Life Insurance – Page 14 – Adviceon Library

Can life insurance solve tax liabilities in my estate?

There are many ways to reduce your estate liabilities. You work hard to earn a living, save for retirement, and own property. It is important to know what your estate liabilities are in relation to: capital gains, mortgage debt, car loans, unpaid taxes, and business-related liabilities. Consider reducing these liabilities:

Reduce the impact of income taxes. Here are some methods to reduce taxes due upon your death:

Use the spousal (and disabled child) rollover provisions of RRSPs or RRIFs.
Leave assets that have accrued capital gains to your spouse to defer tax.
Leave assets without capital gains to other (non-spouse) family members.
While you are alive, gradually sell assets having capital gains, to avoid dealing with the gains all at once in your estate.
Purchase life insurance to cover capital gains taxation in the estate.
Taxes may be payable on gains in relation to:
º income-producing real estate, a second residence, or cottage.
º any other assets left to surviving family members, such as shares of a business.
Consider charitable donations to lessen taxes in the estate.

Reduce probate fees. Probate fees will be based on the value of assets administered through your will. Here are some ways to reduce probate fees:

Establish a spousal trust during your lifetime to hold assets or property for the sole use of your spouse.
Own assets jointly with your spouse.
Distribute assets or cash while alive.
Name a beneficiary (not the estate) on life insurance policies.
Include an alternate beneficiary on your life insurance policies in case your initial beneficiary predeceases you, or dies simultaneously (that way, probate fees will be avoided on the proceeds).

Why is inflation a risk to my retirement income?

Statistics Canada releases inflation figures regularly to determine the health of the Canadian economy. Increasing inflation indicates that the economy’s overall prices are rising. On the upside, this means there is good economic growth pushing these numbers higher. Some inflation is necessary to a vigorous economy. Fast increases in the index percentile can spark the Bank of Canada to raise our interest rates to keep the costs of goods and services in check.

When you go to the pumps or to the grocery store, ask yourself, “will my retirement investment portfolio create sufficient income to pay for all these rising expenses?” Only by accumulating assets in your pre-retirement years, will you be able to increase your net worth, which can lead you to financial independence. The cost of our basic retirement needs will increase.

Investing to beat Inflation is a constant battle.

The importance of the economic fact of inflation may not be obvious. “What does the fish know about the water in which it swims?” asked Albert Einstein. Over the years, inflation has radically reduced our buying power. Interest rates when increasing as a policy to combat (reduce) inflation can also increase our debt repayment load as a percentage of income putting a strain on our budgets. In this respect, both inflation and interest on the debt are the foremost enemies of wealth creation.

How inflation is calculated Canada’s national statistics are weighted to reveal increases for the basket of goods and services in the Consumer Price Index (CPI).¹ Consumer spending patterns for 12 months up to October 2021, can be seen by visiting Statistics Canada.

Three of the eight major components saw unprecedented growth in their basket weights, the statistics agency said, led by shelter representing soaring house prices during the pandemic–the highest-weighted major component, which grew to 30% as a share of the basket. The share of the household operations, furnishings and equipment component grew to 15.21% and alcoholic beverages, tobacco products and recreational cannabis went up 4.86%. The Bank of Canada targets overall weighted inflation at 2%, with a 1%-3% control range. ²

You can get ahead of inflation now by investing. A healthy investment fund portfolio can give you a sense of financial security, earned by continued discipline and adherence to the principle of saving, which adds to our sense of personal dignity.

Saving on a month to month basis while purchasing investment fund units can help you realize your goals and objectives in life (such as acquiring a home, making major purchases, travelling, putting children through college or university, or going back to school yourself). Finally, your investments must outpace inflation—the rising cost of goods and services—the investor’s worst future enemy. Ask your financial specialist to do a complete analysis of your retirement income potential.

^{1 StatsCan}

^{2 Reuters}

Does your business need an Estate Freeze?

If your business assets possess the potential for significant capital gains, and you have children who might take over the company, an estate freeze may be worthwhile considering. An estate plan can assess the fair market value of an estate and the potential tax on the capital gains that will be due.

The company’s value can be reasonably pre-established with your input, as opposed to your executors and lawyers negotiating with Canada Revenue Agency (CRA) after your death. Ask your tax accountant how an estate freeze would affect your business and if this is the most viable option to consider when transferring or selling your business to your heirs.

Estate planning will help you determine who will be the beneficiaries of your estate, who will take over the company, or if you should sell your assets currently.

An estate freeze or a partial freeze is a way to transfer all or a portion of the new growth in the value of the company to the new owner-heirs. You exchange all or a portion of your existing equity for a class of non-growth voting preferred shares. These preferred shares allow for a fixed income in retirement and the maintenance of future control, enabling a fall-back contingency for the freezor to assume a takeover (to save the company from poor management by the new heirs or to sell the company etc.).

