Episode 115 | RRSP vs. TFSA, beneficiary pitfalls, and much more: timely tax and estate strategies with John Natale

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That's a whole different story when I do this presentation for client events. You see husbands and wives looking at each other like, what's going on here? Anyway, I digress here.

March 2nd is right around the corner, and as we get closer to the end of RRRSP season, it's a great time to check in on some of the big money. Canadians wrestle with every year. Should you be putting new savings into a TFSA? or an RRRSP?? Does it really matter which one you choose? In today's episode of Investments Unplugged, we're breaking it all down along with a few smart, timely tax tips you can still take advantage of before the deadline, but to help make sense of it all, we're joined by an expert guest who will share practical insights and real world strategies you can actually use.

Listen on… This is Investments Unplugged.

Welcome back to Investments Unplugged. I'm Kevin Headland, co-chief investment strategist at Manulife [00:01:00] Investments, and with me always is Macan Nia, our other co-chief investment strategist. How's it going, Macan?

Hey, Kevin, how are you? I'm all right. It's Friday, January 30th cold. I'm happy to be enjoying the weekend coming up.

We were talking about before we typically do preps for these, and I think this is the first podcast that I kind of feel like a fish outta water that I have, you know, a lot to learn. So I'm quite excited for this. It's not our relevant expertise and this is why I think it was great to bring the expert, uh, to the table.

And we're joined by John Natale, head of our Tax, Retirement and Estate Planning Services at Manulife. John, welcome to the show.

Thank you for having me. Excited to be here. It's been a while.

How, God, a few years at least since we had you on. Yeah. You know, I was trying to take it a little bit personally, to be honest.

Well, welcome back and before we get. Started, we'd be remiss not to mention that you just recently celebrated a pretty big milestone from a career perspective. John just finished or is about to finish his 25th year at Manulife. Congratulations. Thanks, Macan. [00:02:00] Appreciate it. Phenomenal. Insert clapping sounds right now.

Thank you guys. So John, as, as the expert, I, I think, you know, given where we are, um, entering, you know, we're kind of in the middle of RRRSP season, uh, one of the questions we get often we think about this and perhaps it's not as easy a question as we might think. Kinda comparison between a TFSA, a tax free savings account and an RRRSP a registered retirement savings plan account.

Can we talk about the differences here and why an investor may choose one or the other for their tax planning purposes? Yeah, thanks, Kev. Like, like common question and uh, at this time of year, so ideally people have enough money to maximize contributions to both, right? That's what we'd all want. But I think the scenario you're talking about is if you have to pick and choose.

Um, so both great investment vehicles. With the RRRSP, you get a deduction upfront. It grows tax deferred, and when you put out as taxable and generally you put out in retirement, so not only are you paying tax, so you want to consider your tax rate when you contribute to make the deduction, but also your tax rate when you make the withdrawal.

But as well, the impact on income tested benefits like. [00:03:00] Old age security, which is income tested age credit. Um, and once you make a withdrawal from your RRSP, that contribution was lost forever. TFSAs, incredibly powerful. Probably, uh, my favorite, uh, no deduction upfront, but it goes in, so you're using after tax dollars, tax free growth and tax free withdrawal.

And so no negative impact as well on OES and other income tested benefits. So both amazing. Uh, do you want me to tell you which one I would prefer and which situation? Sure, please. Um, so I, I think like with the RRSP, it's a great retirement vehicle, but I think if I look at it from a pure tax Perspective, I always say the, the first factor I would look at is what is your tax rate right now and what is your expected tax rate in the future?

So for example, if you're in a 50% tax rate now, so you know every dollar you contribute, you can get 50 cents back in a, in, in terms of tax savings, and you're gonna be a lower tax rate when you retire at say, 30%. Well. Then that's, you know, cha ching, right? You, your, the deduction is worth more than a tax you're paying.

Um, and in that case, all things mean equal. I would choose the RRSP versus TFSA if [00:04:00] the opposite is true, right? So your tax rate in retirement, when you take into account those income tested benefits with TFSA, uh, sorry, tax rate is higher in retirement, then I would look at TFSA. Um, and if it's the same, well then I like TFSAs.

