What if I could show you an investment that is less risky than a GIC, will
perform quite well over time, can be completely deferred from tax, will never
go down and can be passed along to your children completely tax-free? You'd be
like, yeah right Kent that's way too good to be true, that
sounds way too good to be true, but it isn't. It is however only good for a
specific segment of the population and in my opinion you have to fall into one
of these three groups of people in order to even consider doing this. First is a
high income earner that is going to continue to earn a high income that has
exhausted all of their registered investment options, second is a business
owner that has some extra money inside of their business and they want to find
a tax efficient way to invest it. Fun fact about this is that this will
actually avoid the stupid new rules that the government is proposing to change
for small business owners, and third is for retirees who have set themselves up
so well for retirement that they actually have too much money and they
want to leave some money to their children when they pass away. So you're
still asking me what the catch is and the catch to this is that you can
invest however much or however little into this account as you want, but you
have to choose a specific amount and continue to fund that exact same amount
for a specific number of years otherwise if you want to get your investment you
will lose out on the principle in the early years, which usually takes close to
20 years. So today I'm gonna focus on my absolute favourite use for this strategy,
which is for a retired couple that has done well for themselves that wants to
pass some money on to their children tax-free, or maybe
they're gonna have a large tax bill upon death because say they have a cottage in
the family that's grown in value which is always a huge issue of contention
once estate time comes around. So in my example I've talked to a 60 year old
couple and they're really set up for retirement. They have a whole bunch of
assets and they can easily fund what they want in retirement and they're
going to have some extra money that they need to decide what to do with every
year. Now in most cases that couple would maybe invest in a non-registered account,
or in some real estate and both of those investments are either taxable as they
grow or taxable when they sell for a profit or a gain. So I've looked at their
numbers and I said this is what I want you to do I want you to invest ten
thousand dollars a year into this account for the remainder of your life
with the intention of passing this money on to your children, completely tax-free.
Now let's take a look at the numbers: They started out at sixty years old, they
invest ten thousand dollars a year. If the second spouse passes away at 70
years old the tax-free benefit to the estate is three hundred and five
thousand dollars a return of over nineteen percent on that investment. The
likelihood of them both passing away that early is pretty low, so let's look
at if the second spouse passes away at 80. They've invested two hundred thousand
dollars, now that account that's passing on to their children is four hundred and
seventy four thousand dollars. If the second spouse lives till ninety, they've
invested three hundred thousand dollars into this account and they're passing on
seven hundred and thirteen thousand, five hundred dollars to their children
completely tax-free. That's a five point one two percent rate of return after tax,
which is awesome! You guys are all still saying, well why
doesn't everybody do this? Everybody should do this Kent, this sounds
absolutely awesome. But there is an actual catch and the catch is that this
is a life insurance product and most people absolutely hate insurance, so you
have to wrap your head around the idea that you would be investing inside of a
life insurance policy to achieve this goal. The other issue is that you
actually have to be insurable, so if you're not insurable you can't do this.
If you're not in good health, maybe you're going to be rated, it's not going
to be make as much sense. I would also like to point out that those rates of
return are absolutely not guaranteed but based on the dividends that they are
paying today, which fluctuate every year. They could go up or they could go down,
but they always have paid since these policies started, which is why I'm saying
it can never go down. Another huge plus to doing this, except it doesn't really
matter in Alberta, because the probate fee is only four hundred dollars, even
though they could change that whenever they want, but you can allocate this to
be paid to the beneficiaries of your choice, outside of your estate. Therefore
that seven hundred and thirteen thousand dollars isn't made up as part of your
estate, so they're not going to take the probate tax on that seven hundred and
thirteen thousand dollars. Now, as I said before, this is not for everybody. You
really have to be careful to make sure that you can continue to fund this
account, otherwise you will actually lose money, which I've seen backfire for too
many people, too many times. Not on my own opinion, but on others. But if you would
like to see if this would make sense as part of your retirement plan, or part of
your estate plan and want to learn more, please feel free to email me at
info@k4financial.ca and please share this with anybody who you know
might have a little bit extra money in retirement, or is gonna have a huge tax
bill upon death. Thank you very much