Due to the technical complexity of an estate freeze, and potential changes to tax legislation professionals must be consulted when considering this option.

Estate freezes coupled with the intelligent use of life insurance can help reduce the effect of a massive tax-bite on your estate. Such planning can also free up capital for retirement because life insurance can pay the tax bill versus using any money saved for retirement.

What are my Retirement Income Options?

Retirement Income Options are strategies that provide you with a retirement income paycheque from the funds saved during your working years.

Registered Retirement Income Funds The most common retirement income option is a retirement income fund (RRIF). It is like a registered retirement savings plan (RRSP) in reverse. It has the same tax-deferred growth, flexibility and choices you had in your RRSP, with the added benefit of being able to withdraw a retirement income and have the flexibility to determine the amount of income you withdraw each year (where a minimum annual amount is determined by a federal government schedule).

When you need to begin receiving income, or at the latest by December 31st of the year you turn 71, you must convert your RRSP to a RRIF. A RRIF is designed to provide you with income while keeping the assets retained in your RIFF tax-deferred.

What are the types of Locked-in Retirement Savings Plans (LRSPs)? Locked-in RSPs originate from Registered Pension Plans (RPPs) which are plans where funds are set aside by an employer, and/or employee, to provide a pension when the employee retires.

If you are a member of a fully vested Registered Pension Plan (RPP), once employment is terminated, the proceeds of your RPP will be considered ‘locked-in’ and must be transferred into certain ‘Locked-in Plans’ which include the following Locked-in RSPs and Locked-in Retirement Income Options:

LIRAs and LRSPs Locked-in Retirement Accounts (LIRAs) and Locked-in RSPs (LRSPs) are registered retirement savings plans which are established by the transfer of locked-in pension fund assets from a Registered Pension Plan (RPP) or another locked-in retirement savings or income plan (such as a LIRA, LRSP, Life Income Fund (LIF), Prescribed Retirement Income Fund (PRIF) or Locked-in Retirement Income Fund (LRIF).

Tax on the interest you earn in these plans is deferred until you withdraw the funds, and are only accessible prior to retirement age under certain conditions. Upon reaching retirement age (most are at 55), you can transfer the plan to one or more eligible Retirement Income Options available for a regular RSP.

LIRAs and LRSPs must be converted to a Retirement Income Option such as an Life Income Fund (LIF), Locked-in Retirement Income Fund (LRIF), or a Prescribed Retirement Income Fund (PRIF) before December 31st of the year you turn 71.

Life Income Funds (LIFs) Life income funds are purchased with a Locked-in RRSP (LRSP). You are required to roll over your LRSP assets into an annuity (Life Annuity in some provinces) or a Life Income Fund (LIF) by the end of the year you turn 71. You will have the ability to withdraw an income and you maintain the flexibility and choices you need within prescribed limits similar to a registered retirement income fund (RRIF). However, the minimum and maximum withdrawal schedule for a LIF is calculated differently and changes each year.
Locked-in Retirement Income Funds (LRIFs) Locked-in Retirement Income Funds are purchased with a Registered Pension Plan (RPP) or a Locked-in Retirement Account (LIRA).

A LRIF is different from a Life Income Fund (LIF). The maximum payments are based on the investment returns, not your age or current interest rates. And there is no requirement to purchase an annuity at age 80. LRIFs are only available in certain provinces.

How can I avoid Financial Internet Scams?

Online Identity theft is any Internet fraud that results in acquiring your data, such as unique Logins and Passwords, usernames, banking information, or credit card numbers. Moreover, it is theft of your financial identity!

How to avoid donation scams Be on guard if you receive an unsolicited email message from a charitable organization asking for money concerning a news event such as a natural disaster, a national election, or a significant change in the world financial system. Don’t open any attachments or click any links. Manually type the charity’s web address into your browser’s address bar and make sure the request is legitimate before donating.
Phoney links in email If you see a link in a suspicious email message, don’t click on it. These links might also lead you to .exe files, known to spread malicious software on your computer.
Fake Alerts and Threats Some thieves use threats that your Hotmail, Google, Facebook or bank account will be closed if you don’t respond to an email message? Internet criminals often use threats that your security has been compromised.
Spoofing popular websites or companies Scam artists use graphics in email that appear to be connected to legitimate websites like Facebook or your bank. How do they achieve this? Using fake logos to request your Login and Password, you are directed to phoney scam sites or legitimate-looking pop-up windows to ask for your financial information.
Fake web addresses Internet criminals also use slightly altered web addresses that resemble the names of well-known companies.
Lies about your computer software Internet criminals might call you on the phone and offer to help solve your unknown computer problems warning of viruses or speed-slow downs. They might try to sell you a software license or an agreement to assist you periodically. In most cases, neither Microsoft nor Apple make unsolicited phone calls to charge you for computer security or software fixes.

