More From Testing The Dynamic Estate Planning Model

I decided to test with a simple situation. A couple in their mid-60s. Both have pension income, Old Age Security, and Canada Pension. Wife was a nurse, husband worked in a local business and his pension is less. Part of it has no COLA. Hers is indexed, They have investments and RRSPs, and TFSAs. Total of all those is a little less than $500,000. They have each received an inheritance.

First look

They own a home and cottage, both bought more than thirty years ago. There is a significant capital gain on the cottage.

Their annual cost of living including travel is around $80,000 plus charitable donations. If both live, they will be cash flow positive for about 20 years. That is not a great problem because most people automatically reduce cost of living in their 80s. Inflating cost and deflating ability to spend.

If both live it looks like this.

The estate looks like this. No problems. Assumes inflation averages 3% or so. We could change that if we want. All investment yields are tied to it.

Another look.

In this case Husband is projected to die at 82

Cash flow requires about a 40% cut to cost of living or sell some real estate. In this example I assumed the survivor sells the cottage two years later.

The big drop is because the program presently applies the tax on the cottage sale to cash flow instead of producing net proceeds. I should fix that but it gets circular references. Something for another day. The key point si that even after selling the cottage net cash flow is still negative. The orange line is more than the grew one. That is not a huge problem because it’s almost 20 years out, and I have not adjusted cost of living down with husband gone.

The estate at about 2 years past her life expectancy is down about a million dollars.

If she dies at 15 years, thereĀ  result is much similar

If either dies at 5 year, the cash flow can be made workable but there is another half million or so lost in the estate.

Where it’s going.

I haven’t build the long term careĀ  problem in yet. And I have not finished testing everything. The model is getting complicated and mistakes can happen. It took quite a while to figure out how to transfer investments on death and still keep track of their adjusted cost base for taxes. I still have to add the ability to arrange life insurance, decide on reasonable investment rates and be able to test varying inflation rates as the years pass.

There is about 90 hours in it now and another unknown number of hours to go.

Then we can can build one that adds in things like a family business corporation, holding companies, family trusts, and rental properties.

Ideally some will have the ability to transfer to their children earlier.

The idea is if you can anticipate the future you can do something about what you find.

If you have some thoughts about what would be helpful for a client I’d like to hear them.

Help me please. If you have found this useful, please subscribe and forward it to others.

I build strategy and fact-based estate and income plans. The plans identify alternate ways and alternate timing to achieve both spending and estate distribution goals. In the past I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning, have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email to

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