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Life insurance to reduce business owner risks

Start-up firms and smaller companies are especially vulnerable to potentially devastating financial risk because they often lack big company sophistication and in-house risk-control expertise. We will help you gain control of your financial risk.

Life Insurance We help business leaders provide appropriate life insurance to pay off debts and/or the mortgage, educate the kids, and/or provide income for a spouse or a disabled dependent.
Disability Income Replacement Insurance We will examine your need for income replacement insurance that can help replace your paycheque in case you get hurt or sick.
Key Person Insurance We will assess your need for an insurance policy designed to provide money to help you hire the right person if a key individual became sick or died.
Critical Illness Insurance If a business owners develop cancer, a heart attack, or a stroke, the illness can wipe out a small business. We have many plans to protect you from such concerns.

Is probating an estate expensive?

It is a significant job for the executor to probate a will. The original will must be submitted with an inventory listing the estate’s assets recorded at their fair market value to the court in the jurisdiction where the deceased last lived. There may be increased fees if a lawyer is retained to cross-examine the asset list or if the executor charges a percentage of the asset base to do the work.

Probate fees are paid from an estate to the provincial court. These fees are approximately .5% to 1.5% of the estate’s assets, depending on the size of the estate and the province. Provincial lawyers complete the necessary ‘letters of probate’ or ‘grant of probate document.’ In Ontario, they are now referred to as ‘the certificate of appointment of estate trustee with a will.’

Because probate is calculated on assets, regardless of liabilities, an estate with assets of $1 million and liabilities of $200,000 would pay probate on the entire million. In addition, if these same assets are transferred to your spouse, probate fees may be due again the second time around when these assets are transferred through his or her will. These fees are paid with after-tax dollars, as they are not deductible on the final income tax return. There is no law stating that a simple will and estate needs probating.

How can I minimize the need for estate probate?

There are a few tactics whereby you can reduce the need for an estate to be probated by the government:

Defer possible probate by holding assets jointly. Probate fees may be charged when that asset is transferred later through the will of the second spouse.

Establish a person as a beneficiary on your life insurance policies independent of the estate. This way, all monies pass to the heirs tax-free. If the estate needs probating, this portion of the assets will not be included in the estate, as the death benefit will flow directly to the heirs circumventing scrutiny. Life insurance strategies are excellent financial tools to circumvent probate on larger wealth transfers to heirs. Family wealth can be positioned to pass through life insurance policies, delivering tax-free benefits without probate. This method has frequently been used to transfer inter- generational estate wealth in the millions.

Name your beneficiaries on your RRSPs and RRIFs. Insurance companies’ products will allow you to sidestep probate in this way. To protect themselves, banks and trust companies will probably require probate or a letter of indemnity from the estate’s lawyer if the assets are significant. If your spouse is your beneficiary, consider a secondary beneficiary should your spouse die at the same time you do.

Consider setting up a spousal testamentary trust in your will to avoid double probate. When the second spouse dies, the assets can be distributed via the trust directives as opposed to a will.

With your spouse, set up mutually owned property as ‘joint tenants with rights of survivorship to transfer these assets automatically outside of the will.

Once the will has been probated (if necessary) and the executor confirmed, he or she could start transferring assets as directed by the will. Some assets can be transferred easily within a short period of time. Others have to wait until the estate expenses have been paid, including any final income taxes due to Canada Revenue Agency (CRA), after which they will issue a tax clearance certificate.

Note: The Estate Administration Tax (ETA) in Ontario, will replace some of the previous probate processes, and may add more complexity to the above scenarios. If your estate is large, it would be wise to seek the advice of a good tax accountant.

Life insurance to protect heirs from debt

The expansion in the growth of using credit is partially due to lower interest rates. The paradox is that low-interest rates lessen the interest payments to reduce debt while at the same time motivate people to assume much more debt.

Beware of little expenses; a small leak will sink a great ship. Benjamin Franklin

Debt Affects Family Savings Increased spending is often supported by increasing debt loads. When debt overburdens your resources to repay what you owe, you may need debt counselling that may lead to debt consolidation.

Do Your Math If your expenses exceed your income, you will increase your debt if you rely on credit. Amassed debt can undermine otherwise healthy finances and the ability to invest for retirement. Saving indicates a stewardship that respects the fact that money is the only symbol of trade for a company’s goods and services exchanged for an individual’s energies.

Reduce Debt and Save More The amount of savings often advised is based on the age-old recommendation to save 10-20% of your disposable income.

