Episode 7

This episode, on Prosper:

Vanessa Vakharia, founder of The Math Guru, explains how to take the fear out of money and math conversations. Then, cross-border tax expert David Altro reveals tax traps for snowbirds. Transcript below.

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Hosted and produced by Bruce Sellery

Mixed and edited by Jason Perrier of Phizzy Studios

Editorial direction and visuals by the Advisor’s Edge team

© 2019 Newcom Media Inc.

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Text Transcript

Bruce Sellery: Hello, I’m Bruce Sellery. This is Prosper, the financial advisor’s podcast from Advisor’s Edge. Coming up, the proverbial deer in the headlights. Understanding how your clients’ fear of math can affect your relationship and their results.
Vanessa Vakharia: Anyone who has a discomfort with numbers has had a math trauma. If you’re a financial advisor out there and you’re like, “That never has happened to me with math,” I am sure you can figure out a time in your life where that happened to you with something. Maybe it was sports, maybe it was art, maybe you were told you couldn’t do it. Maybe you were the last person picked in gym class. Hang on to that feeling, that is how your clients are feeling when they see numbers.
Bruce Sellery: Vanessa Vakharia has to navigate people’s fear of math all the time. She’s the author of Math Hacks and the founder of the tutoring company, The Math Guru. And later, sunning yourself on a beach in the South seems so simple until you start to talk taxes. We’ll get some advice from tax specialist David Altro from Altro, LLP.
David Altro: Do not put it into your name personally. If you already have it in your name personally, come see us anyway because we would rather you own it in a cross-boarder trust. That is the best way to own a personal use property for a Canadian, for the U.S. property.
Bruce Sellery: Altro will give you some things to think about for your clients who spend their winters down South, and Prosperous Practice.
Cindy Huang: My name is Cindy Huang and I focus on discretionary portfolio management for individuals and families in Western Canada. My tip is about battling the urge to take a short term view when investing.
Bruce Sellery: A quick tip on building a better business. That’s all coming up on Prosper.
Greg Dalgetty: For over 20 years, Advisor’s Edge Magazine has been bringing you tools, ideas, and strategies to serve your clients and grow your business. We also deliver relevant stories daily on all our platforms, our website advisor.ca, our daily AM and PM e-newsletters, and the podcast you’re listening to right now. We’ll soon be launching the Weekly Indicator, a fresh new take on our weekly e-newsletter. Same great stories but with more context and ideas. If you haven’t already, make sure you’re subscribed by heading to advisor.ca.
Bruce Sellery: I talk to a lot of investors and they often tell me how intimidating it is to go see their financial advisor. The conversations about money can be really scary, they can make people feel really inadequate, and a part of that I think is this general fear about math. Financial advisors who can understand that fear and provide some accommodations for it are often able to engage with clients in a more meaningful way. Our next guest deals with this topic every single day. Vanessa Vakharia is the founder of a math tutoring company called The Math Guru and she’s the author of Math Hacks, a new book from Scholastic. She joins us now. Hello there.
Vanessa Vakharia: Good morning, afternoon, whatever. Yeah, sure.
Bruce Sellery: Good afternoon, happy day to you.
Vanessa Vakharia: Hi.
Bruce Sellery: Math was not always your jam. This was not always an area of confidence for you. You failed grade 11 math twice?
Vanessa Vakharia: I did, thank you for bringing that up.
Bruce Sellery: Yes, I think that’s notable here. What happened?
Vanessa Vakharia: So for me it was almost entirely I would say a mindset thing. Like we’ve talked before, we have this thing in society where you’re like, there’s such a thing as a math person and either you are this mystical person or not. I was labeled as not a math person so I was always in the mindset that I couldn’t do it, which really affected how much I tried, right? So yes, I failed because it was kind of hard, but also I wasn’t trying or even giving myself the benefit of the doubt. That all changed when I met a math teacher who was like, “Oh guess what? There’s no such thing as a math person. You’re totally capable, and your favourite saying, shut up and do the work.”
Bruce Sellery: So how quick was it? You did your first test and you’re waiting for the results and it came back with an 80% and you’re like, “Oh my, it’s a whole new world.”
Vanessa Vakharia: Yes. So first of all it was a 99.
Bruce Sellery: Of course it was a 99.
