It can be difficult to find estate planning solutions that are suitable for the complexities of blended families. Consider a family who has a financially dependent disabled child, or a blended family with multiple step children, or someone wanting to leave money to people other than their immediate family or to a charity. Parents may be worried about creating family friction or the fallout after both are deceased because of whom and how much they wish to leave their estate to.
Wills can be structured to leave a legacy when there are complicated family dynamics, but complex wills are expensive, plus difficult and time consuming to change. Also they can eventually become public negating any effort for privacy as to the distribution of one’s estate. The other big issue here is things that have to go through probate such as capital property, business interests, bank accounts and non-registered investments. There are assets that will be subject to capital gains tax such as land, buildings, or shares in businesses, also tax on RRSPs or RRIFs on the death of a single person or the last spouse to die of a couple.
This is where products administered by life insurance companies can solve a number of issues, especially by naming family members as beneficiaries.
- Life insurance: Proceeds from personally owned life insurance policies bypass probate and are paid directly to beneficiaries. Payment is private and tax-free to the recipient. Proceeds from corporately owned policies are paid to the corporation to be used at the director’s discretion, usually to fund buy-sell agreements.
- Annuity settlements: Insurance proceeds as a result of a death can be used to set up an annuity that will provide monthly payments either for the life of the recipient or for a specific term such as 10 years.
- Segregated funds: These are like mutual funds held in a life insurance contract that provide a range of guarantees, such as the invested principal, or a guaranteed value after a specific time or on death. Successor owners can be designated on unregistered contracts to transfer ownership to them on the death of the first owner. When family members are named as beneficiaries, these also offer a degree of creditor protection.
- GICs held with life insurance companies: These also can have named beneficiaries, allowing bypass of probate and private transfer of funds.
- Legacy settlement options: The policy or contract owner can choose if proceeds are to be paid out in a lump sum or as a steady income stream.
There are a wide range of benefits built into the various life insurance based products that can offer significant advantages when dealing with family legacy issues. All can have a part in contributing to protection, investment growth, flexibility and control on the transfer of an individual’s assets. By bypassing probate they also allow private and efficient settlement options for a family’s estate.
Through your working years your family situation may have changed and your net worth grown significantly. By using a range of life insurance options, you could significantly increase your net estate value to be transferred to the next generation and do so in a way that provides for the people you care for.
Talk to a financial advisor who has the experience and knowledge to recommend and set up a strategy that works for you.
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