E36: Insurance 201 with Sterling Park

If you are someone with a holding company, some sort of corporation, now you have an additional advantage. You pay for it with corporate after tax dollars as opposed to personal after tax dollars. So you get the tax benefit of how you're paying for it. You get the tax benefit that it's growing tax free. You get the tax benefit that the death benefit goes to the corporation entirely tax free. And if you live to full life expectancy, this rule around the capital dividend account essentially allows you to take all of that tax free benefit out to the estate. Even so, massive value in terms of use of that $1 of corporate dollars. If your goal is retaining that capital and ensuring that you pay, you minimize tax and as much of that goes to your family, your beneficiaries as possible.

This podcast is brought to you by Gensler Wealth Management and Gensler Wealth Financial Services. The information discussed today is meant to be general in nature and not tailored to specific investing or insurance circumstances. This means that you should talk to your regular Gensler wealth advisor or your own advisor before acting on any information we discuss today. Nothing in this podcast is intended to be a solicitation and past performance does not guarantee future returns. For the first time, this podcast features two guests at once and therefore may be more unbridled than normal. So listen cautiously. Today on the unlimited podcast the dream team is here. Zach Goldman and Jonah Mayles from Sterling park. And we're going to cover insurance 201 whole life insurance. We talk about insurance for growing estate value and for tax planning. I can feel the excitement building. Let's go.

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Okay, so you would have just heard our previous guest Simon k on Insurance 101. Give a little teaser for what we're about to cover today with my guests. Today is you've been waiting for it. I know Insurance 201 and we're going to cover two different things here around insurance and reminder. In 101 we really covered insurance for protection purposes. Here we're going to focus on two key uses of insurance. Number one, insurance as a tool for growing wealth and estate value in a highly tax effective manner. And our guests are going to provide a little case study on this. And then number two, insurance for tax planning purposes. And they sort of, they sort of mix and go together but insurance for tax planning purposes, most specifically for covering off potentially very large tax liabilities at death. So really pleased to have my good friends and actual neighbors, we were in the same building, Zach Goldman and Jonah Mayles from Sterling park with us. Thank you very much gentlemen for being here.

Thanks for having us. Looking forward to it.

I'm excited, actually, to talk about insurance.

You always are. This one was easy because as I said, Zach and Jonah literally are 17 steps away from my office. We're in my office together, all gathered around a mic. So this should, this should be fun.

That's not why you picked us. You picked us for the well, not geography.

The reality was I ran on a guest and I saw you guys in the hall and I said, maybe you guys will come on. So let me give you a tiny bit of color on Zach and Jonah and then they'll tell you their backgrounds. So they're partners at Sterling Park, a leading insurance advisor group with expertise in tax and estate planning. And the latter two items are a big differentiator in my view. Zach's a founding partner of Sterling Park. He has advised affluent clients and business owners for over 20 years. He holds the Family Enterprise Advisor, that's the FEA designation and an MBA from the Rotman School of Business at the University of Toronto. And Jonah is a partner at Sterling and is the tax, legal and estate planning guru in the firm. That's how I describe him. Before joining Sterling Park, Jonah was a tax lawyer at Fraser Milner, Cows Grain and Torkin Mains. Whereas practice focused on business succession planning, estate planning, advising on and drafting family trusts, and structuring and implementing tax efficient sales and purchases of businesses. Pretty experienced guys here with us today. And again, thanks so much for taking the time.

You know, it's exciting. We love talking to you about insurance and now that you've actually allowed us on the podcast that we listen to for so long, we appreciate it.

Okay, good. Well, listen, so let me turn it to you, Zach, maybe first, can you just give. We've known each other for probably 20, 25, 30 years, maybe now, met in university, but give a little bit of color to the folks listening, like who you are. How did you get to be in this industry? How did you get to be an expert in what you're doing? And then Jonah gets to hear what you say and then he'll, he'll be able to answer after that.

Well, I'm no for 100%. Jonah will always say better than me, but let me give you some background. So I was graduating university where we, where we met, and I was trying to figure out what to do. And my stepfather, who had. Was an accountant at the time, said, you should go sell life insurance. And I remember going home to tell my father this, and I said, dad, Alan wants me to become an insurance advisor. And my father said this, Anything but that. Anything but but that. I asked him the other day, dad, are you proud of me finally? Because you've done a good job, son. So. But what I. What it was, was 23 years ago. So I tried a couple of things before insurance, but 23 years ago, I entered the insurance business. Didn't know anything about it, didn't know what it was supposed to do, how it would help in 23. 23 years later. I think we have an amazing firm that helps a lot of families in Canada. And what I love about it is just being able to see the uniqueness and dealing with so many different people. Our firm is not what it was when I first started. So when I first started, I was an insurance guy selling insurance for protection. And a lot of what we do today, with the help of my partner and the guidance of my partner, is planning for our clients, planning for estate planning. I couldn't love it more. And I can't. And as Jonah always tells me, I can never retire. So another 23 more years.

