Canadian real estate investors, medical professionals, and other business owners are constantly seeking ways to create tax savings and generate wealth, to realize a lasting legacy. This interview provides a case study on this very subject: creating tax savings and wealth using OPM (other people’s money). To shed light on this fascinating and proven approach, I sat down with insurance expert Brian Laundry, a seasoned professional with a wealth of knowledge in the field. In our conversation, Brian walked us through the numbers, step-by-step, of this strategy. Join us as Brian takes us step-by-step through the solution he implemented for his own family, as an example of the power of this strategy for Canadian business owners.
And, if you haven’t seen them first, I recommend checking out the prior two videos on the topic of creating tax savings and wealth using OPM:
Video Transcript: Case Study: Creating tax savings and wealth using OPM (Other People’s Money)
George Dube:
Good day everybody.
Today we’re going to have kind of what I’m going to call a practical version of learning how we can use other people’s money with some of the planning that we’ve introduced in prior videos (part 1 and part 2). And we’re bringing back Brian Laundry, who’s both for all of an insurance expert, the advisor’s advisor. He’s a real estate investor and, heaven forbid, he is a business owner as well.
But today we’re going to go through some specific numbers, whereas before we were talking what I would call more conceptually with the policy. Now we’re going to get into the nitty gritty for those looking to see some example numbers.
I’m George Dube, saving the world from tax one bow tie at a time.
We’re going to welcome Brian here and largely we’re going to let him take the show in terms of walking through a policy and I’ll chime in with a couple of tidbits from a tax perspective. But, largely, Brian, this is all yours.
Brian Laundry (01:09):
Well, thanks for the introduction. It’s going to be quite the case study because it’s a case study of my own plan so I can provide some insight to all the viewers and listeners that might be different than other case studies because this is in fact the policy that I’ve implemented for myself and I’m going to give you some idea of why I did what I did. I’m going to do my best to be concise. I don’t want to get into a tremendous amount of detail, but the presentation I’m showing today is very similar to something that I would present to anybody who might meet. So let me share my screen. I do have a second screen here, so forgive me if my eyes drift to the right while I’m speaking to the left.
Overview: The background
Brian Laundry (01:54):
So this is my case study and I think it’s important to understand the circumstances of which I recommended this to myself. So at the time I purchased, I’m a 43 year old, married non-smoker, relatively healthy. My wife’s 38 years old. I have three children, 16, 15 and nine I. We are a single income household. Amanda has been a wonderful mother staying home with the children this entire time. So my responsibility is working and doing videos and working with insurance across the country. So an interesting observation that I want to share with you here is I have a lot of preexisting physical injuries. I’ve had a couple of back surgeries, a couple of knee surgeries and no surgery, a couple of shoulders. So from an insurance perspective, a lot of the insurance companies don’t like me for things like long-term disability insurance, but otherwise, from a mortality perspective, I am considered standard health.
Brian Laundry (02:55):
I think it’s important to give some context. I have been in this business on my own for 20 years, on my own story for 10, and with the amount of risk that my family has on my life, I have implemented insurance over the years. I suspect many people who watch this video have met with their insurance advisors and have executed policies in the past. Much of the time those policies are very good and I’m no different. I put on the screen here that I did in fact have three and a half million dollars of term insurance. I really was concerned about what happens if something negative happens to my health. So I implemented $2 million of critical illness insurance, which means if I get cancer or have a heart attack or a stroke or any condition, there’s an infusion of money to protect my family and my savings.
Brian Laundry (03:50):
I was also able to secure a long-term disability policy that was given to me without any medical underwriting, which is a different story for a different video.
My point in all this is that I graduated to a point where the complexity of my situation required a bit more complexity in my planet.
Typical organization chart when creating tax savings and wealth using OPM
So George, this will look pretty familiar to you. Yes, it’s a dumbed down version of our org chart, which I know we look at org charts pretty often. So George, when we worked together, you made a comment to me that I’ve never forgotten. In fact, I’ve used it several times since. He said, “
Brian, you build a structure for where you’re going, not where you are.”
