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February 3, 2020 | The Helos

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

What’s that thumpa-thumpa-thumpa resonating in the atmosphere? Yes, you’re right. We have Helicopter Parents incoming! Prepare the surface-to-air defenses!

“I am normally quite good with money,” says Felix, disembarking, “but a situation has come up that makes me feel like curling up in the fetal position.”

Our daughter has been living in Vancouver, and has decided that she does not want to settle there because of the high cost of living. She is 24, university educated and an only child. My wife and myself are trying decide whether to buy her a condo or house in Edmonton, where we live, and where she is moving to

I would appreciate your thoughts. I am 56, my wife 50. Our daughter is an only child.  We both will have small db plans. Net worth 7 mill (not including commuted values) invested in farm land and stock market, some  fixed income. No debts. We have the ability to pay cash for the property, but I worry about the message we are sending to her, and also that is 400k gone from the investment portfolio. Ultimately, she gets everything anyways. Thoughts?

You really want to know? By the way, what’s she coming home to Edmonton for, now that she’s finished with uni? If it’s a job, she should be able to support herself, and certainly doesn’t need to buy a house or (Dog forbid) a condo. Renting is fine. This is not the time to be acquiring anything in the Wexit-&-woeful capital city of AB.

Besides, why should you buy her property? The ‘message’ you’re sending is obvious. You consider her a child, a helpless appendage of yourself, someone who needs sheltering and protection. This is no way to build independence, which comes from confidence, which flows from experience. The sooner your princess can look after herself, pay her own rent and cell bill, the more she can cope with everything life has to offer.

By the way, don’t leave her seven million. She’ll be doomed.

Now to Cynthia, who’s trying to orchestrate a mortgage rate for her kid. Sheesh.

You mentioned in your blog that February may see lower mortgage rates. My son has a 2.7%, 5 year mortgage with 2 years left.   Should he shop around and lock in at 2.6 for 5 more years?  Not sure of the penalty… What’s your advice?

Yes, there is some downward pressure on long-term mortgages, thanks to the virus. But obviously Mr. Market has been reassessing that in recent days, so the bond market plop may end up being less of an issue.

Two thoughts for you: first, why on earth would anyone break a 2.7% mortgage in order to lock up at 2.6%? Are you nuts? Unless your kid has borrowed a couple of million bucks the payment difference will be negligible. Bad idea. Second, why are you even involved in your offspring’s loan rate? How do you even know what it is? That’s just weird. Please rotor out of here.

Next up is Lee, a Mom of three who is trying to get her children involved in finance. That would be a good idea, but they’re all infants. Hmmm.

“I have been a long time reader of your blog and it has helped my husband and I become less risk averse,” she says. “My only regret is that we wasted our 20s on GICs and cash funds. Ugh!”

Anyway, I wondered if you had any thoughts on “informal trust” funds?  We are tempted to set up accounts for our three children (aged three and under) and purchase ETFs in order to give them a head start. The cost to set up these funds/taxation rules are vague and I’m not sure if it is worth the hassle. We have maxed out our RRSPs, TFSAs, RESPs and have no debt.  Would it be smart to put our extra income into more ETFs for ourselves or pass it to our kids now?  That way they have a fund of cash that is legally in their name at age 18?

Thank you again for your “pathetic blog”.  We looking forward to your new posts everyday!

First, worry about you own financial stability and security. The best think you can do for small children is try not to screw up your life. No giant mortgage. No philandering or divorce. Keep working. And establish a joint non-registered account

Regarding the squirts, there’s no such thing as an informal trust account. No matter what TNL@TB tells you. Something is a trust, or it’s not. There’s no middle ground. A true trust account is set up for a minor child (the beneficiary) since the kid cannot enter into a contract. You as trustee have a fiduciary responsibility to prudently manage the funds. If you do a lousy job, your kids will eventually be able to sue. That would be interesting.

The good news is a trust account can have any usage – not just for schooling, as with an RESP. The bad news is there’s no tax sheltering of interest or dividends – all income is attributed back to you, taxable at your marginal rate. Only unrealized capital gains stay with the child. Also the money cannot be taken back. Once in a trust it is permanently the property of the child, and must be handed over in its entirety when s/he reaches the age of majority. Is that what you want for an 18-year-old? BTW, if you refuse to  release the money, Junior can litigate. Finally, trusts cost money. Lawyers, documents, account-opening forms – and this cannot be done at the bank branch.

In short, Lee, fuggedaboutit. Did your parents give you a big no-strings pot of cash when you turned 18?

Didn’t think so. Thumpa. Thumpa.

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February 3rd, 2020

Posted In: The Greater Fool

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