nature and by definition therefore associated with substantial market losses. However even in these cases, the index produced positive returns in all of the subsequent periods measured and recouped a substantial portion of those immediate losses. The biggest loss after 253 days (38.1%) occurred following the collapse of Bear Stearns in 2008; a period where events in the financial sector were unfolding at rapid speed and with cumulative impact.

So in the face of crisis events what should we do as investors? We are all human and understandably experience human emotions upon reading the headlines after major world events. Tempting as it might be, the evidence strongly suggests that reacting to any immediate market movements is not the right course of action – a welcome reminder to maintain a long-term view as we start to look ahead to what 2016 might have to offer.

Rob Spafford discusses investing on Railroads on BNN Market Call – Nov. 25

Watch Rob Spafford discuss investing in railroads on Market Call  on November 25, 2015

3 investing ideas from Karl Berger as guest host of ‘The Street’ – Nov. 4

Watch Karl Berger give 3 investing ideas as guest host of ‘The Street’

November 2015

Cidel monthly newsletter.

A look at some of the month’s most interesting articles, presentations, and commentary.

*Click Here:  http://cidel.com/downloads/newsletter/  

A Message from CEO Arthur Heinmaa

Six years ago we brought on a valuable partner in Cidel. At that time Cidel acquired a majority interest in our firm and immediately became an integral part of Toron AMI, helping us grow and deliver on our promise to our clients.

We are very proud to announce that as of the end of October, the partners of Toron AMI have exchanged their shares in Toron AMI for shares in Cidel. Some of our partners also took the opportunity to increase their level of shareholdings – a strong vote of confidence in our future.

For our firm, this event marks an important step in our plan to become a leading international investment manager and private bank. For our clients, it means we will continue to offer top tier investment solutions and superior counselling by our highly qualified team. In days coming, the portfolio management team from Cidel will be integrated with the existing Toron AMI team under my leadership, deepening our investment management capabilities for all our clients. In time, our extended partnership will provide the added benefit of Cidel’s global private banking services.

Nothing will change in our clients’ interactions with portfolio managers and in the way we manage portfolios. Clients can expect the same level of personal service experienced over the years with Toron AMI.

For me, and for all of us at Toron AMI, this is an exciting development as our firm evolves in the spirit of partnership. We are dedicated to providing exceptional professional talent to serve our clients for many years to come.

Arthur Heinmaa Chief Executive Officer & Chief Investment Officer Toron Asset Management International | Cidel Financial Group

Conversation Series: A Look Ahead

Listen here to our open conference call, where we discuss the biggest themes looking ahead in capital markets and answer questions sent in by clients.

We welcome your questions for next month’s call! Send them in to [email protected] .

Back to the Future

In October, stock markets rebounded substantially from losses experienced in the proceeding months. Bond markets experienced some weakness.

October 21, 2015 was immortalised in the 1980’s movie ‘Back to the Future Part 2’ as the date the two principal characters time travel to in a silver DeLorean sports car. The tranquil market environment that persisted for most of 2015 came to an end over the last couple of months with a marked pick up in volatility attributed to a variety of factors, from Chinese growth to U.S. interest rate policy. So far there have been 61 days with a move in the S&P 500 in excess of 1%, ahead of the long term average of 54. While the end of the year typically sees volatility abate, the potential for a Fed tightening cycle to commence in December has the potential to negate this trend. What lessons can we take from the past to interpret future volatile investment environments?

In a 1981 paper the renowned economist Robert Shiller noted that movements in stock prices were excessive relative to subsequent changes in the dividend stream those prices represent. Shiller has returned to this topic several times, considering the role of investor psychology versus rational reactions to changes in fundamentals as a catalyst for episodes of market volatility. In the aftermath of the global market crash in October 1987, he surveyed individual and institutional investors over their behaviour during that period. While the passage of time has developed a narrative for the factors causing the crash, the responses paint a different picture. The survey did not come up with any particular news event that was a catalyst for the sell-off, although there were concerns expressed about valuation and interest rates. Rather, there was a strong belief that investor psychology rather than any change in fundamentals what the main factor at play, with a “contagion of fear” experienced by 40% of institutional investors. Interestingly many were influenced by a historical analog with the events on October 1929.

While 1987 was a long time ago, it’s not hard to believe that advances in communication have only facilitated the transmission of changes in market psychology since then. Human nature being what it is, such changes will invariably occur, leading to volatility episodes. It’s probably a good idea to treat any fundamental explanations with a degree of skepticism. In his 1996 Chairman’s Letter Warren Buffett said he “would much rather earn a lumpy 15% over time that a smooth 12%”. At Toron AMI our principal focus is to look at the underlying fundamentals of the companies we invest in to avoid investments likely to experience undue volatility in the underlying businesses, and we view periods of volatility unrelated to changes in the broad environment as opportunities rather than threats.

October 2015

Institutional investors quarterly report – q3 2015.

Read our quarterly recap and comments on the economy here: Q3 2015 Website Commentary

Is it really as bad as it seems?

After almost 4 years of steady increases, investors were reminded this quarter that markets can also go down. Third quarter market returns were down no matter where you invested. The MSCI was down about 9% for the quarter pushing its year to date return to -7.5%. Lead by oil, commodities were down 14.7% for the quarter and 16% YTD. Even the fixed income market was down in all but government bonds, which were barely breakeven. The newspapers kept up a steady drumbeat of worries about Chinese growth. This month, we wanted to look at the size of the China impact and where there is an opportunity for investors.

The declining growth rate in China was cited as the proximate cause for the fall in markets. But how big is China’s impact on the global economy? The world economy, excluding China, is about $60 trillion. China’s imports of goods and services amount to $2 trillion, or about 3.3% of the world economy. But even if China reduces its imports by 20% (a large number), that would translate into a drop of 0.60% in the world’s growth rate. However, the world’s growth rate would still be positive at about 2.5% per year; lower but not catastrophic. The concerns about China’s impact on the global economy seem to be overdone and more about fear than fact.

With any decline in the markets, there are pockets of opportunity. First, the equity market is now selling at 14.2 times next year’s earnings compared to a long-term average of 15.1 times. Recall that the long-term earnings include many decades where long-term interest rates were significantly higher than they are today. So equity valuations look inexpensive not only from a long term perspective but also relative to the 2% return that investors would earn in government bonds. Indeed the dividend yield on both Canadian and US indexes is higher than the 10 year bond yield. Essentially, investors have an income advantage for taking on equity risk. Investing judiciously in this market should still reward the investor with a 2 – 5 year investment horizon.

Corporate bonds have also suffered during the past 6 months. The high-yield bond market is now set to have its first losing year since 2008. The interest rate difference between corporate bonds and government bonds is at level that we have not seen in over 5 years. Overall, investors have become more concerned about a weaker economy and the ability of corporations to pay their bond obligations. However, corporations are generally in better financial condition now than they were 5 years ago, and unless global growth tumbles to zero, it is unlikely that we are going to see a rash of corporate defaults. Though all corporate bonds are not created equal, by scrutinizing the balance sheets, investors can identify good risk-return opportunities in corporate bonds. Currently, investors are earning well above historic averages to invest in corporate bonds.

The fixation on weakened Chinese growth has blinded investors to so many good things in the economy: corporations have stronger balance sheets, cheaper commodity prices are good for consumers, a growing global economy, and stronger wage growth, just to name a few. In turbulent times like these, a steady focus on valuation and risk control will allow investors to take advantage of any market decline.

September 2015

Volatility as an opportunity.

During the past 6 years we have become accustomed to opening our account statements and seeing values continue to go up. This month, we will see a decline in market values with equity markets off about 4% and bond markets down 1% during August. With the dramatic movement in markets, it is useful to talk about why investors achieve higher rates of return over time by investing in equities.

Most investors think about volatility as market movement on a particular day. Portfolio managers think about volatility as measured by standard deviation – not just in a day but over whole periods of time. Standard deviation is the measure of the “spread” of data: the higher the spread, the higher the standard deviation, the higher the volatility and the risk. The standard deviation defines the risk that we can expect during a given time. For instance, a treasury bill has a known return and maturity date so the price moves very little and correspondingly has very little volatility (or risk). On the opposite end of the spectrum, a small cap equity has no certainty of any return and could have high volatility. In general, we can expect that the greater the uncertainty of the investment, the higher the volatility.

Now here is the key insight: if all we wanted was low volatility, our only option would be to invest in treasury bills, achieving a return of close to zero. If we want a return greater than treasury bills, however, we have to be prepared to assume a greater degree of volatility. Essentially, higher volatility is the price you pay for potentially higher returns.

To understand volatility in returns, consider the case where you have two investments: Investment A has a return of 1% and risk of 1 and Investment B has a return of 10% and a volatility of 5. How to invest becomes a function of how much risk are you willing to tolerate. Over time the second investment would generate a higher rate of return but the price would vary greatly from day to day. By being willing to assume the higher price volatility you can achieve a higher rate of return which illustrates why equity markets have outperformed treasury bills over time.

At Toron AMI we spend as much time on risk as we do on expected returns. We try to make sure that any one event does not unduly impact the portfolio and that the companies in which we invest have the financial strength to thrive in a weak economic environment. By employing a disciplined portfolio construction process, we have been able to reduce the volatility of our portfolios without sacrificing performance.

In today’s volatile markets, some companies on our watch list have dropped to levels where they offer compelling value. We will use this market volatility to purchase those companies and add to any underweight positions. Volatility can be your ally if you take advantage of it.

Crude Market Thoughts

Oil prices have dropped drastically over the past year yet oil production globally continues to grow. Why? At Toron AMI, we see two main sources of this growth: OPEC’s increase in production, and improved technological efficiencies in the U.S.

Read all about it in  Crude Market Thoughts

August 2015

The geopolitics of oil.

What are the global relationships that define the price, the availability and the security of oil supply worldwide? Since oil prices began falling almost a year ago, so many questions have arisen. How did we get here?

Read this insightful piece by Tim Hague and the Toron AMI Team to understand the  Geopolitics of Oil .

Karl Berger talks about the Loonie on BNN – Aug 19

Watch here for Karl Berger’s discussion on the Canadian Dollar : the worst is yet to come.

www.bnn.ca/Video/player.aspx?vid=683419

Institutional Investors Quarterly Report – Q2 2015

Read our quarterly recap and comments on the economy here:  Q2 2015 Website Commentary

The Infrastructure Gap

Our roads are clogged, public transit in major Canadian cities pales in comparison to other world class cities and high speed trains simply do not exist.  While estimates on the size of Canada’s infrastructure deficit vary, the conclusion is the same: we have underinvested for years and the amount needed to fix our infrastructure is massive.  It could be as much as $350-$400 billion.  Our quality of life and ability to compete on the global stage depend on the performance and quality of our public infrastructure.

Governments are beginning the address the problem, but commitments are short of what most experts believe will be necessary to meet our future needs. In the recent federal budget, the Government set up an innovative Public Transit Fund, funded at $750 million over the next two years and $1 billion per year after that.  They also promised $5.35 billion per year for municipal, provincial and territorial infrastructure under the New Building Plan.

However with 30-year Government of Canada bond yields at just over 2 percent, it begs the question of whether there will ever be a better time to invest in infrastructure. Government deficits are always a hot topic, but increasingly the public is beginning to understand that there is a big difference between deficits tied to investing in infrastructure and those related to program spending. In personal terms, it’s like a home mortgage debt versus a loan to fund regular monthly expenses. It may be that our governments are missing the opportunity of a lifetime to borrow at the lowest interest rates in over 100 years to invest in an economy that has grown at over 5% annually (well below current rates) over the last 50 years.

We will always need infrastructure to improve the productivity of Canadians so that we can remain competitive. We also need to ‘think outside the box’ and explore many ways to finance improved infrastructure, such as enhancing the productivity of infrastructure services, managing demand through pricing mechanisms and many others identified by the Conference Board of Canada in its influential 2011 report and recent discussions. We can all agree that there is a critical need for investment — how we finance it is an important choice for our future.

Omaha: Centre of the Universe?

