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May/June 2008

Commentary - Hans H. Mathisen

Can this business be saved? - LIFE LETTER for May asks this pertinent question. If you are a farmer or a small business owner, you may want to consider business life insurance. You can buy dollars for pennies. I'll show you how. And the contract you decide on will be guaranteed. No surprises down the road.

Where's the money? - Please read LIFE LETTER for June. When we die, probate costs and delays often mean that your beneficiaries may have to wait a long time to receive their inheritances. And you may have beneficiaries of your estate that you believe should receive a monthly income rather than a lump sum bequest. jWhy don't you give this some thought and call me?

LIFE LETTER MATURE - Death and taxes emphasizes the importance of having a plan. And the time to plan is now. It's up to you to know the consequences (of owning a U.S. vacation property). Don't forget to incorporate the taxation of your U.S. vacation home in your estate plan. I can help.

THE STOCK MARKETS - WOW! On the last business day of May, the S&P TSX Index is the only major index year-to-date that is on the plus side. It is at +6.4%. Dow Jones is down -4.7%; S&P 500 is at - 4.6%; NASDAQ declined 4.7%. In Europe, Germany's Dax is down 12.03%; France's CAC declined 10.68%; and England's FTSE 100 fell 8.25%. The performance year-to-date in Asia is: Japan's NIKKEI is down 6.33%, and Hong Kong's HANG SENG has fallen 12.03%.

What a great time to be invested in Canadian equities! While all major indexes are up from my last report to you on March 31, 2008, Canada's is the only index on the plus side.

Hans Mathisen's Asset Allocation Strategy works like this: You, my valued clients, are invested in the same mutual funds and/or segregated funds as I am. I leave it to the fund managers to decide which companies to invest in. But Hans Mathisen researches the economic situation in many countries and determines in which country your money and my money is likely to get the best return. That's why your money and my money has not been in Europe or the U.S. for quite a while. I'll keep on looking out for all of us.

Hans Mathisen





Can this business be saved?

John began his business from scratch. It had weathered the bad times and the good. His business had grown to support not only his family, but those of his nineteen employees. Then he died.

John's will left the business to his widow, Joan. She knew little about it, but felt it shouldn't be too difficult to run in John's absence. It was assumed that his key employees, chartered accountant and lawyer would help her when she needed it.

After John's death, Joan began running the business. That's when her problems started. Disturbed by the change, her employees grew to resent her inexperience and management style. Their declining morale was reflected in the erosion of the level of service. Unhappy about this, top customers began to migrate to John's competitors.

The accountant and lawyer were too busy running their own businesses to be at Joan's beck and call. Some suppliers started to demand cash in advance. The bank said it plans on calling its loan. Key employees could see the writing on the wall and were easily hired away by the competition.

John left a tough challenge for Joan. Emotionally upset by her husband's death, she's also trying to keep a business going until she can run it successfully. What does she need to succeed?

There's a simple answer to her problems. MONEY. Enough money to pay off the bank loan. Enough money to pay the suppliers. Enough money to provide the service customers are accustomed to. Enough money to hold on to key employees. Enough money to hire a skilled manager to teach Joan how to run the business or to run the business for her. Enough money to provide Joan with an income if the business can't while she's adjusting to her new responsibilities.

Joan didn't know this before John died, but now she does. She knows she needs money, but the bank won't lend any to what they feel is a failing business. They have, however, offered her a loan against her house. Should she mortgage her home in an attempt to save the business? Or should she bail out now, and avoid risking the loss of her home?

The money she now needs could have been waiting for her at John's death. Had they realized the problems Joan would face when John died, he could have arranged some business life insurance. The very cause of these problems, his death, would then create the money needed to resolve them.

If Joan had no desire to run the business on her own, business life insurance could have been arranged so the key employees could buy John's interest; or it could provide the cash for a manager to run it until it could be sold; or to make up any losses that would occur upon winding up the business.

When its owner/operator dies, the business will need money, regardless of its destiny. This is why business life insurance is so widely used. It can help solve many problems at the time it's needed most.

Want help with your life insurance planning ?

Call Hans Mathisen today at (306)242-7042.
or email -

Copyright 2008 Life Letter. All rights reserved

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Where's the money?

When Dora died on August 1, 2002, most other assets passed by Will to her adult children and were therefore subject to probate. $250,000 was in GICs and a fairly rapid transfer of this money to her heirs would be expected. But that was not the case. They had to wait until March 2004 for it. That's right, almost two years.

Not only did the GICs attract legal and probate fees in excess of $10,000, but while they were waiting for their share, her kids had to pay income tax on interest earned on the money held in trust. This proved to be a hardship for some of them who were of limited means or single parents.

Fortunately, Dora also had a life insurance policy. The claim forms for the life insurance were sent to the insurer on August 5th and cheques were delivered to the named beneficiaries, in person, by August 20th.

Money on deposit with a life insurance company is treated the same as a life insurance policy. This means that a beneficiary can be named and proceeds will be paid directly on death without the need for probate or the services of a lawyer. A beneficiary designation can be changed at any time avoiding the cost of re-writing a Will. Deposits with a life insurer can also be protected from creditors by using certain beneficiary designations.

Roger used a named beneficiary as an estate planning method to make sure that his money was left to who he wanted without them going through the costs and delays of probate. When he died, his wishes were granted within a matter of a few weeks. And there was no cost to his estate or the beneficiaries.

When Herman and Trish filed for personal bankruptcy, their bank accounts were seized, including their GICs with the bank. Their life insurance policies and investment plans (both RSP and non-RSP) were not seized. As life insurance policies with each other named as beneficiary, they were untouched. As husband and wife, they are "preferred" beneficiaries, which is one of the reasons their plans with the life insurance company were protected from seizure.

Dwayne has other concerns. He worries about his beneficiary's ability to manage money and wants to make sure that the insurance proceeds will last a long time. He also wants to avoid the cost and potential tax issues of establishing a trust after he dies. Dwayne was able to address his concerns, so far as his life insurance RRSPs and policies were concerned, by utilizing a special beneficiary arrangement. It enabled him to direct that the death benefits would be paid out over a period of years (or, had he wished, over his beneficiary's lifetime).

Providing income instead of a lump sum may be more appropriate in certain situations. Another option is a lump sum for part of the proceeds (to provide for the immediate cash needs) and the rest paid out as a long-lasting income.

Want to protect some of your assets and reduce estate costs ?

Call Hans Mathisen today at (306)242-7042.
or email -

Copyright 2008 Life Letter. All rights reserved

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Mathisen Financial, Inc.
335 Redberry Road
Saskatoon, Saskatchewan S7K 4W5
Bus. (306) 242-7042 Fax. (306) 242-4314