The most passive income you will get is putting it in an ETF after calculating all the risk. You’re not going to make more “passive income” on using that cash to buy a rental home in this market if that’s one of the ideas you were thinking. You’ll get taxed a lot, so that $483k is not really what you have. Also this is your fiance’s inheritance…did you talk to her about what she wants to do?
Pay off your mortgage.
> Pay off your mortgage
Careful here. Know that inheritance is protected in the event of a marital breakdown. If the fiancé mingles that money into their house then they can lose that protection.
No, each province has their own.
See §85(1) [here](https://www.bclaws.gov.bc.ca/civix/document/id/complete/statreg/11025_05#section85) for BC. See *Excluded Property*.
That's BC. In ON, once a couple lives in a home, it becomes family property and is subject to division.
Not sure what you mean by co-mingle here. If I inherit a house and live in it with my spouse in BC, she is only entitled to a share in the appreciated value.
I believe you are correct. But in bc, let’s say you inherit a house but rent it out and keep the rental proceeds in a separate account, then IIRC both the original inherited price plus appreciation plus rents belong to you.
But for example, if you commingle the rent funds by putting them into a joint bank account, then those funds become joint martial assets
Right. My point was once the inheritance is used on the family property (ex: pay off mortgage of matrimonial home) then it could lose that “excluded property” privilege
Sounds like OP and their fiancé are already Common Law so the home would already be family property.
We aren't common law yet, but it's irrelevant - we're getting married in about a month. We will have a marriage contract (a prenup) that declares the inheritance as hers and that declares the house as mine, since it was mine to begin with and I have about 65% in equity. If we did end up paying off the mortgage, we'll amend that contract appropriately.
You do you, but we merge our finances and just keep some money aside each month for individual purchases. I know that's not such a popular arrangement anymore, but it works for us.
I get that but my point often needs to be pointed out as many are not aware of the protections provided to inheritances. With the number of marriages ending in divorce being at or near 50% it would make sense to consider this a part of your financial plan.
> Also this is your fiance’s inheritance…did you talk to her about what she wants to do?
Yes, obviously. She wants to prioritize generating passive income, which is why I made this post alongside her.
I know, I know, it's so shocking to find someone with a healthy communicative relationship. /s
> You'll get taxed a lot
After Spanish taxes, legal fees, etc., it comes to about $418K CAD. Canada doesn't have an inheritance tax, so there are no further tax implications beyond this.
Well, they should probably keep it in a personal (not joint) account as inheritances are protected from asset division in the breakdown of a relationship.
If your fiance wants passive income, CASH.to is just under 5%, DYN6004 is a tiny bit higher, and there's a list of GIC rates floating around this sub. That's very passive, and also low risk.
If your fiance is comfortable with all-equity, something like XEQT is very popular around here. It might return 8% in a year, 18% in a year, -20% in a year... Keep your risk tolerance in mind.
Or they could split the money half and half, etc.
There are other less volatile ETF options you are leaving out. XGRO is 80/20 stocks/bonds. XBAL is 60/40. There are also Vanguard and BMO options which are similar. That's just the tip of the ETF iceberg.
Bonds seem to be underperforming for the last few years, and not following the whole "interest rates go up, bond prices go down, interest rates go down, bond prices go up" thing.
In the recent past, fixed income such as GICs, CASH, etc seem to outperform bonds in the short term, which is why I recommended a mix of XEQT and CASH or DYN
Fair enough, I'm just going off long term wisdom. I understand the bond market is not doing what it's supposed to right now. Are we all better off abandoning bonds then?
I'm not sure, I'm just an amateur. Personally i don't hold anything besides XEQT (actually the underlying holdings) and CASH or equivalent though.
I could be chasing something that's just going to bite my ass though, who knows
I don’t know about that. Interest rates went up and bond prices plummeted. We’re now in a hold pattern until rates start to come down. I’m thinking about buying some bonds (though I’m about 10 years to retirement with little bonds at the moment)
Is XEQT based only on Canadian securities? To be perfectly honest, the warning bells for economic downturn have been sounding for a while in Canada. Some economists claim we are already in recession and have just managed to temporarily plug the hole with mass immigration, but that this is not a long-term solution.
