Legacy Bond

What's a better way to give cash to your beneficiaries?

The Legacy Bond is a simple solution. Sometime this strategy is called an "Estate Bond" or an "Asset Transfer Plan".

The Strategy

You take safely invested assets (i.e., low return, high tax) you're never planning to spend and buy life insurance instead. You bypass Estate Administration Tax and delays in settling the estate. You also reduce your taxable estate. You increase the size of your estate.

Depending on your situation, you could get Term 100 (life pay, no cash values) or universal life (can have cash values and be quick-paid and shelter investment growth from taxation). You have flexibility to access the cash value if you require. You can have more than one beneficiary. You select how much each receives. You diversify your investments and could increase their after-tax return.

Do you qualify?

The Legacy Bond helps if

  • you are safeguarding assets for children, grandchildren, charities
    • not intended for your personal use (excluding emergencies)
  • you hold conservative, highly-taxed investments like GICs
  • you're between ages 45-75

Works better if you have a spouse since the insurance charges are lower with Joint Last To Die rates.

BMO Personal Asset Transfer Plan - client brochure 330e.pdf

Pros

  • can combine with other strategies (e.g., Insured Retirement Plan)
  • large death benefit available right away
  • creditor protection available when properly structured
  • attractive after-tax ROI
  • no need to manage the investments (unless you want)

Cons

  • you qualify based on your health
  • a long term commitment
  • the longer you delay, the higher the cost

How It Works

The Legacy Bond works as follows:

  1. Apply for permanent life insurance
  2. Transfer nonregistered assets to pay the premiums
  3. The tax-free death benefit goes to your beneficiaries

Variations

Since carefully-selected life insurance has guarantees and flexibility, you can also achieve other goals:

  • reduce the costs by making deposits over a shorter period (e.g., 10 years)
  • get tax-free retirement income by "overfunding" to build up a substantial tax-sheltered savings
  • corporate ownership (funding with "trapped" retained earnings and using the tax-free Capital Dividend Account)

FAQ

These answers are general and simplified for clarity. For specific answers for your unique situation, arrange a chat

What if I need money?

Your insurance policy has value. If you have a cash value, you can use that as collateral for loans or to stop making deposits temporarily or perhaps permanently. You can donate your policy for the actuarial Fair Market Value. You can sell your policy where permitted by law (not allowed in Ontario)

Can I change the beneficiaries?

Yes

Other common questions about life insurance

Read more


Arrange a chat

For personal attention, arrange a chat.