There are many benefits of having a second home in a recreational area. This includes your ability to creatively exchange your home for other lifestyle and monetary options that might appeal to you.

You might occasionally envy those who have a timeshare in a resort area, because they can trade their timeshare allotment of a week or a month in their home location, for a timeshare in some exotic or tropical area of the world. You might think this is an attractive feature in case one tires of going to the same location all the time.

Of course, you could rent your home periodically or seasonally, and use the money to cover all or part of your travel costs anywhere you want. Or you could become a snowbird, and rent your winter or all-season vacation property, for example if you are in a ski resort area, while you spend up to 6 months in the U.S., Mexico or some other location.

However, if you own your own vacation property, you have many advantages over the timeshare option when it comes to utilizing your property for other appealing purposes, quite apart from the capital gains appreciation, and the pride of ownership and control over your property.

The main option attractive option is a home exchange anywhere in the world. A secondary option is a trade exchange, which is sometimes referred to as a bartering network.

Home or Vacation Exchange

You probably know people who have done home exchanges, or you are familiar with the terminology but not the details of the process.

Home exchanging has become a very established and popular trend over the past 20 years. In simple terms, it means exchanging your vacation home and/or primary residence with other people’s homes for a short time, such as a long weekend if they are in the geographic area, or a week to a month, or long-term for up to 6 months or a year. Home exchanges are available everywhere in the world, and can be simultaneous or non-simultaneous. Exchanges frequently include a car.

Home exchanging is an incredible and rewarding lifestyle experience. It allows you to travel almost anywhere in the world inexpensively, with your accommodation being free, and generally the car available for usage as well. Your only costs are the airfare, tourist activities, fuel for the car, and meals. As you would be eating and driving anyway back home, the net outlay can be very minimal, especially if you are using airline points, or get cheap flight deals. So, you can easily vacation away from your vacation home, and experience new adventures, sights, scenes, people and culture.

Profile of Typical Exchanger

There is no typical exchanger. They range from 30 years to 80 plus, from retirees with time and a desire to travel, to parents in their 30’s with young children not old enough for school; from teachers with the summer off as well Christmas and Easter breaks, to parents with school age children who want to travel in the summer time; from a single or couple taking a 6 month or 1 year sabbatical from work with or without kids, to adults who want to experience a year or two in different parts of the world by having a continuous series of sequential exchanges, or a long-term exchange in various countries.

Some people wish to travel around the world for many years, and knock off each item on the checklists from the various books on, 1001 Places to See Before You Die, before they pass on to the ultimate extended vacation in the hereafter. The common denominator is a love of travel, and the joy that comes from new experiences, and exploring diverse and different parts of the world.

Home Exchange Websites

To find companies who do online home exchanges, you can do a Google search under “home exchanges”, “home swaps”, “house exchanges”, etc. Some of the popular ones used by Canadians, are: www.homeexchange.com, www.homelink.ca, and www.intervac.ca.

Many home exchange sites also have additional features available for you to offer if you so wish, such as: vacation rentals, long-term exchanges, home-sitting, simultaneous or non-simultaneous options, etc.

Trade or Barter Exchange

You have likely heard of bartering networks, barter trades or contra deals. The concept is simple. People exchange one commodity for another. In other words, goods and services for similar goods and services of equal value, or obtain a credit of the fair market value to be used in the future. It can be a formal or informal process.

Over past 20 years or so, the practice of bartering for goods or services has evolved into a sophisticated computerized and fully automated system of commerce proliferated by independent or franchised, member-only barter clubs, where credit units possessing a notional monetary unit value, have become a medium of exchange. In this type of system, which is a form of trade dollar currency, commodities of different value can be exchanged, resulting in a debit or credit to the account of the member.

Some of these trade exchange companies cater primarily to small business owners, as well as individuals. The sophistication and technology has prompted many businesses to increase their sales, efficiency and profitability. With the trade dollar concept, members can buy or sell goods and services without any of the traditional restraints imposed by needing the perfect match and comparable product values. The trade exchange company is in effect acting as a bank, and tracks accounts and transactions using a system similar to that used by credit card issuers. A popular Canadian company is Trade Exchange Canada. Their website is: www.tecvan.ca.

You can see a possible option that could be enticing to consider for your vacation property. If you already rent it out seasonally, periodically, or full-time, you are familiar with the process of having other people use your home for revenue generation purposes. There could be times in the shoulder rental season, or when you are not using it for your personal needs, when there is limited or no demand for a normal rental. Or possibly you want to consider making your property available at peak or otherwise high demand times. In these situations, you might wish to use the barter system for a “rental” You would set the best retail rate you believe you could obtain for your vacation home, eg for a week or two weeks, or long weekend, and dollar credits accordingly.

There are no tax implications relating to home exchanging, but there could be for trade exchange. Obtain advice from your tax accountant.

You can see that with some initiative and marketing effort, there are creative ways of making your vacation home an even more appealing investment and lifestyle choice than you thought!

