FINANCIAL MATTERS

In such an instance, an estate equalization strategy could ensure that all three children are treated fairly. By taking out life insurance, the third child would receive a tax-free lump sum that would balance out the values of each inheritance, so the estate is shared fairly.

Using life insurance to maximize your estate

Some investors have more income and assets than they’ll need during their retirement years and are naturally keen on leaving a meaningful legacy for their loved ones and/or charities that they support. While many people assume that investments, real estate or business ownership can be the best ways to increase the value of their estate, all of these assets come with tax implications, both annually and when the time comes to pass them on to beneficiaries

However, a tax-saving strategy is to reposition excess assets that bring about an annual tax burden and use the proceeds to buy a life insurance policy. By moving surplus, taxable funds into an exempt permanent life insurance policy, you could:

* Reduce the amount of taxes you have to pay during your lifetime

* Reduce probate fees on the assets you leave in your will.

* Create a larger amount of taxfree money available to your beneficiaries when you die.

* Maximize the value of your estate

Accessing tax-free cash

As well as paying out a lump sum death benefit, some permanent life insurance policies grow in value on a tax-deferred basis the extra amount is called cash value. And, as a policy holder, you may be able to withdraw money from your insurance policy with minimal or zero tax consequences.

The maximum you can withdraw is the adjusted cost basis (ACB) of your policy. The ACB is the total amount of premiums paid, minus the net cost of insurance. Any amount that is withdrawn will reduce the amount paid out in the event of your death, if it’s not paid back into the policy.

The cash you withdraw from your policy is not taxable, so long as you don’t take out more than your policy’s ACB. This applies to individual policies and to insurance policies held by companies. If the death benefit is paid out in a lump sum, it would be tax free for your beneficiaries.

How to maximize the tax benefits of life insurance

As with any strategies related to maximizing the tax efficiency of your estate plan and overall financial plan, it’s essential to seek out expert advice. Speak your IG Wealth Advisor today, or if you have an advisor, reach out to Jacob today!

Written and published by IG Wealth Management as a general source of information only. Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice. Seek advice on your specific circumstances from an IG Wealth Management Consultant.

Jacob Gaudet is an Associate Consultant on the wealth advisory team Gaudet Group Private Wealth Management He helps clients get more out of their money, so they can get more out of life. Jacob specializes in six key areas: Investment, Retirement, Estate, Tax, and Insurance, and Mortgage Planning. With more than 60 years of combined experience, Gaudet Group Private Wealth Management is committed to making clients’ interests their top priority Do you have questions you’d like Jacob to Answer? Email him at jacob.gaudet@igpwm.ca or check out his website at GaudetGroup.ca!

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