What year-end financial strategies can help set me up for success?

Leanne Kaufman:

There is really something magical about this time of year, the gathering of families, the gratitude for what we have and the desire to share the abundance with others. This season does have a way of reminding us of the things that truly matter, from giving back to planning for the future. As we approach the end of the year and entering a new one, it’s also the perfect time to consider the future we’re building for ourselves, for our loved ones, and for our communities.

Hello, I’m Leanne Kaufman and welcome to RBC Wealth Management, Canada’s Matters Beyond Wealth. With me today is a dear colleague, Howard Kabot, vice president of Financial Planning with Family Office Services team at RBC Wealth Management. Family Office Services provides wealth management and planning services for high-net-worth families, corporate executives, foundations, and closely held corporations.

Howard, thanks for being here with me today to highlight strategies that can help Canadians make the most of their year-end and new year planning while leaving a legacy that grows beyond the holiday season and why all this matters beyond wealth.

Howard Kabot:

It’s nice to be here. Thank you for inviting me.

Leanne Kaufman:

As we are just entering into the holiday season, and as we said, the year ends and the new year begins, what would you say are the top three wealth topics that Canadians should have on their radar screen?

Howard Kabot:

Yeah, very good question, and given that we are entering the holiday season, we tend to focus on three areas:

• Charitable giving, where people start to think about giving to others.
• Managing your finances responsibly. The holiday season, a lot of things are happening and expenses tend to go up.
• And a focus on estate planning, again, given the time of year and people will be traveling and snowbirds and people need to think about Wills, powers of attorneys, etc.

Leanne Kaufman:

Well, I’d like to focus in on each of those three topics with a little more depth.

Let’s start with the first one you mentioned. We do see the holiday season definitely bringing out the charitable spirit in all of us, but beyond that spirit of giving, why do so many Canadians wait to focus on their philanthropic intent or their charitable giving until this time of year?

Howard Kabot:

Yeah, it’s a good thing to point out. I think there are a couple of reasons.

Really, I think it’s procrastination. People are so busy with their lives throughout the year and charitable giving is probably not top of the list when we’re so busy just with our day-to-day lives. But as the year is coming to an end, people get in the spirit and they decide that donating is important and they want to donate and people are charitable.

The other thing I think is taxation. You do benefit, from a tax perspective, when you make a donation and people start to think about the year-end and the fact that if there’s going to be some tax planning taking place, that the time is running out, you have to do it by December 31st. I think that also plays a factor.

So, procrastination and then you know what? I want to donate because I believe it’s important, and then I also want to make sure I get that tax deduction in before the new year. I think that’s really what’s happening here as we get closer to the holiday season.

Leanne Kaufman:

Yeah, those all make sense. I think we’re all familiar with the ability to, I mean, I would use the phrase write a cheque, but who really writes cheques to charities anymore? Make an online donation maybe to our charities of choice as we get towards the holiday season. But what are some of the other and perhaps more effective options for Canadians who want to make charitable impact, again, probably before the end of the year?

Howard Kabot:

Yeah, I mean, it doesn’t have to be year-end, but certainly, if you want to get the benefit on your 2024 tax return, which you’re going to file hopefully by April of 2025, then absolutely you need to have the donation in by December 31st.

First option and the easiest option is just to donate directly to the charity, but there are some other methods that we deal with quite a bit. The one that gets talked about a lot is the use of a private foundation. These are specialized approaches, if you will, to having a philanthropic mindset. Foundations typically we’re dealing with individuals that want to donate literally hundreds of thousands of dollars or even millions of dollars and they can be a very effective tool for a family that really wants to make an impact from a philanthropic perspective, and we can talk more about that in a few minutes.

Then the other one that actually we see very commonly is something called a donor-advised fund.  This method of making a charitable donation is like having your own mini private foundation, but it doesn’t have all the expense and legal aspects to it. It’s actually very easily set up with your financial advisor. The idea is you’re setting up a legacy for many years to go forward, but you can actually control the charities that are going to receive monies from this legacy contribution. It gives you a little bit of both. You don’t have to worry about all the hard part about setting up a foundation because there is quite a bit involved, but you can make a sizable impact if you so desire and then have that money there for years to come and even generations to come. So you do have some flexibility depending on how you want to go about this.

