Contributed by Edvard Ryder. Are you planning to leave a financial legacy to your children or grandchildren? If so, you’ll want to ensure the assets you’ve worked hard to build go to those you intended and don’t get eaten up by taxes.
According to tax laws, when you die, your property is deemed to have been disposed of at fair market value immediately before death and is taxed accordingly. In other words, it’s taxed as if it had been sold. Your estate would generally be responsible for covering the applicable taxes. This could significantly impact what you’re hoping to pass down.
What you can do to preserve your estate for your heirs? Permanent life insurance can be a solution for the tax-effective transfer of wealth to your loved ones.
You’ve worked hard to accumulate assets such as RRSP’s, non-registered investment plans, maybe a cottage or vacation property elsewhere. While a tax-free rollover of these assets to your spouse or common-law partner is available when you pass away, the second (that of your spouse or common-law partner) can often trigger a hefty tax bill. Any registered assets will be fully taxable at that time, and depending on your province and tax bracket, up to half of the remaining registered funds could be consumed by taxes. Half of deferred capital gains will also be brought into taxable income. The capital gains on vacation properties and investment portfolios will increase your final tax bill, eating away at what can be left for future generations. Probate and estate settlement fees only compound the problem.
A joint last-to-die life insurance policy helps to plan around these concerns. The death benefit can pay the tax bill on the second death, protecting your estate and avoiding the forced sale of assets just to cover the costs. This helps to ensure that more of your estate goes to the people you intended it to. Permanent life insurance can also offer a wide range of other benefits, including a combination of guarantees, cash values with steady growth, and access to those cash values should you ever need them during your lifetime.
I can help you leave the legacy you want. Talk to me to learn more about how life insurance can help you with your legacy planning goals.