Global economy bottomingAs at June 12, 2009

There is increasing reason to believe that the worst of the

financial crisis is behind us and the U.S. and global economies

are bottoming. I believe we will see moderate growth

in Canadian and U.S. GDP by year-end, a far cry from the

recent near -6% contractions. There certainly remain many

doomsayers who argue that all manner of economic and

financial calamities will befall us, but I would suggest that

most of these concerns are either unfounded or premature.

Indeed, at the start of this year, virtually no one would

have believed that the stock markets would be up over

30% from their lows within two months, that consumer

confidence would be rising along with house sales and oil

prices would have risen to nearly $70 a barrel. Even some

leading indicators of employment conditions have improved,

although the net number of new jobs is still falling in the U.S.

It does appear, however, that the pace of decline is slowing.

Financial conditions have improved meaningfully as monetary

and fiscal easing do their stuff. Credit spreads have narrowed,

the VIX and the TED spread are much lower and liquidity has

improved. Even some of the troubled banks in the U.S. are

able to rebuild capital by issuing common equity.

To be sure, we remain in a very difficult restructuring process

to reduce leverage and excess capacity in many financial

and non-financial sectors, but optimism that we will avoid a

systemic breakdown has increased. The Chrysler bankruptcy

appears to be going better and more swiftly than some had

feared, which bodes well for the GM bankruptcy. The auto

sector will continue to have enormous negative repercussions

for economies in North America (and elsewhere), but the job

is finally getting done following countless years of inadequate

Perspectivesummer 2009In this issue

How to keep the summertime dream alive for generations

Financial Planning – Providing peace of mind

How to boost your after-tax retirement income

Sherry Cooper is Global Economic Strategist and Executive Vice-President, BMO Financial Group and Chief Economist of BMO Capital Markets.

Please see ‘Global economy bottoming’ on page 5

There is no other currency or country in the world that could play the role of the U.S. – not now, and probably not for at least a decade or maybe much more.

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Heading off to the family retreat, be it cottage or cabin is a favourite summertime tradition. Sitting on the dock with a refreshing drink; you soak in the glorious sunshine and are grateful for the breeze to keep the heat from the sun at bay. It doesn’t get any better than this! You love the cottage and hope it will stay in your family for generations to come.

However, all too often, families are discovering that the tax owing is so high that they end up having to sell the cottage in order to pay the tax. Happily, there are other ways to fund the capital gains tax liability.

If your estate has a shortfall because of the taxes or because the property is the major asset of your estate, consider ways to provide additional funds in your estate. Instead of a specific gift of the cottage, you can give your children the option to purchase, and they can use all or a portion of their inheritance to fund it. The proceeds will be available to pay

the taxes and distribute to other beneficiaries. Life insurance may also be a funding solution. The children could purchase the insurance on their parents’ lives to provide the funds to pay the taxes owing by the estate, or to fund the purchase price so that funds will be available for other beneficiaries.

If family members share the cottage or cabin, a trust can provide for easier management and fewer arguments than joint ownership. Trustees will be appointed, usually one to represent each family group. They will make the decisions about time allocations and repairs, and will pay insurance, taxes and utilities. The trustees’ decisions must be made in accordance with the guidelines you create. A maintenance fund should be created to set aside separate funds to provide for major expenditures. Property in the trust will be deemed sold at fair market value every 21 years, so you may want to provide for a plan to wind up the trust before

the 21st anniversary of your death. Children can be given the option to enter into their own arrangements for joint ownership or be bought out. An option to sell the cottage and distribute the proceeds should also be included.

While every family situation is unique, estate planning professionals have experience helping you look at all the options, and selecting a solution that produces the right result for you. The expense of good advice is well worth it when you consider the potential savings from tax planning, and the benefit of a well thought out plan that you and other family members see as fair. Your Investment Advisor can help introduce you to a professional advisor n

How to keep the summertime dream alive for generations

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Perhaps the uncertainty of the future causes us to procrastinate. Regardless, the benefits of having a financial plan far out weigh any reason for not having one.

