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Additional CESG
Grant available to families who qualify for the Canada Child Tax Benefit. Beneficiaries can accumulate $100 (20% of $500) of Additional CESG annually, to a maximum lifetime CESG (Basic and Additional) limit of $7,200. Cannot be carried forward to future years (so capitalize on it every year it’s available!)

Accrued Income
Income that has been earned but not yet received. For instance, if you have a non-registered Guaranteed Investment Certificate (GIC), Mutual Fund or Segregated Equity Fund, growth accrues annually or semi-annually and is taxable annually even though the gain is only paid at maturity of your investment.

A contract which provides an income for a specified period of time, such as a certain number of years or for life. An annuity is like a life insurance policy in reverse. The purchaser gives the life insurance company a lump sum of money and the life insurance company pays the purchaser a regular income, usually monthly.

This is the person during whose lifetime an annuity is payable.

All the property that you own, including your house, cottage, RRSPs, car, savings account deposits, etc.

Asset Allocation
The process of deciding where to invest your money among different types of investments.

Asset Classes
Different types of investments. Stocks, bonds and interest-bearing [GICs, money market certificates, treasury bills] investments are three major asset classes.

Attribution Rules
Legislation under which interest, dividends, or capital gains earned on assets you transfer to your spouse will be treated as your own for tax purposes. Interest or dividends relating to property transferred to children under 18 also will be attributed back to you. The exception to this rule is that capital gains relating to property transferred to children under 18 will not be attributed back to you.

Balanced Fund
A balanced fund invests in a mixture of stocks, bonds and money market securities. Also known as a ‘diversified fund’.

A person named in your Will, who you want to receive property from your estate or under a trust after you die. This is the person who benefits from the terms of a trust, a will, an RRSP, a RRIF, a LIF, an annuity or a life insurance policy. In relation to RRSP’s, RRIF’s, LIF’s, Annuities and of course life insurance, if the beneficiary is a spouse, parent, offspring or grand-child, they are considered to be a preferred beneficiary. If the insured has named a preferred beneficiary, the death benefit is invariably protected from creditors.

A gift to a beneficiary stated in your Will.

When you invest in a bond you are lending money to a company or a government. The company or government issuing the bond promises to repay the money according to a specific rate and payment schedule.

Bond Fund
A fund which invests in bonds issued by companies and governments. Also known as a ‘fixed income fund’.

Canada Education Savings Grant (CESG) is a government grant that can be renewed every year. Any unused CESG room is automatically carried forward from one year to the next.

Canada Learning Bond (CLB) is another grant of up to of $2,000 (lifetime maximum) available to modest-income families. The CLB amount pays into the RESP and does not affect the lifetime RESP contribution limit.

Canadian Deposit Insurance Corporation
Better known as CDIC, this is an organization which insures qualifying deposits and GICs at savings institutions, mainly banks and trust companys, which belong to the CDIC for amounts up to $60,000 and for terms of up to five years. Many types of deposits are not insured, such as mortgage-backed deposits, annuities of duration of more than five years, and mutual funds.

Capital gains/losses
The difference between what you paid for certain assets and what the assets are worth when you sell them or die.

The court appointed manager assigned to handle your affairs if you become physically and/or mentally incapable of doing so yourself.

Compound Interest
Interest earned on an investment at periodic intervals and added to principal and previous interest earned. Each time new interest earned is calculated it is on a combined total of principal and previous interest earned. Essentially, interest is paid on top of interest.

Corporate Will
Outlines the recipient of a shareholder’s preferred shares and the cost of those shares. Only available in the province of Ontario.

Creditor Proof Protection
The creditor proof status of such things as life insurance, non-registered life insurance investments, life insurance RRSPs and life insurance RRIFs make these attractive products for high net worth individuals, professionals and business owners who may have creditor concerns. Under most circumstances, the creditor proof rules of the different provincial insurance acts take priority over the federal bankruptcy rules.

The provincial insurance acts protect life insurance products which have a family class beneficiary. Family class beneficiaries include the spouse, parent, child or grandchild of the life insured, except in Quebec, where creditor protection rules apply to spouse, ascendants and descendants of the insured. Investments sold by other financial institutions do not offer the same type of security in the face of bankruptcy. There are also circumstances under which the creditor proof protections do not hold, even for life insurance products. Federal bankruptcy law disallows the protection for any transfers made within one year of bankruptcy. In addition, should it be found that a person shifted money to an insurance company fund in bad faith for the specific purpose of avoiding creditors, these funds will not be creditor proof.

Critical Illness Insurance
Pays you a lump sum benefit if you become very ill. The money can be used to fund private or alternative medical treatment, pay down a mortgage or other debts, or even fund a holiday to aid recovery. Critical Illness Calculator

Disability Insurance
Provides the insured with a monthly benefit, after a specified period, should he or she become disabled.

The strategy of spreading your money among a number of different investments to help reduce the risks usually associated with investing.

The trust to which all of your assets are transferred when you die.

Estate Tax
True “estate tax” or “death tax” does not exist in Canada. However, on your passing, the Canada Revenue Agency deems that all your assets have been disposed of at fair market value the day before you die. Any taxable gains are therefore entered as income in your final tax return, often resulting in a very large tax bill.

Executor/Estate trustee
A personal representative, appointed by you in your Will, who is responsible for settling your estate when you die.

Guaranteed Investment Certificate (GIC)
Deposit securities which pay a predetermined rate of interest for a stated term. Also known as ‘GICs’ or ‘GIAs’.

GMWB (Guaranteed Minimum Withdrawal Benefit)
A type of segregated fund that provides guaranteed income throughout the lifetime of the annuitant for a fee, while at the same time providing access to market investments.

