Leaving a Multigenerational Legacy

 By: Michael Bronstine November 2021

“They say the greatest job in the world is being a grandparent” 

Many older high-net-worth individuals are looking for ways to preserve their wealth not just for their kids, but for several generations.  Baby boomers have accumulated so much cash that will never be required to use in their lifetime and they are trying to find the best tax solution for the transfer of wealth.  They want to leave a gift or a legacy to their child or grandchild at the same time minimizing annual taxation and avoiding probate.  While there are several ways to achieve the above, The Cascading Legacy may work the best.

The Cascading Legacy

The Cascading Legacy works well for an affluent grandparent who wants to leave a legacy for their grandchild.

With the Cascade method, the grandparent takes out a permanent life insurance policy on their adult child and names their grandchild as the beneficiary.  The adult child is the contingent owner of the policy from the on-set and assumes ownership once the grandparent (original owner) passes.

The grandparents could just leave money to their grandchild in a will or trust, but inside the insurance policy, the asset grows without annual taxation and eventually will be transferred tax-free and bypass the estate.

The Future

The pandemic has led to a significant amount of spending by the federal and provincial governments.  How will the country pay for it all?  Speculation is starting to turn to what tax increase may be coming- and when.

Capital Gains Tax

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In 2016, there was a lot of speculation prior to the budget that the Liberals were going to raise the capital gains inclusion rate. It never happened but has been a lingering worry for some taxpayers over the past few years, and the current budget deficit has cast a spotlight on capital gains again.

Wealth tax

Here in Canada, British Columbia already has a wealth tax of sorts on real estate valued over $3 million. A report this summer from the Parliamentary Budget Officer estimated a wealth tax of 1% on taxpayers with family net worth of over $20 million—or about 13,800 families nationally—would raise about $5.6 billion in annual federal tax revenue.

Many financial and tax specialists believe that the government will have to do something to generate additional tax revenue.  While I agree with the prospects of this happening, I cannot stress enough that whether the changes above are executed, there is so much upside moving a percentage of your current assets into the Cascading method.

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