CAPITALCARE WINTER 2020 - JFL Group
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CAPITALCARE
J o efo rd L ee
CIM , CFP®, FCSI
Portfolio Manager, Investment Advisor
HollisWealth, a division of Industrial
WINTER 2020 Alliance Securities Inc.
A WINNING STATEGY
Although you are primarily concerned with
planning and enjoying your retirement years,
considering estate plans and other issues is also an
important part of a comprehensive financial plan.
Making a charitable donation can be a very satisfying
way to share your good financial fortunes with deserving
causes and those less fortunate. Donating can also
provide tax advantages to you and your family, either
while you are alive or in your estate plans. The federal
and provincial governments appreciate that it is good
social policy to provide tax advantage to those willing to
make donations to worthy causes, so they have a number
MARKET COMMENTARY of policies in place that encourage charitable giving.
It only seems fitting that we ended 2019 with a
Eligible Charities
bang and closed out the year on a high note. If you recall
in Q3’19 there were a flurry of geopolitical events that While saving money on tax may not be the
had ramped up volatility in the markets. We closed the primary incentive to contribute to a particular cause, you
Q3 Market Commentary by stating that despite the want to be confident that the intended recipients of your
newfound volatility, “we are not seeing signs of broad donation will actually benefit. Unfortunately, various
market weakness” and that “the noise may be loud, but schemes have been created that appear to represent
we remain focused on our process and investment legitimate charities but are in fact fraudulent. Canada
discipline. The threats of the last quarter may be another Revenue Agency (CRA) has information that helps you
opportunity for long term investors while we close out a determine the status of a charity of interest: The CRA
prosperous 2019”. Charities Listing
When it was all said and done, U.S. markets The Charitable Donation Tax Credit
surged another ~8.5% in the final quarter to finish the The charitable donation tax credit has two levels
year up nearly 29%; this was the best performing year for as well as maximums allowed in a particular tax year.
the S&P 500 since 2013. North of the border the The first $200 of eligible donations will reduce tax
S&P/TSX Composite tacked on another ~2.5% in Q4 payable at a rate of 15% of the donation amount. Any
to finish the year up over ~19%; the best performing year amount donated over the first $200 per year reduces tax
for the Canadian index since the post-recession rally of payable at a rate of 33%. The amount of credits claimed
2009. This was undoubtedly the kind of bounce-back can generally not exceed 75% of net income in the year
year market participants were hoping for but never the credit is being claimed. It is possible that by claiming
expected after a disappointing 2018. all donations on one tax return, the donations may not
Interestingly, 2019’s robust year in the U.S. stock be completely utilized. The credits cannot be carried
market was not led by corporate earnings growth, which forward but the donation itself can be spread out over up
is estimated to be roughly flat year-over-year when to five years.
companies report their Q4’19 numbers in January and
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MARKET COMMENTARY CAPITALCARE WINTER 2020
… continued from page 1 the other five G7 countries. Fear not a recession on the
February. This is a mirror image of 2018 when Trump’s horizon when U.S. GDP is estimated to expand roughly
corporate tax-cut fueled robust earnings growth to the 1.8%; this compares to 1.6% (BNN Bloomberg) for Canada.
tune of roughly 20% despite the stock market ending that Whereas the United States has done a better job of
year in the red. Additionally, it’s important to keep tapping its domestic workforce and generating
things in perspective regarding 2019’s extraordinary productivity gains, Canada has turned to robust
gains. We must recall the large painful correction in the immigration to grow output (BNN Bloomberg). Canada
U.S. markets in the fourth quarter of 2018. Thus, when added 437,000 people from abroad last year, helping to
we calculate the trailing 16-month return on the S&P 500 drive its fastest population increase in 30 years, despite a
from September 2018 to the end of 2019, you get a drop in fertility. Under the Trump administration, the
return of roughly 11%, or an annualized figure of just U.S. limited immigration to just 595,000 people. This
over 8%. trend has led some economists to predict that Canada’s
headline growth could easily top the U.S. this year,
This is a reminder that investing is a marathon. especially if there’s added clarity to a new NAFTA deal
Like runners, there will be pain during the race, but (Trump’s USMCA). The China, U.S. trade negotiations
having focus and discipline will ultimately lead them saw progress with phase one in the books barring any
across the finish line. Turning back to corporate last-minute cold feet. We are optimistic that Trump will
fundamentals, it isn’t a surprise to find the current market do his part to keep trade resolutions top of mind and be
valuations more expensive than they were twelve months more Presidential leading up to the U.S. elections in
ago. Nevertheless, we view 2020 to be another positive November.
