After spending so much time and energy practicing medicine and building your wealth, you want to enjoy it in retirement and pass along the remainder to the next generation.
What impact will the 2018 Passive Investment Income rules have on your retirement planning? Have you considered the impact that taxes will have on the value of your estate when you pass away? Will your estate need to liquidate assets to fund tax liabilities upon your death?
Retirement and estate planning are complex and emotional processes with major financial consequences. Without proper planning, taxes can consume a significant portion of the funds available for your retirement as well as what is left in your estate when you pass away.
Death & Taxes – Understanding what happens to your assets when you pass away
In 1789, Benjamin Franklin famously said, “in this world, nothing is certain except death and taxes”.
As physicians, you already know the benefits of encouraging your patients to take preventative measures to avoid future health problems; it’s good advice for them. The same principle applies to you. As insurance professionals, we encourage our clients to be proactive with their estate planning.
In Canada, there is no estate or inheritance tax. However, under paragraph 70(5)(a) of the Income Tax Act, a taxpayer is deemed to have disposed of all capital property (i.e., Investments in public and private companies, RRSPs/RRIFs, both investment and personally-used real estate, etc.), subject to certain exceptions, for proceeds equal to their fair market value at the time of death. Unless the capital property is left to a surviving spouse, any resulting capital gain must be reported in the taxpayer’s income tax return for the year of death (terminal return). Included in income at death is the net capital gain recognized under the deemed disposition rules.
Simply put, taxes will be payable by your estate when you pass away. With proper planning, these taxes can be minimized thus allowing you to leave as much as possible for your family and loved ones (instead of the government!).
Permanent life insurance plays a central role in the estate planning process because it protects and enhances the value of your estate.
The most efficient way to cover a future tax liability upon death is by purchasing permanent life insurance, which effectively transfers the risk away from the estate. This provides peace of mind while at the same time outperforming other alternative methods in terms of financial cost.
Permanent life insurance offers the following benefits:
- Guaranteed tax-free death benefit at the time when it is needed most.
- Maximizes the value of your estate.
- Inter-generational transfer of wealth in a tax efficient manner.
- Estate equalization.
Learn more about Permanent Life Insurance in Insurance Explained.
Mark’s approach is pleasantly personal. He is upfront; he thoughtfully answers my questions and takes the time to ensure I understand. Mark is easily accessible, and he will reach out with key dates if I am not on top of my milestones. I feel confident knowing that I have an expert in his field to go to when I need guidance for insurance planning needs, as can happen in periods of transition. This is a relationship we will have for the long-term, and Mark has invested in it from the beginning. I look forward to our meetings and I highly recommend his services.