Attending Berkshire Hathaway’s 50 th Annual General Meeting – James Porter, Partner & Managing Director

The world came to Omaha on the weekend and I had the privilege of being there to see Warren Buffett and his partner Charlie Munger hold court at Berkshire Hathaway ’s (BH) Annual General Meeting. The meeting itself was unlike any shareholders’ get together that I have witnessed. The venue and the surrounding city were overwhelmed by the devoted who traveled from China to Sweden to help celebrate the company’s 50 th anniversary. Just getting a seat was a real adventure. Visiting the BH displays and shopping made the holiday season at the malls comparatively leisurely. As for the shopping (some of it exclusive to the BH AGM), one could visit a model home, buy candy or pick up some underwear (Berky boxers and Berky bras certainly seemed to be big sellers).

The kick-off was a surprisingly slick video comprised of commercials for Berkshire Hathaway companies peddling everything from snacks to banking services, along with humorous skits featuring Warren and Charlie. There was also a medley of Beatles tunes with revised lyrics celebrating 50 years. The famous Q & A lasted for six hours with both men, an octogenarian and a nonagenarian, fielding questions with wry humor.

My favourite anecdotes were  Buffett admitting to a quarter of his calories coming from Coca-Cola products, and saying (to paraphrase), “I see a lot of happy people consuming Coke and Dairy Queen treats, I don’t see a lot of smiles on people leaving Whole Foods!”

Some highlights from this Toron AMI partner’s perspective:

• A company’s culture matters above all. What people do is more important than what they say.
• Without a doubt, BH has invested well. When asked for five key criteria, they answered they simply don’t work that way. Every business they buy is evaluated, but not with a pre-determined framework.
• On job cuts that have occurred in companies they invest in and on wages both men were very direct:  They don’t buy companies to make cuts, but they expect efficiently run enterprises. While they each had slightly differing views they both agreed that simply raising the minimum wage is not the best solution; the focus should be on skill development and improvement to socio-economic mobility in the U.S.
• They are highly optimistic about the future of the U.S. and believe the next generation will be far better off.
• Charlie Munger spoke at some length about his views on China. He believes that China is finally finding a pathway to release the potential of its people and that U.S. – China trust will be critical to both nations’ futures.  In particular, he cited the work to end corruption as a necessary step for the Chinese people and system.

It was abundantly clear that Buffett and Munger don’t just buy stocks;  they invest in businesses with great long-term potential and superb operators. That certainly strikes a chord with me and my partners at Toron AMI as it is the key to building long-term wealth.

All in all, it was a great experience to be there!

Toron AMI Welcomes Barry Da Silva

We are pleased to announce that Barry Da Silva has joined the Toron AMI team on May 1 st as a Portfolio Manager with investment research responsibility for the Energy sector.

Barry Da Silva’s Background

Barry has extensive analytical and portfolio management experience. He comes to us from one of the country’s larger investment managers, where he was a Canadian equity portfolio manager. Prior to that he spent a decade as an investment analyst and portfolio manager at OMERS , one of the leading Canadian public sector pension plans. There Barry had research responsibilities for a wide variety of industries and developed detailed expertise that he has leveraged as a Portfolio Manager in both the Canadian and U.S. markets. Barry has a B.A. in Commerce and Economics from the University of Toronto, and holds a CFA charter.

 Toron AMI & Our Canadian Equity Team

Barry will be a significant contributor to the team, our process, and our ability to continue providing our clients with excellent Canadian equity investment returns. The Canadian equity team follows a disciplined bottom-up approach to stock picking and portfolio construction. Each portfolio manager within the equity team, led by Bob W. Gibson, is responsible for research on specific industry sectors, and participates in the stock selection and portfolio construction process.

Please contact us should you have any questions or require more information. All of us at Toron AMI are excited about this great addition to our team, and look forward to working with Barry.

Keeping up with Mr. Buffett

This weekend, Toron AMI’s James Porter is heading on a road trip to Omaha to attend the Berkshire Hathaway Annual General Meeting and hear from Warren Buffett!

Watch this space next week for Toron AMI’s take on this fascinating event.

Can business solve social problems?

“The capitalist system is under siege. In recent years business has increasingly been viewed as a major cause of social, environmental, and economic problems… Companies are widely perceived to be prospering at the expense of the broader community. ” This statement appeared in a 2011 Harvard Business Review article by Harvard business professor Michael Porter and management consultant Mark Kramer. Just look at the Occupy movement and how it has spread around the globe to see this observation in action.

The way to combat massive social problems, they propose, is to make business the solution – they call it ‘creating shared value’(CSV). CSV “is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success.” It is addressing a social issue with a business model. At its heart, CSV means “ businesses must reconnect company success with social progress .”

The CSV idea has injected new energy into the CSR and sustainability movements by rightly advocating a better alignment between a company’s core strategy and the social problems on which it can have an impact. The role of business is so crucial because only it has the capital and knowledge resources to make a difference – both alone and as a partner to NGOs. Watch Michael Porter explain the case for letting business solve massive societal problems like climate change and access to water.

Can these ideas really work? Some degree of rethink is certainly necessary. Companies that embrace these ideas are guided by leaders who value the importance of long-termism – understanding that real value and real wealth are created by adopting a long-term perspective, including the full impacts of their activities and the needs of future generations.

As investors, we need to be aware – but also tolerant – of the short term impacts of long-term thinking, and watch for the new business and investment opportunities as they arise and influence existing industries and ways of doing business.

Pierre Bouchard featured in Montreal’s La Presse – Mar. 11

Our very own Pierre Bouchard, partner and portfolio manager was featured in this past Saturday’s La Presse.  To read the full translated text, click here .

For the original text as it appears in La Presse (in French) click here .

Falling Oil Prices: The Canadian Opportunity

While there has been much talk about the destabilizing effects of the oil price drop, as the price stays relatively low it is increasingly important to recognize the opportunities for Canada in this new reality. Perhaps surprisingly to many of us, the Canadian economy is more diversified than is often assumed. In fact, the effects of falling oil prices have likely created conditions which actually provide new opportunities.

This informative piece by Toron AMI’s Pierre Bouchard was initially written for our clients and consultants abroad, but it is also a great primer for Canadians seeking to understand and invest in Canadian markets within a global context.

Read the full report here: Falling Oil Prices – The Canadian Opportunity .

February 2015

Why are 1,000 year old japanese companies disappearing.

Consumers are often attracted to brands that have stood the test of time. For most of us, this is usually measured in decades or perhaps a couple of centuries. We are used to seeing companies come and go over the years, and certainly through generations. American Motors and British Leyland are examples of former giants known to most of the Boomer generation and their parents, but that are no longer standard bearers in today’s automotive industry. Japan, however, is quite different when it comes to company longevity. Even today, you can buy sake in Japan from a company that was in business back in the 1100s.

From our western perspective, we think of Japan as an advanced economy with a strong culture and traditions; we know the country for its global household brand names like Sony and Toyota. But Japan also has one of the world’s fastest aging populations and an economy beset by 20 years of deflation from which it may now be emerging. These are experiences that provide the rest of the world with valuable learning. Despite these recent economic challenges, Japan has been able to foster numerous successful centuries-old companies which are now facing brand new challenges to their existence.

This article is a reminder that change can come quickly – even to things that seem like they’ll last forever. Also, that longevity alone doesn’t create value in a company. Every generation of management and investors needs to ensure that the business is robust and ready for the opportunities and threats that come with change.

Read here as Joe Pinsker of the The Atlantic explores the impact of changes in culture, business and law on some of Japan’s oldest businesses.

Institutional Investors Quarterly Report – Q4 2014

Read our quarterly recap and comments on the economy here:  Q4 Website Commentary

January 2015

Energy sector’s ripple effects: pierre bouchard and rob spafford – jan. 14, globe and mail.

Check out Pierre Bouchard and Robert Spafford’s insights on the energy sector’s ripple effects and their top Canadian dividend stock picks in the Report on Business, Globe and Mail, January 14, 2015.

Read it here:  http://live.theglobeandmail.com/Event/QA_Top_Canadian_dividend_stock_picks_from_Toron_Amis_Pierre_Bouchard

Or for Globe Unlimited Subscribers, click here:  Q&A: Top Canadian dividend stock picks from Toron AMI’s Pierre Bouchard

December 2014

Institutional investors quarterly report – q3 2014.

Read the insightful commentary of our Portfolio Managers here:  Q3 2014

November 2014

Bitcoin and virtual currency: a discussion paper.

The senior deputy governor of the Bank of Canada, Carolyn Wilkins, recently discussed the rise of Bitcoin and other e-moneys and how they might eventually amount to a material part of the financial payments system, and empathised the need for Central Banks to be aware of such emerging trends and proactively develop contingencies for the future should the time come that they become material.

What better time to reexamine this important discussion piece our own Stephen Caldwell produced on the Bitcoin phenomenon in December 2013?

Read it here:   Bitcoin Phenomenon TORON AMI

Climate change and investing: Our Perspective

In this discussion paper by Pierre Bouchard, read about how climate change concerns and perspectives shape our thinking about investing.

Read it here: TORON AMI and ClimateChange_April2014

(801) 618-0699

Estate Planning For Real Estate Holding Companies

Imagine having peace of mind knowing that your real estate investments are protected and your assets will be seamlessly transferred to your loved ones. With “Estate Planning For Real Estate Holding Companies,” you can ensure a smooth transition of your properties while minimizing taxes and avoiding probate. This comprehensive guide will provide you with valuable insights into the world of estate planning for real estate holding companies, helping you understand the importance of proper estate formation and the steps involved. Don’t wait until it’s too late; take action now and contact the experienced estate planning lawyer listed on this page to schedule a consultation tailored to your needs. Your real estate empire deserves the best protection, and this guide will show you how to achieve it.

This image is property of images.unsplash.com.

1. Introduction to Estate Planning for Real Estate Holding Companies

What is estate planning.

Estate planning refers to the process of arranging and organizing one’s assets and affairs to ensure their efficient management and disposal upon death or incapacitation. It involves making decisions regarding the distribution of assets, appointing executors and trustees, and addressing potential risks and liabilities. Estate planning is essential for individuals and families to protect their wealth, minimize tax burdens, and ensure their wishes are carried out.

What are real estate holding companies?

Real estate holding companies are entities specifically created to own and manage real estate assets. These companies widely vary in their legal structures, such as limited liability companies (LLCs), corporations, partnerships, or trusts. Real estate holding companies can be an efficient way to consolidate property ownership, facilitate management, and shield personal assets from potential risks and liabilities.

Why is estate planning important for real estate holding companies?

Estate planning is especially crucial for real estate holding companies due to the complex nature of their assets and ownership structures. Without proper planning, the transfer of ownership upon death or incapacity can be challenging, leading to potential disputes and delays. Estate planning allows these companies to ensure the seamless transition of control, protect their assets, and preserve wealth for future generations. It also addresses important considerations such as minimizing tax liabilities, safeguarding against potential risks, and providing for the needs of beneficiaries.

2. Key Considerations for Estate Planning

Identifying the objectives of your estate plan.

Before diving into the estate planning process, it is crucial to identify the objectives you wish to achieve. These objectives can vary widely depending on your personal circumstances and goals. For real estate holding companies, common objectives include preserving wealth for future generations, minimizing taxes, protecting assets, and ensuring a smooth transition of ownership and control.

Choosing the appropriate legal structure for your holding company

Selecting the appropriate legal structure for your real estate holding company is crucial as it affects various aspects of estate planning. Different legal structures offer different levels of liability protection, flexibility in management, and tax considerations. Consulting with an experienced attorney can help you determine the most suitable structure for your specific needs.

Valuing your real estate assets

Accurately valuing your real estate assets is a fundamental step in estate planning for real estate holding companies. Proper valuation ensures that the distribution of assets aligns with your intended wishes and helps minimize disputes among beneficiaries. Professional appraisals may be necessary to ensure an accurate valuation, especially for complex or high-value properties.

Identifying potential risks and liabilities

Real estate assets can expose holding companies to various risks and liabilities. Estate planning should involve a careful assessment of these risks and the development of strategies to mitigate them. This can include implementing insurance policies, creating separate legal entities for high-risk properties, and limiting personal liability through appropriate legal structures.

Developing a succession plan

A well-crafted succession plan is vital for real estate holding companies to ensure a smooth transition of control and management upon death or incapacity. This plan identifies the individuals or entities who will assume leadership roles, outlines procedures for decision-making, and addresses potential conflicts or challenges that may arise. It is essential to clearly communicate the succession plan to all relevant parties to minimize disruption and confusion.

