A Good Problem to Have
If you were successful in generating wealth during your working years, your advisor or financial planner may inform you that you have more money than you will ever spend. Instead of worrying about “do I have enough,” your concern shifts to “how do I protect what I have saved?”
f you were successful in generating wealth during your working years, your advisor or financial planner may inform you that you have more money than you will ever spend. Instead of worrying about “do I have enough,” your concern shifts to “how do I protect what I have saved?”
At this time, you and your advisor may want to focus on estate planning strategies.
Estate Planning
Just like a retirement plan, an estate plan is best contemplated and planned for well in advance. This is especially true if you have sizable assets that you wish to pass on.
In Canada, there is no estate tax. Upon passing, all assets you own are deemed to have been sold on the date of death and at fair market value. Therefore, any asset that has increased in value since it was purchased (besides your principal residence and registered plans) will attract capital gains taxation.
For registered assets like RRSPs or RRIFs, the balance of these accounts will be added to your taxable income in the year of death which could attract significant income tax.
Tax can be deferred if the asset(s), including registered plans (RRSP, RRIF, etc.) are left to the deceased’s spouse or financially dependent child. This is a great estate option for couples but not for single or widowed individuals.
Eventually, the tax bill will come, and with sizable assets, the tax liability can be significant. That’s why it’s important to plan for this in advance. Proactive strategies and planning can maximize your estate and reduce the tax burden upon death.
Permanent Life Insurance as an Estate Planning Tool
When used correctly, permanent life insurance can be a simple estate planning tool with multiple benefits.
Permanent insurance offers a tax-deferred environment for wealth to grow without the volatility of public markets. This is very advantageous to wealthy individuals or business owners with high tax rates but limited risk appetite.
It can be flexible enough to offer access to cash within the policy while remaining in-force, because sometimes plans do change.
At death, the monies invested in the policy plus the death benefit are available quickly, privately, and best of all, tax-free.
Using life insurance as an estate planning tool is not a solution for everyone. It has unique benefits but also limitations that must be understood. Your insurance advisor must be able to clearly demonstrate the benefit of a permanent insurance strategy to your estate goals. You also must qualify medically for a life insurance policy, meaning your health is a key component in this strategy. Finally, please consult your tax professional before embarking on any long-term strategy involving taxation and tax-deferral, especially so if you’re an incorporated business owner.
But for the right individual or situation, permanent life insurance can be a conservative, tax-efficient, and flexible estate planning tool that will ultimately bring peace of mind.
Please reach out if you would like to discuss estate planning and tax efficient gifting strategies.
This information has been prepared by Mehul Gandhi, CFP®️, CLU®️, TEP who is an Estate Planning Specialist and Senior Insurance Advisor for Westmount Wealth Planning Inc. Westmount Wealth Planning Inc. is a subsidiary of Westmount Wealth Management Inc. Westmount Wealth Management Inc. is registered as a Portfolio Manager in British Columbia, Alberta, and Ontario.
This material is distributed for informational purposes only and is not intended to provide personalized legal, accounting, tax, or specific investment advice. Please speak to a Westmount Wealth Advisor regarding your unique situation.