year for corporate earnings, and a view from Credit
Suisse also estimates growth of 5% this year. The market performance of 2019 was much
Additionally, the current low bond-yield environment better than investors had hoped. The message is clear:
reduces the risk of debt default on corporate balance making knee jerk reactions after poor performance in
sheets and also points to good relative value of investing 2018 would have been costly for long term investors.
in equities vs. bonds. That being said, it is a tall order to see a repeat in 2020
so we have to temper our enthusiasm. The underlying
Aside from the equity markets, 2019 was also economic fundamentals are stable and holding well,
friendly to a few other asset classes. The price of gold (in which we believe will help to keep this expansion going
USD) went up another 3% in Q4, making for an into 2021. We will remain selective with the companies
exceptional 18% gain for the year (Yahoo Finance). we continue to hold in our portfolios, as an asset
Geopolitical tensions that we’ve frequently cited in this allocation skewed toward equities is still favored verses a
space previously surely played a role in the resurgence. fixed income-heavy mix. While the waters in 2020 are
If you recall from a piece we wrote about in Spring 2019, likely to get choppier, we still feel like we are travelling
there was also the dreaded yield curve inversion that downstream, with new highs on this adventure to come.
created a lot of headlines and fear in the markets at the
time. Funnily enough the yield curve closed the year in
very healthy shape after all, contrary to what many
market bears promoted in March.
The U.S. Federal Reserve cut interest rates three
times during 2019 which helped bond investors net
positive returns for the year as well: bond prices go up as
interest rates fall. The Bank of Canada went against the
tide and held interest rates steady all year, helping to
drive the loonie almost 5% higher (Yahoo Finance).
Economic fundamentals in North America
remain positive and GDP growth estimates for 2020 lead
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A WINNING STRATEGY CAPITALCARE WINTER 2020
… continued from page 1
Making a Charitable Donation
There are different ways to make charitable
donations which will have different tax/financial effects.
For example, you can donate to an eligible charity or to
the government. You can donate cash, life insurance, or
property. Property can include gifts of eligible securities.
If you donate securities (such as stocks or bonds) you will
receive a tax credit for the fair market value of the
donation and you do not have to pay capital gains tax on
any increase in value from when you bought the security
to when you donate it. This is clearly preferable to selling
the security and donating the cash since capital gains
taxes would have to be paid.
5 WAYS TO REDUCE DISRUPTIONS TO YOUR ESTATE CAPITALCARE Q2 2012(REPRINT)
Are legal vulnerabilities putting your estate at
individuals, including Ballard’s long-time companion,
risk? Take these steps to help preserve your
Yolanda Ballard.
assets and intentions after your passing.
Given the horrors estate litigation represents,
Estate planning centres on one main goal: what can a high-net-worth planner do? No strategy can
preserving estate assets. While advisors offer planning guarantee litigation-free estates, but we recommend five
advice and employ various strategies to reduce the tax things you can do to reduce the likelihood of litigation:
liability of the deceased’s estate, even the best efforts can
be fruitless if the estate faces claims that wind up in court. Make a Will
Family dynamics – which can include sibling rivalry,
perceived favouritism, second marriages or blended Studies show up to 50% of Canadians don’t have a Will.