Source: Microsoft

Designating your charitable contributions

A charitable contribution is a gift, and, like any gift, is an irrevocable transfer of a donor’s entire interest in the donated cash or property. Hence the donor’s entire interest in the donated property is transferred, and it is for the most part (except for “designated” uses) impossible for the donor to recover the donated property.

Undesignated contributions Most charitable contributions are undesignated, meaning that the donor does not specify how the contribution is to be spent. An example would be a church member’s weekly contributions to a church’s general fund or a contribution to the United Way or World Vision. Undesignated contributions are unconditional gifts and there is absolutely no legal obligation to return undesignated contributions to a donor under any circumstances.

Designated contributions A donor can make a “designated” contribution to a charity, where the donor designates how the contribution is to be spent. Where such contributions are held in trust for a specific purpose, and insofar as the charity honors the designation, or plans to do so in the foreseeable future, it has no legal obligation to return a donor’s designated contribution.

Where designated contributions will not be used for the specified project, and donors can be identified, they should be asked if they want their contributions returned or retained by the charity and used for some other purpose. Ideally, donors should communicate their decision in writing to avoid any misunderstandings. Charities must provide donors with this option in order to avoid violating their legal duty to use “trust funds” only for the purposes specified.

A charity should send a letter to donors who request a refund of a prior designated contribution informing them that (1) there may be tax consequences, (2) they may want to consider filing an amended tax return to remove any claimed deduction, and (3) they should discuss the options with their tax advisor. Charities should consult with an tax attorney when deciding how to dispose of designated funds if the specified purpose has been abandoned or is no longer feasible.

What should I do when a family member dies?

When a family member dies, take these actions immediately.

1. Ascertain who will make the decisions. Where there is a will, the responsibility goes to the named executor who normally consults with the family. If declined, responsibility passes to the alternate executor (where one
is appointed). If there is no will, a mentally competent surviving spouse (or a relative, or friend), may make funeral arrangements, unless he or she is unwilling to take the legal or financial responsibility.

2. Check safety deposit boxes. Call his or her lawyer to access the will and/or any other document stating wishes regarding the funeral, service, or cemetery.

3. Notify any burial or memorial society to which the deceased belonged.

4. Where no funeral arrangements have been made, choose and call a funeral home and make funeral arrangements. Note: It is preferable to plan in advance to avoid the potential of increasing these expenses due to sensitive emotions which may later cloud a decision process. There may be life insurance proceeds associated with pre-funding final expenses. Thus it is important to check for mention of all life insurance policies in the will or an appendix to the will (the executor will need to take this responsibility).

5. Contact a religious leader and/or wise friend for spiritual support. Assess who will deliver the eulogy.

6. Buy a cemetery plot or cremation service if not pre-purchased.

7. Post an obituary in the appropriate newspaper(s).

8. Ask for and make copies of the death certificate.

9. Find out if any commitment was made regarding the use of organs, tissue, or the entire body for medical or research purposes.

10. Call your doctor if you or any other family member experiences nervousness, insomnia, hysteria, anxiety or angina pain.

Note: Executors (or a court appointed administrator) are the only persons entitled to make funeral and burial decisions but they should consult the family for their wishes. If the deceased left instructions in the will or pre-planned the funeral, the executor should, but may not be legally bound to follow the deceased’s wishes. The executor should be involved in the decisions immediately after death. Communicate with people who may have any form of Power of Attorney in relation to the estate. Check with your lawyer regarding laws that may affect you in your province.

What could I miss doing that could ruin my retirement?

Perhaps you haven’t started investing regularly, or the amount you allocate is not enough to reach your retirement goals. Here are a few of the things people are not doing that can ruin otherwise good investment goals.

Not viewing debt as negative investment earnings. If you are paying 18% interest on a credit card while earning 8% in an investment, that immediately places you in a 10% loss position per dollar compared. Moreover, where else can you get such a guarantee on your investment return, as you can by investing in your debt repayment? By paying off $5,000 over one year, you’ll earn $900 risk-free and you won’t have to pay that with after-tax dollars ever again.

Unsecured credit card debt can kill a once-healthy budget, while substantially reducing your income. And opportunities can suffer when your cash flow is crippled by debt. It is harder to solve the need for emergency cash if you are debt-ridden.

Especially look at paying down debts that carry interest that cannot be written off as you are paying for both the principal and the interest with after-tax dollars.

Not putting money away into an emergency fund. If an emergency arises you should be able to access a simple bank account to cover up to three to six months’ worth of living expenses such as your rent or mortgage, food, debt repayment, car payments, etc. Consider using a money market fund for this savings plan.

