Turn Taxes Into Profit For Your Family or Business
Wednesday, October 25, 2006
The Problem
You prudently invest as much as possible into RRSPs every year. Unfortunately, there are maximum limits you can put in your registered investments on an annual basis. Once you have run out of RRSP room, your only option is to invest in “open” (non-registered) investments. Open investments are usually subject to annual taxation, making compounded growth difficult to achieve.
The Solution
More and more Canadians are taking advantage of a unique tax shelter called Universal Life. This investment vehicle, which is based on a life insurance portfolio, allows an investor to deposit money into the accumulation fund as the investor sees fit. The investment can be linked to U.S. or International Equities, a Balanced Account, or even a Guaranteed Interest Account. There are no foreign content limits, and deposit amounts and timing can be customized to suit your preference.
Consider this: if a 50 year old couple invested $25,000 per year into a Joint Last to Die Universal Life plan for 5 years only, with a face amount of insurance of $750,000, and achieved a modest 3.5% return, cash values would grow to approximately $225,000 by age 80. If that same couple invested the same amount in an open (GIG) environment subject to tax, and achieved 4% return, cash value at age 80 would be approximately $218,000. However, with Universal Life the entire investment (plus original face amount) is paid to beneficiaries 100% tax-free. Therefore, in this example, if the 80-year-old couple died in a common disaster, the family would receive just over $975,000 tax-free. The alternative GIC investment would pay the family $218,000, after tax. The total investment by this couple was $125,000 over a five-year period. The only difference is where the money was deposited.
Each scenario used exact same deposits and similar returns, with the GIC getting the advantage. However, Universal Life produced an additional $757,000 tax-free dollars upon assumed death at age 80. If the second death occurred at age 85, Universal Life pays out just over $1 million, versus the GIC at $240,000.
In both cases, deposits ceased after just 5 years.
This illustration shows the real power of Joint Last to Die Universal Life. It is especially designed for those who are interested in estate preservation and creating multi-generational wealth for family members, children, grand children, and others.
(Note: rates shown are for illustrative purposes only, and are subject to change without notice. Plans vary from company to company)
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**DFS Investments Disclaimer:
Commissions, trailing commissions, management fees and expenses all may be associated with mutual funds investments. Mutual funds are not guaranteed and are not covered by the Canadian Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated. This site do not constitute an offer or solicitation in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. This site is intended for Canadian residents only and the information contained herein is subject to change without notice. DFS Investments will not be held liable for any inaccuracies in the information provided. References in this site to third-party goods or services should not be regarded as an endorsement of these goods and services. The owner of this site is not liable for any inaccuracies in the information provided.