And again, I’m a 43-year-old entrepreneur with a couple of businesses. I own some real estate, so certainly the implementation of a family trust for me had a lot of merit and I know you have videos about family trusts (for real estate investors and for medical professionals).
Brian Laundry (04:45):
I won’t belabor that point. The key takeaway of this slide is about three years ago, maybe four years ago, I had two operating companies that were starting to accumulate money. And so when we implemented this structure, the purpose of the structure was to get money to what is the eggplant looking color in the bottom corner of the screen there of my holding company. So that’s my wealth accumulation vehicle. I’m sure many of the listeners and watchers reviewers have a holding company, but that’s where my life insurance resides. From a tax and planning perspective, we want to make sure if we’re implementing permanent life insurance solutions, it’s done so in a corporation that will never be sold, that’s very important. That’s why I wouldn’t have these policies in what would be operating entities like the orange boxes you see on your screen.
George Dube (05:40):
And just to quickly chime in, not that either of us are lawyers, but we’re also trying with the help of the lawyer on the legal team, of course ensure that there’s as less possibility as practical of that policy being involved in some form of lawsuit. In other words, losing control of that corporation. So often we’re looking for it to be in that holding company owned by the family trust with many examples that I’ll see. And Brian, you’ve worked with many of our clients, obviously including Robin and I on this for our own side, but we’re typically not going to directly put it into a company that owns real estate. But often more so that liquid portfolio or alternative investments that are generating some income ideally or expect to in the future. And again, just isolating it from risks to the degree we can.
Brian Laundry (06:40):
Right. Well for me, let me just say this. My overarching theme here is that I was going to be saving, so to give you some perspective on the numbers, I was anticipating somewhere between $406,000 a year savings. So I wanted to look at my planning and my insurance policy as something that can accommodate that sort of contribution on an annualized basis. Everybody’s numbers are different, so I will say these are my numbers, they’re not yours. Part of the journey is to figure out what numbers work for each person.
Tax planning and insurance planning – working together to create tax savings and wealth using OPM
I will say one more thing, George. The tax planning and the insurance planning are mutually exclusive. You could do one without the other, but we do tend to find they work really well in tandem and often they’re done simultaneously. So at the same time we were doing a lot of my reorganization. I was actually already in the underwriting phases of my insurance, so we tend to do them simultaneously and hope we get to the finish line at the same time, but I just want to let people know they they’re mutually exclusive. One doesn’t have to happen for the other to happen.
George Dube (07:48):
Got it. I think they dovetail quite nicely and it makes it a little easier I think for everyone, whether that’s on your side, Brian, our side on the tax and accounting, I think from our client’s perspective financing perspective, it’s nice to look at that big picture and know where we’re going, even where clearly we will have a number of people that won’t have quite as much of a savings capacity. It may be one 10th of what you’ve just described, but great. Let’s start that process off and look at again where we’re going with that structure.
George Dube (08:28):
But we had a little bit of technical difficulty with the microphone, so we’ve switched to the good old fashioned earphones I guess. So Brian, let’s take this away again.
Policy design – whole life and term insurance – why both are important for creating tax savings and wealth using OPM
Brian Laundry (08:38):
Sure. Well, we were going to jump into my own policy design and what I think we want to take away from this design is the power of having a flexible contract. And when I say a flexible contract, how do we utilize insurance within the rules of the income tax act to create contribution room? And I use that phrase just so it’s consistent with the phrasing of TFSAs and with RSPs in the insurance business it might be called something different, but for today we’re going to use the phrase contribution room. So my policy is built on two different attributes or two different layers of coverage, if you will. The primary coverage that we care about is the whole life insurance. That is the chassis or the asset that drives the cash values and the guarantees. It’s what the bank wants to look at for leverage purposes.
Brian Laundry (09:35):
It is the high quality asset and you’ll notice there are a million dollars of whole life insurance for me costs about $38,000 a year. That duration of that cost was only for 20 years and we can elect to make it longer or shorter, but mathematically speaking, I have a 20 year horizon where these costs will exist and in year 21 onward, there are no more premium costs. So that’s my structure.