Not assessing your retirement time horizon. You can analyze what you will need to invest annually, by running calculations to see if you will have sufficient income to live on. Confer also with your advisor about how you can get there over your remaining employment years, by investing with a clear vision.

Not assessing the impact of inflation on your retirement income. Refer to this table to see how inflation can affect your retirement plan.

Planning for your dependants. Make sure you have sufficient life insurance to pay off your total debts such as: credit card balances, car loans, IOUs, and any business-related debt. Incorporate this with sufficient coverage to provide future income for your dependants. This is especially necessary if your debt exceeds your annual income as it does for the average Canadian household where debt runs at 150% of income. Source: The Vanier Institute of the Family, February 2011

Prescription Drug Benefits

Prescription Drug Benefits

Drug plans are one of the main attractions in a benefit package for a plan member and is one of the most highly used benefits by two thirds of plan members. A range of drug plan and drug formularies can be tailored to suit your organization’s needs; allowing you to better manage your prescription drug benefits versus costs while still providing your plan members with coverage they value.

You may choose from plan designs offering a range of coverage, including the following managed drug plan:

Prescription drug plan: Prescription drugs are a fast-rising cost component of group healthcare claims due to cut-backs in government-sponsored plans, Canada’s aging population and the introduction of new, more expensive drugs. The plans provide coverage for drugs that require a prescription for dispensing or for sale; which includes some life-sustaining drugs which may be available without a prescription; or may include or exclude over-the-counter drugs.

Claims Payment Options: You can choose the method of claims payment your plan members will use for their drug purchases.

Reimbursement: This is the traditional payment option where plan members pay for their prescriptions at the time of purchase and submit their claims on paper for later reimbursement.

Pay-Direct Drug Card: This system allows for on-the-spot claims processing of prescription drugs at almost any pharmacy in Canada. A plan member presents his or her card to the pharmacist, who submits the claim electronically. The plan member’s eligibility and drug coverage is confirmed and he or she pays only the portion not covered by the plan.

Deferred drug card: This system is similar to on-the-spot processing of prescription drugs submitted electronically by the pharmacist at the point of sale. The plan member pays for his or her prescriptions and is reimbursed by cheque once a dollar-amount or time-period threshold is reached.

Note: Plans and coverage will also vary depending on the carrier used.

Group Benefits Overview

Group Benefits Overview

We understand that your business is unique; whether you have ten or thousands of people working for you. Group Benefits typically include life, disability, health, and dental insurance coverage and many include other benefits such as Accidental Death and Critical Illness insurance, Health Spending Accounts and wellness programs. The advantage to the employer is that these benefits attract and retain quality employees. When corporations aim to acquire top employee talent they often are drawn to provide a superior employee benefits package.

What are the benefits for your business? A well-designed group insurance plan tailored to your employees adds exceptional value to your total compensation package. Often the best employees view their benefit plan as a major reason why they stay with their current employer.

Comprehensive group insurance plan can help you to:

Attract high-quality employees
Imparts trust that your company cares about family values and health
Maximizes loyalty and reduces turnover
Encourages a healthy work environment
Improves productivity while it reduces absenteeism
Pays compensation in a tax-effective manner
Sets you apart from your competitors

Benefits for your employees: Group insurance plans can offer financial and health solutions to your employees and their families in many areas including:

Prescription drug care
Dental care
Supplementary medical services
Life Insurance
Accidental death and dismemberment insurance
Disability – Income Replacement Plans
Critical Illness Plans
Hospitalization

Every group has unique requirements. Group benefit plans vary depending on the size of the group, your business objectives and financial budget. Once assessed, we will recommend a plan that makes the most sense for your business. You can also address any challenges you’ve had with your current group insurance carrier as we work with them to help resolve any issues. Prior to your policy’s renewal date, we ensure that your policy continues to meet your company’s and employees’ needs while you continue to receive coverage, service and pricing from your carrier.

Let us evaluate the market for you. We will submit a request-for-proposal to all potential insurance carriers to obtain the best plan at the most affordable price. Once you decide to move to another carrier, we will help you transition as we become your new benefits consultant. You will receive personal assistance during the entire transition. We will keep in touch with you on a regular basis to stay up-to-date on what’s important to your business and employees and act as your liaison with your carrier when necessary. We work for you and in your best interest.

Keeping cost to a minimum. You can choose to fully cover the cost of insurance or share it with your employees. Moreover, you can offer your employees the opportunity to purchase individual life, disability and critical illness coverage. Individual insurance provides enhanced life and health coverage where long-term ownership via portability is valued by certain employees. We will help you determine a plan that minimizes the cost impact on your company and will continue to advocate for you each time your plan is renewed, to ensure you still receive the best rates possible.

Note: Plans and coverage vary depending on the carrier used.