The people who will inherit your property after your death.

Income Splitting
This is a tax planning strategy of arranging for income to be transferred to family members who are in lower tax brackets than the one earning the income, thus reducing taxes. Even though attribution rules limit income splitting, there are still a number of legitimate ways to do so, such as through spousal RRSPs and pension income.

When the prices of goods and services rise, causing the purchasing power of your dollar to decline.

If you die without a valid Will, you die intestate.

Key Person Insurance
Provides compensation to a business when a key employee dies.

Living trust
A trust created during your life. Also known as an “inter vivos” trust.

A person who has not yet reached the age of majority (18 in many provinces).

Money Market Fund
A fund which invests in short-term debt securities such as treasury bills and commercial paper.

The entire book of holdings of securities by an individual or institution.

Power of attorney (property)
A written document that allows a person to act as your legal representative (to do your banking, pay your bills, etc.) A power of attorney for personal care, also known as a “Representative for Health Agreement”, can be appointed in a separate document. These do not need to be the same person.

The process, governed by your province of residence, through which a court declares your Will to be valid and allows your Executor to distribute the assets of and wind up your estate.

Probate fees
The amount paid to the court as a fee for having your Will probated. In many provinces, this is a flat fee plus a percentage of the estate’s total assets if the estate value is over a certain dollar amount.

Permanent Insurance
Insurance that is intended to provide long-term, lifetime coverage.

Personal representative
A personal representative who is appointed by the court to settle your estate if you die without a Will (intestate), and therefore do not have an executor/estate trustee.

Registered Education Savings Plan (RESP)
This is registered account that provides tax-sheltered growth of savings for your child (or grandchild’s education). Funds deposited to an RESP account are match at a rate of 20% (to a specified maximum) annually, until the beneficiary’s 17th birthday. Withdrawals from an RESP account are taxed in the hands of the beneficiary, who presumably has a lower income and, therefore, a lower tax rate, than the contributor.

The performance of an investment, either positive or negative, expressed as a percentage. Also known as ‘yield’.

The relationship between risk and return is a key consideration when you are thinking about making an investment. Generally speaking, the greater the potential return, the greater the risk that you could lose money.

Rule of 72
This is a very important rule to know. The rule is that the number 72 divided by the rate of return of your investment equals the number of years it takes for your investment to double.
For example:

  • At 1% your money will double in 72 years.
  • At 2% your money will double in 36 years.
  • At 3% your money will double in 24 years.
  • At 4% your money will double in 18 years.
  • At 5% your money will double in 14.4 years.
  • At 6% your money will double in 12 years.
  • At 7% your money will double in 10.3 years.
  • At 8% your money will double in 9 years.
  • At 9% your money will double in 8 years.
  • At 10% your money will double in 7.2 years.

The general term for the different investments you can purchase (i.e. stocks, bonds, money market securities, T-bills, etc.)

A stock is a share of ownership in a company. If you buy stocks of a company, you are one of the company’s owners. Stocks are also called ‘shares’ or ‘equities’.

Stock Fund
A fund that invests in stocks. Also known as an ‘equity fund’.

Taxable Income
Income on which you must pay tax in the current year.

Refers to postponing taxes on contributions to, and investment earnings within, specific types of accounts, such as registered retirement plans [pension plans, DPSPs, Group RRSPs] until you receive income or take out withdrawals. Also commonly referred to as ‘tax-sheltered’.

Tax-Free Savings Account (TFSA)
The Tax-Free Savings account is a relatively new registered account that allows each Canadian adult over the age of 18 to deposit up to $5,000 annually. While the deposit is not an allowable tax deduction in the year of deposit, any growth within the account is tax-sheltered and withdrawals are not taxable. Additionally, the dollar amount withdrawn in any given year is added back to your contribution room for the following year. (Example: You withdraw $1,000 from your TFSA in 2010. In 2011, your contribution room increases from $5,000 to $6,000.)

Term Insurance
Provides coverage for a specified time period (usually 10 or 20 years). Term insurance is the least expensive kind of insurance initially, but the cost increases substantially at each renewal. Premiums increase when the term is renewed (i.e. every 10 year for a Term-10 policy). Term insurance is used for a temporary need, such as to cover a mortgage and protect income. A “convertible” term contract can be converted into a permanent policy without the need to go through medical underwriting.

Term to 100
Provides coverage to age 100 and is often categorized as permanent insurance. The death benefit and premiums are guaranteed and remain level throughout the life of the contract, but there is little flexibility and usually no cash value. Premiums are lower than those of permanent policies due to the lack of options.

Treasury Bills
Short-term debt securities issued by governments. Also known as ‘T-bills’.

A relationship naming or establishing a trustee to manage one person’s assets for the benefit of another person, the beneficiary.

The person responsible for managing a trust (this may be the same person as the executor of the Will).
Universal Life Insurance combines permanent “term to 100” coverage with an investment component. The investment portion allows tax-free growth within the policy and a variety of options are usually available for investment. Premiums, death benefit, and cash values are flexible throughout the life of the policy. While Universal Life policies are extremely flexible, they are also complex and require experienced advice.

Unit Value
The cost per unit of a fund. It is calculated by dividing the total market value of the investments in the fund by the total number of units in the fund.

The degree of change in the value of a security or group of securities due to market sensitivity.

A legal document that outlines the distribution of your personal assets upon your death.

Whole Life Insurance is a permanent life insurance policy that provides lifetime protection as well as the opportunity to build cash values. Other benefits include dividends (payable on “participating” policies), non-forfeiture options, and cash values that can be borrowed or used to pay premiums.

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