What do you do with a small inheritance?

By Barry Rueger
Published: Globe and Mail 
October 7, 2022
1140 words

When my mother died last year her estate was small: clothing, knick-knacks, photos and the small bungalow, in Kelowna, B.C., that she bought for herself when my father died. My brother, sister and myself knew that a three-bedroom house in Kelowna’s Rutland neighbourhood wouldn’t afford us an early retirement, but Cameron McIntosh, an old high-school friend, now selling real estate for Royal LePage Kelowna, guessed that it might sell for as much as $650,000.

After decades working in small non-profit groups and charities, and then as a freelance writer, my savings are still pretty small. Like many Canadians, my investment background included two things: buying a home with a hefty mortgage, then selling it for marginal gains after a divorce, and a small registered retirement savings plan. For me, this inheritance will be about the biggest amount of money I will ever see.

My goal some time this year is to put my one-third share – say about $210,000 – toward a country home in France, where I now live. In the meantime, my question is: Between the time when I receive the cheque and when I’m ready to close my French house purchase, what should I do with what is a pretty large bit of money? It could just sit in my savings account, but is there a better route that might make me a little bit of money before we move it to France, and into euros, and buy that house?

I’ve never been in a position to do investing, so I asked some people who know that field. After talking to experts about what I should do, the answer turns out to be “not much” – but with a heavy proviso that we do live in interesting times. Between rising inflation, a war in Ukraine, rising interest rates and falling house prices, it seems that nothing is simple.

Andy Eisenbock is an investment adviser with Odlum Brown Ltd. in Vancouver, and someone my wife has worked with for several years. His advice was simple:

If the money is being held for my home purchase it should be in some form of liquid investment I can access at any time, and I should stay out of the stock market. He suggests that I need to watch the exchange rates between the Canadian dollar and euro, and investigate how best to make that currency conversion. He was right. At the moment the euro is at a historic low compared with the Canadian dollar. I’m crossing my fingers that it stays that way for a while longer, but am also comparing rates at my bank, and at money transfer services such as Wise.

Even though interest rates are rising, Mr. Eisenbock said that, for me, it was better to stay low risk, and liquid, than to try and chase a few hundred more dollars in potential income. That advice was echoed by Mark Tremblay, founder and director of Cinq, a French company that specializes in insurance and investments. I talked to Mr. Tremblay about what my options would be if I moved my money over to France instead of keeping it in Canada. His advice about liquidity and risk is much the same, but his suggestion is that in France many people would invest in l’assurance vie – life insurance. Savings plans based around life insurance are still very popular in France. As well as protecting your family should you die, they allow ordinary people to save for retirement over the term of their working lives.

L’assurance vie investments are very liquid – important if we’re buying a home. The safest place for my money would be a euro fund, a type of investment specific to life insurance, which provides significant security. It will give you a low fixed interest rate (around 1 per cent at the moment), but you will be sure to get your money back without any possible losses; the return is virtually zero-risk. We could get a slightly better rate with life insurance that includes a Unité de compte, or unit of account, an investment vehicle with more risk but better returns. And if more than 40 per cent of your life savings are in a UC, the interest rate is increased. In either a UC or a euro fund you’re encouraged by the government to keep your money there, saving for your retirement. Mr. Tremblay pointed out that after your investments have been in a euro fund for eight years, you’ll see a reduction in taxes paid on returns.

In Kelowna, I also talked with Steve Hatch, a wealth adviser with National Bank Financial. Right now interest rates are climbing, but I’m wondering whether they might come back down just as quickly. Mr. Hatch’s advice: If I believe that, I should choose the time frame I expect to park the money, and move it into a relatively safe place, such as a guaranteed investment certificate.

Or if I think rates will continue to climb, I could look at something like a money-market account with a variable rate that allow me to “reap the rewards of higher yields.” Ultimately, again, the choice is mine: more safety, or more return.

Mr. Hatch also has some Kelowna-specific advice: While home prices are dropping in major centres in Canada – in some cases by as much as 20 per cent – my mother’s modest bungalow may be immune to that drop because it still hits the sweet spot of being priced as a “starter home.”

There’s not a lot out there for single family residences between $500,000 and $750,000, he said. With that location and a price point of as much as $650,000, “I would hazard a guess that you’re probably going to get about the price that was suggested.”

The lawyer who has been handling the probate process for much of the past year says that even after the house has been sold it will likely be another two or three months before the proceeds arrive in my bank account. In the meantime, I’m left with more than enough time to choose the country where I will likely park this windfall, calculate my time frame, watch the currency exchange rates and determine the kind of security I’m comfortable with. Then I’ll need to put the cash in a safe, but income-generating, place.

The lawyer who has been handling the probate process for much of the past year says that even after the house has been sold it will likely be another two or three months before the proceeds arrive in my bank account. In the meantime, I’m left with more than enough time to choose the country where I will likely park this windfall, calculate my time frame, watch the currency exchange rates and determine the kind of security I’m comfortable with. Then I’ll need to put the cash in a safe, but income-generating, place.

 

Get to know your banker and do your homework when moving your money out of Canada

Published: Globe and Mail
February 26, 2022
1185 words

Last year, when we moved from Vancouver to France, my wife Susan and I joined the several thousand Canadians who leave the country each year to settle elsewhere in the world. It was a permanent move, and we believed that we had planned carefully for every eventuality.