If your tax rate is the same, then I like TFSAs a little bit more, just in the sense of no negative impact on income tested benefits. And the fact that when you pull out, when you make a withdrawal from your TFSA, the next year you get that contribution back. So if I make a 10,000 withdrawal from my TFSA, I get that $10,000 of contribution back the following year in addition to the mandated.

Additional contribution we all get, which, you know, this year was 7,000. I think it's, it's important to remember the whole point of the RRSPA originally was that kind of tax deferral kind of, I'm, I'm making, I'm paying more tax while I'm working, so I benefit more from the tax deduction and the tax deferral because.

Later on in life, I expected making less taxes. But he said it's not the same. Uh, it's not always that, that same, uh, case. The other thing I think I was also important to say is [00:05:00] when you're doing TFSA, he said, when you withdraw TSA, it's not showing up as income, which does, uh, not impact those income tested, uh, uh, benefits that inve, uh, individual receive, uh, from the government, uh, in retirement.

So that's, that's a, a slight nuance there, but it's, I think it's really important to understand. Each your tax situation. So hold on. If I'm taking stuff outta my RRSP, let's say I'm selling a stock, a capital gain. When I withdraw that outta my RRSP, it's classified by the government as income. Yeah, that's right, Macan.

So when you, when you sell an investment within your RRSP that's grown. So, you know, mutual fund or stock, and it's grown normally in a non reg account. That would be capital gain, and that would be a 50% inclusion rate within the RRSP. That's not the case. E every dollar withdrawal is fully taxable regardless of of this, how it grew, would it be interesting income, dividend income, or with capital growth?

I was gonna say it's, there's also comparison between should I invest in income bearing securities in the RRSP versus TMSA or equities because the, [00:06:00] you bring your income invested stuff, your RRSP, because it end ends up being capital gains, which is better. From a tax achievement perspective for, yeah, that's it.

Yeah. So actually you raise, raise an interesting point, like a common point of discussion and some people disagree, but I think a lot of people, you know to the point you just made mark on where the income that you earned in your RRSP loses its characterization as other interest income dividends or capital gains.

So it really doesn't matter what type of income you earn in your RRSP, it's all fully taxable when you pull it out. So a lot of people think put your fixed income in there like GICs or your interest income. In your RRSP 'cause it's taxed the same way a dollar of interest income is taxed the same way as a dollar of capital gain.

And then put your equities, you know, in your non reg or your TFSA, the stuff that can grow more. Like obviously in A-TFSA, you wanna maximize growth because everything you put out is completely tax free. But even in your non reg account there, a dollar of capital gain is only 50% taxable, whereas a dollar of interest.

A lot of people think about that as well too. Am I an idiot for not knowing that? No, don't be. You'd be shocked at how many people don't know, even when TFSAs first came out, because it stands for a tax free savings [00:07:00] account. I can't tell you how many people thought it was an account like A GIC, like you didn't know.

You didn't have investment options in there. Yeah, like you do with an RRSP or RIF. So it's amazing the misunderstanding. If you guys want, I'll leave it to you. I also have a little test on you based on tax rates. We kind of talked about this a little bit before, if you want to go there. No, my, I understand.

The TFSA I always was under the assumption that I had my RRSP. I have different vehicles within my RRSP. In the event, let's say I own stocks. I decide to sell it at whatever point in the future. I always assume that that would be treated as capital gains. I have never assumed that it would be treated as income.

Nope, that's not the case, and I known you for a very long time, so I know you're incredibly smart. So gimme a pass. Thanks. Walk us through the sequence of returns. That question you post to. Yesterday. Yeah. So I thought it was very interesting. So I love this question. So here it is. So I'm gonna try to say this slowly because there are some numbers involved and sometimes through audio, it's not the easiest.

Take a situation, uh, we'll use myself as an [00:08:00] example. Okay? So let's say I get a bonus and it gives me a bonus, right? It's gonna be employment income for me. So let's say it's uh, I don't know, $5,000. I'm in a 50% tax rate, so I get a $5,000 bonus. If I just take that cash, I wanna pay tax of five of 2,500, only left at $2,500 to invest.

