As an individual or entrepreneur you have worked long and hard to accumulate assets, investments and possessions. However, the accumulation of wealth brings its own set of problems, among them are larger income tax bills and the uncertainty of the treatment of wealth transfers upon death. We often don’t like to talk about death but the reality is that plans to preserve your legacy has to happen while you are capable of doing so.

Taxes are payable on death as the CRA dictates that a deemed disposition of assets has occurred. Accordingly, a tax liability may arise because of this fact. The use of life insurance to provide funds on death is an excellent plan to avoid having to liquidate family assets to pay this debt as insurance proceeds are made available very shortly after death.

Another method of avoiding excessive tax bills upon death is the utilization of charitable life insurance. A life policy can be taken out that names an individual’s favourite charity as beneficiary. This results in the deceased individual receiving a large charitable receipt which can be used to defray taxes and also avoids using estate (and family) funds to provide for the charity.

An excellent way of transferring wealth from one generation to another is, again, using life insurance. Life insurance can transfer wealth from one generation to the next on a tax advantaged basis. To make sure the children aren’t stuck with paying premiums after one dies the policy owner can purchase an annuity lasting the entire length of the life policy with payouts that cover the annual premium amounts.

The key to preserving wealth involves extensive analysis that includes determining your desired future, committing to a plan that builds a solid wealth base and has features that will protect the assets from loss or erosion. Life insurance will provide these attributes. Bottom line, don’t wait until it is too late to put effective plans into effect. Consult with your advisor to determine what is best for you.

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