Vanessa Vakharia: It kind of was. First of all, I went to a new school, so I want you to keep in mind the environment was different, okay? It was a very different environment. It was more welcoming, it was more like the school had the attitude that anyone was capable, so that was the first thing. Then second of all, yeah, I focused, I did the work, I practiced, I listened, I learned, and it kind of came that easy to be honest.
Bruce Sellery: Put us in the mindset of people, in addition to your own personal experience, who don’t feel comfortable with math and why we think that’s so important to understand that mindset because a lot of financial advisors, they work with numbers all the time. They’re in all likelihood, people who were at least okay at math growing up, because they work in a business in which numbers are their game. So why is it that people have that lack of confidence? What does that feel like when you have that lack of confidence?
Vanessa Vakharia: Okay. I love that you asked this because I am going to bring up now my new podcast Math Therapy, which I just started, but the reason I did, so I want you to think about those words, math therapy. This is what every financial advisor needs to think about. I have literally found and proven that anyone who has a discomfort with numbers has had a math trauma, literally has had a moment in their lives where they have been made to feel stupid by a teacher or shown up in class or their parents have told them they couldn’t do it. Just think, if you’re a financial advisor out there and you’re like, “That never has happened to me with math,” I’m sure you can figure out that a time in your life where that happened to you with something. Maybe it was sports, maybe it was art, maybe you were told you couldn’t do it. Maybe you were the last person picked in gym class. Hang on to that feeling. That is how your clients are feeling when they see numbers.
Bruce Sellery: Wow. Okay. So you see these kids come into your tutoring place, which is super cool and groovy and there’s incense and crystals and all that kind of crazy stuff. What signs would you have financial advisors watch out for that might have them be more sensitive to the fact that a client does have a concern about the math?
Vanessa Vakharia: This is such a good question. Okay. Number one.
Bruce Sellery: Do they sweat profusely or do they have a twitch?
Vanessa Vakharia: Sure, they might be twitching and throwing up. But the more subtle signs, so I’m actually going to be honest about this. I like math, as we’ve established.
Bruce Sellery: Yes.
Vanessa Vakharia: When I meet with my financial advisor, he starts speaking to me and immediately, I’m telling you it is like a reflex, I tune him out. I can’t hear the words he’s saying.
Bruce Sellery: Really?
Vanessa Vakharia: Yes and so-
Bruce Sellery: You tune him out?
Vanessa Vakharia: Yes, yes. I can’t even tell, for some reason financial stuff is just super boring to me and I actually do think that I’ve been brainwashed to think it’s inaccessible even though I know it’s built on basic math concepts. But I’m just going to say the signs I display, my eyes literally start to glaze. So I’m listening. You know when you can tell someone’s aren’t really listening to you? Number one, and he will stop and be like, “Are you not understanding this? Do you want me to draw a picture on the whiteboard?”
Vanessa Vakharia: We have found this strategy where if he uses visual, like let me see some charts and some graphics, I can understand. So A, my eyes will start glazing. Starting to get shufflely, right? The person starts shuffling around. They’re just kind of fidgeting all of a sudden. They’re not listening to you. They’re done. They’re out. Right? They start to any weird things like coughs, like looking around the room, eyes darting. And here’s the number one sign, saying, “Yep, I totally understand. Oh yeah, I got it.” That’s the number one sign, right? Even when you’re teaching-
Bruce Sellery: I can just picture the financial advisors listening to us right now going, “Oh wait, that’s what that means?”
Vanessa Vakharia: Yeah. The number one thing you learn when you’re teaching a kid who doesn’t understand math is they’ll say, “Yeah, yeah, I get it. I get it.” You need to stop and say, “Do you really understand?” They might say yes again, and then say, “How about you explain it back to me in your own words, just so we can make sure.” If they can’t, they don’t understand. So number one, clients will say that because they’re embarrassed to not understand what you’re saying, but B, because they kind of think they get it and they figure they’ll just figure it out later. So you want to on the spot be like, “It’s totally cool. Why don’t we just talk about it in normal language?”
Bruce Sellery: Yeah. You work with kids to build their confidence, build their skills, but build their confidence. What about that learning of the hundreds and hundreds of kids you’ve worked with can be reapplied to building that confidence between a financial advisor and their client?
Vanessa Vakharia: Okay. So you know what I honestly think the number one thing is? Most of the people that I’m talking to you about with math trauma, so AKA, literally 80% of our population.