Considering tax implications

Tax planning is a crucial aspect of estate planning for real estate holding companies. Various tax implications need to be considered, including estate taxes, gift taxes, and potential capital gains taxes. Understanding these implications and implementing appropriate strategies can help minimize tax liabilities and maximize the value of your estate. Consulting with tax professionals or estate planning attorneys specializing in real estate can be invaluable in navigating the complex tax landscape.

3. Creating a Will and Trust

Understanding the difference between a will and a trust.

A will and a trust are two common estate planning instruments, and understanding their differences is essential. A will is a legal document that outlines your wishes regarding the distribution of assets and the appointment of guardians for minor children. It takes effect upon your death, and assets passing through a will must go through the probate process. On the other hand, a trust is a legal entity that holds and manages assets for the benefit of named beneficiaries. It allows for the avoidance of probate and provides additional flexibility in asset management and distribution.

Choosing the right type of trust for your real estate holdings

When it comes to real estate holding companies, choosing the right type of trust is crucial. Some common types of trusts include revocable living trusts, irrevocable trusts, and land trusts. Revocable living trusts provide flexibility during your lifetime and ease the transfer of assets upon death. Irrevocable trusts allow for greater asset protection and potential tax advantages but limit control. Land trusts can be particularly useful for holding and managing real estate assets while maintaining privacy.

Appointing executors and trustees

Appointing trustworthy and competent executors and trustees is a critical aspect of estate planning for real estate holding companies. Executors are responsible for administering your estate, while trustees manage and distribute assets held in a trust. Selecting individuals or professional entities with relevant expertise ensures that your wishes are carried out accurately and efficiently.

Distributing assets in accordance with your wishes

The ultimate goal of estate planning is to ensure the smooth distribution of assets to your intended beneficiaries. For real estate holding companies, this entails creating a comprehensive plan that accounts for all real estate assets, clarifies ownership transfer procedures, and addresses any specific instructions or conditions regarding the distribution of individual properties. Regularly reviewing and updating your estate plan can help ensure that it reflects your current wishes and any changes in asset value or ownership.

4. Incorporating Business Succession Planning

Transferring ownership and management.

Transferring ownership and management of a real estate holding company is a significant consideration in estate planning. Business succession planning ensures a smooth transition of control and minimizes disruptions to operations. This may involve gradually transferring shares to family members or other individuals, implementing training programs for those assuming leadership roles, or considering the sale of the company to third parties.

Preparing for contingencies and unexpected events

Contingencies and unexpected events, such as the sudden incapacity or death of key individuals involved in the holding company, can disrupt operations and jeopardize assets. Estate planning should incorporate strategies to address these contingencies, such as appointing alternate individuals to assume key roles, establishing powers of attorney, and outlining procedures for decision-making in emergency situations.

Planning for a smooth transition of control

Efficient estate planning ensures a smooth transition of control not only for the immediate future but also in the long term. This may involve putting in place mechanisms for gradual influence transfer, creating clear guidelines for family involvement in the business, or establishing protocols for the evaluation and selection of future leaders. By addressing these considerations in advance, real estate holding companies can maintain stability and continuity across generations.

Protecting the continuity of the holding company

Preserving the continuity of the holding company is a key objective in estate planning. This involves implementing safeguards to prevent the involuntary sale or dissolution of the company and ensuring sufficient liquidity to cover costs and taxes that may arise upon transfer. Strategies such as life insurance policies, establishing buy-sell agreements, or creating contingency funds can help protect the company’s continuity and the interests of all stakeholders.

5. Managing Estate Taxes and Liabilities

Understanding estate and inheritance taxes.

Estate and inheritance taxes are levied on the transfer of assets upon death and can have a significant impact on real estate holdings. It is crucial to understand the laws governing estate and inheritance taxes in your jurisdiction to effectively plan and minimize tax liabilities. These taxes vary in their rates and exemptions, and professional guidance is essential to navigate the complexities and ensure compliance.

Utilizing tax-saving strategies

There are various tax-saving strategies available to real estate holding companies to minimize estate tax liabilities. This includes leveraging exemptions and deductions, making lifetime gifts, utilizing qualified personal residence trusts (QPRTs), or establishing family limited partnerships (FLPs) to take advantage of valuation discounts. Working with knowledgeable tax advisors can help identify and implement the most suitable strategies for your specific circumstances.

Minimizing estate tax liabilities

Minimizing estate tax liabilities involves careful planning and executing appropriate strategies to reduce taxable assets. As real estate holdings can represent a significant portion of an estate’s value, valuing assets accurately and utilizing applicable deductions and exemptions become vital. By considering options such as charitable giving, generation-skipping transfers, and strategic gifting, real estate holding companies can minimize their tax burdens and maximize the preservation of wealth.

Ensuring the liquidity to cover taxes and expenses

Estate planning must take into account the liquidity needed to cover estate taxes and other expenses that arise upon transfer. Unplanned tax liabilities can force the sale of assets or trigger financial difficulties for the holding company. Real estate holding companies should evaluate their liquidity needs and explore options such as life insurance policies, investment strategies, or setting up dedicated funds to ensure the availability of funds to cover these obligations.

6. Protecting Real Estate Assets

Implementing asset protection strategies.

Protecting real estate assets is a critical component of estate planning for holding companies. Various strategies can be employed to shield these assets from potential risks and ensure their preservation. This can include the creation of trusts, limited liability companies, or partnerships to hold and manage real estate holdings separately from personal assets. By doing so, real estate holding companies can safeguard their properties from potential creditors or legal disputes.

Shielding assets from potential creditors

Shielding real estate assets from potential creditors is an essential consideration in estate planning. Holding properties within separate legal entities and implementing proper asset protection strategies can provide an extra layer of protection. This helps limit personal liability and ensures that real estate holdings are not at risk in the event of a lawsuit or financial difficulty.

Limiting personal liability

Real estate holding companies are exposed to various potential liabilities, such as personal injury claims, environmental risks, or contractual disputes. Estate planning should incorporate measures to limit personal liability for owners and stakeholders. This can be achieved through the appropriate legal structures, insurance coverage, and adherence to sound risk management practices.

Preserving wealth for future generations

One of the primary objectives of estate planning for real estate holding companies is to preserve wealth for future generations. Proper planning allows for effective wealth preservation by minimizing tax burdens, shielding assets from potential risks, and ensuring a smooth transition of control and management. By implementing comprehensive estate plans, real estate holding companies can pass on their properties and wealth to subsequent generations while minimizing disruptions and potential disputes.

7. Addressing Special Situations and Needs

Planning for blended families.

Estate planning can become more complex in situations involving blended families, where one or both spouses have children from previous relationships. Careful consideration must be given to how real estate holdings should be transferred and distributed to ensure the fair treatment of all beneficiaries. Strategies such as prenuptial agreements, trust arrangements, or the establishment of separate entities for specific properties may be beneficial in addressing the unique needs of blended families.

Providing for minor or disabled beneficiaries

Estate planning must also address the needs of minor or disabled beneficiaries. Special arrangements, such as the establishment of special needs trusts or guardianship designations, may be necessary to safeguard the interests of these individuals and ensure their financial security. Additionally, strategies should be in place to provide for the management and support of real estate assets on behalf of minors or individuals with disabilities.

Supporting charitable causes through your estate plan

Charitable giving can be an integral part of estate planning for real estate holding companies. By including charitable provisions in your estate plan, you can leave a lasting impact on causes that are important to you. Strategies such as establishing charitable trusts, donating real estate assets, or designating specific charitable beneficiaries can help support charitable causes while providing potential tax benefits.

Protecting assets from divorce or legal disputes

Divorce or legal disputes can pose significant risks to real estate holdings within a holding company. Estate planning should consider potential scenarios involving divorce proceedings or legal disputes to protect these valuable assets. Pre or postnuptial agreements, establishing separate legal entities for assets, or implementing buy-sell agreements can help safeguard real estate assets from potential division or liquidation.

8. Regularly Reviewing and Updating Your Estate Plan

Importance of reviewing and updating the estate plan.

Regularly reviewing and updating your estate plan is crucial to ensure its continued effectiveness and alignment with your evolving needs and circumstances. Over time, changes in personal or family situations, asset values, or legal and tax regulations may necessitate updates or modifications to your plan. By keeping your estate plan up to date, you can maximize its benefits and prevent unintended consequences.

Adapting to changes in personal or family circumstances

Life events such as marriage, divorce, births, deaths, or changes in the financial situation can significantly impact estate planning. It is essential to assess and adapt your estate plan accordingly to reflect these changes. This may involve revising beneficiary designations, adjusting asset distribution plans, or appointing new executors or trustees. Regular communication with your estate planning attorney can help ensure that your estate plan remains current and effective.

Staying informed about changes in tax and estate planning laws

Tax and estate planning laws are subject to frequent changes, and staying informed about these changes is essential. New tax regulations or legal precedents can have significant implications for real estate holding companies and their estate plans. Engaging with knowledgeable professionals and regularly reviewing your estate plan can help ensure that it remains compliant with current laws and incorporates any advantageous strategies.

Engaging professional assistance for periodic reviews

Estate planning is a complex and specialized field, necessitating professional assistance for optimal results. Engaging the services of an experienced estate planning attorney ensures that your plan reflects your goals, addresses current legal requirements, and maximizes benefits. Regularly scheduled reviews with your estate planning attorney can help identify any necessary updates or revisions and address any new concerns or objectives.

9. Seeking Professional Estate Planning Assistance

Why consult an estate planning lawyer.

Consulting an estate planning lawyer is essential to navigate the complexities of estate planning for real estate holding companies. Estate planning involves intricate legal, financial, and taxation considerations, and an attorney with experience in this field can provide expert advice and guidance. They can help you navigate the legal landscape, craft a comprehensive estate plan tailored to your specific needs, and ensure that your assets are protected and distributed according to your wishes.

Finding an experienced estate planning attorney

Finding an experienced estate planning attorney is crucial to a successful estate planning process. Seek recommendations from trusted sources, research reputable firms, or consult local bar associations for referrals. Look for attorneys with expertise in real estate law, estate planning, and tax matters to ensure a comprehensive and informed approach to your estate plan.

Importance of personalized advice and guidance

Estate planning is highly individualized, and each real estate holding company may have unique circumstances and requirements. Personalized advice and guidance from an estate planning attorney provide valuable insights into tailoring your plan to your specific situation. They can help identify potential challenges, explore opportunities for growth and wealth preservation, and ensure that your estate plan aligns with your goals and objectives.

Scheduling a consultation for your real estate holding company

Once you have identified an experienced estate planning attorney, scheduling a consultation is the next step. During the consultation, you will have the opportunity to discuss your goals, address concerns, and provide details about your real estate holding company. The attorney will evaluate your situation, propose strategies, and guide you through the estate planning process. This initial consultation is an excellent opportunity to establish a working relationship and gain an understanding of how the attorney can assist you in safeguarding your assets.

10. Conclusion

Estate planning for real estate holding companies encompasses a wide range of considerations and strategies. By paying careful attention to identifying objectives, choosing the appropriate legal structures, valuing and protecting assets, and addressing tax implications, real estate holding companies can preserve wealth, ensure a smooth transition of control, and minimize disruptions. Special considerations for unique situations, regularly reviewing and updating the estate plan, and seeking professional assistance are vital in achieving comprehensive and effective estate planning. Take proactive measures to protect your assets by contacting an experienced estate planning lawyer who can provide the personalized guidance and assistance necessary to secure the future of your real estate holding company.

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Should You Restructure Your S Corp or C Corp to Create a Holding Company?

Table of Contents

Exploring the Potential of Holding Companies: Should You Restructure Your S Corp or C Corp?

Business owners often consider restructuring their corporations to optimize tax advantages, enhance asset protection, or streamline operations. One potential restructuring strategy is to create a holding company, which can offer several benefits. In this article, we will explore the concept of a holding company and discuss whether restructuring your S Corp or C Corp to create one is a wise decision.

Understanding Holding Companies

A holding company, also known as a parent or investment company, is a type of business entity that doesn’t engage in operational activities itself but owns and controls other companies or assets. Its primary purpose is to manage and hold ownership interests in subsidiary companies, which can be S Corps, C Corps, LLCs, or other entities.

