Build a legacy for your family and reduce your estate taxes

Mark Halpern, a Certified Financial Planner and Trust and Estate Practitioner, says that in his business he encounters many people who are well established and working hard with good jobs. They don’t need much financial help from their parents. But he also finds that many of those same parents are now grandparents who are able and eager to help look after the needs of their grandchildren.

If that sounds like you, Mr. Halpern discusses some little-used strategies involving charity and insurance that will help you build a lasting legacy for your family rather than the tax man.

Life Insurance

Some grandparents buy life insurance for their grandchildren. They know it’s least expensive when the kids are young and healthy enough to qualify.

This is especially important if there is a strong history of illness in the family, such as diabetes or cancer. In “grandchildren” life insurance plans, premiums can be paid for a few years and then the policies are fully paid up for life.

And the grandchild can apply for more life insurance coverage later when needed – without a medical exam or having to answer any health questions.

In addition to these benefits, the life insurance policy builds up a cash value and increases every year that premiums are paid.

The money is available if, say, the parent needs to borrow against those funds, or take it out in cash in case there is an emergency. Other uses include helping their child buy a house, or contributing to the cost of a university education.

It can also be set up so that the grandparent pays for the premiums, putting the ownership of the policy in the hands of the parents. Should the parents die prematurely, the ownership of the policy can then be transferred to the grandchild without any taxable disposition. He or she would then own the policy outright.

Grandparents can also set up a “wealth cascade” by buying insurance on their adult children. This will provide protection for their grown offspring in case of a premature death. They can then overfund the life insurance policy and transfer the policy to their children or grandchildren without a taxable disposition.

This is an effective way for grandparents to have control of an asset, yet also be able to pass along money to family tax-free. In addition, the cash value can be used by the parents or grandchildren during their lifetime for education, purchasing a home, helping with a business or providing retirement income.

Health Insurance

Many grandparents are concerned about the state of health care in Canada.  For a different twist, they can also purchase a critical illness policy for grandchildren with $250,000 of maximum protection. If the grandchild gets diagnosed with one of about two dozen illnesses, the policy will pay out tax-free to the parents. The money can be used for any need. Premiums are paid for only 20 years and after that, the policy is fully paid up for life.

And if the policy has not been used, the grandparent who paid the original premiums can get their premiums returned, or can give the refund to their grandchildren.

If you start payments on your newborn grandchild today, the policy will be paid up when they are 20 – and the policy benefits will last for the rest of their lives. If, heaven forbid, a child gets sick, the money is there for the parent to look after the needs of the child.


There are many ways you can give to charity now and in the future – and involve your grandchildren.

As a grandparent you can set up a strategy that provides charitable giving through an endowment. This will provide an irrevocable gift to a private foundation or a donor-advised fund (DAF) within a public foundation for, let’s say, $10,000.

This method is just perfect for those wanting to ensure a sustainable legacy in which your family can be involved, rather than a one-time gift.

That’s because once a DAF has been set up, the foundation needs a board of directors to distribute that money – and that’s where the adult children or grandchildren come in. They can take an active interest in where the funds go by sitting on the board.

Ahead of time, grandparents can talk to their grandchildren about the importance of not only giving to charity, but the giving of themselves and their time that comes with actively participating in a non-profit organization.

Perhaps the grandparents can talk to the children about which charity they would like to become involved in, why and in what capacity. Then the grandparents can determine a set sum of money to be distributed to a charity of the grandchild’s choosing.

Once those two items are settled, the money (through a tax-efficient investment vehicle) can be distributed to those worthwhile organizations.

If you decide to provide for a charity through life insurance, it’s important to remember that the proceeds of the policy are usually many times greater than the value of the premiums.

And life insurance usually means a larger gift to the charity than if you had donated cash. Keep in mind that life insurance proceeds flow immediately to the designated beneficiary and, in doing so, typically avoid estate taxes.

For example, an estate with an ultimate tax bill of $500,000 could purchase a joint last to die insurance policy for $1 million on the grandparents.

The cost of this type of insurance is surprisingly inexpensive in older aged clients.  If the beneficiary of the insurance is a public or private charitable foundation, it would generate a charitable receipt of $1 million, offsetting any taxes owing by the estate.

In this case, the grandparents will be remembered for leaving $1 million to charity instead of $500,000 to the government. And their grandchildren and great-grand children will learn much about giving back as they distribute the $1 million of proceeds in perpetuity.

There are many ways you can teach a child about charity and giving back to the community.

By helping to build up a legacy that will affect many generations to come, not only will your great-grandchildren remember your name, they will also remember what you stood for.


The TaxLetter, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846

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