Deferring your inheritance

Inheritance can be a complex and sensitive matter, and it’s important to ensure that your assets are distributed in accordance with your wishes after you pass away.

One way to do this is by using “graduated inheritance” insurance beneficiary designations. This type of financial planning strategy is very under-utilized in Canada, but it is certainly worth a closer look.

So, what is a graduated inheritance insurance beneficiary designation? Essentially, it’s a way to distribute your assets to your beneficiaries over time rather than all at once. This can be particularly beneficial if you have beneficiaries who are minors, are not financially responsible or have special needs, as it ensures that they will receive their inheritance in a responsible and controlled manner.

There are several benefits to using this strategy. Firstly, it can provide a sense of financial security for your beneficiaries. By spreading out the inheritance over time, you can help ensure that your beneficiaries won’t squander their inheritance all at once or become overwhelmed by a sudden influx of wealth. This can be particularly important if you have beneficiaries who are not financially savvy or who may be prone to making impulsive decisions.

Another benefit of using graduated inheritance insurance beneficiary designations is that it can help reduce the tax burden on your beneficiaries. In Canada, when someone inherits assets, they are generally not required to pay income tax on the inheritance itself. However, if they subsequently sell those assets and realize a capital gain, they may be required to pay capital gains tax. By spreading out the inheritance over time, you can help minimize the amount of capital gains tax that your beneficiaries will have to pay.

In addition, using graduated inheritance insurance beneficiary designations can provide a level of flexibility in your estate planning. For example, if you have a beneficiary who is currently going through a divorce or who is facing significant debts, you may want to delay their inheritance until their financial situation has stabilized. Similarly, if you have a beneficiary who is still in school or who is just starting their career, you may want to stagger their inheritance to help support them during their early years.

Of course, there are some potential downsides to using graduated inheritance insurance beneficiary designations as well. For example, if your beneficiaries are expecting to receive a large inheritance all at once, they may be disappointed or frustrated by the staggered distribution. Similarly, if you have a large number of beneficiaries, the process of distributing your assets over time can become quite complex and time-consuming.

Overall, however, the benefits of using graduated inheritance insurance beneficiary designations can outweigh the potential drawbacks. By providing a sense of financial security for your beneficiaries, minimizing their tax burden, and providing flexibility in your estate planning, you can help ensure that your assets are distributed in accordance with your wishes and in a responsible and controlled manner.

If you’re considering using graduated inheritance insurance beneficiary designations as part of your estate planning strategy, it’s important to work with a certified financial planner who can help you navigate the process.

They can help you determine the best approach for your specific situation and ensure that all of the necessary legal requirements are met.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.