That I can put into a non reg account or A-TFSA. Let's forget about a non reg account, 'cause that's always the worst. Or I could take the full $5,000 and put it into an RRSP. I can put pre-tax dollars into an RRSP because the $5,000 I'll get an income inclusion. Did an offsetting deduction for a contribution to an RRSP and let's say for 10 years, I'm a really good employee and Manulife gives me that $5,000 bonus.

You guys might say, that's really low, John, but let's just assume to gimme a $5,000 bonus every year and every year I contribute other $2,500 to my TFSA or $5,000 to my RRSP. Okay. And we did that for 10 years. And you guys can pick the rate of return, but I'm just gonna say, let's assume it's a 7% rate of return, but it doesn't matter.

The rate of return doesn't matter. And the other assumption is my tax rate is 50% when I [00:09:00] contribute. And my tax rate when I withdraw 10 years down the road is also 50%. So same tax rate. So after 10 years, I make these contributions. At the end of 10 years, I pull the money from the RRSP where it's fully taxable, even if it's all capital gains.

Mark on. Okay. And I pulled the money from my TFSA. Okay. Which one? Which one would lead me with more money after tax? TFSA or RRSP. And I'll pause and I don't know if you guys have Jeopardy music now or whatever, but my original, uh, thought of course is R rss P compounds more. We both said RRSP. Yeah, you probably have more dollars, but after tax is the key.

So your, your sum of your, your, your, your account level value is probably higher, but after you withdraw it. As income, you are now at a, um, you have a lot less, so that now changed the situation. Now your, your pre-tax dollars are more than your RRSP, but your APT tax dollars are less. So you're being on, and I will tell you to make you so, make you guys feel better.

I've done this presentation live and almost nobody gets it right now. It is a bit of a, a trick [00:10:00] question because I give, I ask you guys which one is better, the RRSP or TFSA. I don't give you the third option is, well, what about if they're the same? That actually is the answer. And I can tell you it blows people's minds, and this is pure math, so I don't wanna get any angry emails or phone calls afterwards, but I, I can prove this.

But if your tax rate is the same at the time of the contribution as at the time of withdrawal, then the numbers will work out exactly the same, whether it be an RRSP or TFSA, which is I think is actually quite interesting, quite surprising for many people. Yeah, I, to be honest, John, you said this yesterday and I did believe you.

But we always check the stats. So I went in, I put it in Excel, and I had that situation where, you know, there's commonalities, like the rate of return doesn't matter, the tax rate the same uh, at time of investment, at time of withdrawal. And I'd be happy to share. John, you're absolutely right. It actually blew my mind.

I got a line graph in everything. But you know, I was with you Kev, right? Compounding within RRSP would've thought, and then, but I guess goes to the whole, the similarities between that and that sequence of [00:11:00] returns, right? When you look at sequence of returns, where those, okay, if you get those negative returns years at the beginning of the investment time horizon or at the end, it makes no difference.

So I think there's probably a lot of similarities between those two. Yeah, the, the math is a powerful thing. But the benefits, you said QFSA John, the benefits of when you withdraw it, you get that room back, whereas once an RRSP is used, it's gone. And there's, there's age limits for an RRSP as well where if QFSA doesn't have it.

So, um, looking at the press, uh, one of the keys we're talking about is the financial flexibility. You have to also look at the financial flexibility you may need in retirement, not necessarily when you're making the contribution. Yeah, no, that, that's a great point, Kev. And actually, it's funny, it's kind of a double-edged sword.

I think the majority of people would appreciate or value the flex. Ability that TFSA gives you. But I have had a few advisors tell me, you know what, I like the RRSP for this particular client because there's a consequence of taking the money out. And for some individuals, if that was in A-TFSA, it's too easy to take the money out.

So goes they go, they actually tell me, they say, actually, I'm gonna put them in an RRSP just because this way the money will stay invested. 'cause an [00:12:00] RRSP is a long. Term investment plan is for your retirement. It's a forced vehicle for savings. Right. And I know certain family members, even mine when, uh, the advisor was making recommendations, it's interesting that they put them into RRSPs as a forced measure of savings.

And we were talking about flexibility. It also depends on what your, your citizenship is as well. Right. So when it comes to TFSA as pure Canadians, it's deemed tax free. But if you have a dual citizenship with the US. That's a different ball game. Yeah, that's, that's a great point. Look at you, the RRSP there and now you know about cross border.