Now take note below where it says rider summary. I added $9 million of 20-year term insurance. So bringing the total amount of insurance for my policy is $10 million. Now I will say this, I don’t need $10 million of life insurance per se right now, and when we apply with the insurance companies, we have to have some justification, which is my responsibility. But the observation I would like the viewer to make in this presentation is the annual cost of the term insurance.
Brian Laundry (10:36):
Notice, $9 million of term insurance costs just a shade under 14 grand a year, and those are guaranteed costs again for 20 years, quite a bit less than a million dollars of whole life insurance. Here’s what I want you to take away from this. When you add term insurance to this contract, it creates contribution room on an annual basis and the income tax act has rules. And in this particular case, my policy will allow an additional deposit of about $370,000. Again, that’s optional. I don’t have to. So if I didn’t use the term insurance and just said, I just want to buy a whole life insurance policy, which again in of itself is a great asset and a good purchase, you can see my contribution room on an annualized basis is not nearly as exciting and it doesn’t fit my planning needs. In other words, I’m using term insurance to increase the amount of contribution room that the income tax act allows me to utilize at the lowest possible cost. So for me, that’s what creates flexibility is my minimum cost or something that’s attainable and flexible and to deal with on an annual basis and my maximum allowable contribution room aligns with what I believe my savings objectives may be. Does that all make sense? That’s a lot.
George Dube (12:05):
It’s a lot, absolutely. And now one really seeing you do this with Robin and I, it makes more sense and obviously I’ve now worked with you on quite a number of mutual clients, so I see it in practice.
The one comment I was thinking of as you were talking was again trying to ultimately, as well, ensure you made the comment you don’t need $10 million of insurance today. A lot of our clients are looking for that. Some value to it, and I know you’re going to get into the numbers shortly here, but also thinking, what’s my tax liability, for example, going to be 10, 20, 40 years from now? And those numbers are very, very different than today’s numbers.
Converting term life to whole life
Again, that flexibility is something clearly I love and partly I think is why I use the family trust (Need details on family trusts? See these posts for real estate investors and for medical professionals.) so frequently, but I think this is something that the viewers are going to really want to focus on is that that flexibility that you create here, and sorry, maybe I’m stealing some thunder. One of the things that I liked about it in my own case was the ability to down the road say, because when you set my policy up, there was essentially I think 2 million of whole and 8 million of term, but I can convert that term without a medical down the road. So if I have some deterioration in health or just for the matter, I’m getting older, et cetera, et cetera, I like having that ability locked into place whether I use it or not, it’s a flexibility that I love to have in these plans.
Brian Laundry (13:46):
Well, strangely enough, if my net worth and your net worth continue to trend in the same direction at the same rate, that term insurance could create a second whole life policy down the road that I’m going to need to grow over time because my requirements are going to change. So I agree with you, a lot of planning to be done down the road. So that’s the design for me. I think the key thing for me is on an annual basis we do speak. In fact, we speak a couple of times a year with any client. What you don’t want to do is build a structure that handcuffs you, whereas in year 2, 3 9, we’re looking to ask for a premium payment that’s uncomfortable or perhaps not doable. We want to make sure we structure something that’s designed for the long-term future in mind. So let’s talk about how the base policy performs.
4 examples: How to create tax savings and wealth using OPM
Brian Laundry (14:39):
So I’m going to show you four different examples of the exact same contract. Okay, so the first one is there’s a lot of numbers in the screen, but here’s the takeaway. And you can see I put some numbers in orange to talk about each column. So I will reference those so you can follow along. Column one. You can see number one there, that’s my premium, that’s my cost. And I use those words very emphatically because there is a cost to having life insurance. For me, the total cost is about $52,000 a year and it’s guaranteed for 20 years. I have no cost thereafter. If we look at number two, that column, I would prefer if it said total annual deposit, or in this particular situation, the deposit is the same as the premium because I want to demonstrate to you if I just purchased this particular policy, what am I getting out of the box?