Okay, sounds good. Sounds good. Jonah, what about you? Because you didn't. You haven't been doing this for 20 some odd years with Zach here, it feels like it.

Zach is like Donnie.

And every day feels like a lifetime. Yeah, I can sense that.

No, I mean, if someone told me 10 years ago that I'd be in the insurance business, I either would have thought they were lying to me or I would have been very sad.

Right.

But the truth is, is that I was looking to leave private practice, and I needed something where I could use my background in tax and estate planning, but do something else. And I found insurance through someone I knew in the tax world. And I went to go work in house at a carrier, at a provider. I realized after about eight months, that was not for me.

And so carrier means what, like Canada Life? One of the big insurance companies.

One of the big insurance companies. So I was internal there as one of their tax and estate planning consultants.

Okay.

And my job there was to kind of bridge the gap between the insurance advisor and the accountant who was working with the client. And that gap was pretty significant. There was pretty big bridge that I had to. To walk down. And I realized that that wasn't for me. I don't want to get too much into it, but let's just say I didn't have the highest esteem for a lot of people in the insurance business. So then I was looking to leave.

To be clear, the views of our guests are not the views against their wealth. And we make no. Go ahead.

And I met Zach on a conference that I was there in my capacity internally, and Zach was there as an advisor. And we started talking and we viewed the insurance industry the exact same way. Zach was the first person who saw it the same way as me, which was insurance should not be sold as a product. I mean, for protection, perhaps, but for what we do, it shouldn't be. It should be advisory. Right. Because it has to be part of the larger picture. And Zach was the first person on, you know, that on his side that we aligned with in that. And then we had coffee on a Friday, dinner on a Monday, and we were partners on the next Friday. Like, it happened very quickly in very seamlessly. We had never known each other. Yeah.

So it happened. And that's rare because everybody knows Zach. Zach knows everyone.

Going out for dinner with Zach is.

Like leaving the restaurants most. The most annoying thing can get out of there.

Kisses every baby on the way.

But.

But we align, so we align so quickly. And our view of insurance was on the exact same page. So I think from a partnership perspective, it's been seamless in how we advise our clients. So that's how I. I came to.

And I will, I will add, our view of insurance is doing what's right for the client.

Yes.

And we're not saying that. Not everybody does that, but it's. It seems like such a low bar to. To get over. But that's how we view everything. And what I, for me, what the real benefit was and what I benefit greatly from just from knowledge and everything was having a partner that's a tax lawyer. I. There's not many people in the business that can say that, that has that. That has that expertise in house. Who's been able to have the conversations. There's so many things I always call Jonah. I'm like, Jonah, just. Just explain this to me or walk me through this. And so not that I'm looking to become an expert just because I have no clue sometimes what people are saying. And that expertise is fantastic.

It seems like a good combination. So we're going to dive into the core area of your expertise as it relates to insurance advisory, but just as a reminder for the folks that listened to 101 or didn't listen to 101, which obviously sounds like a crazy thing. How could someone not listen to the podcast? But if they didn't. What we covered last time was essentially insurance for protection, term insurance, and maybe a little bit of permanent insurance, as in something called universal life. Can can you guys just, in literally a minute, just because you want to provide that baseline, remind everyone what's the, what's term insurance? Permanent insurance called universal life, used for protection. Let's just refresh because I think that'll be a good segue to. Well, what's the difference with what we're likely going to talk about, which is something called whole life permanent but whole life insurance.

I think it's, it comes down to something really simple. Term insurance is for protection. It's for the needs of today. You have a family you're looking to replace, an income or something happen, a mortgage, you have a business partner, God forbid something wants to happen. That's the protection.

Short term need.

It's a low cost, but it's a short term need. It's nothing that you would do for long term planning. And permanent insurance is for planning. It's just that permanent insurance is something that will be with you if structured correctly for your entire life. And ensuring that that's there, that is for planning, long term planning. And that's the distinction. Now, within a permanent insurance, term insurance is fairly easy. It's a term insurance. The only difference is how long the policy will last. For permanent insurance, there's universal life, as you say, and then there's whole life. The difference is how those two, the universal life and whole life are built. Universal life can be structured where you manage the investments. But we know, Brian, you would probably not recommend it based on your expertise and other things that are out there. But universal life has a term to 100 cost and essentially no growth in the death benefit. But I say there's a caveat. If you put some money, there's some growth. And whole life is a policy that grows over time through the dividend of the participating account. Those are not guaranteed, but we look at historical history to see the growth and when you use assumptions that are, that are within boundaries. Conservative. Conservative. Thank you. There's a long term planning that can be used with that and those are the two different policies that are out there.

Okay, so let's. Again, I would ask folks, if you want to get a little refresher, go Back to the 101 podcast. Let's dive into this whole life insurance now just at a high level. What is it? How does it work and what are maybe some of the key elements? I know you folks always talk about A, that it's permanent, B, there's some wealth transfer component to it which you'll explain better than me and some investment benefits. And then I want to Dive into the, maybe the two core themes for sort of wealth transfer or estate maximization and tax liability planning. So I don't know, maybe Jonah, or whoever you think, why don't you go.

