An estate plan is the complete package of how you’ll provide for your family and loved ones while you’re living, and how you’ll transfer and preserve the value of your assets after you die and for your beneficiaries to receive the greatest benefit possible. It also helps ensure that your wishes for your estate are carried out.

A well-thought-out, well-executed estate plan will allow your loved ones to tie up the ends as timely and painlessly as possible. Speak to your accountant and your lawyer, discuss your goals with your partner and family, but most importantly, consider the advice of a financial advisor.

Estate planning, can go hand-in-hand with retirement planning — and you’re never too young to start preparing for retirement. By creating an estate plan today, you’ll save on taxes and fees later on.

Some questions to consider when setting up your estate plan are:

1. Does your Will and estate plan effectively provide for an orderly disposition of your estate plan to all your intended beneficiaries?
2. Can gifts made during your lifetime minimize probate fees?
3. Have you confirmed your intentions regarding jointly owned property such as real estate, bank accounts, and investments so that clear ownership rights are established?
4. Will establishing a trust for your spouse, children, or a charity help you realize tax advantages and preserve assets such as a business, cottage or family home?
5. Do you have a plan to reduce or defer taxes that become payable at your death?
6. Have you appointed a Power of Attorney?
7. Are your life insurance benefits payable directly to your beneficiaries or to your estate to pay off liabilities or to provide income?

This article will address the significant role that Life insurance can play in your estate plan. It provides a solution to a wide range of potential objectives. In general, life insurance serves one of two purposes: either to create an estate for your heirs or preserve your existing estate. Generally, life insurance premiums are not tax deductible but the benefit paid to the estate (probate may apply) or a beneficiary (probate would not apply) is also not subject to income tax. Common uses of insurance include:

1. Provide liquidity in an estate to pay off liabilities such as taxes or mortgages. This will ensure that non-liquid assets, such as a cottage or business, do not have to be sold, but can be left to your beneficiaries.
2. Establish a fund to provide income for an individual you wish to support, such as your spouse, children or grandchildren.
3. To make a donation to charity.

The basic types of Life Insurance are Term and Permanent

Term Coverage

Term insurance provides protection for a specific period of time. It pays out the benefit only if you die during the term of coverage. Term insurance is typically used to fund a short-term estate need such as paying off an outstanding mortgage, protecting the estate against an immediate shortfall or to prevent financial hardship by replacing lost income caused by the death of the life insured. This coverage is usually offered as a five-, 10- or 20-year term after which time it may be possible to renew the policy at a new premium rate. This coverage is generally the cheapest coverage to purchase if it will only be necessary for a short duration. If the coverage will be required for a longer period it may be less expensive to consider permanent insurance options.



Term to 100

Term to 100 coverage provides long-term protection in your estate plan. This type of Life Insurance coverage often has a constant annual premium throughout your lifetime with the annual premium being higher than that charged for a five-or 10-year term policy. This policy will remain in force as long as you pay the annual premiums, but if the premiums stop so does the coverage. This policy has no cash value.



Permanent Insurance

Permanent insurance provides protection for your lifetime. As long as you pay the premiums, the death benefit will be paid. The majority of these types of products have a cash value or cash-surrender value.

Whole Life

Whole life coverage is similar to Term to 100 coverage in that it is intended to remain in effect for your lifetime. In addition to the permanent insurance coverage, a whole life policy also includes a savings component. Therefore, the annual premiums you pay fund the insurance premium with the excess accumulated for the future benefit of you or your estate. Over a period of time the policy’s savings component will result in the accumulation of a cash value to the policy (referred to as a cash surrender value).

Universal Life

A universal life policy is a combination of term insurance and a tax-deferred saving’s component. Your premiums fund the insurance coverage with the balance invested in various investment options that you select. The premiums can be increased to raise the amount of tax-deferred savings (with some limitations) or reduced to simply cover the cost of the insurance coverage. Premiums may be suspended if sufficient cash value has been accumulated in the policy to fund the insurance coverage.

Insurance for Estate Planning Purposes

The use of Universal or Whole life insurance products rather than term insurance is the preferred option where the purchase of insurance is for estate purposes. Examples include having a life insurance policy that would cover estate taxes on death (capital gains generated due to the deemed disposition rules) or the ability to leave bequests without the advent of taxes payable. As with all insurance products that are geared towards estate planning purposes, a thorough cost-benefit analysis should be performed in order to assess the appropriateness of the strategy.

How much Insurance is enough?

The amount of coverage you require will depend on your estate objectives and current financial status. As you age, you may find that the level of coverage you require declines or perhaps changes from short-term to permanent coverage. Determining exactly how much and what type of insurance is most suitable for your situation can be best assessed through the preparation of a financial plan and the aid of a life-licensed advisor. The financial plan and a life-licensed advisor can help you in the determination of both short-and long-term needs in conjunction with your overall financial objectives.

Special RRIF Insurance

RRSP or RRIF assets, if not spent, are eventually taxed up to nearly 50% as an estate liability. This money will be lost to Canada Customs & Revenue Agency where there is no surviving spouse or dependent child or grandchild.

