|
Many Canadian couples work hard throughout
their lives to create a substantial estate for the benefit of
the next generation to which the accumulated wealth will be passed.
All the while, little thought is given to those two certainties
in life, death and taxes. Unfortunately, these forces typically
come into play together, potentially reducing the value of their
hard-earned estate as the taxes on death, as well as probate
and related fees, come due.
Fortunately, there is a soluticn to this problem for most couples.
Joint Last-to-Die Life Insurance.
A Joint Last-to-Die policy provides a death
benefit that is payable on the second death of the lives insured.
It is an especially useful form of coverage for family situations
where you are looking for both low cost insurance and a way to
preserve the value of your estate. The benefit payable on the
last death can be used to cover estate expenses and tax liabiiities
often arising upon the surviving spouse's death. If you also
seek flexibility from your insurance, and would welcome the opportunity
to accumulate wealth in a tax-sheItered environment so that ycu
can pass some of it on upon the first death of the lives insured,
then a Joint Last-to-Die universal life insurance policy with
account value payout on the first death may be the right plan
for you!
 Let's look
at an example. Bob and Kate are both in their 50's. Like an increasing
number of Canadians, they own both a home and a cottage. Their
concern is that when they have both passed on, their children
will have to sell one of their properties to fund the capital
gains liability arising on whichever property was not Bob and
Kate's principal residence. This outcome does not suit our couple's
plan to keep both of their properties in the family upon their
deaths. To cover their estate need, Bob and Kate's Financial
Advisor suggests a Joint Last-to-Die universal life insurance
pian. This form of coverage suits their situation for several
reasons:
Lovv cost coverage:
Joint Last-to-Die coverage often has a
lower cost of insurance than single life coverage on either of
the lives insured. Joint Last-to-Die policies base the age on
which the cost of insurance is calculated on an Equivalent Single
Age (ESA) for the two lives covered by the plan. This ESA is
typicaliy younger than the youngest of the two lives under the
plan and as a result, Bob and Kate can benefit from the resuiting
lower cost of insurance.
Because Bob and Kate have elected Joint
Last-to-Die coverage on a universal life insurance plan, they
are abie to build up a cash value on a tax-sheltered basis. With
the help of their Financial Advisor, Bob and Kate take advantage
of the option to have a payout of the plan's account value as
a death benefit upon the first death. Bob and Kate name the surviving
spouse as the beneficiary of this account value payout on the
first death death benefit. So when the first death occurs, the
surviving spouse can receive, as a tax-free death benefit, the
pay out of the cash value of the Joint Last-to-Die universal
life policy. The surviving spouse can use these proceeds to cover
funeral costs, to cover the maintenance fees for the home and
cottage that will arise in the absence of one spouse, or to cover
any other financial needs arising on the first death.
· After the first spouse's death,
the surviving spouse's insurance coverage continues in force,
provided the premiums continue to be paid, even if he or she
is no longer considered insurable, because this is a Joint Last-to-Die
policy.
· At the second death, the policy's death benefit is payable
to the beneficiaries of the universal life plan (the children).
In this scenario, the children will use the proceeds to cover
the tax liability upon the deemed disposition of the property
which is not considered the principal residence for tax purposes
at the time of the last death.
If you find yourself in need of "last
survivor" insurance coverage and the concept of receiving
the account value as a death benefit at the first death of the
two lives insured appeals to you, talk to your Financial Advisor
about Joint Lastto-Die universai life coverage with account value
payout on first death. This type of plan offers great flexibility,
low-cost ~nsurance coverage, estate preservation as well as a
tax-advantaged* method of transferring wealth on the first death,
* Account Value Payout on First Death as
a death benefit is subject to tax legislation in effect at claim
time.
|
