An associate had tried to convince a 68 year old business client in Ontario to fund an estate’s capital gains liability using life insurance. The client wanted to leave his estate intact but hadn’t addressed the tax consequences on his estate.
“Life insurance is just too expensive, I will self fund” was the client’s continued response.
I suggested that if we showed simply how his options worked then the client could make an informed decision based on numbers. I wanted the client to make a rational decision not an emotional one.
We were bothered by the client’s intransigence to resolving the estate’s exposure to a sizeable liability. He had built substantial business assets but had not planned for succession and liquidity needs. This is more common than we think!
Maybe the solution wouldn’t be life insurance but the objective was to get the client to make a decision to do something.
He was doing more damage to his estate by doing nothing than doing something.
I planned to be in Toronto on business so I asked our associate to arrange a meeting. The client agreed to meet for just 10 minutes. His tax advisor was going to be there.
“What are you going to try and sell me?” the client said as we walked into his office. “Nothing, we just want to show you your options, then you can make the decision what to do.”
We then went through the options including self funding and the potential value of using life insurance in a share redemption at death.
I was very aware of the 10 minute limit. At about the 7 minute mark the CA turned to the client and said “ This is a no brainer, insurance seems to make sense. You should apply and see how the numbers come out”
A few days later the client applied for $12 million of permanent life coverage.
The insurer came back with a rated offer because of apparent health concerns. The offer was for a cost of insurance fifty per cent higher than normal.
We knew the client wasn’t likely to be happy about paying fifty per cent more of an already substantial cost of insurance We went back to the insurer.
We were not convinced the underwriter had made the correct decision. So we requested a reconsideration suggesting that the health concerns were no longer valid.
After some discussions the insurer came back with a revised offer. We continued discussions and were able to get the premium down to 63 per cent of the rated offer. More important it was lower than a normal premium!
When we presented the final numbers the client was very pleased. So much so he said with a wry smile “maybe I should have applied for more!”
Now he is happy to have a contract that will help preserve his estate at a much lower premium than originally proposed.
The conversation started the succession planning process. Along with an estate freeze the client now has a well funded up to date succession plan. All because of four pieces of paper.
Lengvari & Associates assists business owners and the tax community across Canada to efficiently and creatively fund estate and business succession plans.
Visit www.lengvari.ca or call 604 639 3136 to arrange a complimentary no obligation conversation.
