What is Your Financial Legacy?

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BY ANDREW STEWART 

“What we have done for ourselves alone dies with us; what we have done for others and the world remains and is immortal.” -Albert Pike

What is a legacy? The dictionary would define Legacy as a gift or a bequest that is handed down, endowed or conveyed from one person to another. It is something descendible one comes into possession of that is transmitted, inherited or received from a predecessor. For myself legacy is more about sharing what you have learned, not just what you have earned and bequeathing values over valuables as material wealth is only a small fraction of your legacy. Take our grandparents for example, they are known for passing down family history, world history and everything in between. As a family advisor, many of my clients also desire to leave behind a financial legacy for their children, grandchildren, favorite hospital and church.

The Legacy of Life Insurance: Life insurance can also be an exciting and creative way to provide a substantial legacy for the church and hospital. With creative planning, you can use life insurance to provide a much larger gift than you may have imagined possible.

Some of the ways to achieve this include:

  1. Give a paid-up policy by naming the hospital or church as the owner and beneficiary. You receive an income tax receipt for the fair market value of the policy.
  2. Name them as the beneficiary or one of the beneficiaries of a present policy. After receiving the proceeds from your policy, they would issue a donation receipt for the full amount of your gift, creditable on your final tax return.
  3. Those who qualify may take out a new policy naming the church or hospital as the owner and beneficiary of the policy. You are eligible to receive a tax receipt for the value of the annual premiums, substantially reducing your own costs while you grow your gift to the church. This is a creative way for those who are younger and may not have substantial assets to leave a significant legacy to the church.

Passing Down Your Home: It’s common practice in Canada for parents or grandparents to leave their home or cottage to a child or grandchild. It’s also common practice for the taxman to expect a share of the transfer proceeds, as the value of the property has now transferred from one owner to another. If your wish is for your children to inherit your primary residence, your estate would not be subject to capital gains tax on the disposition of the property. However, if they were to sell the principal residence — say, because they already have a home — the sale would be subject to capital gains tax, since they are selling a piece of property that is not their primary residence.

Of course, all this gets a lot more complicated when you have multiple children that would be owners.

Say, for example, the primary residence is left to three sisters. As siblings, they make a unanimous decision to allow the youngest to move into the home and to take out a mortgage to buy out the other two siblings. Since the youngest now considers the inherited property as their primary residence, they won’t be subject to tax. The other two siblings, however, would have to pay capital gains tax once the youngest child has moved into the home. That’s because the change in use of the home triggered what the taxman calls a “deemed disposition”— the use of the home has changed, and thus the home is considered to have been sold for tax purposes. Before any property can be distributed to beneficiaries, the executor should obtain a clearance certificate from the Canada Revenue Agency (CRA). This certifies that all final taxes owing has been paid.

Consider a permanent life insurance policy, the proceeds can be paid to your estate to cover estate costs or left directly to a beneficiary to provide additional amounts to a person to pay any capital gains taxes they may incur. The proceeds are always paid tax-free.

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