Interest rates on borrowed money can always increase so it important to realize that low-interest rates do not last forever. Always plan to service the debts that you take on today.

Beware of the potential consequences of taking on significant debt. Life events such as loss of employment or income, a change in family status or a serious illness, can cause a huge drain on finances.

Life insurance protects your heirs It is important to insure all your household debt with life insurance as these liabilities can be paid off tax-free in the event of death. If you are one of the main breadwinners in a family, call your life insurance specialist today.

Talk to your advisor about life insurance to protect your heirs.

The most important business insurance coverage

Financial products and services can address specific needs in your financial security plan and help you build a successful business. I have access to a broad range of insurance, investment, employee disability and group benefit products to help meet your individual and business needs and goals. You may have put all your focus and hard work into your business. It makes sense to protect it properly against the risks that can bring financial hardship.

How to Protect Your Business

I offer unique planning solutions using:

• Life insurance

• Disability insurance

• Critical illness insurance

How to Protect Your Employees

The people employed in your business or organization help you succeed regardless if you depend on three key employees, or a team of 100. We can offer your firm a comprehensive group benefit plan which may help you to retain your most important staff:

• Benefits plans for small business

• Health care and dental care benefits

• Wellness and disability benefits

• Life and accidental death and dismemberment benefits

The Buy-Sell Agreement: A financial safeguards for shareholders

The Buy-Sell agreement is one of the most important legal documents a business can have to protect shareholders if a business owner/partner dies.

They must be planned ahead Whether you own a partnership or corporation, we can help you set up a buy-sell agreement while you are alive and capable of doing so. We will help you value your company and set up the proper Buy-Sell Agreement to meet Canada Revenue Agency’s (CRA’s) standards.

Funding the Agreement We can determine if the company has the cash flow or a large amount of money available to support the buy-out of the deceased or disabled owner. If not, life insurance can be used to fund a buy-sell agreement as it can pay a large amount of tax-free capital at the right time of the death of a business owner/partner.

Making it legally binding We can meet with your lawyer and the buyers’ lawyers. After it is drafted, all parties will review it to their satisfaction and sign it to make it legal. It is suggested that life insurance be purchased first to ensure one is insurable. Even where there is a medical problem, in most cases, an insurer is willing to design a policy to suit the risk based on the respective health of the individual.

Essential Estate Planning protects your financial security

A comprehensive estate plan includes a will, a plan to minimize the capital gains liability and provide for any family income needs. This often involves life insurance which is an effective tool to maximize the size of your estate and pay any tax liability cost effectively. I will design an estate plan tailored specifically for your situation because every person is a unique individual.

Providing both personal and business insurance solutions to protect your financial security.

Business Insurance solutions:

• Partnership insurance
• Buy/Sell agreements
• Key Person insurance
• Business disability insurance
• Business/office overhead
• Collateral loan insurance
• Group health benefits

Personal Insurance solutions to protect you and your family:

• Life Insurance
• Critical Illness Insurance
• Long-term care insurance
• Estate Preservation
• Individual health and dental plans

Considerations when designing an Estate

Estate planning is a process that allows one to determine how their assets will be distributed upon death. As we prepare to pass our lifetime assets to our heirs, there are key components of an estate plan that should be given careful consideration.

The fundamental component of any estate plan is the Last Will and Testament commonly referred to as the will. It is also important that an individual maintains and updates their will and two powers of attorney documents: 1) for property such as real estate, bank accounts, and investment assets, and 2) a power of attorney for personal health care.

Review your estate planning documents

Life changes can affect the integration of each of the above strategic solutions. Therefore, it is important to review the above aspects of an estate plan every three to five years. For example, there may be a change in family structure, so beneficiaries may need to be reviewed. Or, if you remarry, your existing Will may automatically become nullified.

Your net assets can change Keep an eye on your net worth. Other life changes that require updating your estate plan include changes in your net worth, or if the value of your residence or investment changed. If you have significant changes in net worth, have your accountant make sure that the best tax arrangements are in place.

Business strategies to protect your net assets If you are the shareholder of business assets, make sure that a buy-sell agreement is in place in the event of your death or disability, assuring that every owner is covered with life and disability (income replacement) insurance.

An estate plan may benefit from using formal trusts to reduce taxes. Life insurance products such as segregated funds and term funds can also be used to circumvent or minimize probate or government estate administration taxes (EAT) or attending legal fees. In most cases when a beneficiary is named in a life insurance policy, proceeds will pass and the capital in most cases will transfer on a tax-free basis to beneficiaries, thus avoiding probate or EAT scrutiny.

