As the population ages, more people will face estate tax liabilities. Estate planning is the only key to lessening the impact on your heirs. Capital gains taxation due on the final tax return can amount to thousands, and often millions, of dollars. We will examine the sources of these liabilities and then discuss the solutions.

A highly successful business, a cottage or second residence, or rental property increasing in value over 20 years, or growth in a non-registered investment portfolio, are all subject to potential taxation at disposition.

With careful planning long ahead of death, taxpayers can fund some or all of their tax liabilities, thereby mitigating estate loss to heirs, as the tax implications can be enormous. Here is where you need to begin to think about ensuring potential final tax liabilities are paid using life insurance:

Family Business. When sold, a family business may incur a taxable disposition that could be subject to high capital gains tax, which may have accrued over time.

Non-registered Investments Any capital asset held outside of an RRSP, whether a stock, GIC or mutual fund — except if held in a TFSA — incur tax on the difference above its fair market value. The difference between the purchase price and the sale price will be either a taxable gain or loss on the final tax return.

Second residences or a cottage. When you sell your cottage, or you and your spouse die, capital gains tax triggers on the difference between the cost and the fair market value at the time of sale.

Life insurance meets estate planning conundrums. A permanent life insurance solution will create a non-taxable death benefit that can pay part or all of the capital gains tax on the accrued increase in the value of a family business, cottage, second residence, or unregistered investment. The most common form of estate policy purchased is a Joint Last-to-Die Life Insurance contract. These types of policies ensure both spouses’ lives, but only pay out on the last death. The cost of the product is often more affordable than an individual policy, since the insurance risk is spread across two lives. It can also be timed to pay out at precisely the right time when needed to lessen the final tax impact on your estate and your beneficiaries/heirs.