There are many factors you have to decide on before finalizing your mortgage decision. The key factors are amortization, term of the mortgage, open or closed mortgage, prepayment privilege, interest rate options, interest averaging, payment schedules, and assumability, and portability. A brief explanation of the first four items will be discussed in this Part I. The next column, Part II, will discuss the remaining five issues to consider.

Amortization

Amortization is the length of time over which the regular (usually monthly) payments have been calculated on the assumption that the mortgage will be fully paid over that period. The usual amortization period is 25 years, although there is a wide range of options available in 5, 10, 15, 20, 30 and 40 year periods as well. Naturally, the shorter the amortization period, the more money you save on interest.

Term of the Mortgage

The term of the mortgage is the length of time the mortgagee will lend you the money. Terms may vary from six months to ten years. If the amortization period was 25 years, that would mean that you have several different mortgages, possibly 5-10 separate terms before you have completely paid off the loan.

At the end of each term, the principal and unpaid interest of the mortgage become due and payable. Unless you are able to repay the entire mortgage at this time, you would normally either renew the mortgage with the same lender on the same terms, renegotiate the mortgage depending on the options available to you at that time, or refinance the mortgage through a different lending institution. If you renew with a different mortgage lender, there could be extra administrative charges involved. Due to considerable competition among lenders, frequently there is no administrative fee if you are transferring a mortgage to another institution. In some cases another institution will absorb the legal fees and costs as well, as an inducement for you to bring the business away from a competitive lender.

Some people take out short-term mortgages, eg for six months, anticipating that interest rates will go down and that at the end of six months there will be a lower interest rate. The problem is that if rates have gone up instead of down at the end of the six months, your monthly mortgage payment will increase and you may not be able to afford, or want to pay, the increased rates. The other option you have is to negotiate a long-term mortgage, eg for five years, so that you can budget for the future over a five-year period with certainty about the interest rates. The lender is not obliged to renew the mortgage at the end of the term. If the lender decides to renew, an administration fee of $100 to $250 is often charged. However this is frequently waived by negotiation or due to competitive realities.

Open or Closed Mortgage

An open mortgage allows you to increase the payment of the amount of the principal at any time. You could pay off the mortgage in full at any time before the term is over without any penalty or extra charges. Because of this flexibility, open mortgages normally cost at least a percentage point more than standard closed mortgages. A closed mortgage locks you in for the period of the term of the mortgage. There is a penalty fee for any advance payment. A straight closed mortgage wil normally have a provision that if it is prepaid due to the property being sold or the death of the borrower, either a three-month interest penalty or the interest rate differential for the balance of the term, whichever is greater will be applied. Alternatively, the penalty could be waived entirely, if the new purchaser of the property takes out a new mortgage with the lending institution. Most closed mortgages have a prepayment feature with penalty. This is discussed below.

Prepayment Privilege

This is a very important feature to have in your mortgage if your mortgage is a fixed mortgage. If it is an open mortgage, you can pay in part or in full the balance outstanding on the mortgage at any time without penalty. If on the other hand you have a closed mortgage which does not have any prepayment privileges, you are locked in for the term of the mortgage, eg three years, without the privilege of prepaying without penalty.

You may therefore wish to have a mortgage which, though called a closed mortgage, is in fact partly open and partly closed, permitting prepayment at certain stages and in a certain manner, but not at other times. For example, you may be permitted to make a prepayment of between 10% and 20% annually on the principal amount outstanding. This could be made once a year at the end of each year of the mortgage anniversary date, or at some point during the year, depending on the terms with the lender. Another variation would also give you the option of increasing the amount of your monthly payment by 10% to 20% once a year. You can see the incredible difference this would make in terms of saving on interest and reducing the amortization period. Every time a prepayment is made, or every time you increase your monthly payments, the balance owing, and thus the monthly cost of interest, is reduced. The net effect is that a larger portion of each payment will be applied toward the principal, since monthly (or other agreed-upon regular) payments usually remain the same.

Make sure that you completely understand your prepayment options, as they could save you a lot of money. It is important to make a realistic assessment of the right package of your needs. For example, ask whether the prepayment percentage you can apply is based on the original mortgage taken out, or the outstanding balance. It makes a big difference.

There are many factors you have to decide on before finalizing your mortgage decision. The key factors are amortization, term of the mortgage, open or closed mortgage, prepayment privilege, interest averaging, interest rate options, payment schedules, assumability, and portability. A brief explanation of the first four items was discussed in the last column, Part I. This column, Part II, will discuss the remaining five issues to consider.