Brian Laundry (15:29):
What am I getting without adding all that additional room? You’ll notice in column number three and number four, a couple of observations. Number three, there is a cash value component. This is a balance sheet asset. Currently we’re getting 6.35% in the dividend scale. It grows entirely tax free, so it doesn’t create that investment income that we don’t want in a corporation which could put up risk for a small business tax rate. We have annual guarantees, so when we get a statement at the end of the year, that number is locked in, they can’t take away from you. Most importantly, the cash value is what the financial institutions will loan against at a hundred percent loan to value. Financial institutions like these policies as collateral. And that is what makes the power of OPM so strong using insurance. And we’ll get to that.
Like a corporate RSP or TFSA
George Dube (16:23):
And just to emphasize the one point that you brought out there, Brian, again, it’s almost like assuming that we are acquiring these policies within a corporation, it’s really almost like a corporate RSP or TFSA, if you will, in the sense that as the investments increase in value and there’s a rate of return on those as you described, that’s tax free within the policy later on. The majority of that as well is going to be tax free. I think a little bit too frequently. Perhaps someone can say if it’s 6.35% right now in terms of this dividend rate, maybe that doesn’t sound like it’s earth shattering, but when you talk about an after-tax return, that puts it in a slightly different perspective for sure.
Brian Laundry (17:16):
Well take your clients who have a GIC earning 6.35% in the corporation. There’s lots of people who just love GICs, but we both know the passive rates are about 50% depending on what province you’re in. So your 6.35 in the GIC is not 6.35, it’s half of that.
So in this example, in this example, you’re keeping all of it A and B, we’re securing life insurance instead of paying tax. So it’s a better trade off.
Increasing benefit over time
So if I can go back to the presentation there, there’s a cash value accumulation, but an observation on the death benefit. Notice how the 10 million of death benefit increase ever so slightly. The mechanism is when whole life insurance pays a dividend, it purchases more life insurance, more whole life insurance, and it creates a compounding effect. So you’ll notice that the death benefit continues to grow over time. So in 0.5 and 0.6, you can see a change in the death benefit with each additional deposit and with each year’s compound of growth.
Increasing cash value plus 100% leverage
Brian Laundry (18:21):
Now, that’s not why I bought the policy, but in of itself, that’s not a bad purchase and it has quite a bit of value from a risk perspective. But what I want to do is I actually want to put as much money as I can in for 10 years. That’s my actual game plan. And right now, I’ve already done my first two years, which I’ll get to, but in year one I put $425,000 in. So point number seven there again, I would prefer if that column read deposit, not premium, my deposit was 425 grand, my cost didn’t change. Notice the cash value. This is what makes the using other people’s money so powerful, that additional deposit has dramatically increased the cash value. The policy with all of those same attributes we spoke about before. At the end of the year, I have $384,000 of cash value that’s growing at 6.35. It grows tax free. And again, I can call a bank right now and get a loan of $384,000 and that is exceptionally powerful.
George Dube (19:32):
Sorry to interrupt again, Brian, but I think that’s also worth some emphasis in that clearly I work with quite a number of real estate investors, business owners, et cetera, and they’re accustomed to going the bank and they’re going to get leverage of, again, it depends on what we’re talking about, but it’s not unheard of where that leverage is two thirds or 80%. And so meaning that we need 20% of our cash to get 80% of the financial institution’s cash, assuming that we’re talking about the a hundred percent of the assets. So to get a hundred percent leverage on this asset, that’s fantastic. It’s not that it’s completely unheard of, but it’s unusual. And I guess I like to describe it as it’s the one thing that the bank can be positive that is going to be realized provided we’ve made the insurance payments, they know we’re going to pass away. All we’re doing is debating timing. So for them, it’s a sure thing they can’t lose on this as long as they’re, again watching what those values are and the fact that we’ve made the premiums on it.
