Diamond

Case Study

Life insurance is not always a popular topic of discussion with clients.  Nobody enjoys talking about dying, however, having this discussion could lead to some significant tax savings for incorporated business owners.  We recently finished working on a business owner’s estate plan which would leave as much as possible to her 2 adult children.

In her early 60’s and having just sold her business, this individual held a large amount of cash inside her holding corporation.   Taking into consideration her lifestyle needs and goals, we completed a financial plan.  We found she could easily afford to purchase life insurance inside her corporation while still having more than enough cash flow to maintain her standard of living. We suggested purchasing life insurance inside of a corporation because it is one of the best ways to get money out of your corporation tax-free.  Unfortunately, there’s a catch: you need to pass away to take advantage of this strategy. Setting aside the fact you’ll never see the benefits of this approach, implementing it could save your surviving shareholders (your children, for example) from a large tax bill.

Using the life insurance policy as an investment, any income your policy produces is tax sheltered.  If you retain your policy until you pass away then, potentially, all of the investments and the death benefit can be paid out to the surviving shareholders on a tax free basis.  You’ve essentially converted potential capital gains and taxable dividends into a tax-free benefit.  This strategy has many other components which are beyond the scope of this article.

This is why it is important to receive professional advice from your financial planner and accountant before implementing. After having done all of the due diligence, we found this strategy made perfect sense for this individual.  She is now investing the money she won’t need in retirement inside a life insurance policy which is growing tax free and will be paid out tax free to her 2 adult children when she passes away.

 

 

Disclaimer:

This case study is for illustrative purposes only and should not be relied upon as governing your specific facts and circumstances. As it relates to any insurance case studies, all policy terms, conditions, limits and exclusions are subject to individual underwriting review and are subject to change. These cases are not to be taken as personal advice and are intended to provide general information only. They do not take into account your individual needs, objectives or personal circumstances. You should assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision. Past performance is no indication of future performance. The product descriptions, if any, provided in this case study, are not intended to constitute offers to sell or solicitations in connection with any products or services. Some products may not be available in all jurisdictions. Anyone interested in a particular product should contact Harbourfront Estate Planning Services Inc. (HEPSI) an affiliate of Harbourfront Wealth Management Inc. to determine whether the product is available in their jurisdiction and to request a copy of the applicable policy or prospectus for a complete description of the product. Financial calculations provided are for illustrative purposes only. You are responsible for verifying the accuracy and suitability of all assumptions and calculations. Please seek the advice of licensed and/or competent individuals before making any investment or financial planning decisions

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