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When it comes to securing your financial legacy, turning taxes into charitable contributions can be a powerful strategy. In collaboration with Mark Halpern, CFP, TEP, MFA-P—one of Canada’s top wealth and life insurance advisors—the Health Care Foundation is proud to offer insights into how planned giving can transform your financial future while making a lasting impact on the community. As the CEO of WEALTHinsurance.com®, Mark has helped countless individuals, from business owners to families of modest means, optimize their estate planning through innovative insurance strategies. In this article, we explore the often-overlooked benefits of life insurance and how it can serve as a powerful tool for safeguarding your loved ones while supporting the causes you care about most.


Missed Opportunities

Written by Mark Halpern, CFP, TEP, MFA-P

Originally published here, July 2023

I recently met with a successful family in the process of developing a succession plan to transition wealth to the second and third generations. Three potential scenarios were presented to them:

  1. Do an estate freeze and use cash on hand to pay the tax bill on death.
  2. Use Life Insurance to fund taxes.
  3. Donate frozen Private Company shares on death and use Life Insurance to fund a generous donation to turn taxes into charity.

The numbers were crystal clear:

  • “Using cash and no Life Insurance resulted in a 27 percent estate erosion.
  • Using Life Insurance resulted in $12 million more for the family at less cost.
  • Using Life Insurance and donating shares resulted in a $33 million family foundation and 16 percent more money for the family versus the ‘do nothing plan.’”

Despite that, the family decided to stay the course and use cash to pay taxes. Try as we might, they missed out on an opportunity to expand their legacy by creating a transformational gift to a family foundation. Why, you may wonder?

For many, Life Insurance comes with “BAGGAGE.”

This affluent family isn’t the only one to resist using Life Insurance strategically to achieve their goals. I’ve thought a lot about what holds such people back and believe that in most cases it’s because they’re carrying baggage.

Many people view Life Insurance as a “grudge purchase,” only needed while they’re building wealth and need to pay off their family home mortgage, replace income to support day-to-day expenses, and provide for kids’ education funding. They often put Life Insurance in the same category as home insurance and car insurance – necessary but resented expenses.

Others had a negative experience with an advisor or a different type of insurance that was not guaranteed, or know someone who made a travel, property, or auto claim that an insurance company denied. They may not realize Life Insurance is much more clear-cut than other types of insurance. It’s hard to argue with a death certificate and built-in guarantees.

Whatever the reason, it’s important for affluent families to drop the baggage they are carrying and consider the 6 reasons why HNW/UHNW use Life Insurance:

  1. Estate Tax Funding
  2. Estate Equalization/Blended Families
  3. Shareholder Agreement Funding
  4. Key Person Coverage
  5. Asset Diversification Strategy using Tax-Exempt Corporate-Owned Insurance and the CDA (Capital Dividend Account)
  6. Philanthropy

This list differs from the “grudge purchase baggage.” Life Insurance can be a powerful way to optimize and preserve family wealth at a low cost with high tax-efficiency to become a multiplier of wealth and philanthropy.

Think of it as switching out your putter for a driver to amplify the effect of your golf swing and make your ball go the distance.

Illustrating the multiplier effect

Let’s use the Cooper family (name changed) as an example. They live in Ontario and have already executed an estate freeze, which froze the value of the parents’ preferred shares in their business at $62,400,000. Half that amount will be taxed as a capital gain on death. At a tax rate of 53.5%, this will result in a tax bill of $16,692,000.

There are three ways to handle the tax liability:

  1. They can pay the tax bill in cash saved up for this purpose – a significant sum to tie up for an uncertain number of years. This is the “no planning” scenario. Heirs will receive $45,708,000.
  2. They can buy just enough Life Insurance to cover the tax bill. For illustration purposes, a joint last-to-die level-premium universal life policy with a death benefit of $16,692,000 will cost them $509,974 annually. Assuming the second spouse dies 21 years from now, at age 90, the cost of insurance will amount to $10,709,454. With this option, their estate will pay the same amount of tax to the government, but the cost to the family is about $6 million less. And – the icing on the cake – they’ll create a $12,665,521 capital dividend account (CDA) credit that the next generation can use to withdraw cash from the company tax-free. That’s a $6 million tax savings for the next generation by using the insurance CDA credit (assuming a 47.74% tax rate), heirs will receive $57,737,074.
  3. Most people know about donating non-registered appreciated public securities like stock, ETFs, mutual funds, and seg funds and paying no capital gains tax when donated in-kind. But fewer people know that you can donate private company shares too. This family can donate their private company shares on death to charity and use Life Insurance of $33 million as a donation to charity and redeem the shares for the family, turning the tax that was going to be paid to the government into charity. This still leaves their heirs better off than the first scenario. In getting twice the amount of insurance needed with a $33,384,000 death benefit, the premium cost would be $1,019,948 annually. Assuming again that the second spouse dies in 21 years, the cost of insurance will total $21,415,682. However, the result will be a $33,384,000 donation to charity and redemption of the private share back to the family – the charity would prefer money to shares and the family would like to keep the shares in the family. The icing on the cake is the resulting CDA credit of $25,345,974. Including the tax savings resulting from the CDA credit (assuming a 47.74% tax rate), heirs will receive $53,084,486.

It’s important to note that scenario 2 requires post-mortem planning, such as a pipeline transaction used to extract Life Insurance proceeds from the corporation. Bear in mind that people who are comfortable with leverage (such as real estate investors) can add an Immediate Financing Arrangement (IFA) to scenario 3 and complete the acquisition of the Life Insurance on a cash flow-neutral basis and over a shorter period of time. In other words, they get all of the Life Insurance they need without tying up their money paying premiums.

Family, charity or tax department?

This case clearly illustrates that when we die, our money will go to some combination of family, charity, and the tax department. Appropriate planning can direct more towards family and/or charity – and even, as in scenario 3, take the tax department out of the equation.

The Life Insurance in these scenarios – a joint last-to-die level-premium universal life policy – guarantees a level cost of insurance, with no market risk and no interest rate risk. The only risk is longevity – that one or both insureds will live longer than the planning assumes. In that case, the annual cost of insurance will continue until the second spouse dies. However, as the example illustrates, there’s a huge net benefit in both scenario 2 and 3.

This type of planning can easily be scaled up or down, so it applies to high net worth and ultra-high net worth families alike. Moving the baggage aside is critical to take an objective look at the numbers – because they speak for themselves.

Affluent families can benefit tremendously by remaining open-minded about how Life Insurance can enhance their legacy. Meanwhile, their teams of professional advisors – lawyers, accountants, investment advisors, and insurance advisors – can present Life Insurance in a new and more strategic light, and partner with experts to implement customized strategies that meet each family’s specific goals. Working together, we can ensure that our clients don’t miss valuable opportunities to use a versatile multiplier tool – Life Insurance – to achieve wealth transfer and philanthropic objectives.

Reach out anytime to discuss these types of strategies. We love chatting about this because it can be transformational for charities, as well as affluent families, and we’re on a mission to amplify philanthropy in Canada. Let’s do good and do well at the same time!


About the Health Care Foundation
The Health Care Foundation raises funds to improve the delivery of healthcare in Newfoundland and Labrador’s adult hospitals and healthcare facilities in the St. John’s region, providing specialized and tertiary care for the entire province. We strive to advance and enhance innovation, medical equipment and next generation technology, support healthcare research and education, and patient comfort and care within adult hospitals and facilities for the people of Newfoundland and Labrador.

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