Would you like your family to get more and the government less?

If the answer is yes, you might want to consider an Estate Maximization program.

Most financial plans have an element of permanent savings and a capital base that is never intended to be spent; these investments are intended for your heirs. Unfortunately, this strategy is based on the investment's rate of return, and the higher the return, the more tax you end up paying.

To avoid paying tax on the income earned from your savings, you might want to think about an approach known as Estate Maximization. This attractive alternative to taxable investment uses life insurance to maximize the after-tax value of your permanent savings for the benefit of future generations. It makes use of the strengths of permanent life insurance through:

• Creation of a large, immediate estate value
• Tax-free benefit at death
• Tax-sheltered growth of cash value
• Reduced estate settlement costs if a beneficiary other than the estate is named
• Creditor protection if an appropriate beneficiary designation is made

Instead of exposing your savings to annual taxation, thus reducing what is available to your heirs, this concept repositions your savings within a life insurance policy. The policy provides an immediate estate value as well as tax-sheltered growth on the cash value accumulating within the policy.

At your death, the proceeds of the policy are paid tax-free to your heirs. By taking advantage of this concept, you have moved your savings dollars from a tax-exposed to a tax-sheltered environment, maximizing the amount to be passed to your heirs.

Case Study

Robert is 62 years old and recently retired. His wife, Lisa, is 58 years old and will have a pension of approximately $35,000 per year. Their total combined assets (RRSP & investments) are approximately $1,600,000. They are both non-smokers. They have two children and are interested in leaving some money to charity.

Robert and Lisa find that they have more than enough from their pensions and government benefits for their annual bills. The income generated by their investments and pensions exceeds their spending needs by approximately $50,000 a year. This is causing their tax bill to increase each year and is starting to affect Robert's Old Age Security (OAS).

They would like to leave an estate to their children and to charity.

Our recommendation

We suggest that they think about an Estate Maximization Strategy.

If they invest $50,000 a year from their open savings and purchase a Joint-Last-To-Die Insurance Policy with RBC Insurance, they will be provided with coverage of over $1,000,000, plus accumulation as they deposit more money, and the investments within the policy will grow on a tax-sheltered basis.

The accumulation amount will be invested at a fixed interest at an assumed rate of 5 percent per year.

Results

They will divert $50,000 per year from their savings into an Estate Maximization Strategy.

They will have decreased their annual tax bill, protecting Sam's OAS.

They will have increased their total estate by $1,000,000 tax free (and growing) to their children and grandchildren.

They can spend the rest of their savings without guilt, as they know their children and grandchildren will be provided for with the Estate Maximization Strategy.

If we assume that they continue this program for 25 years, and then both pass away, their beneficiaries would receive $1,173,987 tax-free for a total cost of only $200,000 and have reduced their tax bill for the last 25 years. **

If you would like more information on how an Estate Maximization Strategy may help you, please contact your Investment Planning Counsel of Canada advisor.

** This example is for illustration purposes only; please consult a professional based on your situation before making a decision. Rates of return are not guaranteed.