Look at that. Okay. Johnny, it's only selfish reasons. My, uh, my wife was, uh, born with a US citizenship 'cause her parents are American. So we went through this process years ago when we found out what the tax, the TFSA is in tax free. And then, uh, she renounced her citizenship as not because of that, but it was a factor Canada and I think.

Don't quote me on this percentage, but let's say 98% of countries tax on residency US is one of, I dunno, [00:13:00] a handful, but the only one that I can really think of, of any significance. Um, no disrespect to those other countries where they tax on citizenship. So if you're a US citizen, to your point mark on, you have to follow US tax return regardless of where you live.

So if you live in Canada, you're a resident of Canada, you have a US return. And a Canadian return. And the us unfortunately, when it comes to A-TFSA does not recognize the tax free status a TFSA. It does recognize the tax deferred status of an RRSP in a rif, but not of a TFSA. And just as a side note, RESPs are also an issue for US citizens.

For subscribers too. So just keep that in the back of your mind. If you have a choice. Name someone who's not a US citizen as an RASB subscriber, uh, in petition as a beneficiary. So for US citizens, there is often a conflict as to whether to invest in A-TFSA because for Canadian tax purposes works like no, for the rest of us, all tax free, but they could pay us tax.

Uh, on, on the growth or investment income within the TFSA, and then you might not get a tax credit, so it may be taxable. So I've seen people argue both sides of the fence [00:14:00] about that. Um, and, and you will have to include that income. So yeah, not a slam dunk for US citizens, like it is for us, for individuals like myself, who's someone who's not a US citizen.

John, yesterday when we were chatting about this, um, you know, you brought up the idea of a beneficiary here. You, you had a few interesting little. Tax tips or, or kind of the nuances, uh, for beneficiaries? Uh, uh, unfortunately, the un uh, uh, unhappy event of, of, of death and beneficiary, uh, some of the things in RSB or T say can, uh, can benefit from Yeah, we to kill the mood, Kath.

Yeah. But no, no, for sure. This is some, seriously, this, this is some morbid tactic, but, but it, it is important. So, no, I appreciate you bringing that up, Kevin. And actually there's a deadline that's approaching. That I think makes it particularly timely. So I hope everybody knows that. Um, just as a general comment, you know, if you wanna make a contribution the first 60 days of this year, which happens to be March 2nd, I know that's not 60 days, but the 60 days falls on a weekend, so you have till March 2nd to make an RP [00:15:00] contribution.

To claim the deduction on 2025 return. So just remember that point, 'cause I will bring that up separately. But a, a couple things here. Uh, I'll talk about RRSPs first. If there's a situation where someone has passed away in 2025. And they passed away with unused RRSP contribution room. Okay, so let's say you have $20,000 of unused RRSP contribution room.

The once that individual passes away there, the executive of their estate can no longer make a contribution to their RSP comes to an end. But if the deceased had a. Surviving has a surviving spouse or common law partner, and that spouse or common law partner is under age 72. Like they're still eligible to have an RRSP.

The deceased executor can make a spousal contribution on behalf of the deceased or the estate. They're surviving common law partner, but they have to do it. By March 2nd. And then what'll happen is that RRSP contribution to the surviving spouses spousal RRSP, the state can claim a deduction on that. So that's, so that's, that's approaching.

So in [00:16:00] addition to the regular 60 day deadline for making a contribu RRSP contribution while you're alive, there's the other cutting point, um, for executors, for, unfortunately for individuals who passed away. The other one I'll talk about really quickly is TFSAs, and this is really, really important and I do presentations.

I get a lot of questions on this. TFSAs, we all have, uh, we get TFSA contribution room. If you're a Canadian resident and you're over age 18, in the unfortunate situation, again, someone dies, so I'll use myself as an example. Let's say for whatever reason, you know, I have a. Four kids. Uh, my wife, you know, it's hard to save a lot of money for TFSAs, um, you know, contribute to RRSP savings plans.

Let's say for a reason I wasn't able to contribute to my TFSA right now, I was waiting, let's say I had a hundred thousand dollars of unused TFSA room. Let's say, God forbid I get a terminal illness. And I got, I've been diagnosed with three months to live, and we've had this situation appear. The advice from A-TFSA perspective, again, not in any way trying to be callous, is, hey, uh, if you don't have the cash, borrow a hundred thousand dollars.

