Building wealth is important. But have you considered how much of it may ultimately reach your family?

We spend years working, saving, investing, and building assets that we hope will benefit the people we love. For business owners, that may mean growing a company. For other families, it may mean owning real estate, investing for retirement, or holding onto a family cottage.

But there's another side to wealth building that deserves attention: planning for what happens when that wealth is transferred to the next generation.

Recently, I sat down with Matt Austin, a Certified Financial Planner and Chartered Life Underwriter who specializes in estate planning and insurance solutions, to discuss the role life insurance can play in this process.

Our conversation highlighted an important point: creating wealth and transferring wealth are two different challenges.

What happens to your assets when you die?

In Canada, death can trigger tax consequences even when no assets are actually sold.

Certain capital property is generally deemed to have been disposed of at fair market value immediately before death. If the property has increased in value, that deemed disposition may result in a taxable capital gain.

Registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs) can also create significant tax consequences, depending on the circumstances and whether an exception or qualifying rollover applies.

Consider a few examples:

• A family business that has increased in value over several decades.

• A cottage purchased by grandparents that is now worth substantially more than its original purchase price.

• An investment property that has appreciated over time.

• Registered retirement savings that may be included in the deceased person's income for tax purposes.

The family may want to preserve these assets rather than sell them. Yet the estate may still need funds to meet its tax obligations.

This is where liquidity becomes important.

An asset can be valuable without providing the cash needed to pay a bill.

Without advance planning, a family may need to sell assets, borrow funds, or make decisions under pressure to cover estate expenses and taxes.

The role of life insurance in estate planning

One of the primary purposes of life insurance is to provide a death benefit to beneficiaries when the insured person dies.

A qualifying death benefit is generally paid tax-free to beneficiaries in Canada. Because it provides cash, life insurance may help address estate expenses and tax liabilities without requiring the family to sell other assets.

For example, imagine a business owner who wants to pass the family business to their children.

The transfer may not involve a conventional sale for cash, but tax liabilities may still arise. If the estate doesn't have sufficient liquid funds, the family could face difficult decisions about how to pay those obligations.

Depending on the family's circumstances and how the policy is structured, life insurance may provide funds to help cover those costs while supporting the family's goal of keeping the business in the family.

A similar approach may be worth exploring for a family cottage or other assets that loved ones hope to preserve.

Life insurance may also offer administrative advantages. Where a policy has an appropriate named beneficiary, proceeds may be paid directly to that beneficiary rather than through the estate, potentially avoiding probate delays and certain estate-related costs. The outcome depends on the ownership, beneficiary arrangements, and applicable rules.

These are reasons life insurance may be considered as part of a broader estate plan - not a guarantee that every tax or estate expense will be eliminated.

Looking beyond the rate of return

During our conversation, Matt shared an illustration designed to demonstrate how the structure and tax treatment of a financial strategy can affect the amount ultimately available to a family.

The example involved Jim, age 50, who wanted to build a larger legacy for his family before retiring at age 65.

Jim planned to allocate $50,000 annually for 15 years toward this goal. The illustration compared two approaches:

1. A fixed-income investment, modelled as a GIC earning an assumed 6% annually.

2. A participating whole life insurance strategy funded with the same annual amount.

The example assumed that Jim would die at age 85, allowing the two strategies to be compared over a 35-year period.

Under the assumptions presented in the conversation, the taxable investment was projected to provide approximately $1.7 million to Jim's family after taxes. The participating whole life insurance illustration projected just under $3.5 million using current assumptions, or approximately $2.6 million under more conservative assumptions.

Matt also explained that the taxable investment would need to earn approximately 11.09% annually over the period to produce a comparable result under the illustration's assumptions.

These figures are specific to the example discussed. They are not guaranteed outcomes or expected returns for every person or policy.

The comparison does, however, illustrate why tax treatment deserves attention when evaluating a long-term financial strategy.

Why can tax treatment make a difference?

Interest earned on a typical non-registered GIC is generally taxable each year at the owner's applicable marginal tax rate. Taxes paid along the way reduce the amount of interest that remains invested to compound.

Certain life insurance policies are treated differently under Canadian tax rules. Cash value may accumulate on a tax-deferred basis, and a qualifying death benefit is generally received tax-free by beneficiaries.

The policy's death benefit, contractual guarantees, potential dividends, costs, and funding structure also influence the result. Participating whole life dividends, where applicable, are not guaranteed.

That is why a meaningful comparison should account for more than the projected ending value. It should consider the money contributed, taxes, costs, liquidity, policy terms, assumptions, and the intended use of the funds.

The point isn't that every family should choose one particular strategy. It's that the details matter - and understanding those details can help families make better-informed decisions.

How Infinite Banking fits into the conversation

Many people first encounter life insurance through the Infinite Banking Concept, which explores how a properly structured participating whole life policy may be used as part of a personal banking strategy during one's lifetime.

But the living benefits aren't the only consideration.

Life insurance also has a death benefit, and that benefit may play an important role in providing for loved ones and supporting estate-planning objectives.

Some families may explore both aspects of a policy: how it could fit into their financial arrangements while they're alive and how the death benefit could help support their legacy.

The right approach depends on the family's goals, finances, insurability, and the policy's design.

Policy premiums and funding commitments need to be affordable. Access to cash value and the consequences of policy loans must be understood. Loans accrue interest under their terms and can reduce the cash value or death benefit if left outstanding. Policy performance, costs, and tax treatment also need to be considered.

Life insurance isn't a one-size-fits-all solution, and it shouldn't be evaluated in isolation from a family's other financial needs.

Flexibility is part of thoughtful planning

An estate strategy should reflect real life - not just an illustration.

Business income can fluctuate. Families face unexpected expenses. Retirement plans change. A funding schedule that feels comfortable today may not feel the same several years from now.

Depending on the policy's provisions and limits, an insurance strategy may offer some flexibility in the amount contributed over time. But that flexibility varies by policy, and reducing or stopping planned contributions can affect long-term results.

It's important to understand both the opportunities and the commitments before putting a strategy in place.

For that reason, families should work with qualified insurance, tax, and legal professionals to assess whether a particular approach fits their circumstances.

What do you want your legacy to look like?

For some families, the goal is to keep a business operating across generations. For others, it's to preserve a cottage filled with family memories or provide financial resources for children and grandchildren.

Whatever the goal, planning ahead can help families understand the obligations that may arise and the options available to meet them.

Consider asking yourself:

• What tax liabilities could arise when my assets are transferred?

• Will my estate have enough liquidity to cover those obligations?

• Could my family be forced to sell assets to raise cash?

• Have I explored whether life insurance could support my estate-planning goals?

• Does my current plan reflect the legacy I want to leave?

You don't need to have every answer today. But starting the conversation can help you make more informed decisions.

Building wealth takes time and intention. Planning for how that wealth will benefit the next generation deserves the same care.

Because your legacy isn't only about what you build. It's also about how thoughtfully you prepare for what comes next.