Since the introduction of the Tax Free Savings Account (TFSA) in 2009, many Canadians have taken advantage of the opportunity to accumulate wealth on a tax free basis.
Many Canadians, who are at or nearing retirement, have decided to leave the proceeds of their TFSAs to their heirs. By combining permanent life insurance with a Tax Free Savings Account, they can significantly increase the estate value of the funds in their TFSAs.
Let’s look at Dave and Connie as an example:
Together, Dave and Connie have $200,000 in their TFSA accounts. They decide to purchase an permanent life insurance policy that is paid over 8 years. The policy is joint, meaning they are both insured, and last-to-die, which means the policy pays out when the last person dies. The total coverage of the policy (or face value) is $747,693.
After they both die the funds will be paid to their beneficiaries. The premium for the policy is $37,000 per year for 8 years. They pay the premiums by transferring $25,000 from their TFSA and redirecting their contribution of $12,000 each year for 8 years. In year 9, they resume annual contributions to their TFSA accounts.
- Dave, age 63
- Connie, age 59
- $200,000 balance in TFSA / 8 annual deposits
- Annual deposits to TFSA $12,000 ($6,000 X 2)
TFSA Estate Maximizer
| Estate Value of TFSA Accounts | Estate Value using TFSA Estate Maximizer Strategy | % Advantage of the estate maximizer amount over the TFSA amount | |
| Year 1 | $218,360 | $927,943 | 325% |
| Year 8 | $363,263 | $772,069 | 113% |
| Year 15 | $541,476 | $872,381 | 61% |
| Year 22 | $869,392 | $1,056,957 | 22% |
By simply reallocating the $200,000 balance of their TFSAs into eight annual deposits of $25,000 and adding the eight future TFSA deposits, Dave and Connie are able to significantly increase the estate value of their TFSAs by 22% at life expectancy and enjoy the following advantages:
- Funds can pass directly to named beneficiaries outside of their estate (no probate)
- The payment of the life insurance proceeds can avoid probate administration fees
- Funds maintain their tax exempt status
- Access to funds is still available if required
- Additional TFSA deposit room is created during the initial 8 years when annual TFSA deposits are redirected to the life insurance policy.
Every person and family’s circumstances are different, so ask your advisor and do the math with them.
If you would like to discuss this life insurance strategy or any other idea, please book a free call here: BOOK A FREE 15-MINUTES
GENIUSGRANDPARENT.CATHIS ARTICLE IS PROVIDED AS A GENERAL SOURCE OF INFORMATION ONLY AND SHOULD NOT BE CONSIDERED TO BE PERSONAL INVESTMENT OR LEGAL ADVICE. READERS SHOULD CONSULT WITH THEIR FINANCIAL OR LEGAL ADVISOR TO ENSURE IT IS SUITABLE FOR THEIR CIRCUMSTANCES.