families – all tend to spark estate litigation. Often, estate A Will documents how you wish to distribute your estate
litigation stems from friends or family not named in a upon your death. Clients without a Will open up the risk
Will who believe they’re entitled to some of an estate or of claims against the estate, because without one, there is
named beneficiaries who believe they didn’t receive their no evidence of testamentary intentions. A Will drafted in
fair share. your own handwriting is legal in Ontario. It is also
The dangers of estate litigation go far beyond the possible to use a Will kit. However, litigation can arise
threat of legal fees that can deplete estate assets. Estate from problems with homemade or handwritten Wills. A
litigation also strains relationships to the point where properly drafted Will requires specific legal language.
family members can end up estranged – all amidst great Homemade Wills are fertile breeding grounds for estate
emotional stress and grief. At a time when family litigation.
members need each other’s support the most, loss and
estate litigation often separates them further. Include an in terrorem clause
An in terrorem clause states that any beneficiary who
High net worth = high risk estate contests the will automatically forfeits their gift. This can
be an effective deterrent to litigation, because the
Every estate is susceptible to claims, but high- beneficiary challenging the will automatically loses their
net-worth estates are at particular risk, since there is gift or inheritance. Keep in mind, for an in terrorem
literally a lot more to fight over. Former Maple Leaf’s clause to be effective, the beneficiary’s gift must be
owner Harold Ballard’s estate, reportedly valued at $50
million, was subject to litigation in the 1980s by various … continues on page 4
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5 WAYS TO REDUCE DISRUPTIONS TO YOUR ESTATE CAPITALCARE WINTER 2020
… continued from page 3
valuable enough to merit serious consideration about Appoint an experienced executor
pursuing litigation.
If your estate is particularly complex or if you lack a suitable
Communicate with your heirs and beneficiaries executor, you may wish to consider a Trust Company.
There are numerous pros and cons associated with
Often, family members proceed with litigation because appointing a corporate executor. On the positive side, a
they don’t believe the will reflects the true intentions of corporate executor has years of experience and has
the testator. It’s essential the testator communicate with efficiently settled many estates as well Estate Departments
heirs and beneficiaries about intentions for distribution offer services beyond our lifetimes. The cost is between 3%
of the estate. This will clear up any misunderstanding or
to 5% of the final estate value which is often a small price to
misinformation, and in the process, can help the
pay for the ultimate peace of mind.
individual find out what preferences beneficiaries and
heirs may have.
Have a professionally mediated family meeting
A professionally mediated meeting between the testator,
his beneficiaries, and other estate planning professionals
is one way to keep everyone informed. The meeting
advises the beneficiaries of the testator’s intentions and
seeks input in developing the estate plan. At the end of
the family conference, the beneficiaries and the testator
are invited to sign an agreement not to contest the Will.
While the family conference may not work for all
families, it can be very beneficial for some, especially if
the testator is aware of litigious family members or
strained family relationships.
HOUSEKEEPING
A quick reminder that the TFSA limit for 2020 is $6,000. RSP Contribution deadline is March 2nd, 2020. It is
always prudent to get your contributions in well before the deadline.
Your tax information will be adhering to the following guidelines: If you have indicated the preference of receiving
these ‘on-line’, please remember to check your Portfolio Plus website.
Contribution Receipts Registered Savings Plans 2019: Expected Mailing Date: January 9, 2020
Contributions between January 1 – March 2, 2020 Weekly as contributions are received
Realized Gain and Losses Report: February 26th, 2020
Non-Registered T-slips: Most by February 29th, 2020
Statement of Partnership Income and Trust Income: March 31, 2020
Disclaimer:
This information has been prepared by Joeford Lee who is an Investment Advisor for HollisWealth® and does not necessarily reflect the opinion of HollisWealth. The
information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based
on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or
solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisor can open
accounts only in the provinces in which they are registered.
HollisWealth® is a division of Industrial Alliance Securities Inc., a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory
Organization of Canada.
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