Bruce Sellery: Everybody.
Vanessa Vakharia: Everyone, including myself, lack confidence. Like you said, they have never had someone in their life say to them, “You know what? I believe that you can do this. No, no, no. I’ve no doubt that of course you can understand this.” We assume that most people are not going to understand math and most, I don’t know actually. I’d be curious, but I bet you many financial advisors are like, “Yeah, yeah. Another client who doesn’t know what I’m saying. Whatever, who cares?” They don’t believe that their clients can understand what they’re saying. But you, as financial advisors, all know that you are talking about basic math concepts, about percentages, right? We’ve talked about this before, right?
Bruce Sellery: Yeah.
Vanessa Vakharia: I promise you that every client can understand it and their biggest barrier is that they don’t believe they can because no one has told them they can. So I think the first step is have confidence in your clients. Oh my God, the idea of being traumatized by math, you’re so embarrassed. There’s so much shame involved, right? You feel dumb. So having a financial advisor who’s like, no, no, no, this is hard for people to understand. It’s totally cool. Let’s find different ways to explain it to you until you do get it.” Right. So don’t ever be condescending. Don’t ever use the words, “Wait, what do you mean you don’t get it?”
Bruce Sellery: Yeah. Some financial advisors listening are like, “Oh great, I totally do that.” Oops.
Vanessa Vakharia: Just be so nice. Imagine you’re dealing with someone that has trauma or that feels … You know what? Someone actually said this to me. She said, she was like, “When people realize that what you’re asking them for is help, it changes their entire demeanor.” So when your client is really frustrated or feeling agitated or seeming like they’re irritated with what you’re saying because they can’t understand, just imagine you’re dealing with someone who really feels helpless and that they need you to help them. How would you act if someone needed you?
Bruce Sellery: Yeah, it’s great. It is. It’s totally great. You talk about showing math concepts in different ways. I’m sure you deal with this in a tutoring context all the time. We forget that people learn in different ways. Some people are visual, some people are auditory. I hate the charts that economists put up. I go to presentations with economists all the time and I just hate … I don’t even know what they’re talking about and I hate the fact that it’s graph after graph after graph. It doesn’t tell story. I need a story. Give me a story. Give me some magic of story. So how do you apply different ways that people learn in a meeting with a financial advisor and a client?
Vanessa Vakharia: Love it. Number one, I really hope that every financial advisor has a whiteboard.
Bruce Sellery: Ah, okay.
Vanessa Vakharia: Have a whiteboard, right? Oh my God, there’s one in this room. Seriously, my financial advisor does this. He can tell. He’ll get up and start drawing things for me. So have a whiteboard if you have a visual learner. You just said the power of story.
Bruce Sellery: How do you find out if they’re a visual learner? Do you ask them or do you say, “Listen, I could explain this concept in words. I could explain it in allegory. I could explain it on the whiteboard.” Or in your case, a song. You could do a song.
Vanessa Vakharia: Or sing me a song or in your case a story. I actually think many adults, because we’re so used to categorizing ourselves, many adults will identify as being like, “I learn better visually.” They’ll know. They’ll know, right? They’ve been taught that in school or they kind of have an idea of how things work best. So I would say that, so number one, ask them. That’s a really, really good idea. Ask them. A lot of, I think the kind of the whole struggle is you feel like it’s so irrelevant. You’re talking about this RRSP and it’s this whole abstract thing. So relating it to something more immediate in their lives, like a much smaller thing with smaller numbers using the same concept. You know when someone explains compound interest to you?
Bruce Sellery: Yeah.
Vanessa Vakharia: When they finally explain it to you, you’re like, “Oh my God.”
Bruce Sellery: Click. Ba-bing.
Vanessa Vakharia: Yeah. Explain it.
Bruce Sellery: Now there’s so much research into gender and math and how at higher grades in particular, many females opt out or disengage for lots of reasons. In your business, I’m sure you notice this because you’ve got people, both males and females in the room all the time by extension. So taking it from young people to grownups, how do you think financial advisors could think about those differences in the most empowering way?
Vanessa Vakharia: I think this is great and actually I’m going to bring up our friend’s financial advisor with a very unique approach that we’re both like, “Oh my God, this is a thing.” So I think that’s what’s really important to note-
Bruce Sellery: Tell our listeners about the thing. Give us that example.