Interest Averaging

If you are considering assuming an existing first mortgage because the rate and term are attractive, but concerned about the current interest rate of second mortgage financing, do an interest average calculation. You might find the average interest rate to be quite acceptable. Here is an example of how you calculate it:

1st Mortgage $60,000 x 5% = $ 3,000
2nd Mortgage $30,000 x 8% = $ 2,400
$90,000 X “x”% = $5,400
Average interest rate “x” % = $5,400/$90,000 = 6%

Interest Rate Options

There are various ways to calculate the interest: the fixed rate, which means the interest rate remains fixed for the period of the term of the mortgage (for example, three years), and the variable rate, which means that the interest rate could vary every week or month, according to the premium interest rate set by the lender every week or month. In this latter case, although the actual monthly payments that you would make would usually stay the same, the interest charge proportion of that monthly payment of principal and interest will vary with that month’s rate.

How often interest is compounded – in other words, the interest charged on interest owing – will determine the total amount of interest that you actually pay on your mortgage. Obviously, the more frequent the compounding of interest, the more interest you will pay. The lender can compound the rate of interest at any frequency desired. That is why it is important for you to check on the nature of the compounding on interest.

By law, mortgages have to contain a statement showing the basis on which the rate of interest is calculated. Mortgage interest has traditionally been compounded on a half-yearly basis. If a mortgage is calculated on the basis of straight interest, that means there is no compounding, but just the running total of the interest outstanding at any point in time. Some mortgages, such as variable-rate mortgages, are compounded weekly or monthly. The rate quoted for a variable-rate mortgage is called a nominal rate, whereas the equivalent rate for “traditional” mortgages (compounded semi-annually or annually) is called the effective rate. As an example, a mortgage which quotes a nominal rate of 5% has an effective rate of interest of 5% when compounded yearly, approximately 5.20% when compounded half-yearly, and approximately 5.40 % when compounded monthly.

Payment Schedules

There are many payment schedule options available in the marketplace, including weekly, biweekly, (every two weeks), monthly, semi-annually, annually, and other variations. Generally, the more frequently you make payments, the lower the amount of interest that you will be paying. Obtain a copy of the breakdown showing the actual savings before you commit to making more frequent payments.

Depending on your negotiations with the lender, you may make payments on interest only, or have a graduated payment schedule, which means that at the beginning of the term of the mortgage your payments are lower and increase over time so that at the end of the term the payments will be considerably higher. The reason for this type of arrangement is that the ability of the borrower to pay the payment will be able to increase over time, and the payment schedules are graduated to accommodate that.

Normally, payments are made on the mortgage that are a blend of principal and interest. These have traditionally been amortized assuming a monthly payment basis.

Assumability

Assumability means that the buyer takes over the obligation and payments under the vendor’s mortgage. Most mortgage contracts deal with the issue of assumability very clearly. The lender can agree to full assumability without qualifications, assumability with qualifications, or no assumability. Generally, it is with qualifications, eg creditworthiness of the person wanting to assume it.

The issue of assumability is an important one to consider. You would be able to have a wider range of potential purchasers interested in buying your home if a purchaser could assume the balance of the term (e.g., 10 years) of a low interest mortgage in a prevailing high interest mortgage environment.

Portability

Some lenders have a feature called portability. This means that if you sell one home and buy another during the term of your mortgage, you can transfer the mortgage from one property to the other. Check carefully though. Some lenders require that you purchase the new house within a short period of time after you sell your original house, in order to qualify for this transfer or mortgage rate continuance option, e.g., two to four months. Other lenders require that you transfer the mortgage to your new home concurrently as you sell your old home. In practical terms, you could save money if interest rates have gone up before buying the new home. Otherwise, you would be taking out a new mortgage for your new home at current, higher mortgage rates, thereby resulting in lower mortgage amount availability.

Remember, the higher the interest rate, the lower the mortgage amount that you qualify for. Conversely, if mortgage rates have done down since you bought the first house, you would probably not at all be interested in transferring your existing mortgage unless you had a fixed-rate mortgage, with a mortgage differential penalty that was larger than the savings, by taking out a new mortgage.

You need to protect your condo investment by having adequate home insurance and avoid the pitfalls of having a claim denied. Here is a basic overview of the common insurance jargon you will encounter, and information that you should know to save money and grief. This will help you in your decision-making.

Inflation allowance
This coverage protects you against inflation by automatically increasing your amounts of insurance during the term of your policy, without increasing your premium. On renewal, the insurance company will automatically adjust your amounts of insurance to reflect the annual inflation rate. The premium you pay for your renewal will be based on those adjusted amounts of insurance.

Inflation allowance coverage will not fully protect you if you make an addition your building or if you acquire additional personal property. This is why you would review your amounts of insurance every year to make sure that they are adequate.

Special limits of insurance
The contents of your dwelling are referred to as “Personal Property.” Some types of personal property insurance such as jewellery, furs and money have “Special Limits of Insurance.” This is the maximum the insurer will pay for those types of property. If these limits are not sufficient for your needs, you can purchase additional insurance.

Your policy automatically includes some additional coverage to provide you with more complete protection. Each of the individual types of coverage that are included is listed under the heading “Additional Coverage.”

