Transferring assets between generations while minimizing tax

The Situation
You have unregistered investment funds set aside as an inheritance for a child and grandchild, but you don't want the tax burden and probate fees to be part of the inheritance. Although you are unlikely to ever need the money yourself, you are concerned about the safety of your investments and access to the funds should your circumstances change. Plus, you are in a high marginal tax bracket and you are paying too much tax on the growth of these assets.

The Strategy
Purchase a tax-exempt life insurance policy where your child is the life insured and the contingent owner. That same child's son or daughter is named as the beneficiary. Transfer your unregistered assets into the policy. This will reduce your current tax burden since funds invested in a tax-exempt life insurance policy grow on a tax-sheltered basis. At your death, because of certain income tax provisions that apply only to life insurance policies, your child becomes the owner of the insurance policy without your estate paying any tax on the interest earned by the policy and free of probate, executor and legal fees. Your child will then have access to the funds in the policy while he or she is living. Alternatively, your child can maintain the policy to be passed on at their death, to your grandchild as a death benefit, again without taxes, probate or legal fees. The funds in the policy remain completely accessible and in your control while you are alive in the event that you do require additional future income. The wide range of permanent cash value life insurance products allows you to customize your insurance coverage and to match your investment goals with your risk tolerance.

This material is for information purposes only and should not be construed as legal or tax advice. Every effort has been made to ensure its accuracy, but errors and omissions are possible. Individual circumstances may vary and specific legal and tax advice is recommended.

This strategy is based on current tax legislation. Future tax changes and market conditions may affect this program.

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