Leanne Kaufman:

Yeah, I think the only point I might add to what you’ve said is that it’s the time to getting to the donation is definitely impacted by whether you’re looking at a private foundation or a public foundation like a donor-advised fund. I mean, we know that CRA has a whole process involved and it can take months, and so probably someone’s not going to get a private foundation set up to take advantage of a tax year end now, but you could do a donor-advised fund on fairly short order, right?

Howard Kabot:

Absolutely. Yeah, you bring up a really good point. The private foundation is a much more sizable effort that you’re making, and like I said, it’s really hundreds of thousands or even millions of dollars that are usually involved. This is not something that’s usually done spur of the moment. This is something where a family has thought about that they want this to be a legacy for them and for probably multiple generations to come and they’re going to have a lot of control. They’re really going to be able to decide when and how and what’s important to the family.

And usually there’s a lot more involved here too because you’re going to have family discussions and maybe even annual meetings. So, it’s a much more thoroughly thought out and serious effort, whereas not that a donor-advised fund, but to your point, it’s much easier to do and usually smaller amounts are involved and you still have the flexibility but don’t have to go that extra mile with all the other things like filing tax returns and dealing with CRA and all the other admin parts to a private foundation. So, a donor-advised fund can be done much easier.

Leanne Kaufman:

Great. Well, okay, let’s move on to your second point that you raised as the top three hit list, and that is we’re at the time of year where spending can really peak for those that really get into the year-end, not just the donations, but also gifts to family and friends and so on, and events and New Year’s Eve and all the things that go along with the end of the year. What should Canadians be thinking about and then also moving into January when the bills arrive? I’m assuming we’re putting some of this on credit cards. What are some of the things that you’re seeing or advice you would give on the spending aspect of all this?

Howard Kabot:

Around New Year’s, you often hear about New Year’s resolutions. People are always saying, “What’s your resolution? What are you thinking about?” I think it’s a great time to think about your finances, think about where those finances are going, where your money is going. Do you have a budget? Have you ever thought about doing a budget? Things can get out of hand over the holidays in spite of our best efforts. So, it’s a great time to think about what you’re doing with your finances, with your investments, what you’d like to do. We talk about budgeting quite a bit. Some people like to do a budget, and if you haven’t done one, maybe if you have some time over the holidays, it’s a great time to do one to think about, “Okay, where’s all this money going? What am I doing with it? What would I like to do with it?”

Credit card debt can get out of hand at this time of year in spite of our best efforts. We try to encourage people to resist overspending, but that can be challenging obviously. Then of course you get your bills in January and they’re going to be quite high. I think we know that the interest on credit card debt can be really, really high into the double digits, 17, 18, 19 percent, and that can be really tough to deal with. So, at the very least, what we like to tell people is if that happens, try to pay your credit card off in January and try to use a credit line if you have one.

Credit lines are much more reasonable. The interest on credit lines are much lower than they are on the credit card. So, at the very least, get that credit card debt paid off, put it onto a credit line, and then hopefully as well, try to do that in a timely fashion. You really don’t want to carry debt throughout the year from a busy Christmas and setting up a credit line and paying with a credit line can be quite efficient.

Leanne Kaufman:

And maybe January, part of that financial New Year’s resolution you mentioned, could include actually doing a formal financial plan. You mentioned the budgeting process, but engaging a team like yours to go through, what does the longer term look like? Maybe January is a good time to think about setting that up too.

Howard Kabot:

I was going to get to that. You stole my thunder a little bit, but I was going to get to the financial plan. Look, I’m a financial planner and certainly I couldn’t let these few minutes go without mentioning that. Absolutely, things are busy as we get into the holiday season and we actually find that clients don’t really want to start thinking about a financial plan and over the holidays, and I totally understand that, but certainly, as you get into the new year, I think it’s a perfect time to say, okay, there’s a new year that’s upon us, and I should do a financial plan.

A financial plan, there’s no bad time to do a financial plan, but certainly, if you can manage to talk to your financial advisor and start to have a conversation early in the year, I think you’re setting yourself up for a lot of success for that year that’s about to start and even many, many years down the road. So yeah, I’m a big proponent of that obviously.

Leanne Kaufman:

And then the other component of financial planning that’s near and dear to my heart, of course is the estate planning side of things, and November being Make-A-Will Month, how does legacy or estate planning fit into either year-end or new year, financial planning we’re talking about?

Howard Kabot:

Oh, it fits in beautifully. It’s right in long terms of what we’re talking about. There’s never a bad time, first of all, to think about whether you have a Will or a power of attorney. Both those things are so important. A lot of clients have them, but they’re outdated. Again, probably sometimes for some people, Christmas, holidays, they don’t want to think about some of these things and I understand that, but certainly, as you get into the new year, it’s a great time to think about, “Okay, when was the last time I did my Will? Do I have a power of attorney? Should I review it?”