Vanessa Vakharia: Okay, here’s the thing. Here’s the thing. The thing is our friend, our mutual friend, has a financial advisor who incorporates coaching and stress management into her sessions. To back up, because I have a degree in math education and feminist studies, I’ve done so much research on this, okay? One of the major things that’s lacking is not mathematical ability in females, but it is the confidence piece.
Vanessa Vakharia: You will have a guy who’s getting a 50% in math saying he totally gets it. You’ll have a girl who’s getting a 90 who will say, “I don’t know what’s going on. It’s just a fluke. I studied really hard. I don’t get it.” So financial advisors need to take into account that women have less confidence when it comes to finances, period. So this idea of, hey, is your client feeling stressed out? Do they have the mindset where they really feel like they can’t comprehend what you’re saying? The idea of incorporating techniques like stress management techniques, like mindfulness or actually taking a more holistic approach and being like, “How are you feeling?” Right? Yeah, that’s totally cool and that is something that financial advisors can incorporate into their practice, which A, will make them stick out. But B, think of yourself as a motivational speaker or a coach, right? Someone who’s going to help somebody with some major life choices.
Bruce Sellery: What would you say, and this is a bit outside your realm, but I think that you probably have something to say here. What would you say about a dynamic in which a financial advisor is sitting across from a couple? So the clients are a couple in which one feels stronger about the math and the other does not feel stronger about that.
Vanessa Vakharia: I have a lot to say. First of all, make eye contact with both of them. Never just be talking to one of them, the guy or either, or either. I would say treat them both as equal parties because one of them, it could be the guy or the girl, it is likely the female in this situation-
Bruce Sellery: If they’re heterosexual.
Vanessa Vakharia: If they’re heterosexual. Oh my God, I’m so sorry.
Bruce Sellery: That’s okay. It’s okay.
Vanessa Vakharia: Yes, no, completely. Or one of them might just have been taught that they can’t do it, right? So you want to make them both feel capable and this is obviously a decision for both of them. I would just say eye contact with both.
Bruce Sellery: One last call to action for financial advisors working with clients who may have a fear of math. What is the one thing you want each and every single person who is listening to our conversation to do differently from here on?
Vanessa Vakharia: Okay. I’m picturing it. I’m picturing the situation. Hold on one second. You know what? The number one thing is just be super nice. Be super, super nice and understanding. I really think it goes back to what I was saying. Treat your client like this really fragile person who likely has trauma with math, and in fact not only are you going to help them make better decisions, you might change their entire sense of self. Imagine you’re the one who helps them realize, “Oh my God, I can do this.”
Bruce Sellery: Do you mean treat them as a fragile person or do you mean to be compassionate with them?
Vanessa Vakharia: You know what? That is a much better way that.
Bruce Sellery: I was going to say, because I don’t think you treat people in a fragile way.
Vanessa Vakharia: No. No.
Bruce Sellery: I think you accept and acknowledge what they have been through, but you hold them to a high standard and believe them to be strong, capable people.
Vanessa Vakharia: I love that. Exactly. You’re right. They’re not a fragile person. They have this fragility within that you are going to bring out and whip into shape.
Bruce Sellery: Yeah. Yeah. Vanessa, it’s always so great to talk you.
Vanessa Vakharia: That went by so fast.
Bruce Sellery: I know. All of a sudden we’re done. Vanessa Vakhari, the founder of math tutoring company Math Guru, the author of Math Hacks from Scholastic, and someone who has had to navigate this dynamic with her financial advisor.
Bruce Sellery: Coming up on Prosper, your client is buying a condo in the sun to avoid bad weather. We’ll have some tips on how you can help them avoid a tax tornado too.
David Altro: If you rent out your U.S. property, you pay income tax to the IRS on the net income, file a U.S. income tax return called Form 1040. You also have to declare that income back home in Canada. However, we have a fantastic treaty between Canada and the U.S. and it says if you’re paying income tax to the IRS on your U.S. income from the rental, you’re going to get what’s called a foreign credit in Canada for that tax you paid and then when you pay the Canadian tax, you deduct the U.S. tax and avoid double taxation.
Bruce Sellery: Tax expert David Altro will be our guest. And Prosperous Practice, a quick tip on building your business.
Cindy Huang: Asset managers can fall into the trap of trying to time the market or hit it out of the park to get short term numbers back on side. Individual investors often focus too much on recent performance. They buy the latest winners or the hot funds, but they don’t look at who performs well consistently over time.
