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Why is Universal Life Insurance an excellent Estate Planning tool?

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Compliant content provided by Adviceon® Media for educational purposes only.


There are several reasons why people use Universal Life (UL) for estate planning.

  • The death benefit is adjustable. The amount of life insurance can be increased or decreased to reflect your changing needs. If the death benefit remains level, eventually the major portion of the benefit, over a long period of time, can consist of the cash reserve (CSV). As the need for the insurance shrinks, the cash can increase, providing the insurance cost doesn’t reduce the cash value and its growth. If the death benefit grows, the cost of insurance will increase with age, and continues to be paid from the cash value.
  • You can insure more than one life in the plan. You have the option of insuring yourself, your spouse, both of you, your children, or business associates using one or more of these policies. In some cases, the ownership can be transferred or lives added and the premiums paid from the original tax advantaged funds. Your death benefit can be payable after the first spouse’s death to provide an income for the surviving spouse. Alternatively, you can arrange to have the benefit paid after the second spouse’s death to maximize the value of your family’s inheritance or meet your estate’s tax liabilities.
  • UL works to protect you from the potential tax liability of your estate. Discuss your estate use of UL with a good tax advisor, CA, or financial advisor specializing in estate taxation. You may also want to seek counsel from an estate-planning lawyer. Make sure you, along with your financial representative, assess the estate’s need for life insurance and the various solutions. The best estate-planning solutions are most often insurance related because life insurance is designed to pay a large capital benefit at precisely the time it is needed.
  • Mitigate tax erosion of the value of a significant estate. If you own stocks and bonds, equity investment funds, a family cottage, a second residence, or business assets you may face capital gains taxation in your estate. Upon death, taxes will also be due on funds remaining in an RRSP/RRIF (after the death of both spouses in the case of a married couple). One policy can replace or pre-fund such taxes due. With a joint last-to-die policy, the insurance proceeds can be used to cover the estimated estate taxes. The advantage is that one’s entire pre-tax estate valuation can pass, as desired, to the family heirs.
  • Circumvent probate and/or estate administration tax (EAT). When the tax-free benefit is paid directly to beneficiaries, there is no need to probate this money or have it reviewed by the government. In fact, other beneficiaries have no recourse to complain about monies paid to heirs in this manner. Depending on the province, such legislation may be under review or currently changing.
  • Business owners can protect their asset value. The death benefit of a UL policy can create immediate capital to take a business through the transition of losing one of its leaders, or key employees, while allowing surviving partners to buy out the outstanding interests via a payout of the share ownership of the deceased partner. This is commonly done within the framework of a well structured buy-sell agreement.
  • Other tax advantages. A UL policy owner can earn and accumulate tax deferred interest to potentially increase the after-tax yield of your investments and policy cash value over the long term. The UL deposits are protected from secondary annual taxation on interest earnings until withdrawn.

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The Advisor and Manulife Securities Incorporated, ("Manulife Securities") do not make any representation that the information in any linked site is accurate and will not accept any responsibility or liability for any inaccuracies in the information not maintained by them, such as linked sites. Any opinion or advice expressed in a linked site should not be construed as the opinion or advice of the advisor or Manulife Securities. The information in this communication is subject to change without notice.

This publication contains opinions of the writer and may not reflect opinions of the Advisor and Manulife Securities Incorporated, the information contained herein was obtained from sources believed to be reliable, no representation, or warranty, express or implied, is made by the writer, Manulife Securities or any other person as to its accuracy, completeness or correctness. This publication is not an offer to sell or a solicitation of an offer to buy any of the securities. The securities discussed in this publication may not be eligible for sale in some jurisdictions. If you are not a Canadian resident, this report should not have been delivered to you. This publication is not meant to provide legal or account advice. As each situation is different you should consult your own professional Advisors for advice based on your specific circumstances.

 

DISCLOSURES:

Insurance products and services are offered through Mertin Financial Inc.

Investment dealer dealing representatives (“investment advisors”) registered with Manulife Wealth Inc. offer stocks, bonds, and mutual funds.

The Manulife Bank Advantage Account is offered by Harold Mertin through referral arrangement with their insurance business Manulife Bank of Canada and is separate from Manulife Wealth Inc. product offerings.

Manulife Wealth Inc. is an indirectly, wholly-owned subsidiary of Manulife Financial Corporation (MFC). MFC owns The Manufacturers Life Insurance Company (MLI), a financial services organization offering a diverse range of life and health insurance protection products, estate planning, investment and banking solutions through a multi-channel distribution network. MLI owns Manulife Wealth Inc., and Manulife Wealth Insurance Services Inc. MLI also owns Manulife Bank of Canada, a federally chartered Schedule 1 bank, which in turns owns Manulife Trust Company, a federally chartered trust company.


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