Financial Planning – Providing peace of mind Summer is fast approaching and with it plans for the annual summer vacation have been completed. Most of us will spend time thoroughly planning to ensure our vacations are worry free and enjoyed to the maximum. However, when it comes to planning for our financial future, many of us do not take the time to properly plan for important financial goals such as retirement or post-secondary schooling for our children.

Perhaps the uncertainty of the future causes us to procrastinate. Regardless, the benefits of having a financial plan far outweigh any reason for not having one. The greatest benefit being peace of mind will come from the fact that not only are you prompted to put your goals and objectives down on paper, but once they’re down, your BMO Nesbitt Burns Investment Advisor will be able to assist you in prioritizing your goals and developing a strategy to help ensure those

goals are met. It is this sort of planning that allows one to sleep at night.

At its most basic level, financial planning can be quite a simple process. Let’s take retirement as an example, this is an important primary goal or objective for many of us. In order to properly analyze retirement we need to know when the proposed retirement will take place and how much will be required i.e. what will the “spend” be? Let’s say Mr. Williams (who is currently 40 years of age)

decides that he would like to retire at age 65 and will need $50,000 after tax (adjusted for 3% inflation) for the rest of his life, until age 90. The only remaining question to answer is “how will this retirement be funded?” As it turns out, in addition to relying on Canada Pension Plan (CPP) and Old Age Security (OAS), Mr. Williams has an RRSP worth $200,000 and is prepared to make a monthly contribution to it until he retires. The only question he has pertains to how much he needs to contribute. At this point, his BMO Nesbitt Burns Investment Advisor will use his sophisticated financial planning software to determine the required contribution. As a result, Mr. Williams will need to contribute $1,500 monthly (assuming a 7% rate of return) to fully meet his goal.

If for some reason Mr. Williams can’t afford to set this amount aside, at the very least he now knows where he stands in relation to meeting his goal. Furthermore, Mr. Williams has other options and can therefore choose to model his retirement goal around them. For instance, he could consider lowering his needs in retirement, or he could retire a few years later. In either case, planning has enabled Mr. Williams the power to make choices. These choices can change over time given that financial planning is an on-going process. What is important, is that he has a plan, stays committed to it and revisits it on a regular basis. Peace of mind will be the result of this process n

How to boost your after-tax retirement income Are you looking for more retirement income but not willing to risk your capital? If you are a retired individual or couple, you may be depending on your non-registered investments to supplement your registered accounts and pensions to provide you with a comfortable retirement income. The income from these investments is fully taxable annually, and upon your death the assets are subject to a probate tax (except in Quebec) as part of your estate. As a risk-adverse investor, how can you provide a better return for yourself without exposing your investments to further volatility? Consider the insured annuity strategy. A combination of life insurance and a prescribed annuity, this innovative solution can deliver higher after-tax income today and a guaranteed estate value for your heirs.

Higher income guaranteed for lifeWith a prescribed life annuity, the income you receive is a blend of interest income (taxable) and return of capital (non-taxable). This income is calculated by averaging the interest that would be earned over the rest of your life, combining it with a level amount of capital that is returned to you each year. Since tax is payable only on the part of the income that is interest, the net return provided by the annuity is greater than other guaranteed interest investments. However, when you pass away there is no residual value from the annuity for your heirs.

Preserved estate valueThe insurance portion of the insured annuity strategy provides a guaranteed estate value for your heirs equal to the amount of your invested capital. In most cases, the cost of the insurance can be covered by the annuity payments and still leave you with a higher after-tax income than from other guaranteed investments. Upon your death, the annuity payments cease, but the insurance policy pays out an amount to your beneficiaries which is at least equal to the amount of capital you invested in the annuity. The proceeds are paid out directly to your named beneficiaries, tax-free and potentially exempt from probate fees.

