Generational Legacy Plan

The Generational Legacy Plan is a flexible financial strategy that empowers clients to provide for their child’s future financial security by using a cash value life insurance policy on their child’s life to provide a financial foundation when the insured child needs it in the future.

 

For more information, contact our Business development team - Insurance.

The client uses funds otherwise invested in their taxable investment accounts and other available liquid assets to purchase a cash value life insurance policy on the life of their child. The policy is part of the legacy that they plan to leave for their child, so the premium payments redirect a portion of this planned legacy into a tax-advantaged exempt life insurance policy. This provides a tax-efficient way for them to make an intergenerational wealth transfer to their child. This reduces the tax burden on their taxable investments during their lifetime. When they are ready, they can transfer ownership of the policy to their child on a tax-deferred basis using an Intergenerational Policy Rollover under the tax rules.

Definition

Child: For the purposes of taxation and of this concept, the definition of “child” includes:

  • A child of the policyowner
  • A grandchild of the policyowner
  • A person who, before reaching 19 years of age, relied entirely on the policyowner for financial support and was under the policyowner’s custody and control, whether in law or in fact
  • A person of whom the policyowner is a legal parent
  • A child of the policyowner’s spouse or common-law partner
  • A person who was a child of the policyowner immediately before the death of the person’s spouse or common-law partner

See subsections 148(9) “child”, 70(10) and 252(1) of the Income Tax Act for more details.

Intergenerational policy rollover

When the policyowner of a life insurance policy transfers the policy during lifetime for no consideration or on death via a contingent owner appointment to a “child” as defined for tax purposes and the “child” is the person whose life is insured under the policy, the transfer is deemed to occur at the policy’s adjusted cost basis. This results in a tax-deferred rollover to the child.

However, the intergenerational policy rollover will typically not apply if an interest in a life insurance policy is transferred to a child under provisions in the policyowner’s will or to a trust for the benefit of a child, if the child is not the only life insured on the policy at the time of transfer or if a consideration is paid for the transfer.

See subsection 148(8) of the Income Tax Act for more details.

Benefits

  • Provides a living gift
  • Maintains control over the policy
  • Child is insured for life*
  • Meets the child’s changing lifetime needs
  • Simplifies intergenerational wealth planning
  • Reduces tax burden during lifetime and upon death**

*As long as required premiums are paid or it’s a paid-up policy.
**Cash values will grow inside the permanent life insurance policy on a tax-deferred basis as long as they remain inside the policy.

Eligible products

Participating whole life insurance

  • 5 Pay PAR
  • Accelerated Growth (10 Pay, 20 Pay or to 100)
  • Estate Enhancer (10 Pay, 20 Pay or to 100)