Transferring Wealth Efficiently
Estate planning needs expertise to ensure its planned efficiently and effectively.
Estate planning
Estate planning is a financial strategy we use to improve estate inheritance while also offering the possible benefits of permanent life insurance.
To carry out this strategy, the permanent life insurance policy payments are maximized for the insured person's life. Instead of purchasing unregistered fixed-income securities, the policyholder prefers payments to the insurance policy. The returns generated on the payments made to the policy and the surrender value accumulate tax-free for the duration of the insured person's life.
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At the time of the insured person's death, the death benefit, improved by the surplus contributions to the permanent life insurance policy, is paid out to the named beneficiaries tax-free.
Intergenerational wealth transfers (Cascade)
Some clients benefit from a desirable situation and wish to provide a solid financial future for their children or grandchildren. Our intergenerational wealth transfer strategy provides them with a way to do this tax-efficiently:
● A parent or grandparent purchases participating life insurance (such as an iA PAR) or any other permanent life insurance product that has a surrender value for their children or grandchildren.
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● To free the policy from payment, the subscriber will pay the premiums in 10 or 20 years. The subscriber may also make excess premium contributions, creating a tax-free surrender value over the years.
● When the child or grandchild reaches adulthood, the parent or one of the grandparents can assign ownership of the full paid-up life insurance policy to that person. Under subsection 148(8) of the Income Tax Act (ITA), this transfer will have no tax consequences.
● The child or grandchild may also benefit from the surrender value accumulated in the life insurance policy to undertake certain expenses or benefits from later growth.
Financing of share redemption
Life insurance is a great way to finance a shareholder agreement in the event of the death or invalidity of a shareholder of a business corporation or company. The company takes out insurance policies on behalf of the shareholders and is named their beneficiary. At the time of a loss, the amounts paid to the company serve to redeem the shares of the disabled or deceased shareholder.
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If the shares are held by more than one person when a business corporation is established, it is recommended the shareholders sign an agreement. This agreement is a contract that will establish the general by-laws, the structure and operation of the company, the nature of the relations among the shareholders and their commitments to the company.
The agreement provides for specific actions to be taken in different circumstances to avoid disagreements among the shareholders (for example, if a shareholder desires to sell their share of the business, declares personal bankruptcy, dies, becomes ill, etc.).
Insurance as an asset class
When an estate has a need for it, insurance can sometimes be used as an investment or as a separate asset class in some cases. The policy's implied after-tax rate of return depends on several factors, such as the premiums payable, underlying investments, management fees, the possibility of use of capital dividend accounts, etc.
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In many cases, the after-tax rate of return will be excellent, even after the client's life expectancy. It must then be considered whether it would be possible to obtain an equivalent pre-tax gross rate of return excluding the policy. Because the date of the client's death is unknown, it is essential to establish a strategy in the event of premature death. Life insurance can also be added to the prudent portion of a diversified portfolio.
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At Paslawski Capital Management, we believe the power of knowledge, skill and experience is what makes a successful business. That's why we've partnered with PPI. PPI's highly credentialed team of accountants, lawyers and actuaries can collaborate with our client's advisors in a research and support role. They offer advanced tax and estate planning, in-depth knowledge and experience, and customized solutions for complex client needs that demand sophisticated planning and strategies.