Brian Laundry (20:43):
But banks don’t do favors for you and I or consumers. They’re driven by shareholder value. So when we get a loan to value of two thirds on a real estate property, the bank is saying, Hey, you’re going to keep some risk. A third of that’s your risk. Two thirds is our risk. When they say it’s a hundred percent loan to value, they’re saying if there was risk, they’d be passing it to us. They don’t see risk in the cash value of whole life insurance, and that is why they refer to it as near cash. And we can’t ignore that because we want to be borrowing to use other people’s money. We better understand how they view assets as collateral.
Diversified asset = more desirable to lenders
George Dube (21:28):
And I guess leading into that, Brian, there’s also then a side benefit, I’ll call it again, as I’m sitting down with my advisor on the financial institution side, it allows him to tick one more box to say George and Robin have this asset class. So clearly we have a variety of real estate. We have more of what I would call a traditional liquid portfolio. We’ve got a variety of alternative investments and now we have this insurance planning. So again, it’s something, it makes us a more desirable customer for the financial institution, and as a result, it allows me to acquire more real estate or whatever it happens to be that I’m investing in.
Magnifying effect for tax savings and wealth using OPM
Brian Laundry (22:15):
Right. Well, in going back to the ledger, I want to take our attention to the death benefit. Remember, we started with a 10 million death benefit at the end of the first year as a result of my additional deposit, my death benefit has gone up by $1.3 million. There’s a magnifying effect that additional deposit drives up the death benefit and it does not require medical underwriting. So I’ve in fact doubled my whole life insurance in one year with one extra deposit.
Okay, if you notice down to numbers 10 and 11, look at the compounding impact that’s happened on the cash value in the death benefit. It’s tremendous. Again, it’s the same policy with the same cost that I knew I could make premium payments on for 20 years, but I was really able to turbocharge it within the rules of the income tax act while also gaining the benefit of adding safe collateral for the lender. Not to mention I’m creating now legacy wealth, which could be used to pass to my family tax free and to marry up and match up to those future or frozen tax liabilities that we spoke about before.
George Dube (23:25):
Oh, sorry Brian, just perhaps a little out of context, but again, to emphasize the value to that from a financial institution perspective as well is being able to put a number on the balance sheet of the financial statements in terms of what we can show as that insurance as an asset of the corporation. And Brian, you’d already mentioned some of the potential tax benefits as well with that income and the problems that can be created. If we have, for example, a healthcare practice and we’ve got, I hate to use this term, but I’m going to call it for the sake of argument, too much investment income. Well, that investment income can be absorbed within the policy. So from an income tax perspective, it doesn’t create some other issues or add to those issues perhaps, right?
Cost over time
Brian Laundry (24:15):
So if I’m in the viewer and I go back to the ledger, I’m saying to myself, I don’t know if I’m going to have that sort of money for the next 10 years. I believe I will. I’m optimistic. I feel like I should be able to hit those objectives, but there’s a risk to it. There’s two things we have to remember. One is that the cost never changed. The cost was only ever $52,000, and that’s the first call that I showed you on that chart. So we don’t need to make the additional deposit, we should want to make the additional deposit. And if you refer to the ledger now, there’s another permutation of the exact same policy. And this is actually what’s happened for me because I’ve made my first two deposits, once again, I wish column 12 would read deposit and not premium.
Brian Laundry (25:01):
In this case, I’ve made two deposits in my first two years. Notice the zeros below it, life insurance has a cost of $52,000. In this example, it can only be paid in one of two ways. Either I make a premium payment with money that I have or there needs to be enough accumulative values in the policy to offset those costs, which is what I’m demonstrating here. This policy offsets in two years. I don’t need to based on the current dividend scale to make any more deposits. There is something very powerful to me knowing that right now as we sit here, I don’t need to do anything for my policy, but I want to. And you’ll notice if I continue making the minimum deposits and the premium payment, which has always been my intent, the policy becomes very powerful. It grows over time. I still have the option to put more money in whenever I want.