For an estate plan seeking to transfer large capital assets to named heirs, it would be wise to discuss these capital-transfer techniques with an accountant and/or tax lawyer.

How can I minimize the need for estate probate?

There are a few tactics whereby you can reduce the need for an estate to be probated by the government:

• Defer possible probate by holding assets jointly. Probate fees may be charged when that asset is transferred later through the will of the second spouse.
• Establish a person as a beneficiary on your life insurance policies independent of the estate. This way, all monies pass to the heirs tax-free. If the estate needs probating, this portion of the assets will not be included in the estate, as the death benefit will flow directly to the heirs circumventing scrutiny. Life insurance strategies are excellent financial tools to circumvent probate on larger wealth transfers to heirs. Family wealth can be positioned to pass through life insurance policies, delivering tax-free benefits without probate. Any tax due on policy investments will be taxed to the estate of the deceased policy owner. This method has frequently been used to transfer inter-generational estate wealth in the millions. Your advisor can keep you up to date on potential taxes in the estate.
• Name your beneficiaries on your registered investments such as RRSPs and RRIFs. Insurance products may allow you to side-step probate in this way. To protect themselves, banks and trust companies will probably require probate or a letter of indemnity from the estate’s lawyer if the assets are significant. If your spouse is your beneficiary, consider a secondary beneficiary should your spouse die at the same time you do.
• Consider setting up a spousal testamentary trust in your will to avoid double probate. When the second spouse dies, the assets can be distributed via the trust directives as opposed to a will.
• With your spouse, set up mutually-owned property as ‘joint tenants with rights of survivorship’ to transfer these assets automatically outside of the will.

Once a will has been probated paid the estate administrative tax (EAT), the executor can start transferring assets as directed by the will. Some assets can be transferred easily within a short period of time. Others have to wait until the estate expenses have been paid, including any final income taxes due to Canada Revenue Agency (CRA), after which they will issue a tax clearance certificate.

Can insurance replace my income if I am sick or hurt?

A spirit of independence and optimism is typical of many business owners. It is important to realistically plan for your financial security should you become disabled.

When you own your own business, you do not have the security of group insurance that employees have. After several years, you may find that you are drawing a substantial income from a successful venture.

Disability planning brings us face-to-face with a reality check. If you become disabled, would your business continue to generate the same profits? If not, how would you meet your mortgage payments and pay for your groceries? When we are independent-minded, we tend to be optimistic, to the degree that we might believe one of the following money myths.

Money Myth #1. I will borrow the money until I get well. Reality: Few people will lend money to a disabled person. It’s hard enough to borrow money when you’re in perfect health with a steady income.

Money Myth #2. I’ll live off my savings. Reality: How long would your savings last? Using up your savings at an age when you ought to add to your investments may ruin your retirement plan.

Money Myth #3. I’ll sell off some or all of my business assets.
Reality: How many assets does your business own, that are not required for its successful operation? Who will pay fair market value to one perceived as liquidating out of a dire need for cash? The timing may not coincide with market demand for your assets.

Money Myth #4. My business will pay me a salary. Reality: Your partners may need to hire someone to fulfil your responsibilities. Flip the perspective around. If your partner became disabled, how long could you keep paying him or her a salary in addition to the salary for the replacement? If you are a sole proprietor and disabled to the degree you cannot work, how could you hire and train someone to work hard enough to produce his own salary and yours?

Business Owner Disability Insurance Check-List

Income Replacement Insurance Pays you a cheque to cover a major portion of your present income drawn from the company.
Key-Person Insurance Pays a benefit to enable the business to hire a replacement.
Office Overhead Insurance Helps you pay for day-to-day overhead and salaries.
Buy-Sell Insurance Creates the cash to allow your partners to buy out your interest, or vice versa, based on a written agreement.

Understanding Fixed versus Variable Mortgages

Fixed Mortgage Rate: A fixed mortgage rate allows the home buyer to lock in a rate for the duration of the mortgage term, for example, over five years. The advantage of the fixed rate is that your rate will not fluctuate, and you can count on planning how much your mortgage payment will be for the term.

Variable Mortgage Rate: A variable mortgage rate means that the interest rate will change depending on the lender’s prime rate. For example, if your lender’s prime rate goes up or down, your mortgage payment will reflect that difference in interest during your mortgage term, which will affect your mortgage payment amount.