Your Banker will not explain these very effective strategies because banks are not allowed to sell annuities.
Annuities can only be purchased from an insurance company and when used correctly can be a solid addition to your overall financial and estate plan.
The advantage of an insured annuity comes from the use of two different mortality tables.
Annuity tables are based on the life expectancy of the total population while the life insurance tables are based on the population that are healthy enough to qualify for a life insurance policy.
There is something better than your GIC’s!
Are you looking for a higher return on your investments without taking on more risk? Moving your money away from a GIC and into an Insured Annuity is a great way to potentially double your income and avoid probate without taking on more risk.
‘Back to Back’ annuities or insured annuities are a combination of two financial instruments that create extraordinary results on a guaranteed basis. The first financial instrument involves the purchase of a ‘prescribed’ annuity, which provides income for life. The prescribed annuity is extremely tax efficient, since it is taxed at a very low rate. The tax advantages of a ‘prescribed’ annuity are derived from the fact that the bulk of the money coming back to the individual is the return of capital and therefore not taxable while the interest is annuitized over the lifetime of the individual.
The second financial instrument of an insured annuity involves the purchase of a life insurance contract equal to the amount invested into the annuity. This guarantees that the original capital will be paid back upon the death of the annuitant tax-free to the beneficiaries or the estate or charities depending on who is named in the insurance contract or in the insured’s will.
For this strategy to work you must:
- Be Insurable
- Have non-registered money – you will NOT need before your death.
The secret behind why the back-to-back annuity solution works so eloquently in producing such spectacular returns is found in the differing actuarial mortality tables used by each of these distinct financial instruments. The mortality tables show the frequency of death within a particular group of individuals related to their age and sex. Insurers use these tables for calculating premiums on their various products.
Annuities use mortality rates found in the general population. Life insurance premiums are based on the mortality rates of people who have been found healthy enough to pass the required physical and financial examinations. This basically means that the life expectancy of an annuity owner is much less than someone who owns a life insurance policy of the same age. Therefore, the annuity can afford to pay out a greater income than any other fixed income product while insuring the original principle.
Another positive result of implementing the back-to-back annuity solution is that the full investment into this solution is segregated from the rest of the individual’s estate. This results in the death benefit passing to the beneficiaries tax-free while avoiding all probate fees. The life insurance is absolutely creditor-protected provided the proper beneficiary designation has been made.
This is an excellent Estate Planning tool and a topic bankers do not like to discuss.
Contact us today to see if this strategy would work for you.
The corporate capital gains solution – the Holy Grail.
In essence, the corporate capital gain solution is this… a corporation acquires an annuity and an insurance policy on the life of its key shareholder. The corporation then borrows funds to replace the capital used to purchase the annuity. The annuity payment pays the insurance premium and the loan interest. The capital gain on disposition of the shares of the company is reduced by the amount of the loan. The end result is, upon the key shareholders death, capital gains taxes are eliminated on the disposal of their corporate shares. One of the nice results is that the client is cash-neutral during the entire process. Here is how it works…
The first stage of the plan involves the purchase of a permanent Life Insurance policy on the key shareholder.
The second stage involves the purchase by the corporation of an immediate annuity on the life of a key shareholder. In order to maximize income, the annuity will generally be paid for the life of them annuitant with no guarantee period.
The third stage involves the corporation borrowing funds to replace the capital and, where desired, using the funds to reacquire any liquidates assets.
While the shareholder is alive, the corporation will receive payments under the annuity contract. The annuity payments after tax are sufficient to pay the after-tax insurance premium and the after-tax interest on the loan. Interest paid on the borrowed funds is deductible.
In addition, as the insurance policy acquired by the corporation is required as collateral for the loan, the lesser of the policy premium and the policy’s net cost of pure insurance will be deductible from the corporation’s income.
Now for the really great stuff… Immediately before death, the shareholder is deemed to have disposed of his or her shares of the corporation for their fair market value.
The amount of the loan reduces the value of the shares; however, the value of the annuity and of an insurance policy without cash surrender value is nil. Therefore, there would be a reduction in the value of the corporation for income tax purposes.
The result is a significant tax savings to the deceased shareholders estate.
The amount of any insurance proceeds paid to the corporation, net of the adjusted cost base of the insurance policy, would be credited to the corporations capital dividend account. This would allow the payment of capital dividends to the estate of the deceased shareholder, i.e., a tax-free distribution that would be unavailable without the life insurance component of the corporate capital gain solution. Funds received by the estate in this fashion could be used for the payment of bequests, income tax and other estate liabilities.
Call us today to find out if this or a similar solution would work for you.