Insured perils
A peril is something negative that can happen, such as a fire or theft. Some policies protect you against only those perils that are listed in your policy. Other policies protect you against “all risks” (risk is another word for peril). This means you are protected against most perils.

All insurance policies have exclusions. Even if you have selected “all risks” coverage, this does not mean that “everything” is covered. It is important that you read the exclusions carefully in order to understand the types of losses that are not covered by your policy. For example, floods, earthquakes, etc. may not be covered if you reside in a high-risk location for these types of perils.

Loss or damage not insured
This is the “fine print” – the section that tells you what is not covered. They are also known as “exclusions”. Exclusions are necessary to make sure that the insurance company does not pay for the types of losses that are inevitable (ie. wear and tear) uninsurable (ie. war) or for which other specific policy forms are available to provide coverage (ie. automobiles).

Basis of claim settlement
This section describes how the insurer will settle your loss. It’s the real test of the value of your policy and the reason why you purchased insurance.

Replacement cost
You should purchase replacement cost coverage for your property. This is particularly important for your personal property (e.g. the contents of your dwelling and personal effects). Otherwise the basis of settlement will be “actual cash value” which means that depreciation is applied to the damaged property when establishing the values. You therefore would get less money, possibly considerably less.

“New for old” coverage is available. All you have to do is ask for & replacement cost coverage” and then make sure that your amounts of insurance are sufficient to replace your property at today’s prices.

Guaranteed replacement cost.
This is one of the most important types of coverage available to a homeowner. You can qualify for this coverage by insuring your home to 100% of its full replacement value. If you do, then the insurance company will pay the full claim, even if it is more than the amount of insurance on the building. Make sure this is shown on your policy.

The Guaranteed Replacement Cost coverage applies only to your building – not your personal property

There is usually an important exclusion. Many insurance companies won’t pay more than the amount of insurance if the reason the claim exceeds that amount is the result of any law regulating the construction of buildings. Check this out.

Deductible.
There is a deductible and the amount is shown on the Coverage Summary Page of your policy. It means that you pay that amount for most claims, for example $250 or $500. The insurance company pays the rest.

As you can imagine, the cost to investigate and settle a claim can be considerable, often out of proportion when the size of the claim is relatively small. These expenses are reflected in the premiums you pay. By using deductibles to eliminate small claims, the insurance company can save on expenses and therefore offer insurance at lower premiums.

The most important decision you will make to protect your property investment, is the nature and quality of your insurance coverage. There are types of coverage you don’t want to do without, and there are techniques to save money on your premiums. When deciding on your insurance program, you need to determine the risks you want to cover, and ensure that you obtain adequate protection to neutralize those risks.

From an insurance company perspective, it is all about rating risk and being paid premiums to cover that risk. If there is a risk you did not insure for specifically, the insurance company will deny the claim. You will be out of luck and out of pocket. Business is business.

Here are some tips you need to know to insure your peace of mind, and save money on discounted premiums while doing so.

Personal Liability Protection

This is the part of the policy that protects you if you are sued. If someone injures himself or herself on your vacation property, eg falls on your stairs, slips on your driveway, deck, or dock, etc., and a court determines that you are responsible and therefore liable, your insurance company should defend you in court and pay all legal expenses and the amount up to the limit of the policy. The normal minimum limit is $1 mil-lion. However, you can and should increase this amount. It is recommended that you increase your coverage up to $5 million minimum. The extra premium is normally very reasonable. Your personal liability coverage is for you personally, and covers your liability outside of your home as well, eg if you accidentally injure someone while travelling on holiday. Make sure your spouse or partner is also covered by the policy, whether they are on title of your vacation property or not. Make sure your primary residence coverage is high as well.

There are specific exclusions that apply to this section of the policy. They are listed under the heading “Loss or Damage Not Insured.” Make sure you read this carefully.

How to Avoid Being Sued

Every year, many people are injured while visiting the premises of others. The last thing you want is to be sued. The process is stressful, time-consuming, neg-ative, protracted, and uncertain. If you are renting to a year round tenant, your contract should cover hazard reduction and require the tenants to have tenant insurance coverage as a condition of your tenancy agreement. You should receive a copy of the policy. If you are your vacation home for short-term rentals year-round, seasonally, or periodically, you want to make sure you have coverage for this type of usage. Here are some suggestions to avoid problems.

Maintain your premises. Most injuries are caused by “slip and fall.” They are usually the result of a lack of maintenance. In winter, you should clear ice and snow from all walkways on your premises. Exterior steps should be kept in good repair and a handrail provided. Inside your house, carpets should be secured to stairs and floors and kept free of toys or objects that could trip a visitor.

If you serve alcohol to guests, you could be found responsible, to some extent, for their subsequent actions. Some courts have gone to extraordinary lengths to assign responsibility to a host. Good judgment is required. In particular, never allow an intoxicated guest to drive a car or boat.