Benefits of a Holding Company Structure

• Asset Protection: One of the significant advantages of a holding company structure is the separation of assets. By creating a separate entity to hold ownership interests, you can shield valuable assets from potential risks and liabilities associated with operational activities. This structure can provide an added layer of protection for your personal and business assets.
• Tax Planning: Holding companies can offer potential tax benefits, depending on your specific circumstances and jurisdiction. They can facilitate tax planning strategies such as income splitting, intercompany transactions, and tax deferral. Additionally, holding companies may allow for efficient estate planning and succession strategies, enabling the transfer of wealth between generations with reduced tax implications.
• Simplified Business Operations: If you own multiple businesses or subsidiaries, a holding company structure can streamline management and operations. By consolidating control and decision-making at the holding company level, you can centralize financial management, reduce administrative complexities, and allocate resources more effectively across the subsidiaries.

Restructuring S Corp or C Corp to Create a Holding Company

When considering restructuring your existing S Corp or C Corp to create a holding company, several factors must be carefully evaluated. Here are a few key considerations:

• Legal and Tax Implications: Consult with legal and tax professionals to understand the specific legal and tax consequences of restructuring. Factors such as entity formation costs, potential tax implications, and compliance requirements can vary based on your jurisdiction and the nature of your business.
• Shareholder Approval: Restructuring a corporation typically requires shareholder approval. Communicate with your shareholders, outlining the proposed benefits, risks, and long-term goals of the restructuring plan. Their support and understanding are crucial to ensure a smooth transition.
• Administrative and Operational Changes: Establishing a holding company may involve administrative and operational changes, such as revising contracts, transferring assets, and reorganizing management structures. Proper planning and execution are necessary to minimize disruption to ongoing operations.
• Future Growth and Expansion: Assess whether a holding company structure aligns with your long-term business goals. Consider factors like scalability, financing options, and potential regulatory implications. Evaluate if the holding company structure supports your strategic vision and growth plans effectively.

Restructuring your S Corp or C Corp to create a holding company can provide several advantages, including asset protection, tax planning opportunities, and streamlined operations. However, such a decision should be made after careful consideration of legal, tax, and operational implications. Consulting with experienced professionals is crucial to ensure a smooth and successful transition.

Remember, every business is unique, and what works for one may not work for another. Carefully assess your specific circumstances, seek expert advice, and evaluate the potential benefits and risks before making any restructuring decisions.

Video Transcript

“In Minnesota, my understanding is that we can’t have serial or series LLCs. If my wife and I have multiple businesses that are LLCs, does it make sense to restructure them to S corporations or C corporations so we can create a holding corporation?”

Well, the standard caveat here is that it takes time. I would recommend working with an attorney who can take the time to understand your circumstances and risks and goals to design a plan that works for you. But let’s just talk about this a little bit generically. So you can’t have a series LLC in Minnesota, sometimes called a serial LLC. Some states allow for that. You might wonder, well, what is that? That is where you set up one entity, and you can create new divisions, if you will, which are essentially new LLCs without having the cost associated with filing all of those. You still have to run them as separate entities and keep them separate from each other. Otherwise, the alter ego doctrine comes in or the piercing the corporate veil doctrine comes in. So in Minnesota, you still need to have separate entities to separate liability. Let’s assume you have a number of separate entities, whether they are corporations or LLCs doesn’t matter. They all isolate liability within each entity as long as you preserve the separation between each entity. So that means separate bank accounts, not commingling funds, not commingling assets and employees. If you have an employee who works for two of them, they properly record their time for each one and then get paid the appropriate number of hours from each entity’s bank account.

Safeguarding Assets with a Holding Company Structure

So assuming you preserve the separation between these entities, does it make sense to restructure them so you can create a holding company? The purpose of a holding company is to protect expensive or valuable assets. So what you would typically do is create a new LLC as your holding company. And then you would sell the assets from your other businesses to that holding company. Now you might say, “Well, how do I get the money in that holding company to buy these assets?” well, let’s say that one of your LLCs has $50,000 in profit, which they pay to you. You can make a capital contribution or loan to your holding company. So now that holding company has $50,000 and then that holding company uses that $50,000 to buy the assets of your operating LLC. So maybe it buys gym equipment or a tractor or whatever that might be. We buy those assets into the holding company. And of course, all this is coming from you or your LLCs. But as long as you follow the formalities when moving the money, limited liability is preserved.

Contracts and Successor Liability in Restructuring

So let’s imagine now you get all the assets into the LLC holding company. Then you have contracts between the holding company and the companies that need to use the assets that are in there. So you have a lease, for example, a tractor lease or an equipment lease. Now, if there is ever a lawsuit, the lawsuit is going to be against the operating business, the gym, the company providing tractor services, or whatever. The company that has employees and contracts and customers and clients, is your operating company. The lawsuit goes against that. They don’t have any basis to sue the holding company because the holding company is just a lease for the equipment. So should that operating company go down in flames from a lawsuit? The assets are still protected in the holding company. And what happens typically then is the owner of both starts a brand new LLC, a new operating company sets up a new lease with the holding company and starts operating again, and might even hire all the employees from the old company that went down in flames and might even reach out to all the customers and says, “Hey, we have a new business. The old business needed to close. The new business is open. Now we would like to continue to service you (or “continue” is the wrong word), but we would like to service you through the new business and provide the same services you receive from the old company.”

Benefits and Considerations of S Corporations and C Corporations

One risk here is the doctrine of successor liability. If you have assets moved from an old company that goes down in flames from a lawsuit, and those are just gifted to the new company, or assets are transferred without any payment for that, and contracts setting that up, successor liability can attach. Because the court basically says, “Hey, you just moved the assets from one entity to another. And now you are trying to operate under another entity. That new entity is going to be liable for the old entities, lawsuits or claims, or any other responsibilities that the old entity had. So that is why it is important to have contracts between your entities and a payment that occurs and that payment can be funded as we discussed through your own money or a profit distribution from one of your existing LLCs. And I would typically use an LLC for a holding company. The benefit of an S corporation over an LLC is when you are providing work for the S corporation, and maybe it is a very small amount of work, but an S corporation can limit the payroll tax that it pays, or the self-employment tax. It goes by different names, but it is essentially 15% of whatever’s paid you. In an LLC, you are required to pay a self-employment tax of 15%. I have another video on that whole issue of LLC versus S corp, so I won’t go into it deep here.

Weighing the Costs and Benefits of Complex Entity Structures

The question also relates to C corporation. Let’s talk about what that is for a second. A C corporation pays tax twice and it pays tax at the corporate level and then at the personal level. And when I say tax twice, I am talking about income tax. So corporations pay tax on their profits. And then when the profits are passed on to an owner, the owner pays income tax again. So you usually see corporations that don’t make sense. That said, there are some business attorneys who set up carefully designed entity structures, and they will use a corporation, because corporations have some tax benefits, and then typically, what they will do is prevent having any profits in the C corporation.

Simplicity as a Preferred Approach

What would otherwise be profits of the C corporation gets paid out to an LLC or S corporation. So because there are no profits at the C corporation level, there actually are no income taxes paid. And so you are getting the benefits of a C corporation without getting hit with that second layer of tax. That is a more complex structure. It may make sense for larger companies or companies with significant assets or business owners with significant assets. And I am talking millions of dollars. Typically, the cost of setting this up and the cost of maintaining a complex structure is significant. It involves CPAs filing tax returns for multiple entities. It involves attorneys drafting contracts between these. And it also makes it difficult for you to make decisions about the business because every time you go to do something, it is not simple. You have to run it by a CPA and attorney and say, “Hey, which entity will do this and how will that affect my taxes? And do we need to change any rates on things?” So it might be worth spending thousands of dollars a year, maintaining a complex structure if you are saving tens of thousands a year, but most small businesses are not in that scenario, and for them, simplicity is better. By the way, too, a holding company, isn’t a great solution for everyone. I often recommend utilizing insurance to minimize your risk in LLCs, rather than creating a more complex structure with a holding company.

Thanks for joining us today. If you would like to find out more, check out our YouTube channel. We have a lot of similar topics there. And if you have questions that weren’t answered today, I would love for you to submit them. You can submit them by email or by adding a question in the comment section below. Have a great day.

Estate Planning

How small business owners can benefit from differences between holding company and trust, by edelkoort smethurst cpas llp.

Running a business is very different than doing a job. Your company pays corporate tax on business income, and you pay personal income tax on the dividend and salary you get from your business. Holding too much cash in your company may be tax-efficient, but you expose your earnings to business credit risk. Carrying a lot of money or asset in your personal account could protect your assets from business risk but will create a significant tax liability. If not your account and neither your company’s account, where can you store assets and cash tax efficiently while protecting them from creditors? Such complex problems need intelligent solutions like a holding company or a family trust.

While both segregate business assets from personal and business creditors and distribute income tax efficiently, they differ by nature and objective. Both pay taxes and have accounting needs, but they are helpful in different ways. This article will explore their differences and understand how small business owners can benefit from them.

What are a Holding Company and a Trust?

By definition, a holding company holds outstanding voting stocks of an operating company (which produces or sells goods or services) and gets all the benefits of a shareholder. Holding companies are generally called parent companies. The operating company can transfer dividends to the holding company through tax-free inter-corporate dividends.

Apart from shares, a holding company is a great tool to co-own real estate, investments, and other public companies’ shares. For instance, John and his five colleagues purchase a building to run a hospital. The six partners can create XYZ holding company to own the building and get shares of the holding company, making it easy to co-own assets. The XYZ Holding company can charge rent from the six partners, which could be shown as a business expense by the operating partners.

By definition, a trust is a company where the grantor transfers the assets, and the trustee manages these assets and distributes income from them to the trust’s beneficiaries. You can add your family members, like spouses and children, to the trust and give them dividends.

Protecting Assets from Individual Or Company Creditors

While you can defer tax by retaining income in the company, your retained income is exposed to business risk. A holding company is a separate legal entity, and its assets are free from the risk of the operating company.

For instance, John owns a building, collects rent and invests it in stocks and debt funds. He transfers excess cash and long-term investments in a holding company regularly. One day, there is a short circuit in the building, and John faces a significant penalty for the damage caused. All his business assets are exposed to the penalty. But his holding company investments remain unaffected.

Let’s take another scenario where John transfers the building to a family trust and admits his family members as trust beneficiaries. His wife falls into colossal debt, and her assets are ceased. But her creditors cannot use the building to claim debt as the building is the asset of the trust, safeguarding it from individual credit risk.

Both trust and holding companies protect assets from individual credit risk differently. If you want to credit-proof your surplus business earnings without allocating them to your family, you may transfer them to a holding company. A holding company helps you have more control over your assets, whereas you have limited control in a trust.

A holding company is better if you want higher decision-making power in managing your assets and income while credit-proofing them.

Tax Benefit of a Holding Company and a Trust

A trust has a better tax advantage than a holding company. In a holding company and trust, you can transfer the surplus business income tax-free and defer your personal income tax payments. You can also avail of the lifetime capital gains exemption in both cases.

For instance, John has $1.2 million in cash and investments retained in the business, and he now wants to sell his $3.5 million business for a $5 million capital gain. He need not pay any tax on up to $913,630 under the lifetime capital gains exemption (LCGE). But he won’t qualify for this exemption, as the Canada Revenue Agency (CRA) requires,

• 90% of the company’s assets will be used in active business at the time of sale.
• 50% of the company’s assets to be used in active business two years before the sale.
• The business owner must have held the shares for at least 24 months before the date of the sale.

If John transfers the surplus earnings regularly to a holding company, he can make his operating business LCGE-ready and reduce his taxable capital gain. He might have to restructure the share to add family members to the holding company. But in the case of a family trust, John can multiply the $971,190 LCGE in 2023 by his trust beneficiaries. So if John has two members in his family trust, he can get a combined LCGE of $1,942,380. Note that the CRA keeps increasing this LCGE limit annually.

A family trust has a better income splitting and LCGE tax advantage over a holding company.

Both family trusts and holding companies have their benefits, and they may differ from case to case. You can have one or both, depending on your end objective. In estate planning, tax advisors might use family trusts to take advantage of the lower-marginal tax rates of family members to distribute more income and multiply LCGE. They may use a holding company to credit-proof the assets.

These business structures are complex, and changes in tax laws complicate things further. A professional tax advisor can design and maintain these structures while keeping your assets safe from creditors and higher taxation.