Bruce Sellery: Do you have some topics you’d like us to cover or any feedback you’d like to deliver? Our email address is news.advisor@tc.tc. Our handles on social media @advisorsca on Twitter, Advisor’s Edge Magazine on Facebook and advisor.ca on LinkedIn. We’ll be right back.
Greg Dalgetty: And now a word from our partner, Frontier College. Frontier College is Canada’s original literacy organization. Frontier College believes that literacy is more than just the ability to read and write. It’s the ability to engage fully in activities and opportunities at home, at work and in the community. Frontier College is able to run free programs for children, teens, and adults thanks to the generosity of great people and companies. For example, every year, law firms, investment firms, financial institutions, and blue chip corporations compete in the annual Scrabble Corporate Challenge for the coveted TMX Cup to raise funds for Frontier College. To volunteer or donate to Frontier College, go to www.frontiercollege.ca/get-involved. That’s www.frontiercollege.ca/get-involved.
Bruce Sellery: I want a house in the sun. Okay. Okay. A condo, a mobile home, a trailer, a shack, anything as long as it is in the sun. Hundreds of thousands of Canadians already have what I want in Florida, in Arizona, Texas, California, and while most Sunbelt homeowners enjoy the break from our cold, dreary winters, they will also likely admit that there is some complexity to owning another property in the U.S. That’s where a financial advisor can help. Even if you don’t navigate these issues directly, you’d do well to be aware of them so you can make sure your client is also aware. David Altro is the Managing Partner of Altro, LLP. He focuses on cross border tax and estate planning. He joins us now. Hello there.
David Altro: Hi, how are you?
Bruce Sellery: We’re going to go through the life cycle of owning a property in the U.S. You buy one, you own it for a while, and then you sell either on your own or in a scenario where the client’s estate has to handle the sale. Is the simple takeaway here don’t just buy a property on impulse?
David Altro: Well, a lot of clients buy properties on impulse and emotion and that’s kind of the excitement of life. So you’re totally right. It’s better not to, but many people do. So some of them come to us before they buy, which is the best way so we can structure it, and some of them come to us after they buy and then we structure and get them a better structure than owning it personally in their name.
Bruce Sellery: Okay, so all is not lost if you didn’t do it in the best way.
David Altro: All is not lost.
Bruce Sellery: So there are a number of ways to structure a purchase as a person just buying the place, as a corporation, a limited partnership or a cross-border trust. In one sentence what do each of these mean?
David Altro: Well, if you’re buying for personal use, do not put it into your name personally. If you already have it in your name personally, come see us anyway because we would rather you own it in a cross-border trust. That is the best way to own a personal use property for a Canadian, for the U.S. property.
Bruce Sellery: Why?
David Altro: Because it avoids a lot of problems such as probate when you pass away. Probate’s the legal procedure when you pass away owning the property in your name at the court in the county where the property is. It’s very time consuming. It’s very expensive and it freezes the estate. To avoid that we suggest you have it in a cross-border trust where you own the trust. The trust owns the property. God forbid you pass away, there is no probate because the trust owns it. The trust did not die. Inside the trust document we write whatever you want as to who’s going to inherit it, for example, your spouse or your adult children, but no probate, no expense, no freezing of the estate and no delays.
Bruce Sellery: Now, there were two others that I mentioned, the corporation, the limited partnership. What are the negatives on those options versus the cross-border trust?
David Altro: Yeah. If you’re talking about personal use property, we recommend the cross-border trust. We don’t recommend a corporate structure and we don’t recommend a limited partnership structure for that. Why? Because it’s more expensive, because there’s annual filing, because for a corporation there’s tax problems on the Canadian side, even though it’s a U.S. property called a shareholder benefit rule. If you have it in a Canadian corporation or a U.S. corporation and you’re using it personally and you’re the shareholder, the CRA is going to say you’re getting a taxable shareholder benefit equal to the hypothetical rental value and you have to add that to your income. Take tax on phantom income and that’s not a good idea.