Look for other hazards. You are potentially responsible for everything that happens on your premises.

Title Insurance

This insurance protects you in the event that pre-existing property defects show up after you bought the property. You would be covered up to the amount of your policy for as long as you are still the property owner.

The types of risks that are usually covered include: claims due to fraud, forgery, work orders not complied with; zoning and setback non-compliance or deficiencies; survey irregularities; forced removal of existing structures, and unregistered rights of way or easements.

Ways to Reduce Your Premiums

Many people don’t realize there are ways to reduce the premium payment significantly. What exactly do you want protection for? What you are really concerned with is the possibility of a catastrophe or a total loss. If so, you can save money by increasing your deductible. By doing so, you save the insurance company the expense of investigating and settling small claims. That saving is passed back to you in the form of a reduced premium.

You should never reduce your amount of insurance so that you pay a lower premium. If you ever do have a claim, it could cost you a lot more than any amount you might save.

Two out of three adult Canadians do not have a will. One out of four Canadians will die suddenly. You can’t take the risk that the Canada Revenue Agency or your provincial government will end up with your money because of poor tax planning and lack of a will. However, there are some classic pitfalls to avoid when preparing your will and doing your estate planning.

# 1 – Not Having a Will or Not Updating your Will and Not Also Having the other Two Key Documents Many people do up a will and forget about updating it. So much can change in terms of your circumstances, assets, beneficiaries and wishes that you need to review your will on an annual basis at a set time, eg. your birthday, the first of the new year or some other memorable time. Also review your will when any major change occurs in your life, eg. divorce; death of a spouse, executor or beneficiaries, etc You also want to have the other two legal documents as well as a current will. That is, an enduring power and attorney and a living will (for your health care decisions). For more Canadian-relevant information, go to www.estateplanning.ca

# 2 – Not Selecting the Right Executor. Being an executor of a will can be very time consuming, stressful and complex. Many people are inappropriate choices for that responsibility. Some people don’t even ask the executor if they are prepared to assume that role, they just name them in the will, or the executor predeceases them or moves to another province or country. Consider the benefits of using a trust company as an executor or co-executor and having an alternate executor. You want to avoid hassles that will leave negative memories.

# 3 – Not Having Sufficient Financial Resources to Cover Taxes, Expenses and Debts. Poor estate planning could result in the estate being drained at death, leaving little, if any, assets left for distribution to beneficiaries. There are ways of minimizing this risk by advance planning. For example, holding assets in joint names, gifting before death, having designated beneficiaries of life insurance policies or RRSP/RRIF’s, and having sufficient life insurance. Premiums for insurance, to cover anticipated capital gains tax for example, could be paid for by yourself, or by those who will be the major beneficiaries of an asset triggering capital gains tax, eg. family cottage or shares in a business. Life insurance is tax-free to the beneficiaries.

# 4 – Not Taking a Strategic Approach to Estate Planning if you Own a Small Business. If you are operating a small business and die, there are many negative implications that could result, unless proper planning is done. For example, if your business goes under, your estate could be depleted due to claims by business creditors, or because you signed personal guarantees to lenders, suppliers or landlord. You should consider a buy/sell agreement secured by insurance, so that the company has sufficient resources to pay your estate out. There are many other strategic options to separate your personal assets from business exposure. In addition, you should consider estate freezes. For more Canadian-relevant information, go to http://www.smallbiz.ca.

# 5 – Not Taking the Necessary Steps to Protect Your Estate from US Taxes. If you own any US real estate, US publicly-traded stocks and bonds, or certain other kinds of US assets, you need special tax planning strategies. Properly done you can save most if not any taxes applicable. Otherwise, you could end up paying US estate tax at the time of your death that could be as much as 50% of the market value of your US assets, with little or no tax relief against the Canadian taxes payable upon your death. For more Canadian-relevant information, go to: www.snowbird.ca.

# 6 – Not Adopting an investment strategy for your RRSP’s and other investment portfolios that is consistent with your estate planning goals.Without proper investment and financial planning and implementation, there might not be enough assets in your estate to accomplish all of the bequests that are set out in our will. For more Canadian-relevant information, go to www.retirementplanning.ca.

# 7 – Not Understanding and Utilizing the Benefits of Trusts. There are many types of that go into effect during your life or on your death, that serve a variety of different purposes, all relating to saving on taxes or providing for others, eg. Trusts for minor children are set up to look after the needs of your children until they are adults.

# 8 – Not taking full advantage of second property tax strategies. If you own a cottage or other second property, you want to set up tax planning strategies to minimize or eliminate the tax consequences of leaving the cottage to other family members. For more Canadian-relevant information, go to www.homebuyer.ca.

#9 – Not Preparing and Updating a Personal Inventory and Information List. This step is very important. Many executors do not have any information available, which results in frustration and delay. You need to prepare a current, complete and accurate outline with details, of your financial and personal information and update it as circumstances change. For example: assets, liabilities, income sources, personal and family information, names of key contact people and advisors, funeral wishes, business information and special instructions or guidelines for the executor. You don’t want to leave unanswered questions. For a free downloadable personal inventory profile, go to www.estateplanning.ca..

