iTips – Illustrated Tax & Insurance Planning Scenarios

Income continuity – There for your family, if you can’t be there yourself
Family is at the centre of our lives, whether that’s a party of two, or a full house. Of course, once children arrive, they quickly become the focus. We pick them up from scrapes and bruises, dry their tears and comfort them with hugs. But do we do enough to protect them from the greater harm they will suffer if we’re not there at all –?

Disability bridge fund – Maintenance money until you’re back on your feet
It is more likely for someone in their working years to suffer a disability than to die. The threat to income for oneself and family is compounded by the mental stress, time and cost to recuperate. Disability insurance replaces a portion of income – often as a tax-free payment over extended durations – to sustain a household and enable recovery.

Critical illness cash infusion – Fast finance for urgent medical response
Life can be random, including the potential of being hit by a life-threatening medical condition. It can stop you and those closest to you in your tracks, right when undivided attention, sound judgment and decisive action are needed. Critical illness insurance provides the monetary support and mental space for you to give it your best response.

Capital gains protector – Recovering the tax, to make investments whole
Long-term investors usually prefer less distributed income, so that they have more exposure to eventual capital gains. As that unrealized growth builds, they may plan to sell in stages to trigger only a portion of gains each year. But when the investor dies, the remaining investment is deemed to be sold, with a potentially hefty tax bill to follow.

Estate boost – Tax-sheltering to give more to your heirs
You’re great with money. In fact, it’s becoming ever clearer that – even with a prudently established buffer for the unexpected – you’ll be leaving something behind for those you care for. Still, you have to be conscious how taxes can erode the legacy you expect to provide, which is where a tax-exempt life insurance policy can play a central role.

Insured annuity – Income for life, with capital replenished to heirs
Whether by choice or circumstance, many people are most comfortable when investments produce consistent, guaranteed returns, like interest. Part of the trade-off here is a fixed return that is lower than potential market returns, plus full taxation. So, is there a way to produce tax-efficient higher guaranteed returns without increasing risk.

Cascading cash value – Intergenerational tax-sheltering
Parents who have built up sufficient wealth for themselves may next be looking for ways to transfer that wealth tax-efficiently to their children and grandchildren. One approach is to grow tax-sheltered value in a life insurance policy on a child or grandchild, then use a special insurance rule to roll that over to them tax-free.

Charitable giving – Elevated philanthropy, for both donor and charity
You support your favourite charity because you care. Sometimes you share their message, sometimes you volunteer, sometimes you donate – and sometimes you donate BIG. That’s what life insurance can do: More cash for the charity, more tax relief for you on your larger donations, and more impact on the causes you care about.

Insured retirement supplement – An extra source for later life spending flexibility
You’ve been a conscientious retirement saver, and still have surplus cash to invest. Traditional savings plans will provide you with a firm foundation, but you know that taxes will shrink your spendable cash. As a complement, permanent life insurance offers tax-sheltered growth that can be accessed using a non-taxable leverage loan.

Immediate financing arrangement – Leveraged insurance, portfolio deductibility
Experienced investors know the benefit of being fully invested, coupled with prudent diversification to insulate against market risks. But what if that could be complemented by earning income in a tax-exempt life insurance policy? A leveraged loan can access investment value to acquire such insurance and pave the way back into investment.

Key person coverage – Corporate dollar efficiency to preserve a business
Business is less about the accumulation of assets, than it is the knowledge and skill of the people who contribute to that growth. Early on, that may be the founder alone, then as time goes on, many individuals can be ‘key’. In a closely-held company, losing a key person can be both emotionally painful and a real risk of losing the business altogether.

Buy-sell funding – Assured funding for an untimely business transfer
A binding Shareholders’ Agreement can help business owners guide operations, and also address the sticky matter of how they may part ways, which can be especially contentious when a shareholder dies. However, if the bulk of their wealth is tied up in the business, all could be for naught … which is where life insurance can step in.

Estate freeze – Generational succession that puts tax on ice
Wouldn’t it feel great to tell tax collectors, “Hold on!”? That’s the effect when a founder reorganizes business corporations in a way that assures that the next generation will be able to take over … but not just yet. With an estate freeze, the tax bill on the transfer is frozen, with life insurance as the lynchpin that makes it all work.

Corporate estate boost – Tax-sheltered income, tax-free estate transfer
While corporate small business tax rates are in the 10-15% range, investment income may be subject to rates closer to 50%. In contrast to traditional investments, certain life insurance policies can grow tax-sheltered, pay out tax-free to a corporation/owner, then pass partially or fully tax-free to estate beneficiaries and/or surviving shareholders.

Corporate insured annuity – Limiting terminal tax on small business shares
Shareholders pay no tax on increasing value of corporate assets until shares are sold/disposed, or are deemed to be disposed such as on the shareholder’s own death. What if you could reposition assets for a guaranteed continuous cash flow, while taking their value out of that terminal tax calculation?

Corporate immediate financing – Leveraged insurance, business reinvestment
Successful business owners reinvest to fuel growth, with the ultimate goal being to harvest value into personal hands. But standing in the way is the hurdle of tax. Life insurance has long been a cost-effective way to overcome that challenge, and taking a step further it can help increase business value when combined with a leveraged loan.