The Estate Bond is a financial planning strategy designed to increase the size of anyone’s estate by moving surplus funds exposed to tax into a tax-deferred life insurance policy.
Why does it work?
- Provide life insurance protection that increases the size of a client’s estate today, and in the future.
- Opportunity to create cash value that grows on a tax-deferred basis, that may increase the insurance benefits payable at death
- Reduces the amount of tax-payable while living
- May help reduce estate settlement costs
- May offer protection from creditors
How does it work?
When purchases an exempt life insurance policy in your life and designates an individual or a charitable organization as the beneficiary of the life insurance policy. At the time of the client’s death, the life insurance proceeds are paid to the client’s beneficiary, tax-free.
Who is it for?
- Individual, Canadian-resident taxpayer
- In good health
- Age 45 years and older
- Strong desire to leave a legacy at death
- Affluent, with surplus funds available to invest
- Receptive to long-term planning strategies
In this example, the client is a 60-year-old female, non-smoker. She wants to leave a legacy for her children when she dies. She plans to invest $30,000 for the next 10 years in a life insurance policy. Her personal tax rate is 45%.
By starting with a $750,000 initial death benefit, and assuming a minimum guaranteed rate of return of 1.50%, here’s how the Estate Bond strategy can increase the size of the gift she’ll leave her children.
|Personal Information||Female, age 60, non-smoker|
|InnoVision rate of return||1.50%|
|Initial death benefit||$750,000|
|Deposits||$30,000 per year for 10 years|
|Personal tax rate||45%|
|Before tax investment rate for alternative investments||4%|
|After tax investment rate for alternative investment||2.20%|
|Accumulated value ($)||Before tax redemption value ($)||Net estate value ($)||Year||Annual interest ($)||Tax payable ($)||Net Estate value ($)|