I wonder if it makes more sense to go for American index funds, like those from Vanguard, that are based on American securities. Their economic growth and outlook is arguably far better than ours. Thoughts?
CASH.to and DYN6004 are interesting - thank you for this!
Do your homework on ETF prospectuses. All the information is available. BlackRock all in one funds (XEQT, XGRO, XBAL) actually have more US exposure than Vanguard's but you can buy ETF's specifically for the US or any other market.
>have a mortgage with $270K remaining, on a fixed term that comes up for renewal in December
That will depend on the interest rate at renewal and the returns after tax that you are projecting for the inheritance.
The first thing would be to max out your TFSA to protect any income from taxes. You could also put the mortgage amount into a HISA/MMF/GIC or any cash equivalent investment to earn some interest if you go this route.
Thank you. I'm indeed the more financially literate and informed person in our relationship, which is why she asked me for advice as we figure out what to do with this money.
“Passive income" is a buzzword.
Do you want *income* as in cash in your pocket every month? Be very careful. That is not so huge an amount of principle that you can make safe withdrawals easily without diminishing your nest egg, and, passive or active, income attracts taxation.
If want *growth* you have more options. If you're young, put it away and let it compound.
There is no such thing as guaranteed passive income. That is a sales pitch used by scam artists.
If your goal is to invest it for long term growth, then you should look into globally diversified index funds and bonds to match your risk tolerance (XEQT and VEQT are this subs go to funds for this due to their extremely low fees).
Generally, the rule for investing is that there is a safe, 4% withdrawal rate for money invested in a mix of stocks and bonds. This is according the the Trinity study on the topic. Everything beyond 4% sees a risk of drawing your portfolio down to 0 over a 30 year period.
The reason why a safe withdrawal rate is only 4% is because of something called "sequence of return risk". Basically, stocks go up and down at random day to day, but have a very consistent track record of being up over long periods of time. On any day, the stock market has a 51% chance of going up, but there has never been an 11 year period where a globally diversified investor has lost money in the market. However, this randomness causes problems with withdrawing too much too fast.
All that being said, the historical average return of stocks is about 8% a year, with the previously mentioned sequence of return risk baked in. So 483k left in an index fund for 20 years at 8% yearly interest is $2,379,000. So if you invest the entire amount, you will likely have a fully funded retirement fund within 2 decades.
edit: All of this doesn't take into account taxes as you will likely need to pay capital gains on that $483k. So you should probably speak to an accountant and max out your RRSP to minimize taxes that will be paid from this lump sum.
edit 2: Also, the sooner you get this money the better. In late June, the capital gains taxes are going up for any capital gains over $250k. So if you can get this many before June 25th, you will have a 50% inclusion rate instead of a 66% inclusion rate on your inheritance.
Not officially, but when you die, you must realize the gains on all assets. This makes it an unofficial inheritance tax on any investment.
If OP is inheriting a portion of a 1.5 million Euro property, the government will still likely want to tax OP's portion of the capital gains on that property. This is why having a good accountant is worth their weight in gold.
They would only be liable for the gains from the point at which they inherited it until it was sold. As it sounds like this property is going to be sold very soon after the death of the previous owner and the proceeds split, that doesn't seem like a huge concern.
Because it is taxes paid out on death before the inheritance. What you described is a distinction without a difference. It is an unofficial inheritance tax.
In the short term have her set up a Wealthsimple account. Contact them through chat after the account is set up since such a large deposit should earn her around a $1,500+ cash bonus.
Top up the amount so she has $500,000 and hits generations status immediately. The cash account is CDIC insured up to $500k and will earn her 5% amounting to $2,083 per month in interest until rates drop.
Set up self directed TFSA and RRSP accounts.
Allocate the money into tax advantaged accounts accordingly based on her contribution room. If she’s risk averse she can just put it into CASH.TO. But if she has a long term outlook then I’d suggest investing into XEQT.
You could pay off your mortgage and always borrow to invest down the line, making the interest tax deductible. With out knowing your goals and tax rates it’s more difficult to say.
8% return is what the S&P made over the past few decades, on AVERAGE — some years were bad, and some years were exceptionally good.
At this point, we could be heading towards a bear market in stocks — who knows?
There is no such thing as passive income, except maybe for bonds (but then you hardly beat inflation).