Contact Edelkoort Smethurst CPAs LLP in Burlington to Help You Set Up a Business Structure

Talk to a professional tax advisor to help set up a business structure that meets your business objective while protecting your wealth. At Edelkoort Smethurst CPAs LLP , our tax consultants and accountants can provide services such as preparing accounts of holding companies and trusts. To learn more about how Edelkoort Smethurst CPAs LLP can provide you with the best estate planning and business structure expertise, contact us online or by telephone at  905-517-2297 .

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Using a family LLC for estate planning

• Partnership & LLC Taxation
• Tax Planning; Tax Minimization
• Personal Financial Planning
• Estate Planning

Limited liability companies (LLCs) provide flexibility in allocating rights to profits and capital and are frequently used to shift income and property appreciation from higher - bracket , older generation taxpayers to lower - bracket children and grandchildren. Family LLCs are created by the transfer of property from one or more individuals to the LLC for the common benefit of the family members. The transferred assets are titled in the LLC's name.

Typically, the senior family members (parents) transfer assets to a family LLC in exchange for membership interests, which under the terms of the operating agreement carry certain rights, such as management control and income distributions. This initial capitalization of the LLC is generally a tax - free event. LLC interests are then gifted or sold by the parents to junior family members (children) or trusts established for the children's benefit. A family LLC is normally governed by written articles of organization and a written operating agreement that establishes the rights of the members and their interests in the capital and profits of the LLC. Family LLCs are subject to the special income tax rules of Sec. 704(e), governing partnership interests created by gift.

The insulation of all owners from liability and the ability to concentrate management power in the hands of less than all of the owners are consistent with the business and tax objectives of most family business owners. In addition, an LLC offers the power to amend the operating agreement and articles of organization to reflect changes in family relationships. The formation of an LLC allows family business owners to provide for the continuation of their businesses after death. It normally will take advantage of the valuation discount rules and any rules limiting the donor's appreciation in the underlying assets.

Using family LLCs can result in the exclusion of assets from the gross estate and provide valuation discounts due to restrictions in the entity's agreement. Based on the applicable case law, a taxpayer wanting to enjoy these benefits must form and operate the entity carefully.

Once the family LLC has been formed, it is important to monitor its ongoing operations to make sure the integrity of the planned structure and function of the LLC is maintained. Practitioners advising their clients to transfer assets to an LLC as part of a comprehensive estate plan must be sure the client is aware of the importance of adhering to the form of the structure selected.

If the operational review of a family LLC is performed by the practitioner, it should be a separate engagement with a separate engagement letter and responsibilities. This will help ensure that the client cannot later claim the LLC's failure to meet the Sec. 2036 rules resulted from an inadequate review by the practitioner.

These items should be monitored:

• Compliance should be reviewed regularly. Consistently complying with the family LLC's organizational documents is critically important.
• The minutes of LLC meetings of members and managers should be reviewed to ensure the nontax business purposes are being addressed.
• Maintain a dialogue with the LLC's managers regarding any proposed financial transactions, particularly proposed transactions with the transferor. Make sure that any transactions with related parties comply with the provisions of the operating agreement and are commercially reasonable.
• Review cash distributions to ensure they are made pro rata and according to the terms of the LLC's operating agreement.
• Review minutes of manager and member meetings to ensure they document the involvement of family members and the reasons for decisions made during the year.
• Depending on state law requirements, the written operating agreement may have to be amended when there is a change in ownership. This may include changes in relative ownership interests or may apply only to changes in the identities of the members. In some states, changes in ownership are reported on an annual report filed with the secretary of state.

If the practitioner uncovers problems with the operation of the family LLC, the authors recommend the following actions:

• Address the problem with the members and managers. If needed, get approvals from the unaffected members for the necessary actions to bring the LLC into compliance with its organizational documents.
• If the LLC's organizational documents are inadequate or unclear, the documents should be amended (by an attorney). Make sure the members and managers understand the necessity of complying with the provisions of the organizational documents on an ongoing basis.
• Recommend that the members be given timely copies of LLC financial statements, tax returns, and other financial and transactional information.
• If one of the stated business reasons for formation of the LLC is to diversify, review the LLC's investments to ensure that diversification is occurring.

Within the framework of these items, it appears that family LLCs still offer the opportunity to fragment the ownership interest of a family business or other assets to apply valuation discounts. Practitioners can help their clients look ahead and properly form and structure a family LLC to preserve capital by reducing estate and gift taxes. Additionally, practitioners can aid in minimizing the opportunity for an IRS challenge by downplaying the benefits of valuation discounts in communications with the client.

Warning : If a family LLC revises its operating agreement to create limited member interests to avoid self - employment tax, it may jeopardize the availability of any valuation discounts due to the application of Sec. 2704. Limited interests generally are subject to restrictions (e.g., voting rights or distributions) that may exceed restrictions under the LLC statute of the state of formation. Practitioners must be familiar with the relevant state's LLC statute, including any recent amendments, prior to suggesting revisions to an LLC's operating agreement.

This case study has been adapted from PPC's Guide to Limited Liability Companies , 26th edition (October 2020), by Michael E. Mares, Sara S. McMurrian, Stephen E. Pascarella II, and Gregory A. Porcaro. Published by Thomson Reuters/Tax & Accounting, Carrollton, Texas, 2020 (800-431-9025; tax.thomsonreuters.com ).

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13 Smart Estate Planning Moves

Follow this estate planning checklist for you (and your heirs) to hold on to more of your hard-earned money.

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Several years ago, Kelley Brooks’s husband, Chris, who was being treated for hypertension, died in his sleep. Like so many other couples in their 40s, they had talked about estate planning but never got around to it. “You think you have forever to do all that, but you don’t,” says Brooks of Bellingham, Mass.

Experts hear similar stories all the time. “People often underestimate how much it will cost if they don’t plan,” says Renee Fry, founder of Gentreo , an online estate-planning company. For people nearly or newly retired, who potentially still have decades ahead for their assets to compound and grow, estate taxes are a huge concern.

The generous estate tax exemption , now a whopping $13.61 million (up from $12.92 million last year), will soon be on the chopping block. The exemption is set to expire at the end of 2025, which would drop the base estate exemption amount down to $5 million (adjusted for inflation) in 2026. However, the large exemption has lulled many people into thinking they shouldn’t worry about estate taxes or other threats to their money. Still, they should, says attorney Martin Shenkman, a veteran estate and tax-planning attorney in the New York area.

“Anybody with wealth needs to plan,” says Shenkman, citing looming deficits that could hasten a change in the exemption amount. Estates with values exceeding the exemption amount by more than $1 million are taxed at $40%, and some states also levy an estate tax. He says if the gift exemption is cut substantially, it will shut down many ways people reduce their taxable estates.

Asset protection strategies that benefit you during your lifetime can also double as estate tax moves that preserve wealth for your heirs, he says. “I’ve been jumping up and down about this because, in difficult economic times, you tend to see more litigation,” says Shenkman, who uses several types of trusts to move money out of clients’ taxable estates. “When people are hurting, they look at every option to get money.”

So, how can you save as much as possible on fees and taxes and preserve the most for the people you leave behind? Consider these 13 estate-planning moves, which may be as simple as designating a different IRA beneficiary or as complex as setting up a trust.

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1. Rethink IRA investing strategies

Passage of the SECURE Act in 2019 upended estate plans by forcing most non-spouse beneficiaries of traditional IRA s into a 10-year window for distributing assets. Before the law took effect this year, those beneficiaries could “stretch” the distribution of an inherited IRA over their own lifetime. Now, some families must rethink how they leave assets, particularly to children and grandchildren. (Minor children have until they reach the age of majority before the 10-year clock for distributing assets starts ticking.)

Beneficiaries such as siblings or partners who are not more than 10 years younger than the account owner can still spread the distribution based on their life expectancy. People with disabilities also are exempt from the new rule. That could argue in favor of leaving a traditional IRA to them and other assets to children, the reverse of previous advice.

“Previously, people wanted to leave money to a grandchild and spread those [distributions] over 60 or more years. Now the window is different,” says Eric Bronnenkant, head of tax for Betterment.

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2. Sneak in a Roth conversion

Due to the recently enacted  SECURE 2.0 Act , the required minimum distribution age rose from 72 to 73 in 2023 and will rise again to 75 in 2033. If you’re younger than the RMD age, you could take a voluntary distribution and convert it to a Roth IRA, Bronnenkant says. It’s a smart estate-planning move. Although non-spouse beneficiaries such as children and grandchildren will still need to deplete the account within 10 years, Roth distributions are tax-free.

3. Leverage the annual gift tax exclusion

Every year, anyone can give anyone else, or multiple people, a gift up to the annual gift tax exclusion amount — $18,000 in 2024. Couples can each give someone up to that limit, for a combined total of $36,000, without incurring gift tax. Go over this amount, and you’re required to file a gift tax return, with any amount in excess applying toward your lifetime exclusion.

Usually, the annual gift tax exclusion is the first thing we talk about “because it has no impact on the estate tax exemption, so you’re basically saving 40% on those gifts” if you’re going to be subject to the estate tax, says Bronnenkant, referring to the top marginal estate tax rate. “Leveraging the annual exclusion every year is fantastic.”

Even better, he says, is the 529 college savings plan kicker, which allows a gift giver to superfund five years of gifting into one. This means you can contribute up to $90,000 at once to a plan, effectively spreading the exclusion over five years. If you’re married, the limit per couple is $180,000 per beneficiary. On the downside, you can’t spread the deduction over multiple years on your state taxes, or make additional gifts to the same person during the five years. And if you die during the five years while you’re spreading the exclusion, only a prorated amount applies to your estate. But Bronnenkant still thinks it’s a great deal for many people.

4. Use up your lifetime gift exemption early

If you think gift and estate tax limits are heading lower, Bronnenkant suggests using up your lifetime gift exclusion now.

“If you have an asset you think will appreciate and want to leverage today’s exclusion because you’re concerned it’s going lower, the IRS has given guidance that indicates you won’t be penalized for using up your exemption while you’re alive,” he says.

If you hold onto an appreciated asset and die when the exemption is lower, your estate tax will be higher because more of the estate will be taxable. So what happens if you use up the exclusion and Congress doesn’t lower the lifetime exemption amount? You’ll still benefit because there is less in the estate that can be taxed when you die. There’s a tradeoff, however: The cost basis of gifted assets carries over to the person receiving the gift. 

“If you were going to end up being below the estate tax exemption in either scenario, you may be better off holding onto the asset until death so [your heirs] can benefit from the step-up in basis,” he says. Plus, you’ll have more security in case you need the money. “I would prioritize economic security currently over a potential tax benefit in the future that is uncertain.”

Another gifting strategy that doesn’t sacrifice economic security: Giving appreciated assets, such as stocks, to an ill spouse who is expected to die sooner than you will. Have your spouse name you as a beneficiary, putting you in line for a stepped-up basis at your spouse’s death.

"The IRS is hip to this strategy, and they’ve said the person who receives it must have it for at least a year,” he notes. And remember, the “ill” spouse could outlive the other.

5. Pay medical or education expenses directly

Another way to save on future estate taxes is to write checks for someone else’s medical expenses or education. Paying medical bills or tuition — for preschool through graduate school — doesn’t count toward the annual exclusion or the estate tax exemption, provided the checks are written directly to the health care provider or school, Bronnenkant notes.

“You can keep writing checks all day long and it reduces the taxable estate while making someone else very happy they don’t have to pay,” he says.

What if we give away too much? “It’s a fair question,” Bronnenkant says. He stated that “a lot of people are re-evaluating their charitable contributions and their gifting to grandchildren to see if those are sustainable, and people are at least considering cutting back temporarily.”

6. Build an irrevocable trust for your spouse

Many have a similar unease with irrevocable trusts because, by definition, they mean largely giving up control of assets. But creating one now could help you take advantage of today’s high exemption, Shenkman says.

“If you move some money into a trust today, you can still benefit from [the exemption.] Spouse 1 puts money into a trust for Spouse 2 and all descendants,” he says. “You still as a couple can access the money.” Staying under the exemption amount gets money out of an estate now without gift tax, and you can still have some access to the funds through a spouse with the rest going to other heirs.

The trusts he’s talking about are called spousal lifetime access trusts. SLATs are irrevocable trusts with a spouse as beneficiary and perhaps children or grandchildren as remainder beneficiaries. While you’re still alive, your spouse can tap the trust for health, education and general living expenses, which indirectly benefits you. Meanwhile, your spouse can set up a SLAT naming you as beneficiary, but the trusts cannot be identical, or the IRS may come knocking.

