Case study – Wealth Replacement

by Michael Bronstine

Several months ago, an accountant from one of the larger downtown firms in Toronto introduced me to Stephen, a very wealthy individual who had some unique concerns regarding his legacy and charitable giving.

Stephen was wishing to make a substantial gift to charity without diminishing his legacy to his heirs.  He is happily married and has four children, two that work with him in his business and two that do not and have no interest in ever doing so.

So, in addition to Stephen’s goal of giving to charity there was also the concern of equalizing his estate between his four children.  The difficulty of valuing the business compared to all his other holdings, cash, securities, artwork, and real estate.

After completing a valuation of the business and having an idea what the FMV was, we suggested to Stephen to purchase a joint last to die life insurance policy with a benefit equal to the total amount he desired that his children would receive.  Naming the two children not working in the business as the beneficiaries which will equal the share value for the two children involved in the business.

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By purchasing the policy Stephen addresses his two concerns:

1. gifting to a charity without diminishing his legacy to his heirs
2. donating his assets and purchasing a wealth replacement policy ensures that Stephen knows exactly what his heirs will receive

As part of the planning process we also suggested converting enough non-registered assets and purchasing a joint life annuity on both him and his spouse’s life.  The idea to create a stream of tax efficient income to pay for the insurance policy.