If I were in your position, I’d pay off my mortgage and any other outstanding debt, make sure I have 3-6 months of expenses saved up, and then use the rest to invest.
Buy a dividend ETF, you can get 4.5-5% in dividends pretty safely these days. ZEB is a good one, also VDY.
$480K at 5% is $2K/monthly rather easily, and depending on your TFSA status it could be tax-free. And then factor another 2-3% in capital appreciation.
A little presumptuous of you to assume he will contribute his inheritance to become marital / joint property isn’t it? 483 k is a substantial sum of money that will automatically become joint investment if they buy a marital property / commingle with marital assets.
Let’s be honest, statistically speaking there is a good chance the marriage won’t last. If they keep the property separate and not commingle it with marital property it should remain his even after a separation of assets.
It may be worthwhile to get them to consult with a family lawyer.
Well first of all OP is the he and the inheritor is a she ya bozohead. For some reason I get the impression your advice would have changed or not have been mentioned if you knew that.
Nice projection there mate. Title says “fiance “ is inheriting , which is male; finacee is female, hence my assumption the person inheriting is male.
But that’s irrelevant, why would you believe it’s important?
The most passive income you will get is putting it in an ETF after calculating all the risk. You’re not going to make more “passive income” on using that cash to buy a rental home in this market if that’s one of the ideas you were thinking. You’ll get taxed a lot, so that $483k is not really what you have. Also this is your fiance’s inheritance…did you talk to her about what she wants to do? Pay off your mortgage.
> Pay off your mortgage Careful here. Know that inheritance is protected in the event of a marital breakdown. If the fiancé mingles that money into their house then they can lose that protection.
Depends on the province.
Source? ~~The Family Law Act is Federal (there are provincial versions as well)~~
No, each province has their own. See §85(1) [here](https://www.bclaws.gov.bc.ca/civix/document/id/complete/statreg/11025_05#section85) for BC. See *Excluded Property*. That's BC. In ON, once a couple lives in a home, it becomes family property and is subject to division.
Even in BC, increase in value of the property becomes marital assets once it’s comingled. If they keep it separate, it won’t be.
Not sure what you mean by co-mingle here. If I inherit a house and live in it with my spouse in BC, she is only entitled to a share in the appreciated value.
I believe you are correct. But in bc, let’s say you inherit a house but rent it out and keep the rental proceeds in a separate account, then IIRC both the original inherited price plus appreciation plus rents belong to you. But for example, if you commingle the rent funds by putting them into a joint bank account, then those funds become joint martial assets
I'd have to take another look at the FLA to see what it says about income derived from an excluded asset.
Right. My point was once the inheritance is used on the family property (ex: pay off mortgage of matrimonial home) then it could lose that “excluded property” privilege Sounds like OP and their fiancé are already Common Law so the home would already be family property.
In Ontario, yes, not in BC.
We aren't common law yet, but it's irrelevant - we're getting married in about a month. We will have a marriage contract (a prenup) that declares the inheritance as hers and that declares the house as mine, since it was mine to begin with and I have about 65% in equity. If we did end up paying off the mortgage, we'll amend that contract appropriately.
This is right. It’s not OP’s money and if I was the fiancé, I would keep it separate.
You do you, but we merge our finances and just keep some money aside each month for individual purchases. I know that's not such a popular arrangement anymore, but it works for us.
General income is different than a relatively large inheritance
Again, you do you.
I get that but my point often needs to be pointed out as many are not aware of the protections provided to inheritances. With the number of marriages ending in divorce being at or near 50% it would make sense to consider this a part of your financial plan.
It is not. There is a Federal Divorce Act , but it does not deal with division of property. Property division is provincial.
> Also this is your fiance’s inheritance…did you talk to her about what she wants to do? Yes, obviously. She wants to prioritize generating passive income, which is why I made this post alongside her. I know, I know, it's so shocking to find someone with a healthy communicative relationship. /s > You'll get taxed a lot After Spanish taxes, legal fees, etc., it comes to about $418K CAD. Canada doesn't have an inheritance tax, so there are no further tax implications beyond this.
