Don’t Let Death Rob Your Family!
Beat the System and Save Your Estate from Crushing Taxes!
Securing life insurance after turning 50 can play a crucial role in your overall estate planning strategy.
Many people think life insurance is only for emergencies, especially when someone passes away. While it’s true that lots of folks get life insurance to help out in tough times and soften the financial blow of unexpected events, the main idea is often to have a plan that provides money. This money can make up for lost income, clear debts, and take care of the expenses that come with the end of life.
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As the years go by and you enter your 50s, you might think the need for life insurance is fading. Your mortgage is likely paid off, your kids are all grown up, and now, your main focus might be on growing your retirement savings. If you have term life insurance, which typically ends after a set number of years, you may consider letting it go, relieved that you didn’t have to use it.
Yet, helping ensure your family’s financial security in case of the worst is just the beginning of what life insurance can offer. Many people are unaware that life insurance can also play a crucial role in sophisticated estate planning strategies. Surprisingly, findings from a recent Insurance survey showed that while nearly 90% of high-net-worth Canadians aim to pass on their estate to the next generation, only 17% comprehend how life insurance can assist them in achieving this goal.
If you’re working with an Investment Advisor Portfolio Manager who offers comprehensive financial guidance, covering areas like cash management, retirement planning, and tax and estate planning, there’s a good chance they might suggest life insurance after 50 if it aligns with your specific needs and situation.
Life insurance over 50 can serve as a valuable financial strategy extending well beyond handling emergencies. Here are a few ways it could prove exceptionally useful:
Cover Tax Liability at Death
Opting for life insurance after the age of 50 becomes a strategic move, especially if you plan to pass substantial assets, like a cottage or shares in the family business, to your children. In such scenarios, there’s a potential risk of your estate incurring a significant tax liability upon your passing. For example, if the value of your cottage has increased by $1 million, and you fall into the 50% tax bracket, the tax on the capital gain could reach as high as $250,000. Life insurance can serve as a protective measure, ensuring that your heirs receive the intended assets without being burdened by hefty tax bills.
In the unfortunate event of your passing, if your estate faces the burden of a substantial tax bill, your executor may find themselves in the challenging position of having to sell the family cottage or seek funds elsewhere in the estate to settle the obligations to the Canada Revenue Agency (CRA). Opting for permanent life insurance after the age of 50 can serve as a strategic solution to circumvent such circumstances. With this approach, your estate would receive a tax-free lump sum of cash upon your death. This sum can then be utilized to efficiently cover the estate’s tax liabilities, providing a cost-effective means to settle your final tax bill and preserving your assets for your heirs.
Leaving an Inheritance
Commonly, individuals prefer an even distribution of their estate among their children. Nevertheless, achieving equal allocation is often more complex than it appears. Consider the scenario where you wish to pass on your business to your eldest child, currently overseeing its operations for you. In such instances, the potential imbalance in inheritances might raise concerns among your other children regarding their smaller shares.
Imagine owning a couple of significant assets, like your primary residence and a vacation property, while having three or more children. Achieving an equitable distribution of your entire estate in such cases becomes nearly impractical.
Not only does this pose challenges in creating a just estate plan, but it also opens the door to potential legal complications after your passing. Even with clear instructions in your will, surviving children might contest the distribution if they perceive it as unjust, leading to possible litigation issues.
A way to sidestep potential conflicts is by securing a permanent life insurance policy and designating as beneficiaries the children who won’t inherit one of your significant assets. An added advantage is that life insurance doesn’t become part of your estate or will. This shields it from contestation, and the tax-free proceeds won’t impact the distribution of the rest of your estate.
Charitable Giving Can Increase
If you have a deep passion for a specific charitable organization, there are two effective ways to support it. You can either allocate funds to it in your will or designate it as the beneficiary of a permanent life insurance policy. Certain life insurance policies accumulate value over time, potentially resulting in a more substantial contribution to the organization the longer you live. After ensuring your chosen charity is provided for, you can then distribute the remaining portion of your estate among your heirs.
An additional perk is that the charitable organization will furnish a tax receipt to the estate for the donated sum, aiding in minimizing the estate’s tax liabilities. If you opt to donate the policy to the charity while still alive and continue paying the insurance premiums, you may also receive annual tax receipts. Your Investment Advisor Portfolio Manager can guide you on the most suitable approach based on your specific circumstances.
Building a Larger Net Worth
When you’ve secured sufficient funds for your retirement but aim to further grow your wealth for the benefit of the next generation, permanent life insurance can serve as a valuable investment tool. Participating life insurance comes with an investment component, enabling you to increase your wealth on a tax-free basis as long as the funds remain within the policy. This presents an effective strategy for not only ensuring financial security in your retirement but also for building a legacy to pass on to your heirs.
Opting for a regular investment product would typically subject your estate to taxes on the earned income. However, choosing an insurance policy with a cash value component allows the money to grow tax-free, and the proceeds are paid out without tax implications upon death. This becomes an efficient strategy for minimizing your final tax bill by reallocating a portion of your assets into a tax-free insurance policy.
You Really Do Not Want To Wait Too Long
Securing life insurance after the age of 50 poses a couple of significant challenges: qualification may be uncertain, and if approved, the premiums could be substantial.
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For those who are relatively young and in good health, obtaining life insurance over 50 should be more accessible. However, as age increases and health conditions accumulate, qualifying for affordable life insurance becomes more challenging.
Opting for life insurance at a younger age offers the advantage of enjoying its benefits at a more reasonable cost. This proactive approach can be a strategic move to ensure coverage that aligns with your needs without the potential complications associated with age and health conditions later on.
Bottom Line
In summary, life insurance isn’t just about emergencies; it can be a smart financial move, especially after 50. It goes beyond protecting your family to address challenges like taxes, inheritance issues, and even building a legacy. Taking action earlier, when you’re younger, makes it more accessible and affordable. Consulting with an iA Private Wealth Investment Advisor Portfolio Manager helps tailor these strategies to your needs. Embracing life insurance as a proactive tool ensures not only family protection but also a lasting legacy for future generations.
An iA Private Wealth Investment Advisor Portfolio Manager can assess the integration of life insurance into your comprehensive financial strategy. They could evaluate your estate planning requirements, determining whether life insurance can contribute to a more equitable distribution of assets, offer tax advantages, or leave a more substantial legacy.
If you are contemplating life insurance after turning 50, it is advisable to consult with your iA Private Wealth Investment Advisor Portfolio Manager first.
Did you know that navigating the uncertainties of the markets and your finances is generally smoother with the support of an investment advisor or portfolio manager? Studies consistently reveal that individuals who work with investment advisors and portfolio managers tend to have up to three times higher net worth on average, but that’s not all, there’s a significant impact on overall well-being, with those who seek professional advice exhibiting higher levels of happiness and lower anxiety. Having a guiding hand through the financial landscape proves beneficial not only in terms of monetary outcomes but also in fostering a sense of security and contentment, making the challenges of an uncertain year more manageable with professional assistance.
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Joe A. Macek, FMA, CIM, DMS, FCSI
Investment Advisor, Portfolio Manager
iA Private Wealth | iA Private Wealth USA
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