We were mostly correct, except for one thing: Our bank worked incredibly hard to keep us from moving the money from our house sale to our new country. Our first month in France was spent on international phone calls, talking to bank employees at several levels, sorting out conflicting advice, and having our account frozen a half-dozen times. To those following in our footsteps, we say: Take nothing for granted.

Like many Canadians our relationships with our banks began and ended with websites and bank machines. The only time when we actually sat down with a bank employee would have been every few years for mortgage renewals.

That’s not enough. If you’re planning an international move you’ll need to work on establishing a much closer relationship with your banker. As described by Joe Reid, Vancity credit union’s vice-president for wealth management and impact investing, you should begin early in the planning process by talking to “your trusted advisers … your lawyer, your accountant, any of your professional advisers.” That necessarily includes someone at your bank with experience in handling international money transactions.

Begin this process immediately upon deciding to move internationally, and when you meet with a representative at your local bank, be prepared to question them. Not all bankers have experience in this area, and they may need to pass you on to someone else who knows the ins and outs of large funds transfers, exchange rates and money laundering rules.

Beyond your bank, take time to thoroughly review things such as pensions, registered retirement savings plans and other investments, and especially your will. Inheritance rules in other countries can be very different. You may need two different wills, and an understanding of how your children can avoid inheritance taxes in your new country. You’ll also need to make sure that your family members understand the steps that they’ll need to take when you die.

John Lyng was a customer of Toronto-Dominion Bank for more than two decades when he and his wife left Canada for France. “I thought I had a good relationship with them,” he says, but when he needed to borrow money to secure a lease on an apartment in Paris he found himself turned down even though they were about to sell a home in downtown Toronto. Because Mr. Lyng was new to France, the landlord demanded that he place three years of rent payments in an escrow account or with a guarantor that would guarantee his ability to make rent payments.

His TD banker apparently had no experience in France and refused the loan.  “It’s a very unusual way of doing it,” the banker told Mr. Lyng of the landlord’s request. Mr. Lyng eventually found a loan through a mortgage broker.

We relate Mr. Lyng’s experience with TD only as an example. He’s a member of the popular Canadians in France group on Facebook; other group members, using various Canadian banks, tell similar stories.

“Please be aware that TD customers have several options for transferring funds out of country,” a spokesperson for the bank said in response to an e-mailed query from The Globe and Mail.

Vancity’s Mr. Reid is more specific in advising people leaving Canada: Understand that the rules will be different in other places, both in government and at individual banks. Although technically there’s no limit on the size of a transfer that you can make, individual banks have their own internal rules, and almost all international transfers above $10,000 will be reported to the Financial Transactions and Reports Analysis Centre of Canada (FinTRAC). As well, you need to understand that even if your local banker is prepared to move funds to you in France (or wherever), the receiving bank may have its own barriers, or may require that you meet local anti-money-laundering rules.

In many cases, it isn’t possible to open a bank account in a foreign country until you arrive. In France, for instance, you invariably will be asked to provide a copy of a current electric bill to prove your residence, and it may take weeks for the new account to be active. In the meantime, don’t cancel your Canadian cellphone number. You can be sure that at least one financial institution will insist that you can’t log in without them sending you a secret code to a Canadian phone number.

Once you’re finally in your new home, and have your new bank account set up, you should still expect surprises from Canada. Mr. Lyng was settled in the suburbs of Paris, and every month arranged to transfer a few thousand dollars from Canada to France for living expenses. Until one day he couldn’t.

“For about one year I was able to do wire transfers, I was able to call the branch manager at the TD branch and they would do it. Until about three years ago when they said ‘we have new security precautions … if you want to do a wire transfer you need to come into the branch in person.’”

When Mr. Lyng explained that spending thousands of dollars to fly to Canada and stay in a hotel made no sense, the bank suggested that he write himself a cheque on his TD account and deposit that in France. According to Mr. Lyng, the cheque bounced when TD claimed there were no funds in his account to honour it.

Since then, Mr. Lyng has done what many other Canadians in Europe do. He relies on a money-transfer company to move funds out of his bank account and into his French one. Companies such as Wise and TorFX can make this easier, and often also offer better exchange rates and lower service charges than the Canadian banks.

Sharon Anne Kean, is senior director of global expansion at Wise, one of the leaders in global money transfer services, and one of the companies frequently recommended on the Canadians in France Facebook group. Ms. Kean’s advice echoes that of Vancity’s Mr. Reid: Start planning early, especially if you need to move large amounts for a home purchase. Like the banks, she says Wise takes security seriously. That means making sure the sender is who they say they are, “but then also doing a check on where you’re sending money to, such as a sales agreement for your new home, or something that verifies that the money is going to a good place.”

Ms. Kean also encourages customers to do their homework. In particular, understand that the “best exchange rate” quoted by your bank may include hidden fees that make it less attractive than what Wise might charge. “That’s a massive revenue stream for most banks. That’s why our rates appear to be more competitive.” Ms. Kean says that both their consumer and corporate customers also appreciate that Wise moves money much faster than the big banks.