You may want to recover the tax liability on these assets or pass the equivalent of these pre-tax monies to your heirs. Where a spouse is currently living, a joint last-to-die life insurance policy can time the insurance to pay on the second spouse’s death to cover the final tax due on registered investments.

The benefit will pass tax-free to your heirs, or a charity designated as beneficiary, for the same amount which would normally be lost to Canada Customs & Revenue Agency in relation to taxes due on your RRSP or RRIF. With a little pro-active planning this can be accomplished.

Everyone always says, “It won’t happen to me.” We see others around us that have had a mild heart attack or a severe illness and can’t work for six months to a year. If this happened to you, would you have to deplete your RRSP’s or your savings to cover your monthly bills? One-third of all people, now aged 35, will be unable to work for at least six months before they reach the age of 65.

We all think about minimizing risks in our business yet we don’t take the time to think, if something were to happen to our spouse or ourselves how would we deal with it.

One method is to obtain a disability insurance policy that would provide financial security if you or your spouse were unable to work for any length of time. A disability insurance plan is designed to help you meet your income requirements, so you can concentrate on recovery and return to an active life.

The peace of mind you can get from income protection is available for professionals, business owners, business executives, as well as full-time, part-time or home-based workers and new entrepreneurs. Whether you need to secure your main source of income or supplement the coverage you receive from your employer or an association, you should have a comprehensive and portable plan you can rely on throughout your working years.

What does this mean for you? Here are some of the terms associated with income replacement programs and the types of protection that may assist you with your own personal planning.

1. Income Replacement: Your disability plan pays you a regular income each month during your disability. Your basic coverage and premiums are linked to your occupation, income and other sources of insurance.
2. Non-Cancelable: This means that once the policy is issued, and premiums are up-to-date, the amount of your coverage and premiums are guaranteed for the life of your policy.
3. Flexible Terms: Depending on your needs and occupation, you can purchase insurance that covers you for one, two or five years, or until you turn 65.

Many ask what other alternatives there are other than disability insurance. The following may help you cope financially through a time of disability. However, they may not be enough to allow you to return to a full and active life with your financial security intact.

1. Worker’s Compensation: A benefit only for industries that are covered and disabilities that are work-related.
2. Employer, Union or Association Plans: Many group plans provide short-term and/or long-term disability protection.
3. Employment Insurance (EI) Benefits: A Federally run benefit that pays a 15-week benefit if you can’t work due to an illness or an accident, provided you’ve contributed for a specified number of weeks within the past year.
4. Canada and Quebec Pension Plans (CPP/QPP): You may qualify for limited disability benefits under these plans.
5. Savings & Assets: You can sell personal property or use your savings to pay bills.
6. Spouse’s Income: If you have a spouse, you may be able to rely on that income.

We are often reluctant to have these discussions. It can be frightening to think we may need income replacement at some point in our lives. Most of us need not look too far to find someone we know who has had to rely on one type of program or another. Take the time to discuss a plan now - a little planning can go a long way.

The first question most people ask is why do we need life insurance?

Life insurance can provide you with peace of mind knowing that if something happens to you, your loved ones won?t be left with a legacy of debt, final taxes or other money worries. Life insurance is there to protect and provide for your family when you are no longer able to. If your children are young, they will need support for many years. Without insurance they will lose the standard of living that they are used to. If they are older, they may still need help with education, starting a family of their own or starting a business.

If you have taken on a mortgage you should consider buying term insurance to cover the mortgage principal. That way, if the worst happened, your family could at least keep the roof over its head. And by purchasing the insurance personally as opposed to taking the mortgage insurance option offered by the bank or mortgage company, that money would be placed directly into your family’s hands. A personal insurance policy will also offer more flexibility and features that you can use to plan for your future needs.

It is important to have your life insurance tailored to your needs and that it can be revised as your needs change.

Some questions you should ask in order to choose the right type of policy are:

• Will the policy meet my current needs?
  
  
• Will the policy provide the flexibility to meet my future needs?
  
  
• What does the policy cost — both current and expected lifetime costs?
  
  
• Is the provider established and financially strong?
  
  
• Will the company back its guarantees?

There are two types of insurance to choose from term insurance or permanent insurance.

Term Life Insurance

If you’re looking for basic insurance coverage for a specific period of time, term insurance is a good place to start. It’s a cost-effective and simple plan, with some flexibility to adapt to your long-term goals. Over time, your needs may change.

Term life insurance can evolve with your needs by providing options to lengthen your coverage period or even to transfer to a permanent life insurance solution.

Permanent Life Insurance

If your financial objectives include more than basic insurance coverage, you may benefit from this option?s added investment potential. Permanent insurance solutions allow you to insure against the unexpected while increasing the value of your investment over time. Permanent plans are flexible; and can be tailored to the level of investment potential and insurance coverage to meet your personal financial goals. You can also select a plan that gradually minimizes insurance coverage so you can maximize your policy’s investment potential.