In addition to creating an immediate tax-free death benefit, life insurance can:
- maximize your investment growth in a tax-sheltered environment;
- provide a tax-efficient way to:
- supplement your retirement income, or
- fund a child’s education;
- help you realize the tax advantages of income splitting.
Depending on the amount and type of life insurance purchased, you have the potential to build a significant value within the policy. Contact Ken MacCoy, CHS to find out how life insurance can benefit you and your family.
Income splitting makes good money sense
Income splitting is an excellent way to reduce your household’s tax bill. It transfers assets such as cash, securities or rental property, from someone in a high tax bracket to someone in a lower bracket, so that the income earned on those assets is taxed at a lower rate.
Although there are restrictions preventing the widespread use of income splitting, there are some exceptions. For example, one income splitting opportunity that is available involves life insurance.
Using life insurance, you can not only effectively split your income with your child or grandchild, but also provide a source of income to meet their educational or other funding needs. Under this concept, you purchase a permanent life insurance policy on your child or grandchild. The cash value of the policy accumulates tax-free. After the child or grandchild reaches the age of 18 or older, you then transfer the policy to him or her on a tax-free basis.
The cash value in the policy, if withdrawn, would then be taxed as income to the child or grandchild (most likely at a lower personal tax rate) and will not be attributed back to you. Your child or grandchild could then, for example, use the funds to pay for university or as a down payment for a home.
Other income splitting tactics include:
- Hiring your spouse and/or child if you run your own business;
- Starting and funding a spousal RRSP;
- Splitting up CPP/QPP payments;
- Putting Child Tax Benefits in an investment under your child’s name
To find out more details on how these tactics can benefit you and your family in the long-run, contact Ken MacCoy, CHS.