#10 – Not Obtaining Professional Tax, Financial and Legal Advice. With customized strategic tax and estate planning techniques, and financial planning strategies, you can definitely maximize the net assets available for those you want to remember. You can also avoid potential legal problems, eg. someone challenging your estate to obtain a financial benefit or increased benefit. You never want to do a “do-it-yourself will”. Skilled advice is cheap money for peace of mind and prudent planning. Otherwise, the government coffers will be significant and happy beneficiaries.

Do you have a will? Was it prepared by a lawyer? Do you update it regularly? Have you selected your executor and trustee carefully? Have you obtained expert tax advice on estate planning strategies to save money?

If you are answering the above questions with a confident “yes”, then good for you! However, you are in a minority. Two out of three adult Canadians do not have a will. Of those who do, many wills are outdated and have not been modified due to changing circumstances, or were done without the help of a lawyer, and could be legally deficient or void. One out of four Canadians will die suddenly, leaving no time to arrange one’s financial affairs in an organized and tax strategic fashion, if you have not already done so.

Some people think that matters involving wills, powers of attorney, and estate planning generally are simple in nature. They are anything but. They can be very legally complex in many cases. This can result in litigation, fractious family discord, more money paid to the federal and provincial governments than necessary, and a legacy of memories about your lack of preparedness that are less than flattering. These doomsday scenarios can all be avoided with skilled advance professional advice and strategic planning. If you own or intend to buy a recreational property, the need to have your estate planning house in order is particularly important.

If you feel that you need to pro-actively deal with your will and estate planning matters in the immediate future, there are some key tips and cautions to consider for the protection of your financial interests.

Complete the whole estate planning package

A will deals with carrying out your wishes on your death. There are several other documents that you should also complete and have them reflect your current and ongoing wishes. Both these documents take effect during your life. One is an enduring or continuing power or attorney document. This means that the document is still valid, even if you become mentally incapable to revoke it. In this document you are giving the right to someone else to handle all your financial and legal affairs in the event you are incapacitated. You could have two people you designate, and/or have alternate attorneys. The word “attorney” does not mean lawyer. You could have tests built into the document as to what third party or type of third party, eg your family doctor or two doctors, deem you to be medically incapable before the authority takes effect. You could have other checks and balances built into the document.

Generally, a power of attorney is just effective in the province that you have property, although there are exceptions. If you have property in another province other than your primary province, or own property in the U.S., then you need legal advice about this issue.

If you are going to be out of the country for an extended time period and want to sell your vacation home while you are away, and list it for that purpose, you would do a different type of power of attorney. That one would be for a limited time and specific purpose, and detail exactly what authority the person has who you have designated to accept any offer, or sign closing documents on your behalf.

Another document is the health care proxy or representation agreement. There are different terms used in different provinces. The purpose is generally the same. This document gives authority to specific people to look after your health care needs if you are unable to do so. You have heard of “living wills”. This is a document that sets out your wishes to die a natural death, and not be kept alive by artificial means, if you have a terminal illness or condition.

Get Skilled Professional Advice

It cannot be overstated how critical it is to get competent professional advice. This means a lawyer who specializes in will and estate planning, and a qualified professional accountant who has tax expertise. You might also want to have a skilled and certified financial planner involved as well who has experience in estate planning, as well as an insurance expert. In all cases, you want the advice and planning to be integrated. You can ask any of these professionals for recommendations of others who could be part of your team of advisors, and why they would recommend them. Most initial consultations are without charge or obligation. You should therefore try to see at minimum of three advisors in each category, so that you have that comparative reference point and benchmark. It will also assist you in going through a rapid learning curve, and fine-tune your sense of the issues of importance to you in your customized context.

Don’t even think of doing your own will or power of attorney. In most cases, it will be the kiss of death in terms of the outcome. It is false economy to save a few pennies, when you can be almost guaranteed you will lose many pounds.

Have Sufficient Money to Pay Taxes

Poor estate planning could result in the estate being drained at death, reducing the amount of assets available to beneficiaries. Having sufficient life insurance is a major asset. Premiums for insurance to cover anticipated capital gains tax on your death, eg for a family cottage, could be paid for by the major beneficiaries of the asset. Life insurance proceeds are tax-free. There are numerous other second property tax strategies.

You have lots of choices when considering housing options in the U.S. as a snowbird. The most popular choices are mobile home parks, RV parks, manufactured homes, and condominiums in retirement lifestyle communities.