Brian Laundry (25:58):
There’s a tremendous amount of power in this sort of planning. But what’s important is these are four different deposit permutations on the exact same contract. And because of our service mechanism being annual, and we do speak a month before your anniversary, so we make sure that we know how much funding and how much contribution room that we have, we’re always fully aware of our funding options. Every year we rerun projections based on the scale to say, Hey, you got enough money, the scale is done better than expected, or whatever permutation that we want. So a tremendous amount of power in this particular contract.
Liquidity of life insurance
Brian Laundry (26:39):
I do want to change the tempo a little bit here because this is a very small or relatively unknown fact is people often say, well, what’s my liquidity of life insurance? And I’ll tell you, it’s a balance sheet asset. If you cancel the policy, you could take your cash and go home. That’s possible. We wouldn’t recommend it naturally.
Insurance as a pension asset
But I mentioned before that there was a mechanism when the dividend was declared the death benefit would increase. We just finished seeing several examples of the death benefit growing dramatically. It’s possible to tell the insurance company: insurance company, I no longer want to grow my death benefit. I want to create an income stream. I recognize these numbers are small in the screening, I apologize. But what I’m trying to demonstrate is in year 11, I said, Hey, insurance company, I want you to stop buying more life insurance.
Brian Laundry (27:29):
Stop growing it. I don’t need more. I want to create an income stream. You’ll notice in column of point number 17, that’s the cash dividend that can be paid to the policy owner. And this is what’s really attractive, and most people don’t know this. The tax rate on that income that you see there that starts at 147,000 is taxed as return of capital. It’s my own money and it’s my own money and taxed at zero as return of capital until I grind through my adjusted cost base, which typically happens around year 25, case to case. But my point is I put 10 years of money into a policy with all of the attributes I’ve already mentioned, and then I recalibrated in year 11 and said, no, I prefer to have some income on this. People aren’t aware of turning these into pension like assets.
Generating tax free income – Capital dividend account
The last thing I want to touch on before we get into an example of leverage is the capital dividend account.
Brian Laundry (28:29):
George, you and I talk about capital dividends all the time. Naturally, when we have a state tax liability that’s frozen or projected, there’s only a couple of options. And if you had the choice of paying non-eligible dividend tax rates, let’s call it 47%, it can vary province to province. We know capital dividends are taxed at zero, and that’s better. So life insurance creates capital dividends. So if you looked at the death benefit of year 20, now this example is the one where I funded the policy for 10 years, or sorry, the debt benefit was 27.1 million. We created $24 million of capital dividends. That means, George, you can declare a $24 million capital dividend to your family or to heirs at zero personal income tax.
George Dube (29:15):
And just to emphasize that, that’s not just going to the corporation and being tax free. That’s going to the individual shareholders typically through the family trust, but still it’s getting into somebody’s personal hands at that magnificent tax rate of zero.
Brian Laundry (29:34):
And at the end of the day, we can go through all the math we want. There is no better to fund estate tax liability than using corporate dollars that gets in your family’s hands personally without tax. Nothing else does it better than insurance.
A tool for planning to create tax savings and wealth using OPM
So from here, that’s the product design. And to me, I was very excited to implement a structure like that in my asset class as an investor. I’ve since leveraged my cash value to purchase real estate. What’s really important here is you have to understand that the asset, which is life insurance, is very, very valuable not only when you’re gone and for your family, but for every year from this day until that it provides a lot of benefit for us. And George, for you, it’s another tool in your tool belt when you have your annual review and people ask, how do I save money in tax? We can now look at a policy and say that’s something that we can utilize for sure.
George Dube (30:32):
And I’m not saying that it’s appropriate for everybody, and I’m sure you would agree, Brian, but it’s a valuable tool for very many. And one of the things that I as well like about it, there’s certainly a multitude, but having that conversation with different generations within the family. And so Brian, you and I are working on a few cases right now where we’re actually working on what I’m going to call the elderly parents tax bill that’s coming due ultimately when the second of the parents pass away, and it may seem odd, but we’re putting some policies into place for that next generation so that they’re not, for example, taking a lot of extra cash outside of the corporations to pay for these taxes and therefore creating even more taxes. There’s just as simply no more tax efficient way to do it where we can integrate some of the planning, Brian, that you bring to the table and some of the tax planning that we bring to the table.
