Universal Solution

Death and taxes are two things that we cannot hope to avoid. Each is bad enough on its own, let alone combined. If we can stay healthy, we can hope to delay the inevitability of death, but eventually, we will all pass on. When this happens, the CCRA (Canada Customs and Revenue Agency) will be waiting on our door step to take one last bite out of our hard earned assets before we pass them to our heir(s) or charity. We refer to this final tax grab as the "Success Tax"

You may be able to delay or defer this final tax grab, but you cannot eliminate it. You can transfer assets to your spouse and defer the tax until their death, but once they die, the tax will have to be paid. You can also transfer certain taxable assets to a personal corporation or to your children. (Registered money (RRSPs, RRIFs) cannot be transferred to anyone other than your spouse or a dependent child, and then only on your death.) Transferring assets to a corporation, child or grandchild will only delay the inevitable taxation and might trigger a more immediate tax problem that could have been deferred. What ever the option chosen, the taxes must someday be paid. If you think that you can get around this, check out our Frequently Asked Questions page or our Estate Planning Options Chart for more information.

"Success Tax" is not something that has to be looked after. The assets in your estate can always be sold to pay the "Success Tax". Your estate should never owe more than the fair market value of all your assets, and usually not more than fifty percent of that value. For some people, the "Success Tax" bill is not a concern; their estate can sell its assets to pay the CCRA. They believe that the government will spend the money wisely, or at least as wisely as their children would. Since, however, you are reading this, you probably don't feel this way: why should you be punished for a lifetime of savings and investment?

The solution is not to try and evade the tax; tax evasion is illegal. The solution is to minimize the tax. You can use the CCRA's own regulations to help "Keep it in the Family" and create a guaranteed, tax free source of funding so that your heirs will not be forced to part with your legacy at "fire sale" prices.

A Universal Solution?

An Estate Preservation Plan (a joint-last-to-die insurance plan with a tax sheltered side fund) is often the best solution. Since you can legally defer the taxes until the death of the last spouse, you can purchase a joint-last-to-die plan that pays up exactly when the money is needed. You do not need to give up control of your assets or pay any current taxes, legal or accounting fees.

With this plan, the main death benefit does not pay out until the death of the last insured person. This reduces the cost of the insurance by a significant amount. JLD (joint-last-to-die) is based on the Single Equivalent Age (SEA), the odds of both of the insured dying. For example, if a 65-year-old male nonsmoker and 65-year-old female nonsmoker were to purchase a policy, their SEA would be 55. This means that the insurance on both of them would cost the same as it would on a 55-year-old male nonsmoker

Fortunately, the CCRA considers the proceeds and the cash value of some insurance policies as TAX FREE. The insurance proceeds and the growth on the investment inside of the policy, if set-up and maintained correctly are 100% tax and probate free.

It is often less expensive (see the example below) and less risky to purchase an estate preservation plan than it is to pay the current tax bill and transfer any assets to a corporation or your children. Check out our options chart to compare for yourself. If you're unsure of your current "Success Tax" owed, click here.

Sample Single Equivalent Age (SEA) Chart
Female Age	40	45	50	55	60	65	70	75
Male Age	For a personal SEA quote, click here
40	28	31	33	35	37	38	39	40
45	30	34	36	39	41	42	43	44
50	32	36	39	42	44	46	47	48
55	34	37	41	44	47	49	51	52
60	35	39	43	46	49	52	54	56
65	35	40	44	48	51	55	57	59
70	36	41	45	49	53	56	59	62
75	36	41	46	50	54	58	61	64

This is an example of what a single equivalent male nonsmoker age might be. These ages are based on two nonsmokers in average health. This age will vary from person to person and from company to company. Your actual single equivalent age on a personal policy will depend on your personal circumstances, health and insurance underwriting. For a free personalized quote, click here.

Using your SEA from the above chart, select a tax free estate benefit in the chart below. This gives you an estimate of the monthly investment required. This is only an estimate, for a personal quote, please click here.

Compare this investment and benefit to your current and projected future "Success Tax". If you're unsure of your current "Success Tax" owed, click here.

Sample Joint-Last-To-Die Level Insurance Cost and Benefit
Estate Benefit	$100,000	$250,000	$500,000	$1,000,000
SEA	Sample prices only. For a personal quote, click here.
30	$40	$78	$145	$278
35	$46	$96	$178	$341
40	$58	$127	$241	$468
45	$81	$183	$353	$693
50	$114	$265	$517	$1,020
55	$156	$371	$729	$1,445
60	$215	$517	$1,021	$2,029
65	$303	$738	$1,463	$2,914

The above is an example of what the monthly policy cost may be. The cost and benefits of each policy vary greatly from company to company. Use this information as a guide only. The actual cost of a personal policy will depend on your personal circumstances, goals, objectives, risk tolerance, investment choices and on insurance underwriting.For a free personalized quote, click here.

Please not that there are several different types of Estate Preservation plans available. It is extremely important that you fully understand all of the features, benefits and options before deciding if this is the right choice for you and your family. For a free, no obligation quote, please fill out our information request form and we will provide you with a personal analysis of your own situation and recommend the best option for you and your family.

Example One (For a personal "Estate Preservation" plan, click here)

Take our 65-year-old male and our 65-year-old female with a SEA of 55. Assume they have a current success tax of $250,000. For $729 a month, or $8,748 a year, they could provide their estate with $500,000 of tax free benifit, twice the current amount due to the CCRA. If they paid this amount every year for 35 years, their total investment would be $306,180. The benefit to the estate of $500,000 would be 63% higher than the investment.

Or, they could purchase the policy with a single payment of $150,000 (Note: this is $100,000 less than the current amount due to the CCRA) and get the same benefit. So, the choices are: (1) transfer the assets now, lose control and pay the CCRA $250,000; (2) do nothing and let the estate pay the tax bill after both spouses die; or (3) invest $100,000 less than is owed, maintain control of the assets and leave their estate with $500,000 in tax and probate free cash. (Check out our options chart)

Example Two

Lets assume that this same couple has a $25,000 current "success tax". They could purchase a $100,000 plan for $156 a month (or $1,872 a year). If they held this plan for 35 years, the total investment would be $65,520. They could also purchase the same plan for a single investment of $25,000, the same amount as the current tax bill. In this example, they have three choices: (1) they could pay $25,000 to the CCRA; (2) they could transfer the property and future liability to their children and grandchildren; (3) or they could invest the $25,000 in an Estate Preservation plan, maintaining ownership and control of their assets and use the $100,000 proceeds from the plan to cover the taxes due on their estate.

The above are just examples. Click here for more information about a personal Estate Preservation plan. Also, take a look at some information on Personal Tax Strategy PTS™. "Concepts that work" and "Fund your RRSP Tax Liability".

This is only one possible solution. Please consult a personal financial planner before deciding on which option is best for you. For more information, fill out our information request form.

Related Articles

Success tax article ( Find out what success tax is )
Estate planning options chart ( Compare the options for yourself )
Information or quote request ( Request more personal information or a quote )
Frequently Asked Questions ( Answers to many common questions )

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