Big Brothers Can be a Pain
One night when my mother was out, my older brother was taking care of me. I was about 8 years old and he was about 15. After bed time I was drifting off to sleep when I faintly heard his voice demanding my presence: "Mark! Come here!... Mark! Get out here!... Mark! Come here!"
I rubbed my eyes a bit, and made my way sleepily in to the living room, where he was lounging on the couch, watching TV. It was well before remote controls, and a couple of years before "The Clapper" had been invented. He looked at me with a smirk on his face, and ordered: "Turn the channel."
At first I rebuffed his obnoxious request. "You're a mud-sucking pig," I said, turning my back and walking away.
"Do it! If you make me get up, I'll smack you in the head." I knew he meant it, and so I complied.
You don't mess with big brothers.
Speaking of Big Brothers you shouldn't mess with, taxation may be your estate's worst enemy.
For some, death triggers the largest tax bill their assets will ever encounter. Even before death, tax reduces growth on assets which are kept in assessable investments. But there is an alternative, especially if you have more than you will need to retire on. You can invest the funds using a wealth transfer strategy, which will allow you to maximize your savings, and provide a larger tax-free benefit for your heirs.
One alternative to traditional investments offers the following:
A large, immediate, tax-free estate
A wide range of investment choices
Tax-deferred growth of investment earnings
A tax-free maturity value at death
Reduced estate settlement costs if a beneficiary is named
Potential for creditor protection if a beneficiary is named
How it works
Instead of putting your non-registered savings in taxable investments like mutual funds, GICs or
other investments exposed to income, dividend or capital gains taxes, you can invest these excess savings in a tax-exempt life insurance policy. Since the policy is essentially a pool of tax-paid capital, it pays out tax-free in due course.
Individuals who are disciplined savers often meet their retirement objectives through the money
invested in their pension program and RRSPs. However, many people also accumulate funds in a
non-registered investment portfolio. Although these extra assets often provide financial security and peace of mind, they may not be effective vehicles to transfer wealth to beneficiaries after death.
The investments within the tax-exempt life insurance policy grow tax-deferred as long as you
leave them in the policy. This means you don't lose your investment earnings to taxes as you might have had you kept them in taxable investments.
The policy provides an immediate estate value as well as tax-sheltered growth on the
cash value accumulating within the policy. At death, the proceeds are transferred
outside of your Will, avoiding probate fees, if applicable, and paid tax-free to your heirs.
By taking advantage of the wealth transfer strategy, you move your savings from a tax-exposed
environment to a tax-sheltered environment, maximizing the amount to be passed to your heirs at death.
Who should consider this solution?
This solution is ideally suited for those who are close to retirement or already retired and are looking for ways to shelter substantial non-retirement savings from taxation. In other words, this is especially effective people who don't expect to spend it all before they die.
Mark Ryan is an advisor with RBC Wealth Management, Dominion Securities (member CIPF) and can be reached at 250-960-4927 or [email protected].
