Your Asset Protection Plan To Freeze Out Revenue Canada

Are You Prepared for Retirement – but not for Terminal Taxes And Revenue Canada?

You may be amazed at how much your assets will continue to grow after retirement – and how much tax your estate will owe when it's finally passed on to your family. The good news is you can fund these taxes using tax-exempt life insurance.

Take John and Mary, both aged 55. As well as their principal residence, they have combined assets over $1million — including RRSPs ($500,000), mutual funds ($200,000), an investment property ($200,000) and a beloved family cottage ($250,000). When they retire at 65, they plan to convert their RRSPs to RRIFs on a minimum annual payment basis.

But they also want to leave a substantial estate to their three children, and they know estate taxes could eat up to 50% of their registered assets and 25% of their non-registered capital gains. To pay these taxes, their children may need to sell assets (maybe even the cottage) and receive far less than planned.

The actual figures surprised even John and Mary. By age 85, the value of their RRSPs could reach over $1.36 million and their mutual funds and cottage $2.8 million – for total tax liability of $1.5 million!

If their children must sell assets to pay this tax, the 5% selling cost could mean a total payout over $1.5 million. If they borrow it's even worse, with loan interest of 8.0% for 10 years creating a total cost of over $2.4 million.

So instead, John and Mary began a program that will minimize this tax burden with the Asset Protection Plan strategy using tax-exempt universal life insurance.

Starting now, John and Mary deposit $12,015 each year to a $1 million joint-second-to-die Universal Life policy. These funds grow tax-deferred inside the policy, significantly increasing the policy death benefit. On the death of the second spouse (assumed to be 85), the death benefits (face amount plus fund value) are paid tax-free to the estate. With a 6% rate of return, this will have grown to $1,491,477 – enough to pay the tax liability and leave the full value of the rest of the estate (including the cottage) for the children.

The cost of this insurance is less than the tax itself, and much less than selling. Assuming they invested the premiums at a return of 7% before tax, their investment could have grown to only $768,820, about half of what they need to pay the tax bill.

Therefore, the Asset Protection Plan using tax exempt insurance is an innovative solution for wealth accumulation, estate planning and capital preservation.