ESTATE BOND

April 2015

Using Life Insurance to accumulate and transfer wealth

Life Insurance can be used as an effective way of accumulating and transferring wealth. An Estate Bond is a financial planning strategy that transfers non registered savings from a tax exposed investment to an exempt life insurance policy. This policy provides immediate life insurance protection as well as an investment within the policy that accumulates on a tax deferred basis. On the death of the life insured, both the death benefit and the investment component are paid tax free to the beneficiaries.

Benefits Create a large and immediate estate value Take advantage of tax-sheltered growth of cash values Have a tax-free maturity value at death Reduce estate settlement costs and offer a potential for creditor protection if you have named and made an appropriate beneficiary designation Provide liquidity if you require it. Who can benefit? Individuals who are currently maximizing their RRSP contributions and are looking for additional means to shelter investments from tax. Individuals who have investments that are intended to be passed on to the next generation.

Permanent life insurance products, such as Whole Life or Universal Life, are usually used. These products allow the owner to contribute funds in excess of the amount required for the cost of insurance. These excess contributions accumulate tax-free throughout the remainder of the insured’s life. On the death of the life insured, the death benefits (including the excess contributions) are paid out tax free. Depending on which permanent product you choose, the additional funds can be deposited into investments fully managed by the insurance company or you can choose a wide choice of flexible investments such as GICs, Bond Funds, Index Funds or Mutual Funds that can be managed at your discretion.

If you are looking for ways to transfer wealth to the next generation and grow your estate value in a tax efficient manner, consider an Estate Bond strategy. 

Please note that in January 2017, new rules will affect the taxation of Canadian life insurance policies. If you are considering changes to exiting policies or the purchase of permanent insurance, you may want to review your overall estate planning and insurance needs with your advisor before the legislation comes into effect. 

If you wish to receive our free publication on Estate Bond, or discuss tax and estate planning questions you may have, please contact your Richardson GMP Investment Advisor.

For more information on this strategy, or if you wish to receive our free publication Estate Bond, please contact your Richardson GMP Investment Advisor.