Client Success Stories – Dave & Karen
Client Facts
Client Information: Dave (age 68), Karen (age 67)
Client Needs & Wants: Minimize taxes at death and transfer assets to the next generation in a way that is tax-effective
Problem
Dave & Karen are a recently-retired, married couple. Based on their current health status, they have a life expectancy of age 84 and 87, respectively. They both have substantial retirement savings and pensions, so income throughout retirement is not a concern for them. They have two children and two grandchildren; both children are well-established. Dave & Karen are interested in helping out their grandchildren for post-secondary tuition or a down-payment on a home in the future.
A concern for Dave & Karen is the fact they could be faced with a substantial tax bill on death. They asked me to accomplish two things for them: limit the tax their estates will have to pay and find tax-effective ways to transfer assets to their grandchildren.
Solution
The first solution we implemented with Dave & Karen was to move some of their non-registered investments into Guaranteed Investment Funds, which allows for named beneficiaries and therefore, bypasses probate on death (see our article on this HERE). This will reduce probate fees and allows for a quicker distribution of assets on death. This concept is also known as an Estate Wedge Strategy.
Secondly, when it came to their objective of passing on some of their assets to their grandchildren, we set up a solution that is perfectly suited for a grandparent-grandchild legacy wish. That solution is a permanent insurance policy, owned by Dave & Karen, with the lives insured being the grandchildren. This is a perfect strategy for their objectives for a number of reasons:
- Dave & Karen can deposit money into the policies with no immediate tax implications or income attribution.
- Their grandchildren gain future access to long-term assets that can be put towards post-secondary education, a down-payment on a home, a vehicle, or other financial needs.
- Although the benefit is for the grandchildren, Dave & Karen remain in control of the asset.
- The grandchildren have locked in their insurability at a young age, regardless of what may happen with their health in the future.
Dave & Karen came to First Oak in a good situation financially, but they had key objectives they wanted to accomplish, and we were able to do just that. Legacy building is a profound strategy; knowing they are setting up their grandchildren for the totality of their lives, all while lowering their eventual tax bill, was a concept that Dave & Karen could not have been happier with.
Contact Jeff Graham for more information on retirement, estate and tax planning planning concepts – he can be reached at (604) 363-7549 or jeff@firstoakfinancial.ca.
DISCLAIMER 1: client names have been changed to protect their identity.
DISCLAIMER 2: this commentary is provided for general informational purposes only and does not constitute financial, insurance, investment, tax, legal or accounting advice.