Brian Laundry (31:35):
And let’s be clear, when you’re in your seventies, you are insurable in a lot of structures we implement. I just did one this week, a husband and wife, 76 and 73, no problem. The numbers look spectacular, especially in a corporate context. So I think people and viewers should be looking at this and don’t decide that you’re not insurable. You often are.
Example of leveraging the policy
I do want to speak about just on a high-level basis how I’ve leveraged my policy. And George, I know you’ve leveraged yours also. We aren’t going to show a visual demonstration, but let’s just have that conversation. My numbers, we all know that I deposited $425,000 in year one. In year one, my cash value was $384,000. What I did was I contacted my financial institution and my private banker, and you have to have a specialized lender. This is not something done typically at the retail level.
Brian Laundry (32:36):
You have to know who to speak to at the financial institutions, get an insurance based loan. Personally, I took a loan of only the cash value. So the bank was able to give me a cash value loan of $384,000, and then I deployed that capital into a real estate project. So now my obligation is to service the interest of that loan, but the policy continues to accrue in value. And now I have a real estate asset accruing in value. And moving forward, not only am I only servicing the interest payments of the insurance instead of just a premium, that loan is tax deductible. My interest is tax deductible.
Second tax deduction
And as a second deduction that nobody knows about, it’s called net cost of pure insurance or short NCP. Or in English, your actual mortality costs for the given year that you’re in. And really long story short, the older and less healthy you are, and for once smokers have a better advantage in life, that deduction becomes immensely powerful, especially in the older ages. In other words, I can leverage a life insurance policy into real estate or any other qualifying asset and get two tax deductions and nobody else can offer any more than one.
Taking advantage of leverage
George Dube (33:58):
And I think this whole idea of the leverage is absolutely critical. Brian, when we started talking about this and using it with some of the real estate investors, including Robin and I, we were not satisfied with just the return of the insurance policy itself. Whereas a lot of our healthcare practitioners and business owners that we work with, they love it.
And it’s not that it’s bad, it’s that we get juiced with a little bit of extra on the real estate side. And so we say, okay, I like that return, but how can I create even a larger return with that accepting the obvious risks that come with leverage?
Leverage for real estate and alternative investments
But now, if I’m comfortable with that from a real estate perspective, why wouldn’t I be just as comfortable on the insurance side? But now it’s also, I’m not making a choice between, on one side I’m investing insurance, the other side, again for Robin and I, we’ve put it into predominantly what I’m going to call alternative investment, which are usually promissory notes, secondary mortgages, limited partnerships, things of that nature, predominantly real estate, but not purely. And it’s not that that’s the right decision, it’s the right decision for my family.
Other families, they’re going to be able to say, I’m not choosing between one or the other. I want both. And as you said, we lined things up with the financial institution using the mutual contacts that we have to be able to make that as, I’ll call it pain-free as possible. It’s never pain-free, but it’s virtually pain-free, particularly once you get that in place the first time. Now it’s just kind of a tick the box, is everything going okay? And it’s just so much easier and love the fact that it’s, at least for Robin and I, that forced savings mechanism almost where we take some of the savings we otherwise are going to have.
Leverage for cottage purchase, mortgage paydown, and other large purchases
George Dube (35:57):
And I get both the insurance and the alternative investing. And again, it doesn’t have to be those items. And Brian, we work with a number of people, as I said, that just they’re happy with the insurance component itself, but they like the knowledge of if I want to be able to take some leverage down the road, it’s available for me.
And I like the ability, again, I love flexibility to say, well, maybe I want to, and this is probably I’m sure the source of a different video. I want to buy a cottage. I want to buy something in my personal name, or I want to pay off mortgage on my personal home, for example, or my cottage. I want to buy a large boat. I want to do this, that, or the other thing.
Again, with some tweaks using some of the insurance planning here and that leverage, I’m not choosing one or the other. I can choose both. And I love not being boxed in a corner.
