Preserve your legacy

BY David Wm. Brown

Many people spend countless hours worrying about debts, mortgages and, should they die, the ability of their dependents to generate income.

With enough money, you can set aside these worries, confident in what you’ve built.

However, wealth brings its own set of problems, among them large tax bills and uncertain asset transfer upon death. With a little care now, you can make sure your legacy is preserved.

1. Let your life insurance pay your taxes.

Making the most of your income means a lot of tax planning, much of which involves tax deferral. These taxes are ultimately paid upon your death or that of your spouse.

Since life insurance proceeds are also payable on death, they provide funds to pay those taxes, saving your dependents from having to liquidate any assets.

If you have a spousal rollover plan, where your assets are gifted to your spouse at death, then your insurance should be payable only once you have both passed away. This ensures those deferred taxes aren’t a burden on your dependents.

2. Help a charity, help yourself.

Charitable life insurance can fund a bequest, triggering a large charitable tax receipt when the time comes, reducing that tax burden.

You can enact a life insurance policy naming a charitable organization you care about as beneficiary. The proceeds from the insurance contract, rather than money from your estate, will pay for the charitable bequest.

3. Insure children to ensure wealth transfer.

With grandchildren, life insurance can transfer wealth from one generation to the next on a tax-advantaged basis. Insuring children, who are parents, as the beneficiaries is a common way to transfer wealth efficiently and effectively through the generations.

To make sure the children aren’t stuck paying premiums, you’ll use a life insurance plan that lets you to pay premiums up to a certain date (such as your 70th birthday), or for a limited amount of time (such as the next ten years).

Alternatively, you can purchase an annuity lasting the entire length of your life insurance policy with payout amounts that cover the premiums.

4. Use life insurance for retirement planning.

The tax-exempt accumulation of cash in a life insurance policy can function like an RRSP on steroids. When you retire, you can access the funds through a collateral assignment of the policy to a lending institution for a tax-free loan to supplement retirement needs.

With the right plans in place, you can leave the worrying behind; knowing that your legacy will be preserved and your dependents won’t be burdened.