Use up your [00:17:00] TFSA contribution. Make the contribution to your TFSA. Name your spouse as, again, this assumes you have a spouse or common law partner, which is critical. Name your spouse or common law partner. Successor owner is beneficiary and I, I prefer successor owner. We can get to that later. And then when I pass away, my spouse is her name is successor owner as beneficiary, they can take my TFSA and transfer it to their TFSA without affecting their contribution room, so no negative impact to their contribution room.

Whereas if I died without using that a hundred thousand dollars of unused TFSA contribution room, it's lost forever. And unlike the RRSP, my executor cannot utilize that after my death. And if that a hundred thousand dollars on my death, my wife transfers it to her TFSA. And then let's say she needs the money maybe to pay off the loan the next day.

She could withdraw the a hundred thousand dollars to use it for whatever she needs, but that a hundred thousand dollars of withdrawal will be added to her contribution in the following year. And we all know like a hundred thousand dollars of TFSA contribution will long term [00:18:00] compound. It's huge. A key there is successor owner knots.

Beneficiary. So know it can work for both your spouse or common law partner is the key that has to, you need a spouse or common law partner, and it can work for either if they're successor owner or beneficiary, either work really well, but I find there's a slight benefit just as a general planning point.

Whether I have a terminal illness or not, I find there's a slight preference to naming spouse or come up on our successful owner versus beneficiary. I can explain that to you quickly if you want. Yeah, do it. I'm gonna go change mine now. Yeah, well you'd be surprised actually. And the other thing is, I have heard from advisors and clients that some financial institutions don't even give you the successor owner option.

Which is not true. Um, that that's not true. Now, in Quebec that might be true. You can only do it with like a seg fund or an insurance product. But outside of Quebec, you should be able to do it with every company. You can definitely do it with my knife. It's a little quick little plug. So here's the thing, if I need my wife as beneficiary of my TFSA, so let's say whatever the value is when I die, let's say it's worth [00:19:00] 150,000.

She'll get that 150,000. It'll flow outside of my estate, which is good, you know, avoid my estate probate now she has till December 31st of the year after I die to transfer or make a deposit to her own TFSA again without affecting her TFSA rule. The downside is, is any growth between my date of death and when she transfers it to her TFSA is now no longer tax free.

It's taxable, and in fact, the type of TFSA you have, even if it's investment growth like a capital dean, it might be fully taxable. Furthermore, when she takes my 150,000 or I can remember the number I used $200,000 TFSA. When she transfers it to her own TFSA, she needs to have, she needs to name a new beneficiary and if she's lost mental capacity, her power of attorney generally won't be able to name a beneficiary for her.

So that's another downside to that. And when she makes that contribution to her own TFSA within 30 days, she must file a form with a CRA called an RC two 40. And if you don't, there's consequences to that as well too. So it's very effective. You can move the money [00:20:00] over. And not affect your contribution.

But the why I like successor holder or successor owner better is if I name my wife a successor holder, successor owner, when I die, my TFSA automatically transfers to her. She just assumes ownership of it, right? So, um, I don't have to worry about any gap in time between my date of death and when she transfers it over, but anything being taxable, I don't have to worry about her filing the RC two 40.

I don't have to worry about her doing it before December 31st of the year after I die. And furthermore, if I named my wife or Kamala partner as successor owner. I only have a wife, by the way. I don't want my wife to be jealous in case she's listening to this or get confused. Oh, I have a wife, no common law partner.

Because you can have both on an income tax, just so you know. You can have both, but you're still married to someone, they get divorced. But anyway, if I need my wife a whole different attention there, that's a whole different, that's a whole different story where I do this presentation for client events.

You see husbands and wives looking at each other like, what's going on here? But anyway, I, I digress here. Um, if I need my wife as successor owner, I can name a sea. My kids is beneficiaries, and then when I pass away, it automatically [00:21:00] goes to my wife and the beneficiary designation remains. So there's lots of little benefits, so small, but I think important benefits to naming a spouse's successful owner versus beneficiary.

