If we asked a group of people to put their hand up if they know their grandfather or grandmother’s name, most people would put up their hand.
Then if we asked the same group if they know their great grandfather or great grandmother’s name, a lot of hands would go down.
Lastly, if we asked them if they know their great-great grandfather or grandmother’s name almost everyones’s hand will go down.
You know who’s great-great grandkids for sure know their name? John D Rockefeller …. why?
They are still getting paid off the legacy he set up more than 100 years ago. This is a tremendous legacy.
Would you like to build and leave a legacy so that your grand kids, great grand kids, and great great grand kids all know your name even if they never meet you?
Well this blog shows you how to set up what we call the Waterfall of Wealth that will leave a lasting legacy for your family for years to come.
How it works:
We’re going to use a tax exempt life insurance policy with cash values to put insurance protection on your child or grandchild or both.
We do this to give a tax efficient way to grow your wealth now, and transfer it to the next generation when you’re no longer here in a tax efficient way.
We structure it in such a way that when you pass, the life insurance that you own now, will transfer automatically to your child or grand child.
We set it up so that you can benefit from the cash value growth inside the policy now, to invest or spend while you’re alive.
Why use life insurance?
Well, when you transfer a life insurance policy to your child or grandchild whose life is insured under the policy, there’s generally an automatic tax-deferred rollover.
This is a unique feature of life insurance not available with other types of investments that are typically deemed disposed at fair market value when transferred to the next generation.
This waterfall of wealth insurance strategy is based on this tax-deferred rollover rule available for transfers to a policyowner’s child or grandchild.
The cash value growth inside the policy is tax-advantaged compared to other investments, which can be subject to income tax or capital gains tax. So you’re winning all around.
The Waterfall of Wealth Strategy
1) You, the parent or grandparent buys a permanent life insurance policy on your kids or grandkids
2) Then you fund the policy with cash that you were going to leave to them for school, or a down payment, or starting a business or any other life event. This is your legacy.
3) In this situation you are what’s called the Owner of the policy and your child or grand child is what’s called the Life Insured.
4) When we set up the policy, we name your child / grandchild as a contingent owner on the policy which means that when you pass away, they automatically become of policyowner. This allows the tax-free ownership transfer to the child.
5) If you want, you can also transfer the life insurance policy to the child (life insured) while you’re still alive so they can access the policy’s cash values.
6) Remember, the insurance is on them. So you are also setting up the following generation because when you child or grandchild passes, there will be a life insurance payout to their kids or whatever beneficiary they choose.
Now 3 generations in your family have benefitted in this insurance contract.
When we say child or grandchild here we obviously mean your kids, but we are talking about the definition of child as defined in the Income Tax Act which makes space for different types of grand parent / parent / child family structures.
The child who receives the policy doesn’t have to be the same person as the child who is insured under the policy.
For example, a grandparent can buy policy on their grandchild and then transfer ownership to their child (the grandchild’s parent) on a tax-deferred basis.
This Waterfall of Wealth benefits each generation involved
For you the Parent or grand parent
1) You keep control of the life insurance policy.
2) You can reduce your tax on some of your other investments by redirecting them into a tax-advantaged life insurance policy. Say you have a few million dollars in a portfolio – you can take some of those funds and wrap them up in an insurance contract.
3) While you own the policy, you can use access the policy’s cash value.
For the kids or future generations
1) When ownership transfer happens, your child gets permanent insurance for their family.
2) They can access the policy’s cash value to pay for things like education, buying a house other real estate, building their own retirement, or continuing the financial legacy that you’ve started for future generations.
The Waterfall of Wealth strategy is a great way for you to pass money down to future generations in a secure and tax efficient way that still gives you control and use of the funds while you’re alive.
Contact Us
At Safe Pacific Financial, we specialize in helping Canadian business owners, incorporated professionals, and investors structure life insurance for maximum wealth protection, tax savings, and business growth.
If you would like to discuss whole life insurance or investments, we’re happy to chat and see if we can be a good fit to work with you. Fill out our contact form and we will get back to you within 24 hours on business days.
Related Insights
Episode 5 of the Infinite Banking Concept Series - Leaving a Legacy
Welcome to the fifth and final blog in our comprehensive series about the Infinite Banking Concept in Canada. Throughout these four previous blogs we’ve talked about...
Episode 3 of the Infinite Banking Concept Series - How Policy Loans work and what is the Adjusted Cost Basis?
Let’s look at a Whole Life Insurance Policy Illustration that's correctly set up for the Infinite Banking Concept. In this illustration with a Canadian life...
What is the Immediate Financing Arrangement?
Who is this for? We tell everyone that they shouldn’t set this up unless they want and need life insurance. If you have someone you...
Infinite Banking is a scam!
Is Infinite Banking as good as everyone says it is or are they scamming you? We’ll answer that today.
Should you invest using DCA or a lump sum?
So, what investment strategy is going to you the most money, dollar cost-averaging or a lump sum investment? I can’t see the future but based...
The Ten Commandments of Whole Life Insurance in Canada
There’s this great article titled “the ten commandments of whole life insurance” and it is linked if you want to read along. One thing that’s...
The Waterfall Concept using Life Insurance (in Canada)
The “Rockefeller” Method, or the Waterfall Concept. One of the main things we have to preface this with is that in the United States, this...
How can a Canadian business owner use life insurance to fund major purchases?
Today, allow us to shine a light on the infinite banking concept through the lens of a case study —showcases how an entrepreneur, used this...
You can now invest with us!
We have got a big update for you today – a brand new offering from us at Safe Pacific.
The Infinite Banking Concept Episode 4 – Infinite Banking is a Scam
In today's blog, we'll go over the main reasons given for why the Infinite Banking Concept is a scam. We'll be going over why people...
The Wealth Multiplier Podcast - Wealth and Legacy: A Deep Dive with Vince Cardella
In this episode of The Wealth Multiplier Podcast, host Laurent Munier of Safe Pacific Financial sits down with Vince Cardella, Principal of Strategic Wealth Planning...
RRSPs for Canadian Business Owners, should you invest?
You have two main options: keep the funds inside the corporation or withdraw and invest personally. Today we’re going to go through these 2 scenarios...
