We've all heard Aesop's fable of "The Goose Who Laid the Golden Eggs."
The bottom line of the story was that the greedy owner could not wait for the next day that the goose laid another golden egg.
He killed the goose in order to get at all the gold at once, only to find his eggs runny.
A wiser person would have spent a lot of time and energy feeding, exercising and training the goose to maximize the size and frequency of those golden eggs. Insuring those eggs probably wouldn't have been a bad idea either. The wisest person would have taken out a huge portfolio of life, disability and critical illness insurance on the goose!
Getting the idea? We spend a lot of money today focusing on the golden eggs, our possessions. Although we may wisely insure these assets, we often don't spend enough thought on insuring the goose (ourselves) against the catastrophic risks of dying or becoming critically sick or hurt - all of which can have devastating financial consequences to our families.
It is critical to carry enough life insurance, disability insurance and critical illness insurance to replace your economic value during the working years. Most of us know that even though it bears repeating.
The question is: "Do you insure the goose when it retires?" After all, the debts are usually paid off by that time and there's a ton of money in the pension, RRSPs and RRIFs. Canada Pension Plan and Old Age Security also start kicking in. There might even be some investment properties, stock portfolio or a family business. In other words, the goose has done some financial planning and has become "self-insured."
Here's the problem. The tax advantages enjoyed on all these investments have created a big silent deferral! Capital gains and recapture taxes are due upon death, as well as income taxes on RRSP and RRIF balances. Mr. Goose can pass his estate along to Mother Goose without any tax but, upon her death, all the poor little goslings will probably have to sell off pieces of the estate to pay Canada Revenue Agency.
Add to this the possibility that Mr. Goose's pension could reduce substantially when he dies, leaving his better half short on cash flow.
There are other matters to consider, such as probate fees on the estate, legal fees, accounting fees, executor fees, burial expenses, etc. Because the Goose Estate has been so wisely invested, there is probably little in the way of inactive cash. When the now grown up goslings are forced to sell off assets, they may have to do so at fire sale prices in order to meet the demand for cash.
So, do you insure the retired goose? It's something you may want to consider in your estate plan.
The opinions expressed are those of Richard Vetter, BA, CFP, CLU, ChFC. He is a certified financial planner and owner of WealthSmart Financial Group in Richmond (www.wealthsmart.ca).
