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My wife and I have a joint, non-registered portfolio (with right of survivorship) that is worth approximately $200,000 and is invested entirely in 15 mostly Canadian stocks. Unfortunately, I have been diagnosed with a terminal illness and expect to live another six months. My wife does not feel comfortable managing a portfolio of stocks, so we are looking to transfer some of the assets to more secure, lower-risk investments. What do you recommend? And what are the tax implications if we sell the stocks? I am 70 and my wife is 60, and the portfolio has a net unrealized capital gain (capital gains minus capital losses) of about $53,000.

I asked Jamie Golombek, managing director of tax and estate planning at Canadian Imperial Bank of Commerce, to discuss the tax implications of your situation. Then I’ll offer a few suggestions regarding lower-risk investments.

“I’m so sorry to hear about your illness,” Mr. Golombek said. “If you sell the stocks now, there will be capital gains tax payable on the $53,000 of accrued gains at a 50-per-cent inclusion rate. The amount of tax you will pay will depend on the proportionate interest in the joint account, your income level and your province of residence.”

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For example, assuming you and your wife contributed funds equally to the stock portfolio, the $53,000 net capital gain would be split equally between you. Each of you would then include half of your respective $26,500 capital gain – or $13,250 each – as taxable income on your 2020 tax returns. At a marginal tax rate of, say, 40 per cent, the tax payable would be $5,300 each, or $10,600 in total.

If the stock portfolio isn’t sold, upon your death your interest in the shares would automatically roll over to your wife’s account. Because the rollover would occur at the adjusted cost base of your shares, there would be no immediate capital gains tax consequences. “However, your wife would pay tax on the entire gain when she ultimately disposes of the shares,” Mr. Golombek said.

Even if the shares are not sold, there is an election that could be made by the executor on your terminal tax return to trigger the gain or loss on some or all of your half of the shares and to report the net capital gain (or loss) on your return, he said. The election would only be made if it makes sense from a tax-minimization perspective.

“Ultimately, however, if your wife is uncomfortable managing the stocks after you’re gone, it may make sense to trigger the gains now, rather than in six months’ time, especially given unconfirmed rumblings of a potential increase to the capital gains inclusion rate in the upcoming federal budget,” Mr. Golombek said.

What to invest in? Given that your wife’s investing horizon could be many years, if not decades, I believe it would be a mistake to put the entire portfolio into something ultraconservative such as government bonds or guaranteed investment certificates. As a compromise, consider investing in a low-cost balanced mutual fund that provides a mix of fixed-income securities for safety and equities that offer greater potential for long-term growth. By investing in a fund, your wife won’t have to worry about managing a portfolio of individual securities.

One example is the Mawer Balanced Fund, which has about one-third of its assets in primarily Canadian bonds, with the rest spread across Canadian, U.S. and international stocks. The MER for this professionally managed fund is 0.91 per cent, and there is a $5,000 minimum initial investment. Another advantage of owning a mutual fund is that your wife will be able to make contributions or withdrawals without incurring brokerage commissions. Other low-cost fund companies to consider include Steadyhand Investment Funds, Leith Wheeler and Beutel Goodman.

If you want to cut your costs even more, consider one of the newer exchange-traded funds that provide one-stop exposure to a balanced portfolio of index ETFs. An example of these all-in-one ETFs – which are bought and sold like stocks – is Vanguard’s Balanced ETF Portfolio (ticker symbol VBAL). For an MER of 0.25 per cent, VBAL invests 60 per cent of its assets in Canadian, U.S. and global stocks, and 40 per cent in fixed-income securities in Canada and other countries. Vanguard offers four other asset-allocation ETFs with varying levels of equity exposure. Other ETF providers, including iShares and Bank of Montreal, offer similar one-stop ETFs.

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By helping your wife choose a solution that keeps her costs reasonably low, requires little monitoring and still produces good long-term returns, you’ll be helping to ensure her peace of mind – and her financial security – after you’re gone.


Attention future retirees: There’s now another way to estimate your Canada Pension Plan benefits. CPP expert Doug Runchey, whom I quoted in two columns last fall (tgam.ca/3banyvJ), has teamed up with certified financial planner David Field to develop an online CPP calculator. The tool, available at cppcalculator.com (free registration is required), lets you upload your statement of CPP contributions and then play around with different retirement ages and future earnings scenarios to determine your CPP benefit.

E-mail your questions to jheinzl@globeandmail.com. I’m not able to respond personally to every e-mail but I choose certain questions to answer in my column.

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