As a parent, you always want to ensure your children are taken care of, especially in these times of uncertainty. The cost of living is increasing daily, and the housing market seems out of reach for the majority. We want to ensure that if our children want to start a business or buy a house, they have a helping hand. Using a cascading life insurance strategy will help your children and your grandchildren with this problem. It allows you to transfer assets to the next generation while they grow in a tax-deferred manner but still have access to funds when needed.

Typical investment vehicles such as mutual funds, GICs, ETFs, stocks, or bonds are deemed disposed at their fair market value when transferred to the next generation and are taxable annually. However, the death benefit is not taxable; in some circumstances, the transfer of ownership to a future generation can also be tax-free. Fortunately, a life insurance policy allows an automatic tax-deferred rollover if the child’s life is insured under the policy.

This life insurance strategy is based on this tax-deferred rollover rule which allows you to transfer the policy ownership to the next generation and assign the beneficiary to your grandchildren. This enables the transfer of the cash value, which has been growing within the policy at a tax-advantaged rate compared to if it were simply in marketable investments which generate income subject to taxation. This means that you have access to the cash value within the policy, and your child can also access the cash when they become the policy owner. Their children will ultimately receive the tax-free death benefit payout.

This multi-generational strategy will allow you to not only protect your child with an insurance policy from an unexpected event, but it will also give them the opportunity to have access to funds and set their children up for success as well.

If you want to know more about this strategy and how it could potentially benefit you and your family, contact me today.

Wais Yardam
Financial Advisor,
Wealth and Insurance,
Wealth Management
T: 519-650-6262
M: 226-989-5205