David Altro: A limited partnership on the other hand is also not recommended for personal use property. I do see practitioners doing that. It’s not right because a limited partnership or a partnership needs to have a business purpose. But if you’re buying for personal use, there’s no business purpose so what’s happened is it’s not really a valid partnership. It doesn’t really do what it’s supposed to. It’s expensive. There’s annual filings. It’s not the appropriate. These ideas of corporations and limited partnerships are very effective for rental properties. But to answer your question, for personal use property, not those. Rather we like the cross-border trust and we don’t recommend owning it personally. If you already own it personally, we can still transfer it into the cross-border trust after you’ve already bought it even if the property has gone up in value and there is a tax-free rollover, no triggering of a capital gain tax and no land transfer tax.
Bruce Sellery: So you’re the financial advisor, you’ve got a client, they bought a piece of property. You want to send them to to sort out the cross-border trust or at least look at their options. How much does it cost? What’s the ballpark on fees to set that up either in the first instance or to transfer it over?
David Altro: We have a set fee of $5,500 and we charge that in Canadian dollars even though it’s U.S. legal services. I’m a Florida attorney and in addition to being a Canadian legal counsel, but we charge in Canadian dollars. So it gets you a two-in-one, which is a Canadian and a U.S. trust structure inside. Those are our fees.
Bruce Sellery: So that’s buying. Owning’s the next phase. What are some of the tax issues of owning a property in the U.S.? One that seems obvious is if a client rents it out when they’re not there.
David Altro: Correct. If you rent out your U.S. property, you pay income tax to the IRS on the net income, you file a U.S. income tax return called Form 1040nr each year. Now, that’s not the end of the story. You also have to declare that income back home in Canada. Why is that? Because you’re a Canadian resident. The CRA says, “Give us all the information on your gains and losses and income and losses.” So you also declare it in Canada. However, we have a fantastic treaty between Canada and the U.S. and it says if you’re paying income tax to the IRS on your U.S. income from the rental, you’re going to get what’s called a foreign credit in Canada for that tax you paid and then when you pay the Canadian tax, you deduct the U.S. tax and avoid double taxation.
Bruce Sellery: Now you and I are fully above board individuals. I would absolutely make sure I reported any income, but a lot of people are putting their properties on Airbnb and I don’t know how consistent they are in reporting that income. Is there a mechanism for the IRS and/or the CRA to get the data for Airbnb and for you to be caught because you didn’t put the income on your tax return?
David Altro: I really don’t want to talk about how they can find out or can they find out. We’re lawyers and we always tell our clients you need to be declaring everything. The CRA is not a fun institution to deal with, but the IRS is way worse. So certainly, however you’re renting, declare the income, pay the tax and sleep every night.
Bruce Sellery: Yeah. Yeah. Advisors, tell your clients to do things properly. Okay, so selling, so let’s say you sell it just because you don’t use it anymore for whatever reason. It isn’t the Canadian’s principle residence. They go down there for X number of months a year. How does capital gains tax work?
David Altro: Capital gains tax works as follows. It’s typically, let’s say you have it in the cross border trust, the capital gain tax by the IRS will be maxed out at 20% of the net, net, net gain. Okay? So the way it works is, and we represent people everyday selling, Canadians. So what happens is at the closing, first of all there’s a withholding by the IRS under the Foreign Investment In Real Property Tax Act, FIRPTA. And FIRPTA says there’s going to be a 15% withholding. Okay, that’s not a tax. It’s a withholding against the tax, okay? That can be avoided if it’s under $300,000 and the buyer is going to be using it personally or even if it’s over that, rather than sending it to the IRS, we often just hold it at our title company and then a petition to have it released.
David Altro: Now, if you buy for 100,000, you sell for 200 and you have a $100,000 gain, that’s 20% tax, $20,000. That’s not the end of it. Just like the rental income story. You also have to declare that the capital gain back home here in Canada. Again you’re going to get a credit in Canada for the tax you paid in the States. Here in Canada, let’s say Ontario, you would have a tax at a maximum of about 26.75%. So a little over 25% and you would get a credit for the U.S. and you’d net out of paying Canada about 6.75% and the U.S. 20%.
Bruce Sellery: So say your client happens to be the executor of an estate in which they, maybe it’s a family member, they did not set up the cross-border trust. Give us a flavour for what happens when that estate goes into probate and what actions need to happen in order to sort this issue out. You’ve said it’s expensive. It’s probably time consuming.
