Many people believe as they get older and become more financially independent, their need for life insurance decreases. You may not realize that life insurance can provide more than financial protection for a family to maintain its standard of living should a parent die prematurely. It can also be used to help pay taxes that may arise upon death on a growing estate, ensuring as much of the estate as possible is passed on to beneficiaries.

 

Quite possibly, the largest burden on your estate could be the taxes owing on the assets you’ve worked hard to accumulate. You may not use all of your assets during your lifetime and might hope to pass the nest egg on to your heirs upon death. You may wonder about the safety of your investments and worry about the taxes owing on death and how it could seriously reduce the value of your estate. If you are already in a high-marginal tax bracket, paying the highest tax rate on your investment income, this can drastically reduce your actual return on investment.

 

You can look to your financial security advisor’s expertise in financial security planning. Among the solutions tailored to meet your specific needs that may be presented to you, a permanent life insurance policy may substantially increase the value of the capital that is ultimately transferred to your beneficiaries (on the death of the second insured). And, unlike other investments resulting in taxable growth, life insurance provides tax-advantaged accumulation that passes tax-free to your named beneficiaries upon death.

 

The insured asset transfer concept also allows you to retain control of your capital in a tax-advantaged insurance policy. It provides immediate estate enhancement, allows for tax-advantaged growth of your saving and offers permanent life insurance protection. You can also change the policy beneficiary and may adjust the coverage amount. There are no probate fees on the death benefit as long as you have named a beneficiary other than your estate.

 

While you are alive, permanent insurance can also provide you with a source of income. These policies have cash values that accumulate on a tax-advantaged basis and can be used for retirement purposes or to provide liquid savings or to fund long-term care needs for adult dependants. The cash value that may be available depends on how the policy is funded and on tax laws in effect at the time funds are withdrawn from the policy.

 

Many Canadian’s have spent years accumulating assets within their RRSPs. While this is an excellent strategy for many people, as balances increase concerns arise regarding the taxation on liquidating the RRSP during retirement as well as the affect on government programs such as Old Age Security.

Investor’s may be asking themselves some important questions, such as:

1.                  How could I divert my RRSP contributions to create non-registered wealth and still receive annual tax deductions in the process?

2.                  How could I put my RRSP to work now to build some non-registered wealth for myself for the future?

3.                  What can I do with my registered plan holdings now, to increase the after tax value of my legacy?

 

There are options available to these investors. You can use an investment loan to create a deductible interest payment, which can be paid either from the income, which is normally directed into RRSPs, or you can use withdrawals from the RRSPs themselves, or a combination of the two.

 

If an investor chooses to fund the investment loan from their RRSP, for every dollar of registered plan income there is now a dollar of interest expense that offsets thereby alleviating the high rates of taxation from the registered plan withdrawals. The non-registered loan portfolio should be structured tax efficiently using the preferable tax treatment of dividends and capital gains to defer, as much as possible, taxation on income and gains.

 

Using this strategy an investor can create a RRSP freeze, a meltdown, or a slowdown, depending on the investors situation. An RRSP freeze maintains the current value of the RRSP, diverting RRSP deposits and growth within the RRSP to a deductible interest payment. An RRSP meltdown is for an individual who would like to reduce the amount of registered assets they have, the interest payment would be a combination of RRSP deposits, growth within the RRSP and capital within the RRSP. The final option being the RRSP slowdown allows for the RRSP to continue growing while growing a non-registered investment to supplement your retirement income. Solely new deposits, leaving the RRSP growth in the plan, would fund this interest payment.

 

On October 30, the federal government presented a “mini-budget” which outlined a number of initiatives designed to create tax savings for Canadians, which means there are a few new ways you can save your money.

 

The most noticeable savings will come into effect on January 1, 2008 when the government plans to reduce GST by 1%, bringing the total tax to 5%. This means that someone spending $10,000 to renovate their home will save $100.

 

The government is also introducing a new Registered Disability Savings Plan. People who qualify for the disability tax credit will be able to start an RDSP, which will work similar to the RESP (Registered Education Savings Plan). The maximum lifetime contribution limit is $200,000, there’s no annual limit and anyone can contribute. The RDSP must be redeemed when the individual turns 60.

 

Starting Jan 2008 the maximum RRSP contribution limit will be increased to 18% of an individual’s annual income to a maximum of $20,000. This provides Canadians the opportunity you increase their savings towards retirement while enjoying the benefits of tax deferral today.

 

One of the government’s pledges is to reduce the lowest personal income tax rate to 15% from 15.5%, retroactive to January 1, 2007.  That translates into savings of about $180 for families earning between $15,000 and $30,000, and about $400 of savings for families that make between $45,000 and $60,000. Families earning between $80,000 and $100,000 will pay about $602 less tax in 2008.

 

Small business owners will receive an early tax break when the small business income tax rate falls to 11% in 2008, one year earlier than scheduled. Currently, the tax rate for small companies sits at 13.1%.