Maximize Estate Value with Whole Life Insurance

Whole Life Insurance has long been a cornerstone of comprehensive estate planning, offering security and financial benefits beyond a simple death benefit. In Canada, however, it has recently become even more attractive due to changes in capital gains inclusion rates. By strategically using funds from non-registered, taxable accounts to purchase a whole life insurance policy, individuals can enhance their estate’s value and ensure a smoother transfer of wealth to their beneficiaries.

Whole life insurance provides a guaranteed death benefit, meaning their beneficiaries receive a predetermined sum upon the policyholder’s passing. This benefit is crucial for covering estate taxes, settling debts, and providing financial security for loved ones. Unlike Term Life Insurance, which only covers the insured for a specific period, whole life insurance covers the insured for their entire lifetime, provided premiums are paid. Additionally, whole-life policies accumulate cash value over time, offering a potential source of funds during the policyholder’s lifetime through policy loans or withdrawals.

A significant advantage of whole life insurance is its tax-free nature. When you use funds from a non-registered account—typically subject to taxes on interest, dividends, and capital gains—to purchase a whole life insurance policy, you effectively convert taxable assets into a tax-free benefit. This shift is particularly advantageous given Canada’s recent increase in capital gains inclusion rates, which means a more substantial portion of capital gains is now subject to taxation. Investing in whole life insurance protects a portion of your wealth from these higher taxes, ensuring more of your estate is preserved for your beneficiaries.

The increased capital gains inclusion rate, expected to rise to 66.67% on any capital gains above $250,000, means that two-thirds of the capital gains realized from investments in non-registered accounts are taxable. This change significantly impacts estate planning strategies. For instance, if an individual has substantial investments in stocks, mutual funds, or real estate within a non-registered account, the capital gains tax liability can be considerable upon liquidation or transfer. You can avoid this tax burden by reallocating these funds into a whole life insurance policy, as the death benefit from a whole life insurance policy is not subject to income tax.

In summary, whole life insurance is a powerful tool for protecting and enhancing your estate. By purchasing a policy with funds from non-registered, taxable accounts, you convert taxable assets into a tax-free benefit.

This strategy is particularly beneficial in the current Canadian tax landscape, where increased capital gains inclusion rates can significantly diminish the value of your estate. Whole life insurance ensures a guaranteed, tax-free payout to your beneficiaries and offers the stability and predictability crucial for effective estate planning. As such, it represents a prudent and advantageous approach to preserving and transferring wealth across generations.

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John Iaconetti
Financial Advisor

Assante Capital Management Ltd.

The opinions expressed are those of the author and not necessarily those of Assante Capital Management Ltd. This material is provided for general information and the opinions expressed and information provided herein are subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to itsaccuracy or completeness. Before acting on the information presented, please seek professional financial advice based on your personal circumstances. Assante Capital Management Ltd. is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization. Insurance products and services are provided through Assante Estate and Insurance Services Inc.

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