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31 Aug 2007
22 Apr 2008 6:13 PM
Hi All. I think this topic is one of those that gets stepped over as it is kind of like writing a will. Nobody thinks they need it until they do. So my first question is how many of you have life insurance? Do you have enough? Not enough? Too much? How do you know?
Here are my thoughts on the subject. Life insurance should not be considered a lottery but it has a definite place in your asset mix. If, God forbid, something was to happen to you, a couple of things happen. First is the requisite ceremony. Now, if I was celebrating the life of someone I cared about or if someone was celebrating my life, this would not be a time or place where I would want to worry too much about a budget. So this has to be paid for and they do get expensive. Funeral homes typically do not release the death certificate until all balances have been settled. You need that certificate.
The second thing that happens is that all your worldly assets are deemed to have been sold at fair market value. The assets then have to be probated and required profits declared to Rev Canada. Nobody is too interesed in your tools and favorite TV chair but anything that is registered like a car or ATV will need to be probated to change the title. Also your principal residence and all your real estate and investment holdings and RRSP's/RRIF's need to be probated. Probate charges a fee based on the value and type of asset. Your principal residence transfers to your spouse probate and tax free as a Tenants in Common asset. I can't remember how I transferred Dad's RRIF to Mom but I do believe it was charged probate but no tax from Rev Canada. The government has a mandated sliding fee schedule that lawyers are allowed/required to charge that is based on the value of the estate. I don't think your long term lawyer/team member who has done all your RE legals will charge this but it does leave open the opportunity for a stranger lawyer to design your estate in such a fashion to maximize their fees and thus also maximizing probate and taxes payable.
Now we get into your real estate holdings. All those beautiful equity positions you have accumulated over the years are now deemed to be cashed out and capital gains/income taxes are payable on your estate tax return. Your estate may (May? more like will) end up with quite a tax bill to pay. This could result in having to sell some properties to generate cash thus exacerbating the problem. This is where life insurance comes in. I am thinking that a chat with your accountant will determine how much your theoretical tax bill could be in this situation. Then a discussion with your insurance agent to see what types of products are available to fill your needs and how much of a policy you may need to cover your estate expenses. And finally a discussion with your lawyer to make sure that all the details are attended to and your will updated to reflect any changes in your financial position.
So my questions to those who know more about this than me:
Lawyers: Are my thoughts fairly accurate? Have I missed anything?
Accountants: Any further suggestions? What about "Key Man" insurance and the deductability of the premiums?
Insurance professionals: What types of products are available to suit these situations? What about those living high risk lifestyles? Get your minds out of the gutter, I am talking about pilots, sky divers and scuba divers.
Any other suggestions or experiences on this front? Looking forward to a lively discussion.
Harold Line, Real Estate Investor
President, Nam Kee Land and Investment Ltd.
ph:(403) 863-3881 fax: (403) 226-3232
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