Also, you’re going to be with family over the holidays and it can be an interesting discussion to talk about some of these things and what you’re thinking about from an estate perspective and a Will perspective for some people. For some people they might want to put it off and that’s fine, but we talk about New Year’s resolutions and this would be a great one if you don’t have a Will or a power of attorney, definitely come beginning of January to think about that.

Also, we have clients that are going to start traveling a lot. A lot of people will travel over the holidays, snowbirds into the winter months. Quite often, we have clients that will come to us in a bit of a panic. They’re traveling and they just realize their Will is out of date by 10 years and they really need something done quickly. Of course, you don’t really want to do this in a quick fashion. Some thought is important when it comes to the decisions you’re going to make around beneficiaries and executors, etc. But sometimes clients haven’t thought about this in advance and then they come to us and they want to start to make changes. It’s really important, if you’ve had changes in your life, a birth, a death, a marriage, a new business venture, children, grandchildren, there are all sorts of reasons why these things need to be reviewed. The holidays might tweak you a little bit to think about that as you’re sitting around the fireplace and you’re looking at your family and you realize, “Holy smoke, I need to make some changes.” So this is a good time of year to think about that.

Leanne Kaufman:

Great advice, great advice. And then to marry up your financial planning conversation with your estate planning just as a public service announcement to help your executor, maybe put a copy of that financial plan in with your copy of your Will when you get it all teed up because then the executor knows what you have and where to go looking for it and so on when the time comes, right?

Howard Kabot:

Yep, absolutely. A good financial plan will detail a lot of those or all of those things, and they go very nicely hand in hand together. Absolutely.

Leanne Kaufman:

So, are there any key strategies that anybody should be thinking about if they take your good advice and are looking towards getting themselves more caught up-to-date in their financial planning in the new year? Anything in particular that you think they should be mindful of?

Howard Kabot:

Definitely think about the financial plan. That’s something that can be really beneficial if you haven’t done one, or to review it and get it updated. Ask yourself, when was the last time you spoke with your financial advisor? If you have a financial advisor. Beginning of the year is a great time to call them up if they haven’t already called you to say, “Hey, I want to review things. I want to review where I am, and not just with my investments, but with everything that we’ve talked about in a previous discussion in terms of a financial planning strategy. How am I set up for the next few years even towards retirement?”

After that, I mentioned the budget earlier. Again, this can be a little painful for some people, but if you’ve never done a budget, it can be a really, really beneficial thing. And sometimes if you’ve got some time over the holidays, people take time off from work, if you’ve got some time, it might not be a bad idea to try to sit down and think about a budget a little bit and where things are being spent and where major expenses are coming from and what your major expenses may be going into the new year. That will help you plan hopefully, in terms of how you’re going to manage those.

So, I think try to get a discussion happening with people that are important in your life from an advisory perspective, whether it’s your accountant, your lawyer, your investment advisor. It’s good to connect with these people and make sure that you’re setting yourself up for success for the current year that’s about to happen and for future years.

Leanne Kaufman:

Well, I think that’s all really sound advice, and hopefully, as you said, people are taking a little time off towards the end of the year and able to put a little time aside to think about how they can plan all these important things for their future and their family’s future.

Howard, if you only had one piece of advice you really wanted people to make sure that they took away from our conversation today, what one thing would that be?

Howard Kabot:

I think to be proactive. Don’t just sit down and let things happen from a financial perspective. And again, you want to take some rest over the holidays and recharge, for sure, but when you’re ready, be proactive and make the calls that you have to make and speak to the people that are important. If you can, if you haven’t done one, do a financial plan. That can be the blueprint of your life and can give you a lot of guidance and give you peace of mind.

Leanne Kaufman:

I think that’s all very helpful and practical. So, thank you so much, Howard, for joining me today to highlight these steps that people can take to help plan for today and tomorrow, and why all of this matters beyond wealth.

Howard Kabot:

Thanks for having me.

Leanne Kaufman:

You can find out more about Howard Kabot on the RBC Wealth Management Canada website or on LinkedIn.

If you enjoyed this episode and you’d like to help support the podcast, please share it with others, post about it on social media, or leave a rating and review. Until next time, I’m Leanne Kaufman, thank you for joining us.

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