Shenkman frequently creates SLATs for clients and has even established them for himself and his wife. “We’re both [each other’s] beneficiaries, and it has been untouched for over eight years,” he says, though if they end up needing the money down the road in retirement, it’s there. Generally, longevity helps prove the trusts weren’t thrown together quickly to hide assets from creditors.

Shnkman recommends hiring an independent trustee to oversee distributions to avoid a legal challenge to the trust. And there are other caveats, including a cautionary note about dumping a big portion of your retirement wealth into them.

SLATs can be useful, but don't go overboard. A couple shouldn't stuff a SLAT so full of funds that they can't maintain their lifestyle, according to PNC Insights , a wealth management publication. That’s because, at their core, SLATs are irrevocable. Thinking you could be heading for a gray divorce ? Steer clear.

As with other more complex trust strategies discussed here, it’s important to consult an experienced attorney about these ideas.

7. Bypass the need for a portable exemption

Surviving spouses can choose to carry forward any remaining estate tax exemption unused by their deceased spouse, but it may not be the best strategy if you have appreciated assets, Bronnenkant says.

In that case, you may be better off preserving assets for heirs with a bypass trust, which is similar to a SLAT except it is funded at the first spouse’s death. The second spouse retains limited access to the funds inside the trust, with expenses for health, education, maintenance and support generally approved. When the second spouse dies, remaining heirs simply assume control of the appreciated assets, which are outside of the second spouse’s taxable estate.

Some blended families use these trusts to provide for a surviving spouse and then eventually for children from a previous marriage. The tax savings happen when the second spouse dies, as the funds in the bypass trust go directly to the children, avoiding estate tax. They don’t get a stepped-up basis, but even the top marginal capital gains rate is lower than the federal estate tax rate, Bronnenkant says.

8. Safeguard assets from creditors

Uncle Sam isn’t always the biggest threat to preserving assets for heirs. If you’re a doctor, board member or an owner of a closely held business who wants assets protected from lawsuits and estate taxes, domestic asset protection trusts are a way for you to move money out of the estate and still be able to access it, Shenkman says.

You can create these irrevocable, self-settled trusts in 20 states. Although the money in them is out of the person’s estate and protected from creditors, the person funding the trust can also be a beneficiary.

“We have the most litigious society in history now,” Shenkman says.

9. Manage assets with revocable trusts

Some experts, including Shenkman, believe revocable trusts are a lot like annuities — more of them are sold than bought. He says they are often sold to clients as a blanket strategy for avoiding probate and cutting taxes, but the fact that they are revocable renders them ineligible for a lot of estate tax strategies. And in many states, probate isn’t that onerous. So why does he still use them? To manage assets as clients age or have health issues.

“It’s easier as successor trustee to take charge of assets in a revocable trust than as an agent under a power of attorney,” he says. Easy typically means less costly, too, because you have professionals on the clock for shorter amounts of time. A revocable trust with a separate tax identification number can help avoid scams on seniors as well, he says, preserving even more money for potential heirs.

10. Plan for Medicaid and special needs

Some people bristle at the term “Medicaid planning” because it suggests that someone is trying to cheat the system by preserving assets that could have been spent before Medicaid kicked in. But the rising cost of nursing home care , assisted living facilities and retirement homes means many middle-class households would be wiped out by a long stay, impoverishing the spouses of those in care.

“I look at it as long-term care cost planning,” says Regina Spielberg , an elder law attorney and partner with Schenck, Price, Smith & King LLP in Paramus, N.J. “For middle-class people, if one or both members of a couple need long-term care services, their assets are quickly being consumed.”

Medicaid has a five-year lookback period for examining income sources and transfers out of an estate. If the transfers aren’t to spouses or children with disabilities, it’s a problem, Spielberg says. She often helps clients construct a portfolio that can be drawn down to pay for the person’s care while safeguarding some assets for the spouse.

The best ways to do that vary by state. For New York clients, she often creates income-only trusts that let the spouse of someone on Medicaid stay in their home. These irrevocable trusts prevent assets from being sold to pay for care costs. Her New Jersey clients, meanwhile, typically use life estate deeds, which transfer property to heirs while bypassing probate, she says.

Special-needs trusts can also help you protect some money for loved ones. Shortly after her husband, Michael, 42, was struck and killed by a car in 2015, Melinda Campbell set up a special-needs trust for one of her children, who has a disability. The trust can provide income for her son without affecting his eligibility for public assistance.

“We [she and Michael] had met with the lawyer and received life insurance recommendations, but nothing had been finalized” before he died, she says. Even so, she says that directing a portion of her modest estate in this way will provide some peace of mind and cost savings.

11. Reduce fees for a simple estate

With most attorneys charging fees of several hundred dollars to about $2,000 for basic estate planning , you can pocket most of that money by going online. In addition to Gentreo , players include Trust & Will , Rocket Lawyer and Legal Zoom .

Just be sure to shop carefully if you go this route, as the capabilities and customization vary. Some of them offer trust preparation while others don’t.

“A will is going to protect families, but some people feel they need that revocable trust,” says Gentreo’s Fry.

High-net-worth families with complex situations, such as multiple homes or a need for asset protection, will still need a lawyer to set up some of the other trusts discussed in this article.

12. Clean up investment clutter

Settling the estate is another place to find ways to keep fees down. On the time-is-money front, someone with accounts spread over multiple banks and brokerage accounts is making things difficult not only for themselves but especially for heirs.

“When [a person like this] dies, someone’s going to have to find all these accounts, figure out the basis in the stocks, and I’ll bet there are stock and bond certificates stuffed in a safe deposit box, "Shenkman says. "That, without question, is going to be a more costly, complicated estate settlement than if he had consolidated everything at one institution with everything saved on a laptop and backed up.”

13. Consider hiring a professional to serve as trustee

Litigation also costs more, so don’t forget the power of peace when trying to preserve money for heirs, experts say. To that end, consider hiring a professional to serve as trustee not only to relieve heirs of time-consuming duties but also to help avoid direct conflicts that tend to occur, for example, when one sibling is in charge of decision-making.

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• Business Law

What is a Holding Company?

Benefits of a holding company structure in florida.

• Alain Roman Law
• September 4, 2018

So what is a holding company you may ask? A holding company is a company that owns most, if not all, of the stock or membership interest in one or more subsidiaries, each which operates an active business.

Most of you have heard about holding companies, however, most are unfamiliar about how they are created or operated. In fact, you may be surprised to learn that some of the biggest companies today are structured as holding companies. Some of the most widely known holding companies include: World Disney Company; Comcast Corporation’ Bank of America’ Johnson & Johnson; JP Morgan Chase’; American Express Company; Macy’s; and XXVI Holdings Inc.

The holding company in addition to owning stock or interest in a subsidiary, may also own high valuable assets of the businesses. A holding company structure may be created through a C Corporation structure or through a Limited Liability Company (“LLC”) structure.

Holding Company Structure in Florida

The typical holding company structure involves creating a Parent company on the top to hold the assets of the subsidiaries. The most widely used entities for holding companies usually are Limited Liability Companies (LLC’s) and Corporations. 

Whether to use a Florida LLC or a Corporation it depends on many factors. Your attorney must weight the pro and cons specially as it relates to complexity, asset protection, and tax.

Creating a holding company structure does not make sense for everyone. It is particularly useful when you have assets and businesses that have relative amount of liability.

You should always weight in the advantage of insurance against the benefits of having a holding company structure.

Benefits of a Holding Company in Florida

By operating as a holding company, it allows you to operate various businesses or parts of a single business in separate subsidiaries, which will provide the following benefits:

Asset Protection

The assets of the subsidiaries are separate and distinct. The reason to do this is to insulate the assets from the creditors, liabilities, and risks of the other subsidiaries. This is important because if any one of the subsidiaries is attacked by a lawsuit or needs to file from bankruptcy, it will not affect the other subsidiaries or the holding company. If a judgement again one subsidiary is awarded, the risk of loss is limited by what is held in that company and the other subsidiary will be judgement proof (assuming there is no “piercing of the corporate veil”).

In a bankruptcy proceeding, the only company effected will be the lone subsidiary, and not the holding company or its subsidiaries. In fact, some of the biggest companies in the world structure not only other companies in this type of structure, but also separate the name, logos, equipment, management, and almost every aspect of a particular business into smaller companies to prevent any one person from attacking and bankrupting any one company.

The assets and liabilities of each subsidiary can be accounted separately, permitting loans to the different subsidiaries and insurance to be based on each subsidiary’s own business. In addition, each subsidiary can maintain a separate financial statement that will reflect the profits and losses of each particular business in a more transparent way. This allows the business owner to make decisions as to whether a particular subsidiary is performing to expectations.

Tax Planning

A holding company can file a consolidated return for all its affiliated companies, as long as the holding company (parent company) meets the 80 percent rule. The holding company must hold at least 80 percent of the total value of the outstanding stock and possess at least 80 percent of the total voting power of the stock. This may sound like a headache, but it will allow for the holding company to file one consolidated return and allow for the offsetting of the gains and loss of multiple subsidiaries.

Financial Flexibility

Depending on the companies in which you invest, you will be able to stretch the initial investment to control a variety of different assets. For example, with some of the funds the company can purchase controlling interest in existing small companies with cash and debt instruments that will allow control over multiple business ventures, generating more streams of income without spending all of the investors money into one company.

In many cases, a holding company will be the majority interest shareholder or member of each subsidiary. This allows the holding company, rather than a large number of individual shareholders, to make business decisions that may need shareholder approval.

Estate Planning

For estate planning purposes, having a holding company will simplify the transfers. A trust can be created to own the interest in the holding company, which in turn will own the interest in all of the subsidiaries. The benefit of this structure is that only one assignment of interest need to be created and the trust will have control over all the subsidiaries. Furthermore, if a trust is not created, then only the holding company’s interest will need to be probated, which should reduce cost and time.

Should I Form A Holding Company?

Forming a holding company does not make sense in every situation. Specially if the cost of upkeeping the holding company will far outweigh its benefits. Each of the holding company and the subsidiaries will have to maintain proper business records and abide by state law when it comes to all the company formalities.

A holding company makes sense when you have multiple business or you want to separate the existing business into different parts. One, if not the main feature of the holding company is the asset protection aspect. As a business owner, you may want to insulate part of the business which have more liability to protect the assets of the company.

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Amy Fontinelle has more than 15 years of experience covering personal finance, corporate finance and investing.

Amanda Bellucco-Chatham is an editor, writer, and fact-checker with years of experience researching personal finance topics. Specialties include general financial planning, career development, lending, retirement, tax preparation, and credit.

A holding company is a business entity—usually a corporation or limited liability company (LLC)—that typically doesn’t manufacture anything, sell any products or services, or conduct any other business operations. Rather, holding companies, or “holdcos,” hold the controlling stock in other companies.

Although a holding company owns the assets of other companies, it often maintains only oversight capacities. So, while it may oversee the company’s management decisions, it does not actively participate in running a business’s day-to-day operations of these subsidiaries.

A holding company is also sometimes called an “umbrella” or parent company.

Key Takeaways

• A holding company is a type of financial organization that owns a controlling interest in other companies, which are called subsidiaries.
• The parent corporation can control the subsidiary’s policies and oversee management decisions but doesn’t run day-to-day operations.
• Holding companies are protected from losses accrued by subsidiaries—so if a subsidiary goes bankrupt, its creditors can’t go after the holding company.

Paige McLaughlin / Investopedia

Understanding Holding Companies

A holding company typically exists for the sole purpose of controlling other companies. Holding companies may also own property, such as real estate, patents, trademarks, stocks, and other assets.

This structure serves to limit the financial and legal liability exposure of the holding company (and of its various subsidiaries). It may also depress a corporation’s overall tax liability by strategically basing certain parts of its business in jurisdictions that have lower tax rates.

Businesses that are completely owned by a holding company are referred to as “wholly owned subsidiaries.” Although a holding company can hire and fire managers of the companies it owns, those managers are ultimately responsible for their own operations.

Advantages and Disadvantages of a Holding Company

Holding companies enjoy the benefit of protection from losses. If a subsidiary company goes bankrupt, the holding company may experience a capital loss and a decline in net worth . However, the bankrupt company’s creditors cannot legally pursue the holding company for remuneration.