Some of the advantages of include the opportunity to live and socialize in a homogeneous community of like-minded active people in the 50+ set; planned social activities such as bingo, dancing, crafts, card games, trips, and educational programs; recreational facilities such as tennis courts, exercise rooms, a swimming pool, hot tubs, and gold and shuffle-board areas; services such as maintenance services and shopping and transportation facilities; and religious services nearby. Security is another reason for the popularity of retirement communities. Many have 24-hour security services, which keep watch on the residences and check all visitors when they enter or leave.

Retirement communities have some drawbacks however. For example, some communities are becoming crowded and increasingly costly. Some people don’t enjoy planned activities. Others feel too isolated in communities that may be far away from urban centres.

By identifying your own needs and wants, speaking to others, and doing your research, you will quickly determine what choice is the right one for you. The best approach in the first year in a particular area of your choice, is to rent for several months or the whole season. You will then have a better sense if that type of housing and community is the right fit for you. You can do most of your preliminary research using the Internet, by typing in keywords of your interest, eg by using www.google.com, and see what comes up. You want to use the services of a local real estate lawyer to protect your interests, if you decide to buy.

If you are considering buying a mobile home, condo or manufactured home (eg like a pre-fabricated home in a subdivision), here are some general tips to consider.

General Tips When Looking for a Home

Location. How close is the property to cultural attractions, shopping centres, recreational facilities, community and religious facilities, and transportation? How attractive is the present development of the area surrounding the property?

Pricing. The pricing of the property you are considering should be competitive with that of other, similar offerings.

Knowledge of Home and Neighbourhood. Surveys have shown that the average homebuyer spends 17 minutes looking at a home before making the purchase decision, often making a decision on an emotional basis. Look at the property on several occasions to get a fresh perspective, and at different times of the day or evening or weekends. Bring a friend or relative with you. Take pictures inside and out to enhance your recall if you are seriously interested in the place. Drive around the neighbourhood to get a feeling for the appearance and condition of other homes in the vicinity. If you are placing an offer, get a professional home inspector to check it out as a condition of purchase.

Crime Rate. This is an obviously important issue. Check with the local police department for crime statistics in your area of research, and talk with neighbours on the street. As if there is a block watch or neighbourhood watch in the area.

Climate. Certain areas of a city or community may have more rain and higher wind than others, depending on the climate pattern. Check with a local, state, or national weather bureau.

Services in the Community. Depending on your needs, you will want to check on the different services available in the community. Is there adequate police, fire, and ambulance protection? Is there a hospital in the area? Are there medical and dental offices nearby? How often is the garbage collected and are the streets maintained? Is mail delivered to your door, or is there is a central mailbox location on your street? If you wish to join an organization or club, is it close? Does the area cater to seniors or snowbirds? Are there community centres or public parks nearby? What types of businesses, stores or services are nearby?

In a condominium community, there is always a possibility of having a problem or a dispute that may not be able to be resolved quickly and easily. It is important to know your rights and options in that event. I will cover the most common types of disputes and the means of resolving them.

Problems tend to fall into the following general categories:

The Six P’s: Pets, Parking, Parties, People, Personalities and Politics

The six P’s tend to be the most common areas of annoyance. Common complaints are: Pets are noisy, roaming, scaring children, or fouling the common property. Parking spaces are being used by members or guests in a consistently selfish and irresponsible fashion. People and parties are too loud for too long at too-late hours. Personalities may become a problem because of the close proximity of the community environment; some owners get annoyed by people using or abusing the common elements, and some people have a tendency to irritate others by virtue of their attitude, arrogance, indifference, or discourtesy. Another P is Politics. That is, the condo board of directors is acting in an autocratic or unfair manner, in the perception of some owners.

Decisions of the Condominium Corporation or Board of Directors

Examples of disputes in this area are as follows: you believe that the conduct of the corporation or board of directors is oppressive and unfairly prejudicial to your rights; you believe that a decision relating to a special assessment was unnecessary and irresponsible; you were fined for allegedly breaching the bylaws or rules and regulations, and you believe the fine was unfair and unwarranted.

The 5 Common Ways that Condo Disputes can be Resolved

The means for the resolution of disputes, in ascending order of complexity, are negotiation, involvement by board of directors, mediation, arbitration, and litigation.

Negotiation

It is always best to attempt to resolve the dispute by discussing the matter directly with the person concerned. That may be all that is necessary to resolve the problem. It is worthwhile to at least attempt that first step.

Council involvement

If the first step is not successful, you may wish to contact the condominium board of directors and make a complaint to them in writing outlining your dispute. If the conduct of another owner has contravened the bylaws or rules and regulations, it would be helpful to draw those points to the attention of the board of directors. The board of directors has the authority in most cases to deal with infringements of the bylaws or rules and regulations, or can seek legal advice.

Mediation

This option may be built into the condo bylaws. It would generally involve a professional mediator or condominium lawyer performing that role of attempting to facilitate a mutually agreeable resolution. The purpose is to hear both sides of the issue and try to come to some pragmatic and constructive resolution that is a workable compromise. Mediation is non-binding.