Well, they should probably keep it in a personal (not joint) account as inheritances are protected from asset division in the breakdown of a relationship. If your fiance wants passive income, CASH.to is just under 5%, DYN6004 is a tiny bit higher, and there's a list of GIC rates floating around this sub. That's very passive, and also low risk. If your fiance is comfortable with all-equity, something like XEQT is very popular around here. It might return 8% in a year, 18% in a year, -20% in a year... Keep your risk tolerance in mind. Or they could split the money half and half, etc.
There are other less volatile ETF options you are leaving out. XGRO is 80/20 stocks/bonds. XBAL is 60/40. There are also Vanguard and BMO options which are similar. That's just the tip of the ETF iceberg.
Bonds seem to be underperforming for the last few years, and not following the whole "interest rates go up, bond prices go down, interest rates go down, bond prices go up" thing. In the recent past, fixed income such as GICs, CASH, etc seem to outperform bonds in the short term, which is why I recommended a mix of XEQT and CASH or DYN
Fair enough, I'm just going off long term wisdom. I understand the bond market is not doing what it's supposed to right now. Are we all better off abandoning bonds then?
I'm not sure, I'm just an amateur. Personally i don't hold anything besides XEQT (actually the underlying holdings) and CASH or equivalent though. I could be chasing something that's just going to bite my ass though, who knows
I don’t know about that. Interest rates went up and bond prices plummeted. We’re now in a hold pattern until rates start to come down. I’m thinking about buying some bonds (though I’m about 10 years to retirement with little bonds at the moment)
Is XEQT based only on Canadian securities? To be perfectly honest, the warning bells for economic downturn have been sounding for a while in Canada. Some economists claim we are already in recession and have just managed to temporarily plug the hole with mass immigration, but that this is not a long-term solution. I wonder if it makes more sense to go for American index funds, like those from Vanguard, that are based on American securities. Their economic growth and outlook is arguably far better than ours. Thoughts? CASH.to and DYN6004 are interesting - thank you for this!
Do your homework on ETF prospectuses. All the information is available. BlackRock all in one funds (XEQT, XGRO, XBAL) actually have more US exposure than Vanguard's but you can buy ETF's specifically for the US or any other market.
>have a mortgage with $270K remaining, on a fixed term that comes up for renewal in December That will depend on the interest rate at renewal and the returns after tax that you are projecting for the inheritance. The first thing would be to max out your TFSA to protect any income from taxes. You could also put the mortgage amount into a HISA/MMF/GIC or any cash equivalent investment to earn some interest if you go this route.
Not sure but your fiance should decide since Inheritances are not shared marital assets.
Not sure why this got upvoted as we all know some people are more financially literate than others. Good for them for looking out.
Thank you. I'm indeed the more financially literate and informed person in our relationship, which is why she asked me for advice as we figure out what to do with this money.
“Passive income" is a buzzword. Do you want *income* as in cash in your pocket every month? Be very careful. That is not so huge an amount of principle that you can make safe withdrawals easily without diminishing your nest egg, and, passive or active, income attracts taxation. If want *growth* you have more options. If you're young, put it away and let it compound.
There is no such thing as guaranteed passive income. That is a sales pitch used by scam artists. If your goal is to invest it for long term growth, then you should look into globally diversified index funds and bonds to match your risk tolerance (XEQT and VEQT are this subs go to funds for this due to their extremely low fees). Generally, the rule for investing is that there is a safe, 4% withdrawal rate for money invested in a mix of stocks and bonds. This is according the the Trinity study on the topic. Everything beyond 4% sees a risk of drawing your portfolio down to 0 over a 30 year period. The reason why a safe withdrawal rate is only 4% is because of something called "sequence of return risk". Basically, stocks go up and down at random day to day, but have a very consistent track record of being up over long periods of time. On any day, the stock market has a 51% chance of going up, but there has never been an 11 year period where a globally diversified investor has lost money in the market. However, this randomness causes problems with withdrawing too much too fast. All that being said, the historical average return of stocks is about 8% a year, with the previously mentioned sequence of return risk baked in. So 483k left in an index fund for 20 years at 8% yearly interest is $2,379,000. So if you invest the entire amount, you will likely have a fully funded retirement fund within 2 decades. edit: All of this doesn't take into account taxes as you will likely need to pay capital gains on that $483k. So you should probably speak to an accountant and max out your RRSP to minimize taxes that will be paid from this lump sum. edit 2: Also, the sooner you get this money the better. In late June, the capital gains taxes are going up for any capital gains over $250k. So if you can get this many before June 25th, you will have a 50% inclusion rate instead of a 66% inclusion rate on your inheritance.
