What is the Best Gift You Can Leave for your Grandchildren?

So how do you leave a legacy behind and not compromise your current financial situation?  If you are a grandparent wishing to provide an asset for your grandchildren without compromising your own financial security, you may want to consider an estate planning application known as cascading life insurance.   Because permanent life insurance is a high cost to purchase in your 60’s and 70’s a more viable option may be to fund a permanent life insurance policy on behalf of your grandchildren.  This becomes another vehicle to transfer your wealth to the next generation in a very tax-efficient manner.

How To Leave a Legacy?  How Does it Work?

  • The grandparent would purchase an insurance policy on his or her grandchild and funds the policy to create significant cash value;
  • The grandparent would own the policy and name their adult child as a contingent owner and primary beneficiary;
  • The cost of life insurance is lowest at younger ages, allowing the grandparent to establish a plan that allows the cash value in the policy to grow tax-deferred;
  • When the grandparent dies, his or her adult child becomes the owner of the policy.

What are the benefits of the Cascading Life Insurance Strategy?

  • Tax-deferred or tax-free accumulation of wealth;
  • Generational transfer of wealth with no income tax consequences;
  • Avoids probate fees;
  • Protection against claims of creditors;
  • Provides a significant legacy;
  • Access the cash value to pay child’s expenses such as education costs. (Withdrawal of cash value may have tax consequences);
  • It’s a cost-effective way for grandparents to provide a significant legacy.

Case Study

Let’s consider an example of the Cascading Life Insurance Strategy.  Grandpa Brian is 65 and has funds put aside for the benefit of his grandson, Ian.  He purchases a participating Whole Life policy on Ian, age 11, for an annual premium of $5,000 for the next 20 years. Brian’s daughter, Kelly is named as contingent owner in the event of Grandpa Brian’s death and beneficiary in the event of Ian’s death.  If Grandpa Brian were to die at age 85, the policy now passes to Kelly with no tax consequence.  The cash value of the policy (at the current dividend scale) at that time is approximately $133,000, and the death benefit of the policy is approximately $672,000.  As a result of Grandpa Brian’s legacy planning, Grandchild Ian, now age 31, has a significant insurance estate that will continue to grow with no further premiums!  By Brian’s age 45, the death benefit, at the current dividend scale, would be $960,000 with a cash value of $304,000.                                                              =============================== Please call me if you think your family would benefit from this strategy or share this article with a friend or family member you think may find this information of value.
Note – The numbers shown in the Case Study are using Canada Life’s Estate Achiever 20 pay Participating Whole Life policy with maximum Additional Deposit Option.
Chris Coulter is the Founder and President of The Finish Line Group.  He works with business owners to leverage their businesses to increase their wealth, reduce corporate and personal taxes, create viable succession strategies, enable employee retention strategies and allow them to exit their businesses on their terms. Chris’ passion for what he does evolve from the mistakes he made in his first business; by not diversifying his risk and not utilizing a lot of the opportunities within his business to create significant wealth.  Chris found out the difficult way and now educates business owners on how to avoid many of his former oversights and ultimately control where their finish line ends.

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