Arbitration

If your attempts to have a dispute resolved through using the condominium board of directors have not been successful, you may wish to consider arbitration. Condominium legislation of most provinces sets out the procedures for the arbitration process. Normally, the process is not available if litigation has commenced. Matters that may require arbitration include disputes about contributions to common expenses; fines for breach of bylaws or rules and regulations; damages to common elements, common facilities, and other assets of the condominium corporation; and decisions of the board of directors or the corporation.

The parties should agree on a single arbitrator, but if that is not possible, each party selects its own arbitrator and the two arbitrators select a third who acts as a chairman. Unless the parties otherwise agree, the arbitrator is normally a professional arbitrator. The arbitrators may accept evidence under oath and may make whatever decision they consider just and equitable. The arbitrator’s decision is entered into court as if it was an order of the court. The process just described is a common procedure set out in many provincial Condominium Acts, although the procedures may vary in individual provinces.

A list of arbitrators is available upon request from most professional condominium management companies.

Litigation

If all else fails, you have rights in common law, as well as under most provincial condominium legislation, to commence action in court. You can proceed against a condominium corporation or board of director to rectify what you believe is a failure to meet their obligations under the Condominium Act or bylaws, or because you feel that actions toward you have been oppressive. The court can make any order it considers appropriate depending on the circumstances.

The difficulty in the litigation process, of course, is the fact that it can be very expensive, stressful, uncertain, and lengthy. If you have a problem that you are concerned about and want to decade whether you should go the arbitration or the litigation route, you should seek a legal opinion from a lawyer who specializes in condominium law. Ideally it would be helpful to obtain a second opinion from another lawyer who specializes in condominium law in order to satisfy yourself that the advice you are getting and intend to rely on is consistent.

Because there are many duties which volunteer members of the condominium council do not have the time, skill, or inclination to fulfill, such as maintenance, repair, and the administration of routine matters, a management company is frequently hired under contract with the condominium corporation to deal with those tasks; or other procedures are set up to deal with routine matters.

The Condominium Property Act in most provinces permits the council to employ a professional management company to carry out these daily functions. The management company’s authority and responsibility are limited to matters affecting the security and maintenance of the common (shared) elements, and the assets and facilities of the condominium corporation. This limitation is to ensure that the management company does not take over the decision-making role of the council.

There are essentially three forms of condominium management: self-management, resident management, and professional management. A combination of these alternatives may also be employed.

Self-Management
In smaller condominium developments, it is often more practical for the owners to be responsible for the management of the development directly. For example, in a condominium duplex or development of up to approximately 15 units, this self-management alternative could be attractive. Another example would be a bare land condominium corporation with detached houses, and which has minimal common elements and facilities to maintain.

It is not necessary in a self-management situation that the owners themselves clean the grounds, cut the grass, do the gardening, and sweep the driveways. It does mean, though, that the owners, or a representative of the owners, would have to be directly involved in supervising the performance of these types of services. Frequently the jobs are done by volunteers, part-time or full-time employees, contracting firms, or combinations of this type of help. For the sake of continuity and accurate delegation of responsibilities, it is important that someone on the condo board of directors be responsible for communicating with those who are providing the services.

In addition to communicating with the staff, some form of supervision will have to be put into place to monitor such services as maintenance of the pool, grounds, and elevators, painting, garbage removal, and accounting and typing functions. Various federal and provincial government responsibilities relating to employees will also have to be considered, such as unemployment insurance, income tax deductions from employees’ wages, and Workers’ Compensation Board contributions. If the board of directors negotiates with a contractor to provide services, then deductions do not have to be taken off in the same fashion as with employees, because the contractor would be signing a written agreement to the effect that he or she will hire and pay his own employees. In that event, the board of directors would simply pay the negotiated contract fee for services rendered by the contractor.

Another reason for self-management is that a condominium development may be outside the metropolitan area, and so there may be difficulty in obtaining the services of a professional management company.

Resident Management
In this situation, the condominium corporation employs one or more people directly to perform the daily management requirements. These people would normally operate out of an office in the development and would be paid a full-time or part-time salary. Because the manager would be an employee of the condominium corporation, he would in effect be an employee of all the owners; it is therefore important to be very careful in selecting the manager, in order to maintain harmony with the members. Generally only large condominium developments can financially justify employing a full-time resident manager.

Professional Management
Many condominium corporations use a professional management company to some extent. These companies tend to be experienced at condominium management, and have many systems and procedures for efficient operation of their support function. This would include computerized accounting procedures and management systems, experienced staff, access to suppliers who can provide bulk-buying discounts and goods service, and careful selection of competent tradesmen. The condo management company designates a specific individual staff member to act as the property agent for the management of the condo.

One of the key benefits of using a professional management company is that due to the periodic turnover of the condo board of directors members, such a company will provide the continuity of management to ensure a consistent level of quality in the condominium development. The responsibility of the condominium board of directors would be one of providing instructions to the management company and monitoring the company’s performance.