Basic Estate PlanningAs the Canadian population ages, estate planning becomes a very important issue. I have yet to meet a client who says "I really want to leave my estate to the Tax Department" and yet so many pay more tax than they need to.
Using tax-free rollovers allows for asset transfer from one person to another.
Estate Planning methods include:
Joint Name with Rights of Survivorship for Husband and Wife This is a basic form of estate planning that allows assets to roll from one spouse to another. This form of registration is not a good idea for other family members as there could be tax and liability issues.
Designation of beneficiaries This is a very effective form of estate planning. By designating beneficiaries, the assets bypass the estate and are not subject to probate fees or will variances. Term Deposits or Segregated Funds from Life Insurance companies allow beneficiary designations. One can also designate a beneficiary such as children and grandchildren and the proceeds will go directly to them.
Using Life Insurance in Estate Planning Once a client told me , Brian, Im so old that I dont buy green bananas. What makes you think I can get insurance?
Many people are quite surprised to discover that purchasing life insurance late in life is relatively inexpensive and can be a potent estate planning tool. An investment in life insurance can be effective in many ways. It can offset taxes at death, it can balance an estate as well as be a key component of an income plan.
RRIF Protector Offsetting Tax Bills One of the more common uses of insurance is to offset the tax liability of large RRIF accounts, sometimes referred to as a RRIF Protector. If a person had a RRIF worth $200,000 and was a last surviving spouse, at death the estate would pay nearly $80,000 in income taxes (assuming a 40% marginal tax rate). Purchasing $80,000 worth of life insurance would offset this tax charge. This strategy also works for large capital gains.
Balancing an Estate Assume that a retired couple have a child that needs special care or has an asset (a cabin) they wish to leave to one specific child. At the same time they want be fair and avoid any contestations. They could purchase life insurance that would pay to the other children and balance the estate.
Income Strategy using Life Insurance This strategy is simple yet very effective for certain people. First a person buys an annuity. As one is purchasing it late in life, the annuity would pay a high income flow. Annuities are income vehicles that are valueless at the death of the annuitant.You then take some of the proceeds and divert it into an insurance policy. Now the proceeds from the life insurance policy will replace the loss of the annuity value and pay directly to beneficiaries. The client enjoys a great cash flow without disturbing the estate value.It is really quite amazing but the optimum time to invest in a combination of insurance and annuities (called an insured annuity) is between the ages of 70 to 84. Insurance is relatively inexpensive as long as the person enjoys good health.