David Altro: Right. Typically what happens is the adult children call me up and say, “Well, Mom’s passed away. We want to sell the property. We don’t want to use it ourselves. Can we put it up for sale?” Then I explain to them we have to file a probate proceedings first. You can’t sell the property until the executor under the will is appointed, what’s called personal representative, under the Florida Probate Code. This is what I was referring to before. It takes a lot of time and it’s expensive and it freezes the estate. So that’s a big process could take eight to 12 months.
David Altro: Meanwhile it’s not being sold, so that’s the delay there. Once you get appointed as a personal representative under the probate, the property can be sold and when it’s sold, the executor is the person who signs. The money goes into the trust or into the estate. If there was a capital gain, there’s going to be a tax in Canada and in the States there’s no capital gains tax on death. Then there’s a filing with both the U.S. and the Canadian side.
Bruce Sellery: Just before we go here, one final catchall question. What advice would you have for financial advisors trying to assist their clients on this process?
David Altro: Well, we love financial advisors, financial planners, and my advice is, first of all, always ask your clients number one, do you have any property in the U.S.? Number two, are you contemplating purchasing any property in the U.S.? Number three, are you a U.S. citizen? Number four, do you have any adult children who are U.S. residents? Okay? All of those things should be asked at the get go and every quarter or whatever to make sure that the financial advisor can be given the appropriate advice. For sure, yes to any of those questions are red flags and at that point the advisor ought to bring in a cross-border tax and estate planning specialist to help work on the file to make the right plan to do the best job for the client.
Bruce Sellery: David, thanks for your insight today.
David Altro: Thank you for having me on.
Bruce Sellery: David Altro, Managing Partner of Altro, LLP. We were talking about some of the many cross-border tax and estate planning issues if you’re looking at buying a place in the sun.
Bruce Sellery: Becoming a better financial advisor is a lifelong pursuit. On each episode of this podcast we’ll bring you a quick tip from the trenches. We call it Prosperous Practice.
Cindy Huang: Hello, my name is Cindy Huang and I focus on discretionary portfolio management for individuals and families in Western Canada. I also most recently worked as a wholesaler to advisors for Leith Wheeler’s F Series Suite of Funds.
Cindy Huang: My tip is about battling the urge to take a short term view when investing. If you think about it, short term thinking is a problem for everyone, companies, asset managers and investors as well. Companies feel the pressure to make quarterly targets and because of that are less willing to make hard decisions that may be optimal longterm but cause short term pain. Asset managers can fall into the trap of trying to hit high in the market or hit it out of the park to get short term numbers back on side. Individual investors often focus too much on recent performance. They buy the latest winners or the hot funds, but don’t look at who performs well consistently over time.
Cindy Huang: Sadly, this flipping in and out of funds can be very costly. One study that we looked at said retail investors lose just shy of 2% per year just due to changing managers or strategies. That is significant. In short, short-termism is expensive for everyone. How it works is my colleagues and I use a few tricks to battle the ingrained tendency to think short term. For example, our analysts will appoint a devil’s advocate to bring an outside view to a decision. If an analyst is leaning towards buying a name for instance, another analyst will do their own research trying to poke holes in their thesis. They’ll ask hard questions to ensure downside scenarios have all been considered. Another thing that we do is look out for representation bias. That’s when your brain makes a mistake, so just thinking a good company will have a rising stock price, so therefore a rising stock price represents a good company.
Cindy Huang: As we know, that is often not the case. To battle representation bias we focus on the longterm intrinsic value of a company. This allows us to treat volatility as an opportunity to add to a good company at a depressed price rather than listen to the panic market and sell at the wrong time. And finally we try not to fall for availability bias. That’s to say we recognize that not all data is useful data. A hundred analysts reports and daily price status sliced 12 different ways may in fact be useless at best or at worst lead you to make the wrong conclusions. The impact on my business has been to help keep us out of the noise, fads and bubbles that can trap investors. These biases are human nature and so we will always have to battle them. But with these tools we’re able to keep our longterm focus when the market’s losing its head.
Bruce Sellery: You’ve been listening to Prosper, the financial advisors podcast from Advisor’s Edge. Take a quick second to visit our website. It’s advisor.ca. There’s tons of articles there on practice management and investments, insurance, all that kind of stuff. You can also sign up for our daily e-newsletter and subscribe to our print magazine. And don’t forget to subscribe to this podcast so the next episodes just automatically going to be delivered to your device. Maybe rate and review us too. That’d be nice. Thanks for listening. Now go out and prosper.