Life Insurance: Three Things You Haven’t Considered
No one likes to think about the worst-case scenario (well maybe a few out there are more inclined to see the glass half empty, but we digress…). Leaving your family ill-prepared for the time when you pass on isn’t an easy a situation to envision, let alone thoroughly think about or plan for.
There are many reasons why families of significant means might consider forgoing a robust life insurance plan. Some may believe it’s not needed, thinking they have enough money to cover their family’s financial needs after their death without it. Others may simply not view it as a promising investment or necessary spend. So why would a high net worth individual or family purchase life insurance?
Every family’s situation is unique and individual circumstances are always different – and should be treated as such; however, there are three general reasons that we suggest you consider, when deciding whether to purchase life insurance.
Taxes at death
When you or a loved one dies, legal representatives file a final tax return to the Canada Revenue Agency (CRA), including taxes owed and taxes on the gain in the value of assets (car, cottage, etc.) transferred. This means that for certain high-net worth families the final total can be significant. Life insurance proceeds can give your family the necessary liquidity to pay the amount owed.
This is also useful when it comes to family businesses. The availability of this liquidity means that a family is not required to sell assets such as a private company, or real estate, in order to generate the liquidity needed to pay the taxes owed.
By naming a charitable organization as the beneficiary of a life insurance plan, you can ensure that your money makes a difference even after your death. Upon death, it will be transferred to the beneficial charity. This procedure also means that your estate would receive a tax credit based on the amount of your donation. There are many life insurance strategies that can allow you to give generously and minimize the after-tax cost.
While questions of fairness in estate distribution can be complicated and lengthy at the best of times, life insurance can help with the process of estate equalization. Life insurance can play a significant role when trying to find balance during the distribution of liquid and non-liquid assets.
Whether you chose to purchase life insurance or not remains a very personal matter. At Richter Family Office, we understand that estate planning and the writing of your will go beyond who receives what, and when. We know that these are difficult conversations to have, because each family is unique and that presents several challenges to overcome. As independent advisors, we do not sell insurance in-house, but rather we advise on what unique strategy is right for you and your situation. We always apply an after-tax perspective to strategies before investments are made; and certain opportunities such as life insurance can assist in not only protecting your family upon your death, but also protecting your wealth to ensure the maximum amount is passed on to family members or causes close to your heart, after you are gone. To help you on this journey, our experts are here to lend an ear and offer professional advice to help you choose the right solution for you and your family.
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