Estate Bond
As many older investors approach retirement, they often shift their assets into fixed income investments, aiming to minimize risk. Unfortunately, this can lead to higher income taxes and lower returns, a less-than-ideal combination. Additionally, some retirees may worry about spending their children’s inheritance, limiting their enjoyment of retirement. The Estate Bond financial planning strategy addresses both issues by moving surplus funds from tax-exposed investments to a tax-exempt life insurance policy. This strategy allows the cash value of the policy to grow tax-deferred, potentially increasing the death benefits and reducing taxes paid during the investor's lifetime.
How the Estate Bond Works
and Its Benefits
The Estate Bond strategy involves transferring a specified amount from tax-exposed savings into a life insurance policy each year, substituting one investment for another. The cash value of the life insurance policy grows tax-deferred and can enhance the insurance benefits payable at death. The death benefit is received tax-free by beneficiaries, creating a permanent tax shelter. This results in more funds available to heirs and beneficiaries after death and fewer taxes paid before death. For instance, Robert and Sarah invested $30,000 annually for 20 years into a Joint Second-to-Die Participating Whole Life policy.
The immediate death benefit was $892,078, growing to $2,160,257 in 30 years. Compared to a fixed income investment, this strategy provides significant tax advantages, higher returns, and added benefits such as protection from probate fees (In applicable provinces) and creditor claims.
The Estate Bond strategy is ideal for affluent individuals over 45 in good health with surplus funds to invest, offering substantial benefits and results.