A mutual fund is a portfolio of stocks, bonds and/ or other investments depending on the fund’s investment mandate. When you invest in a mutual fund, you’re pooling your money with other investors and purchase units or shares of the fund. Each mutual fund is professionally managed.
A segregated fund acts very similar to a mutual fund in which funds are pooled and invested based on that specific fund’s criteria/ mandate. However unlike mutual funds, segregated funds pass probate-free and have added insurance guarantees. Segregated funds also become creditor-proof if you name your common-law spouse as beneficiary.
An index fund is an investment fund that attempts to replicate the performance of a given index of stocks or some other investment type.
Leverage loans are used to magnify the potential of your investment gains. Subsequently this can also magnify losses. The investment thesis is that you can borrow money to invest and profit off of. You can make interest-only payments that are 100% tax deductible. Any profits earned from the investment are yours. Eventually when the plan is cancelled, the lender will take back their loan and the client is left with any excess collateral/ gains. If your account is worth less than the loan amount and the investment is cancelled, you would owe the lender the difference.
Capital gains tax is for non-registered investment plans or assets (non-RRSP, non-TFSA). The tax is calculated as 50% of the gain which is then added to your income and taxed at your marginal tax bracket.
Key person insurance is insurance designed to insure an employee essential to business operations in which if they were absent, would be difficult to maintain. In a small business this is usually the owner, founders or perhaps some key employees. Here’s how it works; the company takes out a life insurance policy on the “key person”, pays the premium and the company is the beneficiary.
This type of insurance is designed to fund the purchase of the shares for the deceased owners share of the partnership. Here’s how it works; under a cross purchase plan, each member purchases a life insurance policy on the other, with themselves as the beneficiary. If one partner dies the other will partner will receive the payout to help fund the transition of ownership from the deceased’s beneficiary.
Mortgage protection decreases over time as the balance of your mortgage is being paid down, any death benefit payable would only pay the balance remaining on the mortgage. Term insurance covers an insured for a fixed amount of coverage and your premium will increase at intervals that would be pre-determined. For example, Term-10 coverage will renew every 10 years based on your age (to the closest 6 months) upon renewal – Sally purchases a Term-10 policy at age 25 and therefore will renew on the 10 anniversary of the policy. Sally would then be 35 and the policy will renew based on the pre-determined rates of a 35 year old.
Probate tax is a charge on the total value of the deceased estate. This is where death and taxes meet. The total value of the estate is the value of all assets owned by the deceased at the time of death, including:
• real estate in Ontario (less encumbrances)
• bank accounts. investments (e.g., stocks, bonds, trust units, options)
• vehicles and vessels (e.g., cars, trucks, boats, ATVs, motorcycles)
• all property of the deceased which was held in another person's name
• all other property, wherever situated, including: goods, intangible property, business interests, and insurance, if proceeds pass through the estate, e.g., no named beneficiary other than 'Estate'.