That's really interesting. And I think that's a, a very good point. And especially unfortunately, you know, when your spouse dies, when anyone dies, you know, all those, so many other things be taken care of. And these little things can get lost in the shuffle. And, uh, a bit of, you know, uh, prevention, right? We say an ounce of prevention or a pound of cure.

Uh, I think that just knowing that little slight, little nuance. Thinking about how much it could help, um, you know, down down the road. So this is a, you know, these are these little tips that. Who even knows these things except for you and other back experts like you. You know, it's just Johnny. Dumb question.

Okay, so you said it's better to name your spouse, not a beneficiary, but, uh, what was the term as a, the technical term is successor holder, but successor holder, successor owner. You know, it depends on the fact [00:22:00] successor. Let's go with successor owner. Yeah. How do I do that? Like, if they just, you go onto like, okay, I wanna do that.

How do I do that? So wherever you're holding the TFSA, uh, hopefully they have the, uh, they're set up, their systems are set up to allow for it. Obviously we do. And I, I think almost everybody does. So there'd be a form. So just like, I kind of think like a beneficiary form, you know, where you name a beneficiary for like an R-P-TFSA, there should be a form or I, I would imagine maybe even on the TFSA application, to be honest, mock on.

Um, but it should be pretty straightforward. And if there isn't, um. Come to me life. Yeah. Well that's something I'm gonna definitely like, to your point Kevin, little, like little changes, nuances can make very big implications down the road when it probably the environment that you do not wanna be dealing with this type of stuff because you're dealing with emotional strain, um, having your finances aligned can at least help that process.

I would echo that [00:23:00] anything you can do to make the lives of the beneficiaries, the heirs, uh, simpler to your point now people are grieving, sometimes death, you know, death is always difficult, but if it's a, you know, a sudden death or something like that, anything for sure make your lives. Easier provide liquidity at death.

Also, the, the lives of the executors, right? You're making the lives of the exec, like less assets for them to handle less assets flowing through the estate. Um, you know, I I, I'm often challenged to be honest, when I'm doing presentations or speaking to people about trying to articulate the real life value.

Until you've lived through that, and I think anybody's been through. Uh, and, uh, death or being an executor, they get it. You know, I've seen people crying. They're so grateful for a quick death benefit or, or some stuff like that. And it's not always just about the money, it's about the, the, the, the time value allowing people not have to worry about paying bills.

Yeah. They can grieve. So, no, it's an excellent point by both of you. It's never a, a, [00:24:00] it's not never a good subject to talk about, and I think it, it becomes even much more difficult to think about, you know. Planning for those events, you don't wanna even broach the subject. Um, yet it is so important, you know, anybody who's, as you said, um, I've experienced it as a, um, friend, as an executor, and it just so many, so many things to do and so many little small, little things to do, uh, that the least.

Things you think of your plate, uh, the better. So it, it makes so much more sense. And, um, and I think in this context where, you know, as we're in, in Canada in an environment with total cost reporting, with clients, seeing the fees that they're gonna be paying from a dollar bill perspective, I think just this podcast is a good reminder is.

The investment returns are just a fraction of the value that an advisor brings. I actually think that the bigger value I initially thought when I started 20 years ago, the main value of an advisor was investment returns. And I learned very, very quickly that that's actually a pretty small part of it.

It's about. Sure it's about how much money [00:25:00] you make. It's about how much money you get to keep and that's where your expertise come in. And also from an advisor perspective, you're paying that fee is for tax planning, estate planning. So heaven forbid you are in this position in the future. All of those difficult, you know, discussions have already been had to try to make that process a little bit easier.

So yeah, people think it's investment in returns and that's what the fee you're paying for. I would actually say that's a very small percentage of it. This example that you've pointed to is just a, a good example of the other value that it's a holistic approach to estate planning and taxes are. An incremental part as is estate planning.

Yeah, no, I I I love that. And I totally agree. Like, you know, we talk about almost like investment returns are almost table stakes. They're important. Yeah. But there's so much more, you know, when we talk about the value advice, which I think is what you're getting at, there's so much more, uh, there's a couple quotes I like, you know, one by Warren Buffet's, someone seeing Shea today.