Consequently, as an asset protection strategy, a parent corporation might structure itself as a holding company, while creating subsidiaries for each of its business lines. For example, one subsidiary may own the parent corporation’s brand name and trademarks, while another subsidiary may own its real estate.

Holding companies are also relatively easy to create or change. This makes it easy to take advantage of geographical differences in taxation regimes: If a certain jurisdiction has high business taxes, the holding company can simply relocate to a more business-friendly environment while continuing operations in the original location.

If a holding company is set up correctly, the debt liability of one subsidiary won’t impact any others; if one subsidiary were to declare bankruptcy, it would not impact the others.

Holding companies support their subsidiaries by using their resources to lower the cost of operating capital. Using a downstream guarantee, the parent company can make a pledge on a loan on behalf of the subsidiary.

Disadvantages

There are some disadvantages to owning subsidiaries through a holding company. For investors and creditors, it may be difficult to find an accurate picture of the overall financial health of the holding company. It is also possible for unethical directors to hide their losses by moving debt among their subsidiaries.

Holding companies can also exploit their subsidiaries, by forcing them to appoint chosen directors or forcing the subsidiaries to buy products from one another at higher-than-market prices. They may also force subsidiaries to sell products to one another at below-market prices.

In some cases, holding companies can even force their subsidiaries to lay off a large section of the workforce or plunder their acquisitions for saleable assets. Known as vulture capitalism , these strategies can have the effect of inflating the holding company’s overall numbers at the expense of the subsidiary.

Holding companies protect the parent company from losses by subsidiaries.

Holding companies can provide cheaper operating capital to their subsidiaries.

Parent companies can take advantage of regional taxation laws by moving the holding company and subsidiaries to different jurisdictions.

Holding companies can come with reduced transparency, making it harder for investors and creditors to assess the health of the enterprise.

Parent companies can abuse their subsidiaries by forcing them to trade with one another at nonmarket prices.

Parent companies can also force their subsidiaries to appoint chosen directors or change their policies.

Types of Holding Companies

Holding companies fall into different categories, depending on their business operations. Some only exist to hold a single subsidiary, while others may be engaged in other business operations. The different types of holding companies are explained below:

• Pure : A pure holding company is one that only exists as a vehicle for ownership of other firms. These companies do not participate in any other type of business.
• Mixed : A mixed holding company is one that has its own business operations, in addition to managing its subsidiaries. Another word for this is a holding-operating company.
• Immediate : An immediate holding company is a company that owns other companies, but is itself owned by another entity. In short, these are holding companies that are owned by another holding company.
• Intermediate : Similar to an immediate holding company, these are holding companies that are also subsidiaries of a larger corporation.

Large holding companies may have several income streams, depending on the companies in their portfolio. The most straightforward way to make money is through equity in their subsidiaries: Holding companies can benefit from dividends in the subsidiary’s share price, as well as by selling equity in companies that gain value.

In addition, holding companies can also profit from synergies between their subsidiaries. Rather than have separate information technology (IT), human resources (HR), or administration teams for each company, a holding company can centralize these services and then sell them to the subsidiaries. Holding companies can also centralize equipment or other assets for lease by all of their companies.

Example of a Holding Company

An example of a well-known holding company is Berkshire Hathaway , which owns assets in more than 100 public and private companies, including Dairy Queen, Clayton Homes, Duracell, GEICO, Fruit of the Loom, RC Wiley Home Furnishings and Marmon Group.

Berkshire likewise boasts minor holdings in The Coca-Cola Company, Goldman Sachs, IBM, American Express, Apple, Delta Air Lines, and Kinder Morgan.

What Is the Purpose of a Holding Company?

A holding company is a financial vehicle for owning and controlling other assets, such as real estate, stocks, or companies. Using a holding company creates legal separation between the assets and the owners, and reduces the liability for the owners if one of the holdings encounters financial trouble.

How Do You Create a Holding Company?

To create a holding company, you simply need to file the articles of incorporation in the state or jurisdiction where you want to register the company. You will also need to identify the business agents managing the holding and operating companies. This can be complicated, so for companies with larger holdings, it is worth engaging a lawyer.

What Is a Personal Holding Company?

A personal holding company is a company where 50% of the ownership stake is controlled by five or fewer individuals, and at least 60% of the company’s income comes from passive sources.

A holding company is a type of business entity that has a single purpose: owning other companies. Some holding companies are large conglomerates, with arms in many different industries; others only exist to manage a single subsidiary. Holding companies can help protect their owners from losses, or they can also be used to reduce tax burdens.

Internal Revenue Service. “ Personal Holding Company .”

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In Singapore, you can set up holding companies to own assets. This strategy can be helpful in estate distribution and asset protection planning. According to the definition obtained from IRAS, a holding company refers to a company which has the principal activity of investment holding. The company owns investments such as properties & shares for long term investment & derives investment income such as dividends, interest or rental.

To illustrate the above point, ABC Pte Ltd will be used as an example. ABC Pte Ltd was set up by a (late) prominent banker in Singapore as an investment holding company. Amongst the many assets it holds resides 81,223,402 UOB shares. At the time of this writing (24 Dec 2012), the market value of these shares is approximately S$1.5B. The average dividends received is approximately S$10M per year. Besides its enormous investment value, these shares also have sentimental value as they represent the banker’s vision and hard work many years ago when he founded a local bank, which was later merged into UOB. The shares, amounting to 5.15% of UOB shares, also enable the banker’s family to have credible voting rights in charting the bank’s future direction. Besides UOB shares, this company also has strategic holdings of other investments around the world.

Holding shares and other assets in a holding company simplifies estate distribution. Instead of distributing each individual asset to the beneficiaries, the banker’s estate plan just has to identify the respective beneficiaries to receive the appropriate shares of his holding company.

A second advantage of a holding company is asset protection. Assume Peter is an heir to a family business. Peter inherited a commercial building from his late father’s estate, as well as the majority of the shares of the family business. This family business runs its operations within a commercial building. As the building is booked under the business balance sheet, Peter is concerned that if the business fails, it will affect the commercial building, as he has promised his late father to preserve the building as it is where the family business started 80 years ago.

Peter decided to set up holding company to hold the building, and lease it back to the operating business. The shares of the holding company are held by the family. In this way, the benefits of the building can be fairly distributed amongst the family members, and should the operating business fail; it will not affect the holding company’s assets.

Setting up a holding company could be a good strategy if you are experiencing any of the following situations:

• You have numerous investment properties
• You have numerous investment assets of different asset classes.
• You inherited substantial assets and would like to hold them for the long term.
• You are concerned that the family business operation could contaminate your family business’s properties or assets.
• You want to ease the administration of holding various assets.
• You want to ensure that all family members can enjoy the financial benefits of the assets fairly.
• You want to have a smooth estate transfer of multiple assets to your beneficiaries.

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Understanding the Basics of Estate Planning

You’ve spent your life building equity in your home, making your car payments and building a profitable stock portfolio. But do you have a plan detailing what happens to all those assets after you die? Knowing the basics of estate planning is important for anyone with any kind of asset, no matter its worth. It can help you determine exactly who you want your properties distributed to, and it puts the management of that disbursement into the hands of someone you trust.

In the end, creating an estate plan gives you control over your properties even after you’re gone. It can also prevent conflict between your beneficiaries. The definition of an estate plan is a plan designed to manage and distribute your assets, wealth and responsibilities after you are unable to manage them. An estate plan doesn’t only account for your wishes upon your death, it also serves as a plan to honor your wishes if you become disabled or incapacitated. The basic components of an estate plan typically include a living trust, a will, financial power of attorney and a medical directive.

Continue reading to learn more about the basics of estate plans and why you should start putting one together.

Why do you need to prepare a will or trust at all?

When you write an estate plan, you get to decide who receives which of your assets and, maybe more importantly, who’s in control of them. By selecting an individual you trust to handle your assets, you can rest easy knowing that your assets will be distributed in the way you intend.

A person who dies without a will is said to be intestate. Those who die intestate have an estate plan imposed on them by the state in which they lived at the time of their death. Any personally owned asset subject to probate will be governed by the rules of intestate succession. (Probate is the legal process of validating your will in court.) Each state has its own variations on intestate succession. No matter which jurisdiction, the state-imposed rules are likely to make different decisions than you would.

This is why it’s important for you to make a plan to ensure your final wishes are carried out correctly. The most common pieces of an estate plan are a will and beneficiary designations. A will describes how you want your assets distributed at your death. A beneficiary is the person you select to receive your assets. Planning an estate may include these features:

• Beneficiary designation.
• Transfer-on-death (or pay-on-death) designation.
• Specific titling.
• Living trust.

What is a living trust, power of attorney and medical directive?

During the process of preparing an estate plan, you should consider making advance directives. Unlike wills, which only deal with transfers at death, advance directives are aimed at sickness, death or end-of-life decisions. Advance directives generally fall into three categories: living trusts, powers of attorney and a medical directive.

A living trust allows your beneficiaries to avoid the probate process in court. As mentioned before, when you die your will must be validated by the court before your assets can be distributed. In a living trust, the ownership of your assets and property are transferred to the trust. This allows your beneficiaries to access your assets as soon as you die instead of waiting on the probate process. Unlike a will, which only goes into effect after your death, a living trust is active should you become incapacitated and unable to manage your assets while you’re living.

Medical directives may include information regarding your desire for such services as antibiotics, hydration, feeding and resuscitation. Under a health care power of attorney, you designate another person to make health care decisions if you’re unable to do so.

Under a financial power of attorney, you transfer the right to make financial decisions to one or more agents. The document typically allows the agent to make deposits, write checks and pay bills on your behalf. The financial power of attorney is generally one of two types: the durable power of attorney or the springing power of attorney.

The durable power of attorney is designed to be effective immediately upon its execution. The main advantage of it is that the agent does not have to prove anything to act on behalf of the client. The springing power of attorney becomes effective only after a triggering event. The triggering event might be a doctor writing a statement saying you’re incapable of handling your own affairs. The advantage of a springing power is that it helps protect against possible abuse by the agent.

Fiduciaries: How to pick them?

Whether you choose a will or living trust approach, you must pick the person, people or institution to oversee the administrative work after death as part of the basics of estate planning.

A fiduciary is someone who manages your money or property and must do so with your best interests in mind. The main jobs are that of executor of the will and trustee of any trusts. The most important characteristics to seek for either role are financial responsibility, stability, strong organizational skills, respect for rules and trustworthiness.

The executor’s job is to:

• Collect the assets of the decedent.
• Protect the estate property.
• Prepare an inventory of the estate.
• Follow the rules in the will.
• Keep the family members of the decedent informed, as required.
• Pay the legitimate claims (including taxes) against the estate for which resources exist.
• Represent the estate in claims against others.
• Distribute the estate property to the beneficiaries.
• Report to the probate court as required.

The trustee’s job is more long-term. Like the executor, the trustee must protect the property in the trust, follow the rules, keep family members informed, pay bills and make distributions as required by the document. In addition, the trustee usually directs the investment details of the trust’s assets.

What do you need to know about estate taxes?

Most estates simply aren’t big enough to be subject to estate taxes. However, if your estate value is large enough, you need to be wary of how estate taxes can erode its value. While every estate has settlement costs, larger estates may be vulnerable to taxes tearing apart long-held legacies, inheritance desires and even family businesses. Read these helpful FAQs from the IRS to learn more.

Keep in mind, no matter the size of your estate, there are additional costs that can reduce the amount left to your loved ones:

• Even if your estate isn’t big enough to owe federal estate tax, your state may still take a bite. Many states collect their own estate or inheritance taxes.
• Inherited retirement assets are often subject to federal and state income tax, as well as possible federal and state estate tax.
• For smaller estates, many costs—end-of-life medical expenses, funeral costs, credit card and other debt, attorney’s fees, court costs and others—make up a larger percentage of the total estate.

Through the purchase of life insurance held in a properly structured irrevocable trust, estate assets can be protected. The irrevocable trust serves to shield the life insurance from inclusion in the estate value. The death benefit can be used to offset settlement costs and pay taxes. Most importantly, estate assets and family businesses are held together, preserving legacies for your loved ones.

