An important factor to estate planning is to minimize taxes and maximize the wealth that will be passed on.
Life insurance offers an effective approach.
By shifting a portion of your assets from fully taxable investments such as GIC's and bonds into a tax-exempt insurance policy, you can significantly enhance your estate. Investments inside a life insurance policy grow on a tax-deferred basis, and at death, it is paid to your beneficiaries tax-free. You will have insurance protection, a reduction in your ongoing investment tax liabilities, and typically, a larger estate for your heirs, while other investment vehicles, can be subjected to capital gains tax. RRSP's and RRIF's are fully taxable at the death of a surviving spouse, and gains on other investments, such as investment properties, will also be subjected to taxes. Using insurance proceeds to pay for tax liabilities will often cost less, otherwise, assets may need to be sold or funds may need to be borrowed to pay for taxes, which may be a more costly method.
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