Bruce, someone planted a tree a long time ago. And I [00:26:00] love that because, you know, when it comes to planning, you don't always see, there's not an, an, an immediate benefit or payoff sometimes to that. But it's something that hopefully down the road that will pay off for you and, and your loved ones, whatever, right?

So I think especially today, when you think about the amount of money that is set to change hands over the next decade, even 20 years, uh, understanding these little nuances, understanding it is, and, and planning for it, um, is so important. And one of the things we talked about before is, is why? Investors should look at their portfolios and look about the different types of investments they have.

You know, most, you know, we're talking about registered in TFSA and there's not re and you, is it mutual funds? Is it, uh, ETFs, uh, psych funds? You know, people don't like paying the fees for psych funds, but there are. Benefits there. And perhaps we, you know, if you quickly cover the, the, the, the quick benefit of, of site funds there, I think it makes a lot of sense.

Yeah, no, thanks Kiv. So, yeah, I, I've heard someone else say there's a, a wealth transfer tsunami happening [00:27:00] right now, and I I like that Sami. Yeah. And I couldn't even remember something quote the, you know, the billions or trillions of dollars that's happening and, and, and yeah, like, um, you know. So I think historically, I think for a lot of people, seg funds may have a, a be of a bit of a dirty word or different expression because people are thinking back years ago where maybe mers were 4.5%.

I think people might be surprised that a lot of seg funds now, not all them, a lot of seg funds you can find low cost s funds are, the mers are very close to a mutual fund now still obviously ETFs. Can be a lot cheaper. Uh, but some salesman once told me cost is only an issue in the value, in the absence of value.

Um, and I had lots of stories about that, but I I do, I do believe in that. Right. So we, we we're trying to change the conversation. We wanna change the name of SEG funds to wealth transfer funds, and we're not even really talk, trying to talk about, so wait, hold a sec, John. So we're gonna call the. WTF funds.

Well, yeah, I have to be careful with that one. Yeah. I should have known better [00:28:00] than to bring that up on this podcast, but yeah, you don't anything get by, but yeah, exactly. So we could call them WTF, um, but, um, but you know, I, I think. We're not even, we're not even focusing about the, you know, the guarantees and those things.

It's about, and this ties into some of our earlier comments. It's providing that liquidity, that cash flow to your loved ones. You know, uh, you know, my colleague there, Mike Rashard, has a great quote. He goes, do you want a two week or two year wealth? Now, that might be a bit of an exaggerate exaggeration, but the reality is with insurance products like a s, founder and insurance company, GIC, which we call the GIA, we will pay out the death claim usually within a couple weeks of receiving all the death claim documentation.

Whereas if your assets go through your estate. You know, you're looking probably at a minimum a couple of months and if there's any type of challenges or issues with the will or the, the state courts are backlogged, you can easily looking six months, nine months, and I know [00:29:00] people whose estates have taken well over a year.

Again, like when I was telling you before about trying to articulate the value, what is the value of getting that, you know, giving that check to that widow or widower after a couple weeks? You know, like I said, I had a lady cry. She was, she was like, this is the first thing that someone's done. That's been nice to me since my husband passed away.

Because the mortgage payments don't stop. That's horrible. Yeah, I know. The, the car payments don't stop. The tuition payments, the property tax tax, it allows them to not have to worry about the financial consequences and or expenses and just allows 'em to, to grieve, whatever. Right. And it can be, I have people who say, I'll just put, we call it the sleeve strategy.

I'll just. 25 or $50,000, just I'll keep the rest of my portfolio and other stuff, whether it be ETFs, mutual fund, stocks, whatever that is. But I'm gonna put $50,000 in here just to provide liquidity, uh, for my beneficiaries and old ones. It's really, really powerful and, and it's really good for executors too, because if anyone's being executor, they probably can relate.

Someone passes away in [00:30:00] other individuals, the survivors, oh, I'm a beneficiary of that, will. The grieving process sometimes can be pretty short. They start calling up the executor. Hey, when am I getting my money? When am I getting my money? When am I getting my money member? Right? Well, now it helps give, you know, okay, well here's $50,000 or 25 or $75,000.