Remember that Congress can always change the tax law at a future date. It’s important to stay educated and know what the laws are and whether there could be any impact to your estate. For example, under the current tax reform law, the increased basic exclusion amount is only temporary. As of January 1, 2026, the current lifetime estate and gift tax exemption of $12.92 million for 2023 will be cut in half and adjusted for inflation. That means if your estate is valued at more than $6 million, it may be subject to federal estate taxes.

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Don’t put off preparing for the future. Planning your estate now means you can relax knowing your loved ones are well cared for after you’re no longer here.

Ameritas is in the business of fulfilling life. Bringing you valuable information to help you plan well and enjoy life is part of what we do. Contact your financial professional or contact us to connect you with a qualified professional.

Neither Ameritas Life Insurance Corp. nor its representatives provide tax or legal advice. You may want to consult your attorney or other tax professional for more information.  

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Real Estate Holding Company Tax Strategies and Planning

Author: Real Estate Holding Company

Understanding tax strategies and planning for your real estate holding company can prove to be an incredible asset. Effectively leveraging deductions and credits can substantially improve your bottom line while ensuring compliance with current tax law. However, the complexity of tax regulations necessitates thorough knowledge and calculated decisions, both of which can benefit from expert legal counsel. In this comprehensive guide, I will outline some of the more fruitful strategies and planning methods, underscored by relevant U.S. legislation.

The Power of Proper Structuring: Real Estate Holding Company Fundamentals

Choosing the right business structure for your real estate holding company is often one of the first and most crucial steps in effective tax planning. While Limited Liability Companies (LLCs) and S-corporations are commonly used for their flexibility and favorable pass-through taxation, your particular circumstances might necessitate another structure like a C-corporation. The Internal Revenue Code (IRC) outlines the various business types and their tax liabilities in Titles 26, 27, etc. You may want to consult with a tax advisor to determine which structure optimally suits your needs.

Leveraging Deductions to Your Advantage

Deductions can be one of the most potent tools in your tax strategy toolkit. Section 179 of the IRC allows for deductions related to business property, including equipment and real estate, up to certain limits. Moreover, property depreciation, per IRS guidelines found in Publication 946, offers another avenue to lower your taxable income. It's advisable to keep meticulous records of repairs, improvements, and operational costs, as these may qualify for additional deductions. Each deduction has its own stipulations and limitations; therefore, a careful review of your financial records can help you make an informed decision on the deductions most beneficial for your real estate holding company.

Tax Credits: An Often Overlooked Resource

Tax credits can reduce your tax liability on a dollar-for-dollar basis and thus offer a more direct form of tax saving than deductions. Various federal and state programs offer tax credits for energy efficiency, job creation, or redevelopment of underused properties. For instance, the Low-Income Housing Tax Credit, governed by Section 42 of the IRC, rewards investments in affordable housing. Another example is the Historic Rehabilitation Tax Credit, which can incentivize refurbishing qualifying historic buildings. Consult with professionals well-versed in tax law to identify the credits most relevant to your investment profile.

Strategic Financing and Loan Management

A real estate holding company often has considerable loan obligations that can be managed strategically for tax benefits. Interest on loans used for business operations or property acquisitions can generally be deducted, as per Section 163(j) of the IRC. However, there are limitations and adjustments that apply depending on your business's gross income and other debts. Therefore, it might be wise to consider loan terms and rates with a focus on their tax implications before entering into any financing agreements.

1031 Exchanges: A Delay, Not a Dodge

One of the more advanced planning options at your disposal is the 1031 exchange, so named for its governing section in the IRC. This provision allows for the deferral of capital gains taxes when you sell a property and reinvest the proceeds in a "like-kind" property. While it doesn't eliminate the tax liability, it does defer it, potentially allowing for more capital to be available for reinvestment. However, timing and identification rules are quite stringent; thus, precise execution is crucial for reaping the full benefits of a 1031 exchange.

A Word on Partnership and Joint Ventures

If your real estate holding company is involved in partnerships or joint ventures, the allocation of income, deductions, and credits becomes an additional layer of complexity. Partnership agreements, usually articulated in a formal legal document, often dictate these allocations. It's essential to have an agreement that aligns with your investment strategy and stands up to the scrutiny of IRS regulations like those outlined in Sections 704(b) and 704(c) of the IRC. A qualified legal advisor can guide you through crafting an agreement that satisfies both parties and complies with tax laws.

Effective Record-Keeping: The Backbone of Tax Planning

Good record-keeping practices go a long way in simplifying your tax preparation and providing you with the data needed for insightful financial analysis. Ensure you keep all relevant documents, receipts, and records, as these will be indispensable for claiming deductions credits or for substantiating your filings in case of an IRS audit.

Effective tax strategies and planning for a real estate holding company require a multi-faceted approach involving proper structuring, utilization of deductions and credits, strategic financing, and comprehensive record-keeping. Moreover, consider professional consultation for tailored advice, as tax laws frequently change, and your circumstances may require specialized attention.

Frequently Asked Questions

Can a real estate holding company carry forward tax losses.

Yes, tax loss carryforwards are a way to move a net operating loss (NOL) from one year to offset taxable income in future years. This can provide a valuable financial cushion. Under the Tax Cuts and Jobs Act of 2017, NOLs occurring in tax years ending after 2017 can be carried forward indefinitely but can only offset up to 80% of your taxable income in any single future year. It's a strategy that can be particularly useful during lean times, allowing your company to balance out profitable years with less successful ones.

How Do Passive Activity Loss Rules Affect My Real Estate Holding Company?

Passive Activity Loss (PAL) rules, governed by Section 469 of the IRC, often apply to real estate holding companies. These rules restrict the ability to offset passive losses against non-passive income, such as wages or interest. However, there are exceptions for active participation in rental real estate activities that may allow you to offset some or all of your passive losses. A thorough understanding of PAL rules is crucial to tax planning as it directly impacts how your losses are treated.

Are There Any State-Specific Tax Considerations for Real Estate Holding Companies?

Indeed, while federal tax considerations often grab the spotlight, state tax laws should not be overlooked. Some states offer additional tax credits, incentives, or even penalties that could significantly affect your real estate holding company's bottom line. Some states also have franchise or business taxes that could impact your holding company. It would be prudent to consult with a tax professional familiar with the specific tax laws in the states where your properties are located.

How Can I Leverage Cost Segregation in My Tax Strategy?

Cost segregation is an IRS-approved approach that allows real estate owners to accelerate depreciation deductions. This involves categorizing the property's assets into classes that have shorter depreciation schedules. For instance, certain fixtures might be categorized separately from the building structure, allowing for quicker depreciation and thereby, a lower taxable income. This method demands an accurate and detailed cost segregation study, which experts in the field should ideally conduct.

What Are the Tax Implications of Selling Assets Within My Real Estate Holding Company?

The sale of an asset within your holding company triggers a capital gains tax event. Depending on how long you've held the asset, it will be subject to either short-term or long-term capital gains tax rates. Further, depreciation recapture taxes could apply, adding to your tax liability. However, as mentioned earlier, strategies like the 1031 exchange can help defer these capital gains taxes under specific conditions. A comprehensive review of your tax situation is crucial before making such a significant move.

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Real-estate billionaire Barry Sternlicht puts his finger on the ‘impossible’ thing holding Miami back from really becoming Wall Street south: the schools

Long known for its pristine beaches and its pleasant year-round climate, Miami attracted attention during the pandemic as Wall Street South , a haven for northern financial types.

Attracted in part by lower taxes, a flood of wealthy people and major companies have migrated south to the Miami area in recent years. Companies such as Ken Griffin’s hedge fund Citadel and Paul Singer’s Elliott Management have shifted their headquarters to the city and others such as Goldman Sachs , Blackstone , and Point72 have expanded their presence there. Thanks in part to this monied migration, the city has 75% more millionaires than it had a decade ago, according to a 2023 report.

Still, one of the city’s most prominent billionaire residents, Barry Sternlicht, the CEO of real estate giant Starwood Capital Group, said Miami still has to improve on education before it can become the new U.S. financial capital.

Speaking to Bloomberg Television’s David Westin , Sternlicht said there aren’t enough private schools in Miami and it is holding the city back from attracting the talent it needs to reach the next level.

“There are a lot of companies that would move down if they could get their employees’ kids into schools, which is impossible,” Sternlicht said in an interview with Bloomberg. 

Indeed, demand has far surpassed availability at some of the area’s most popular private schools, according to the New York Post . In order to get spots at top area schools such as Gulliver, Ransom Everglades, and Miami Country Day School, where Tom Brady and supermodel Gisele Bündchen’s kids attend, wealthy parents have reportedly offered five-figure donations (on top of the tens of thousand of dollars for tuition) to try to get their kids in, according to the Post.

In 2018, Sternlicht moved Starwood from Greenwich, Connecticut, to Miami, where it built a new six-story, 144,430-square-foot headquarters a block from the Miami Beach Boardwalk. The company has about 5,000 employees in 16 offices worldwide and has $115 billion in assets under management, according to its website.

Sternlicht has taken a liking to Miami, where he owns a waterfront home off North Bay Road. The land alone cost $17 million in 2015 . 

Apart from Sternlicht, some of the most famous newcomers to Miami include former Amazon chief executive Jeff Bezos and Citadel CEO Ken Griffin. Billionaire investor Carl Icahn also has a home there . 

Griffin in particular has brought in many wealthy employees to the Miami area since he moved his hedge fund from Chicago to Miami in 2022. Sternlicht said the rush of financial types that followed Griffin will help the area grow.

“They alone have decided they’re going to make Miami into the financial capital of the United States and they have the power to do that,” Sternlicht told Bloomberg. “If I was really smart, I would just buy all the houses in Coral Gables and sell them to the Citadel employees as they move down.”

Although some have said Miami real estate is overvalued , Sternlicht said he has faith in the city because of the great attention it has already garnered, he said.

“I don’t think Miami has peaked,” he said. “I think Miami and Florida have cycles because they get overbuilt, but they’re ever-higher cycles. You just have to have stamina to stay with it.”

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Local security forces brought 15 men to a military enlistment office after a mass brawl at a warehouse of the Russian Wildberries company in Elektrostal, Moscow Oblast on Feb. 8, Russian Telegram channel Shot reported .

29 people were also taken to police stations. Among the arrested were citizens of Kyrgyzstan.

A mass brawl involving over 100 employees and security personnel broke out at the Wildberries warehouse in Elektrostal on Dec. 8.

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Home & House Stagers in Elektrostal'

Location (1).

• Use My Current Location

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• Elektrostal', Moscow Oblast, Russia

Professional Category (1)

• Accessory Dwelling Units (ADU)

Featured Reviews for Home & House Stagers in Elektrostal'

• Reach out to the pro(s) you want, then share your vision to get the ball rolling.
• Request and compare quotes, then hire the Home Stager that perfectly fits your project and budget limits.

A home stager is a professional who prepares a house for sale, aiming to attract more buyers and potentially secure a higher selling price. They achieve this through the following techniques:

• Rearranging furniture to optimize space and functionality.
• Decluttering to create a clean and spacious look.
• Making repairs to address visible issues.
• Enhancing aesthetics with artwork, accessories, and lighting.
• Introducing new furnishings to update the style.

Their goal is to present the house in the best light. Home stagers in Elektrostal' help buyers envision themselves living there, increasing the chances of a successful sale.

• Decluttering
• Furniture Selection
• Space Planning
• Art Selection
• Accessory Selection

Benefits of the home staging in Elektrostal':

• Attractive and inviting: Staging creates a welcoming atmosphere for potential buyers.
• Faster sale: Homes sell more quickly, reducing time on the market.
• Higher sale price: Staging can lead to higher offers and appeal to a wider range of buyers.
• Showcasing best features: Strategic arrangement highlights positives and minimizes flaws.
• Stand out online: Staged homes capture attention in online listings.
• Emotional connection: Staging creates a positive impression that resonates with buyers.
• Easy visualization: Buyers can easily picture themselves living in a staged home.
• Competitive advantage: Staging sets your home apart from others on the market.
• Affordable investment: Cost-effective way to maximize selling potential and ROI.
• Professional expertise: Experienced stagers ensure optimal presentation for attracting buyers.

What does an Elektrostal' home stager do?

What should i consider before hiring an interior staging company, questions to ask potential real estate staging companies in elektrostal', moscow oblast, russia:, business services, connect with us.