It’s safe to say that most people would rather leave a legacy from their hard-earned money to the loved ones and organizations they care about—a spouse or partner, children, grandchildren, or a charity—than pay more than their fair share of taxes.

Many Canadians who progress through their working years towards retirement can accumulate sizable assets. While the government has introduced programs such as RRSPs to defer taxes while living, eventually the estate will have to pay taxes on some of those assets. Many people realize there’s a financial cost to their estate when they die, but don’t often realize how significant it could be.

Without a plan, taxes can take a big chunk out of their assets.

Challenges to leaving a lasting legacy

Start a conversation with your clients by asking them if they’ve considered their legacy, in particular, who or what will receive their assets. Explain the 2 primary challenges they may not have considered and will face when they begin their estate planning:

  1. Taxes owing at death

    When clients die, the Canada Revenue Agency (CRA) considers their assets to be disposed of for their fair market value. The estate may owe taxes on this value, and the result may be that the beneficiaries may receive much less than the clients intended.



    The reality

    The reality

  2. Funding the tax liability

    Some clients want to ensure the full value of their estate is protected and transferred intact to their beneficiaries when they die. They want to know what the tax liability may be and a cost-effective way to pay it.

    The Asset Protection Plan (APP) strategy with participating whole life insurance could provide clients with a solution for both.

How the Asset Protection Plan works

The APP shows the size of the estate tax liability and how a life insurance policy can be a cost-effective way to cover taxes owing at death. Your clients can pass assets to their beneficiaries intact.

At the date of death or death of the last spouse, the fair market value of clients’ registered assets will be fully taxable. In addition, 50% of the capital gain of their non-registered assets will be taxable. For clients with sizable assets, this could mean a substantial tax liability to the estate. The APP can help preserve the full value of these assets and shows how life insurance can be the most cost-effective method of funding a tax liability at death.

With this strategy, clients purchase a life insurance policy to provide their beneficiaries with a tax-free death benefit. The beneficiaries can then use the death benefit to pay the tax liabilities of the estate, and as a result, they can inherit the assets intact.

The objective is met.

The objective is met. The taxes payable by the estate are equal to the life insurance death benefit payable to the beneficiary. The full value of the estate is preserved for the beneficiary.

Life insurance premiums often cost less than paying for the tax liability using cash, selling assets, or borrowing funds.

Why would participating whole life insurance be good for your clients?

Several forms of life insurance are possible with the APP strategy, including term insurance, universal life insurance, and limited-payment whole life insurance. This article focuses on the power participating whole life insurance can offer clients.

Guarantees – provides guaranteed cash values that grow over the life of the contract

Stable growth – combining a long-term investment strategy, a large, well established participating account, and a prudent management philosophy contributes to strong, stable returns for policyholders

Low maintenance – policyholders don’t have to choose and manage investments within the policy. The Sun Life Participating Account, for example, is managed by a team of dedicated investment professionals

Diversification opportunities – clients can diversify their asset base through dividends credited to their policy from the participating account consisting of a diversified mix of bonds, real estate, equities, and mortgages

Vesting of dividends – once a dividend is paid to the policyholder, it can’t be taken away, unless directed by them, helping reduce cash value variability and adding stability to the long-term values in the policy.

Check your client base to see if you have clients who have some of the following characteristics:

  • are between the ages of 50 and 70
  • have assets with significant deferred tax liabilities
  • want a cost-effective way for their beneficiaries to pay estate taxes
  • have paid-off all or most of their debt
  • wish to leave a legacy.

If they fit this profile, consider discussing APP as an effective tool for them to reduce the impact of taxes and leave a lasting legacy. Learn more about the Asset Protection Plan and use the fact sheet, case study, client report, and advisor seminar to help explain the benefits of the APP to your clients.

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