Just gimme some time now to grieve and, and get all the paperwork. There's a lot of stuff to do as an executor when someone processes away whatever, you gotta go through other financial documents. Stop. CPP. Notice to creditors file a f final tax return called a terminal tax return. So this whole wealth transfer notion, and, and the other thing is, and I've had advisors tell me this, but I asked them, I said, if I'm in the markets, would it be mutual funds or stocks?

And I passed away, like non reg. There's no beneficiary designation. Is it possible that my investments will be frozen until I get probate? And the answer oftentimes is yes. And if I don't get probate for six or nine months, that means those investments are locked in and subject to market risk. And I leave you guys to talk about what market [00:31:00] is.

'cause I can imagine if we go through a correction, people, advisors have been sued because of that. I have some advisors tell me, John. Um, when someone dies, it's automatically converted to cash, which I. You know, protects your downside but doesn't give you any upside either. Like, is it better for your money to be in cash for three months, six months, nine months, or is it better for the beneficiaries to receive the cash and they can do whatever they want with it, whether it be paid on bills or we invested and have full discretions of what they wanna do as those investments.

It is a no brainer. And that's why the two week to two years, again, two years might be a bit of an exaggeration, has really resonated with, uh, a lot of advisors and clients. It's interesting. I know advisors are always, you know, factoring a cash wedge for short term needs of clients. I've never thought about using a seg fund as a cash wedge for not long term, but the end of term like, or that cash need after heaven forbid, a death in the family.

Never looked at it that way, Han. I love that and I'm gonna borrow that. I never used that expression too, but I love it. I think that could release to that [00:32:00] people. Hundred percent. I, I'm not kidding, I'm not. I'm gonna use that. 'cause we all, we call it like the sleeves strategy, like put a little bit of money, like a sleeve on the side, but I think I call the sar calling out the cash wedge after death as opposed to pre-death.

I honestly, I love that. I am, I've learned tons and I'm still even more confused, but I think, uh, the, you know, it's, the time has flown by. John, we need to get you on here more often because the tax world is evolving. And I think a lot of people, including myself, are a little bit ignorant in terms of the people I think tag, are afraid of the word tax.

It's complicated, it's convoluted, which it is, but. Um, it makes it easier when you have experts like you that can explain it in such a digestible, uh, sound bites. I think it's so important there, right John? It's, it's the, you know, people say, oh, you know, things might be boring. Oh, tax is boring. We, we don't wanna hear about it.

But it's so important and I think we need to take talk and said, no. Kind of take a pause and say, listen, sometimes we have to digest information and it can be very [00:33:00] difficult to understand. And clearly thanks to you, your experience, the way you deliver the message. It is in a, a concise, digestible way. Uh, we wanna thank you very much for coming on today.

Thank you for what you do for our clients. Thank you for your presentations. Um, if any advisor out there wants to get John or see John or, or, or dive deeper in some of the topics we discussed, right more, please reach out to your math investments, uh, representative, uh, John and his team are more than happy to, uh, to, you know, help you out and, uh, answer any questions you might need and, and provide you from a, a great service to help your clients.

Uh. Make better decisions for not just their pre-tax years, but also their or after death years. I like that guys. It's, it is been a blast. I'm not gonna lie, I was a little bit nervous 'cause I hadn't been invited back for a long time. So I didn't know if I'd do something. But, uh, it was a ton of fun. Thank you very much and, and congratulations to you guys for all your success.

Well, thank you. So Johnny, another 25 years for you. Oh no. I love what I do, but I do wanna retire. Retire at [00:34:00] one point. So you wanna use all that money you've saved in your reg account and not reg accounts, uh, you know, spend time with your wife and your four kids. Thank you, John. Thanks Ken. John, we'll get you again soon.

Have a good one. Cheers. Thanks everyone for listening today. Um, if you like this podcast or like our podcasts, uh, other episodes, uh, please rate us. It helps, uh, for like-minded, uh, listeners to find us. Uh, so we really appreciate it and by all means, share it with your friends, clients, uh, colleagues, uh, if they will, you think they'll join as well.

So once again, uh, for Invest on Cloud, I'm Kevin Navan and I'm all cornier. This podcast is provided as a general source of information. It should not be considered personal, legal, accounting, tax, or investment advice, or construed as an endorsement or recommendation of any entity or security discussed.

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