Is the Insured Annuity Strategy right for you? Yes, if:

•Youhavenon-registeredassetsfromwhichyouwould like to generate income

•Youpreferlow-riskinvestments

•Youareinsurable

•Youwanttopassalonganestatetoyourheirs,butalso want to live more comfortably in retirement

The Bottom LineAn insured annuity strategy may be just the solution you need to enjoy higher income for life while preserving an estate value for your heirs. To find out more information please contact your BMO Nesbitt Burns Investment Advisor n

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BMO Nesbitt Burns Inc. and BMO Nesbitt Burns Ltée provide this commentary to clients for informational purposes only. The information contained herein is based on sources that we believe to be reliable, but is not guaranteed by us, may be incomplete or may change without notice. The comments included in this document are general in nature, and professional advice regarding an individual’s particular position should be obtained. BMO Nesbitt Burns Inc. and BMO Nesbitt Burns Ltée are indirect subsidiaries of Bank of Montreal and Member CIPF. TO U.S. RESIDENTS: BMO Nesbitt Burns Securities Inc. and/or BMO Nesbitt Burns Securities Ltd., affiliates of BMO Nesbitt Burns Inc., accept responsibility for the contents herein, subject to the terms as set out above. Any U.S. person wishing to effect transactions in any security discussed herein should do so

through BMO Nesbitt Burns Securities Inc. and/or BMO Nesbitt Burns Securities Ltd. To U.K. RESIDENTS: The contents hereof are intended for the use of non-private customers and may not be issued or passed on to any person described in the Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995, as amended. The comments included in this publication are not intended to be legal advice or a definitive analysis of tax applicability. Such comments are general in nature and professional advice regarding an individual’s particular position should be obtained. For investment advice regarding your specific situation, please speak to a BMO Nesbitt Burns Investment Advisor.

® BMO (M-bar roundel symbol) is a registered trade-mark of Bank of Montreal, used under licence.

® Nesbitt Burns is a registered trade-mark of BMO Nesbitt Burns Corporation Limited, used under licence.

The comments included in the publication are not intended to be a definitive analysis of tax law: The comments contained herein are general in nature and professional advice regarding an individual’s particular tax position should be attained in respect of any person’s specific circumstances

All insurance products and advice are offered through BMO Nesbitt Burns Financial Services Inc. by licensed life insurance agents, and, in Quebec, by financial security advisors.

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‘Global economy bottoming’ continued from page 1

adjustment and faltering change. The stakeholders have all

now been forced to capitulate to the reality of the situation,

which can only be positive in the longer run.

The process of deleveraging and restructuring is very painful

and it is a multi-year process that will have long-term

consequences of reduced potential growth. Clearly, however,

the kind of growth we experienced the decade before the

crisis was unsustainable. Many now are warning about

coming inflation, a downgrade of U.S. debt, devaluation of

the U.S. dollar and the loss of U.S. reserve currency status.

The Fed and the fiscal authorities are well aware that they

cannot run the printing presses to pay for ever-increasing

budget deficits indefinitely. It is a necessary response to the

crisis that is happening all over the world. But with the proper

monetary adjustments, even the shift from huge contraction

to modest growth will meaningfully reduce the federal

deficit in the U.S. Even the recent stock market rally helps;

unless bears are correct and it does turn out to be a false

start, capital gains tax revenues will rise. But it is unlikely,

in my view, the market will return to its lows of early March

because the underlying fundamentals have improved.

As Moody’s reaffirmed the triple-A rating of U.S. government

debt with a stable outlook, hopefully the fear of a U.S.

downgrade and ultimate default dissipates. I know the

textbooks might argue that the stimulus is inevitably

inflationary. However, given so much excess capacity, the

likely reversal in policy after growth picks up, the very low

chance of wage pressures leading to a 1970s wage-price

spiral, and the relative strength of the U.S., the U.S. dollar is

unlikely to fall precipitously. In fact, Canada and even the U.S.

look outright buoyant compared to the slump in Continental

Europe and Japan. There is no comparison between the U.K.

gilt market and the U.S. Treasury market regarding liquidity,

stability and base-level ability to fund the debt. There is no

other currency or country in the world that could play the role

of the U.S.—not now, and probably not for at least a decade

or maybe much more. These bearish sentiments are healthy.

We need to be worried about these issues. But pent up

demand and enormous liquidity, coupled with mammoth

global stimulus, will turn the economy around sooner and

more dramatically than most people now think n

Perspective