Creating a Life Legacy

Transcription

1 Creating a Life Legacy Prepared for: Client Presented by: Bernie Geiss, TEP, FEA, CLU, CFP Cove Continuity Advisors Inc. October 2009

2 Issues and Considerations Successful investors have accumulated capital in their RRSP s and other investments that they will likely never spend, resulting in substantial tax liabilities at the their last death. Those tax liabilities cannot be deferred indefinitely and for the most part are paid by the heirs to the estate. Survivors end up paying the tax bill and may have to sell off the most desirable assets at liquidation prices and then have to pay additional tax on the sale of those assets.

3 The Cost of Doing Nothing As investment assets grow so does the tax liability. The example below illustrates the potential tax liability on two commonly held investments. The tax liability becomes a large part of the overall estate. Registered Investments Non-Registered Capital Investments Estate Value at 2 nd Death $1,700,000 $5,600,000 Effective Tax Rate 46% 23% Tax Liability $782,000 $1,288,800 Total Tax Liability $2,070,000 or 30%

4 Creating a Life Legacy The Income Tax Act permits taxpayers to receive credit for charitable bequests up to 100% of their income in the year of death. With this in mind a life insurance policy becomes extremely economical choice to fund a donation which is ultimately deductible. A life insurance policy is specially designed to provide tax-free cash on the last death of a husband and wife. It is the ideal financial instrument for funding bequests to a charity. By combining the two lives in one plan, the cost of insurance is greatly reduced. The clients establish a Joint-Last-to-Die life Insurance and pay the necessary premiums. The charity is named as beneficiary of the life insurance proceeds. On the second death, the charity receives the proceeds and the client s estate receives a tax receipt for the donated amount. The resulting tax credit can effective offset the tax on an equal amount of taxable income. Premiums Donation of Insurance Benefits

5 Universal Life Insurance Funding Universal Life with minimum pay level cost was developed to overcome many of the problems associated with traditional term insurance policies. Universal Life provides coverage on a level, guaranteed cost of insurance basis until the death of the insured. The key advantage of Universal Life coverage is certainty. As long as all premium payments are made on time the insurance policy will remain in force and the life insurance benefit will be paid upon the death of the insured. All premiums are guaranteed and level for the lifetime of the contract. But, as with traditional term coverage, there is very little flexibility with the premium deposit options. One missed premium can cause the policy to lapse leaving the insured without any coverage. Therefore, owners of Universal Life 100 products must continue to pay level premiums until the death of the life insured. $55,367 Cash Flow Analysis 80 M & 64 F JLTD non smoker (in good health) Company RBC Insurance Plan Security Fund Life Pay Face Amount $3,000,000 Year Annual Cash Flow Requirement 1-55, , , , , , , , ,367 Age 85

6 Net Result Through the charitable tax receipt created on the donation of the life insurance premiums Canada Revenue Agency has helped contribute to your favourite charity and your investment assets are preserved for your children and grandchildren. The charity of your choice: $3,000,000 Your heirs: 100% of your investments CRA: $0.00

7 Some Important Notes This presentation discusses many elements concerning special features of the current Security Fund product, a life insurance policy issued by RBC Life Insurance Company. This presentation is for general information purposes only. This presentation includes examples that are based on the facts and assumptions noted. The illustrated values are neither estimates nor a guarantee of future performance. Actual performance will vary over time and may differ from the example illustrated.