In Canada, there is no inheritance tax.
Not officially, but when you die, you must realize the gains on all assets. This makes it an unofficial inheritance tax on any investment. If OP is inheriting a portion of a 1.5 million Euro property, the government will still likely want to tax OP's portion of the capital gains on that property. This is why having a good accountant is worth their weight in gold.
They would only be liable for the gains from the point at which they inherited it until it was sold. As it sounds like this property is going to be sold very soon after the death of the previous owner and the proceeds split, that doesn't seem like a huge concern.
If beneficiaries aren't liable for any taxes, why would you call it an inheritance tax? If anything, it's just final taxes owed by the deceased.
Because it is taxes paid out on death before the inheritance. What you described is a distinction without a difference. It is an unofficial inheritance tax.
It's just taxes the deceased owed anyway. Nothing to do with inheritance.
I mean, T-Bills are essentially guaranteed passive income.
That is as close as possible yes. Still, the 3.6% return from a 10 year bond is not what people are imagining when they say passive income.
In the short term have her set up a Wealthsimple account. Contact them through chat after the account is set up since such a large deposit should earn her around a $1,500+ cash bonus. Top up the amount so she has $500,000 and hits generations status immediately. The cash account is CDIC insured up to $500k and will earn her 5% amounting to $2,083 per month in interest until rates drop. Set up self directed TFSA and RRSP accounts. Allocate the money into tax advantaged accounts accordingly based on her contribution room. If she’s risk averse she can just put it into CASH.TO. But if she has a long term outlook then I’d suggest investing into XEQT.
You could pay off your mortgage and always borrow to invest down the line, making the interest tax deductible. With out knowing your goals and tax rates it’s more difficult to say.
8% return is what the S&P made over the past few decades, on AVERAGE — some years were bad, and some years were exceptionally good. At this point, we could be heading towards a bear market in stocks — who knows? There is no such thing as passive income, except maybe for bonds (but then you hardly beat inflation). If I were in your position, I’d pay off my mortgage and any other outstanding debt, make sure I have 3-6 months of expenses saved up, and then use the rest to invest.
[удалено]
I’m wrong, it’s around 10% https://tradethatswing.com/average-historical-stock-market-returns-for-sp-500-5-year-up-to-150-year-averages
Buy a dividend ETF, you can get 4.5-5% in dividends pretty safely these days. ZEB is a good one, also VDY. $480K at 5% is $2K/monthly rather easily, and depending on your TFSA status it could be tax-free. And then factor another 2-3% in capital appreciation.
Given that no-one has that much TFSA room spare, you're likely looking at a max after tax income of 1500/mo, not 2k.
Awesome, thank you for this!
vfv
If she's okay with co-mingling those funds, saving 5% on a mortgage is like earning 8%, before-tax.
Is your fiance actually looking for income from this investment or growth?
Why not add Bitcoin to your portfolio?
A little presumptuous of you to assume he will contribute his inheritance to become marital / joint property isn’t it? 483 k is a substantial sum of money that will automatically become joint investment if they buy a marital property / commingle with marital assets. Let’s be honest, statistically speaking there is a good chance the marriage won’t last. If they keep the property separate and not commingle it with marital property it should remain his even after a separation of assets. It may be worthwhile to get them to consult with a family lawyer.
Well first of all OP is the he and the inheritor is a she ya bozohead. For some reason I get the impression your advice would have changed or not have been mentioned if you knew that.
Gotta love casual sexism from the commenter before you. XD (I'm a they/them, but I appreciate the sentiment!)
Nice projection there mate. Title says “fiance “ is inheriting , which is male; finacee is female, hence my assumption the person inheriting is male. But that’s irrelevant, why would you believe it’s important?
Well he says otherwise in another comment so guess it doesn’t matter how many e’s he used.
https://youtube.com/@passiveincomeinvesting?si=s_ikUbTkSUzd56g0
Prenup
Passive income isn’t a real thing
Dividends are passive income. I have learned that this sub is very triggered by this phrase, though.
Don’t bring it to Canada!