Debt is cheaper than equity
Brian Laundry (36:56):
Well, there’s always that expression that business owners have heard is that debt is cheaper than equity, right? I’d rather take money away and invest in my business. I know what I’m doing. So debt is cheaper than equity. Yes. Well, another thing that debt is cheaper than is taxed and in many cases, the tax report than the equity we would get otherwise. So if the common denominator is that debt is better than equity, or sorry, taking on debt is good for equity and debt defeats tax, but we better know how the banks want to offer us more debt. And we’ve already established that it’s a very safe asset that they’re prepared to leverage against, and we can really utilize that from a tax perspective.
One last point on the leverage. Too often in this country across the country, leverage life insurance is being introduced and it’s being introduced very much as a concept. Hey, here’s one of these. You should try one, it’s cheap insurance, or some even say free insurance, which is completely not true. I think the angle that I would prefer and what we’ve gone through today is understand the asset that you’re securing and why it’s so valuable. And then what is the effect of using finance with that asset? And you can magnify the effects, which the numbers look outstanding, but sometimes I think too often we start with leverage, and I think we should understand that leverage is just a component of having this sort of asset.
Size of policies – vary to match needs
George Dube (38:22):
And maybe one of my parting comments would be, again, hearing some of the comments, concerns from clients is the numbers you’ve presented, Brian, and while they’re similar to mine, not everybody wants those same numbers. There’s going to be a number of people that want much lower, and you’ve already addressed the idea that, hey, we want to be ensuring that you’re comfortable with those annual payments. We don’t want any stress created here. And we’ve also had the exact opposite where people are saying those payments aren’t nearly large enough. We need more ability to shelter. And so to me, again, just to emphasize, and I’ve seen you do this, I know you know it, Brian, but for the viewers, Brian can be putting together just because these numbers don’t work for you, those numbers can be much smaller or much larger. This is just an example.
Brian Laundry (39:17):
Well, and the only variable that I don’t know is your insurability and the cost of the insurance. So ultimately, the decision I often put to anybody would be, do we think this makes sense in your planning? If we believe it may, then we should apply because I can’t give you actual numbers and demonstrate actual tax deductions and demonstrate all the mathematical certainties that I’m aware of, unless I know if you’re insurable and what the cost is. Great point. There’s a lot of work to be done. It’s not as easy as maybe we’re making it sound in such a short video.
Conclusion: Creating tax savings and wealth using OPM
George Dube (39:50):
This has been absolutely awesome. So again, I’m sure there’s going to be the viewers that greatly appreciate they’ve seen some of our theoretical discussion from prior videos (part 1 and part 2). Now they’ve had the opportunity to feast on some actual numbers. And I guess to your point, Brian, the point would be primarily, as I’m interpreting that anyway, is to say, let’s get some numbers for you as the viewer to say, what would your situation look like and does it even make sense in your case to put something of this nature in place? So again, not saying it does in every case, but I think it makes a lot more sense for more people than they realize.
Brian Laundry:
Absolutely. Well, you don’t know unless you have the discussion and understand the circumstance.
George Dube:
Awesome. Brian, again, thank you. Can you remind us what’s the best way for people to reach out to you and start that conversation?
Brian Laundry:
Well, my team, we have a website. Go to brianlaundry.ca. My email address is very simple. It’s brian@brianlaundry.ca. Either I or anybody on my team would love to speak with you and help you, but that’s easily the best way of reaching me.
George Dube:
Awesome. Thank you so much, Brian, for sharing your expertise with us and look forward to working with you on some more cases here, and I’m sure there’s another video or two down the works.
Brian Laundry:
Love it. Thank you. Thanks, George.
George Dube:
Thank you.
Have more questions? Please subscribe, follow, and even share.
I want all of us to have the tax information we need to do wonderful things™.
-End transcript of Case study: Creating tax savings and wealth using OPM-
More questions?
Still have questions on creating tax savings and wealth using OPM? I want to help you Do Wonderful Things™, so please contact me today.
Remember – circumstances are unique! This information is summary in nature. Seek out advice from your tax advisor about your specific situation.
