604-880-9589 jack@jackshaffer.com

Often we see older investors shift gears near retirement and beyond. Many become risk averse and move their assets into fixed income type investments. Unfortunately this often results in the assets being exposed to higher rates of income tax and lower rates of return – never a good combination.

Or maybe the older investor cannot fully enjoy their retirement years for fear of spending their children’s inheritance.

The Estate Bond financial planning strategy presents a solution to both of these problems.

It involves moving surplus funds out of the income tax stream and into a tax exempt life insurance policy. Each year a specified amount is transferred from tax exposed savings to the life insurance policy which results in increasing the size of one’s estate. In essence, we are substituting one investment (the life insurance policy) for another (fixed income assets).

The cash value in the life insurance policy grows tax-deferred and also increases the insurance benefits payable at death. Since the death benefit of a life insurance policy is received tax-free by the beneficiary this strategy results in a permanent tax shelter. In other words, there is an increase in the funds available to heirs and beneficiaries after death and a decrease in the taxes payable before death.

Estate Bond in Action:

Robert, aged 60, is considering using the Estate Bond concept as a means to guarantee his legacy to his children and grandchildren. Satisfied that he and his wife will have sufficient income during his retirement years:

  • Robert contributes $30,000 for 20 years into a Participating Whole Life policy which is guaranteed to be paid up in 20 years
  • The initial Death Benefit is $410,000
  • The Death Benefit at age 80 is $1,127,000 (at current dividend scale)
  • The cash surrender value at age 80 is $850,000*

* If surrendered, the cash surrender value would be subject to income tax but there are strategies that could be employed to avoid this tax.


Alternative Investment in Action:

Compare this to $30,000 invested each year for 20 years in a fixed income investment earning 4%* and taxed at 43.7%, the amount would be worth $764,000.

* It should be noted that obtaining 4% fixed income rate of return in today’s environment may be challenging.

Summary of benefits of the Estate Bond

  • The death benefit is not subject to income tax
  • The proceeds at death, if paid to a named beneficiary, are not subject to probate fees.
  • If the beneficiary is one of the preferred class (spouse, parent, child or grandchild) the cash values are protected from claims of creditors or litigants during the insured’s life time.
  • The same is true of the death proceeds for any named beneficiary. The use of life insurance with a named beneficiary also results in a totally confidential wealth transfer.
  • Robert and his wife can enjoy their retirement without affecting their family’s inheritance.

The Estate Bond strategy is designed for affluent individuals who are 45 years of age or older and who are in reasonably good health. For those who meet these criteria and have surplus funds to invest, this concept can provide significant benefits and results.

Please call me if you have any questions about the Estate Bond strategy or would like to determine if it is right for you.