Through the whole product and I'll go over the wealth transfer.

Well, I'll go through the permanent. Because it's, you know, so here's whole life. It's permanent coverage. What does permanent coverage mean? It lasts until you die. That is the most important thing when you're looking at a, at a policy for planning. If you don't want a policy like term insurance that stops at either at age 80 or 85 so that the product with whole life is a permanent product, lasts until death.

The.

There's. With whole life, there's a growth of the cash value and death benefit that occurs, as I said, through dividends paid through the participating account.

So, so just explain what I think. Everyone knows this, but the death benefit is what you get when eventually you pass away.

Yes. Sorry, I, I was ready, I was listening to you and you may have heard the presentation. So it's like you, you were going to tell us what it was. I was waiting for that aspect. So the death benefit is what occurs is the estate benefit or the death benefit happens and you pass away. The insurance company is obligated to pay that amount. With a whole life policy, there's always a guaranteed amount. So for example, a million dollars. Then what will happen on an annual basis if the insurance company will declare a dividend? Two things happen. Your insurance policy will increase when that dividend is declared. So the insurance policy, the death benefit will increase. And it increases through something called paid up additions. The way I best described. Paid up additions are many insurance policies that are added onto that million dollar policy. So that policy will grow over time and it works well in a lot of situations. What it also happens is there's a cash value that's created. So when you put in, put a premium into a policy, not all of the policy, that premium goes towards the, the, the policy cost of the insurance and some of it goes to the participating account, there's an investment. So now there's a cash value that increases. The good thing about that cash value, once that policy dividend's declared, it's. There's. That cash value has a new baseline every year. So what we see if using conservative assumptions, is that growth with that whole life policy, that million dollar policy, you know, will grow to a $2 million policy at Life expectancy. Why, that's good. It's just there might Be some change in needs. But what the most important thing is that it's, it's permanent and it's there when the coverage is needed. Then we look at that, the cash value and John, I think you're always better how we can access that cash value.

But one thing I also want to specify is that unlike term insurance, you have to pay a premium every year in order to have that coverage. Right. It's like renting on permanent insurance. You can structure the premium where you pay for 10 years and then after that the cash value that's building in the pol policy will fund the premium for the rest of your life. So even though the insurance is there for the rest of your life, the premium isn't. Right. So most of our clients pay for 10 to 20 years, but they have it for 40 years.

They like the people want to know if there's an end.

Right.

And not an end to life but an end to the policy premium. No one wants to pay policy when they're 85.

Right.

So and just dive in a little bit more. Explain what this cash value thing is and where does Zach started there. But where does it come from? How does it build and what's this dividend or what are you participating in?

As a non insurance guy, the way I think about permanent insurance is there's two parts. There's the death benefit, which is the value, not to yourself. So let's talk about the owner of the policy. The death benefit isn't for you, it's for someone else. It's for your spouse, your kids, your estate of charity, it's for someone else. The cash value is the value to yourself during your lifetime. So sometimes people are under the assumption, well I pay a premium based on certain assumptions about my life. Today I think I can afford it and I don't need the money because it's for someone else. But perhaps that assumption changes in 20 years. The cash value is the value to the policy owner during their lifetime. That's what they can access back. So as Zach said, you pay a premium. Some of the premium pays for the insurance costs and some of it goes into the participating fund which is what the insurance company, what they invest your dollars into. Right. And it's conservative, it's a mixed bag. Mortgages and real estate and bonds and marketable securities.

All right, we have no say, no person has no say over what that is.

It's managed by the company and they have certain rules that allow them. So one thing is because it's a mixed bag, there's obviously there's variability in terms of the return in that fund, but that variability isn't felt by the policyholder. So the insurance company is allowed to smooth the returns over time. So in a great year, the dividend paid by the insurance companies are going to go through the roof, is going to stay flat because they're going to hold back that great return. And on a year where the market goes down, they can pump that money back in. So your return is smooth over time. You don't see that variability like a market. So when we think about permanent life insurance as an investment, we think of it as an alternative to other low risk investments. Fixed income bonds. Right.

Do a case study on this in a minute.

Yes. Okay. But that's where the cash value is really applicable to the port policy owner. It's the, it's available to them during their lifetimes. And there's three ways they can access the cash during their lifetime. One of them, they cancel the policy. We rarely advise that. That's, you know, kind of that safety net like your life has blown up and you really, you need it. Two is a policy loan, which is if I do a policy with Sun Life in the contract, they guarantee that they will loan me money against my policy. We don't like that option because they charge prime plus, it's expensive. And it can be a disposition of the policy under the tax Act. So there's tax applicable as well. If we have a client that wants to access the cash during their lifetime, what we often do is we go to a major bank, a bank of their choosing, CIBC, TTD, whichever, and they will lend you 100 cents against the cash value of your policy. So if I have a policy, the cash value is $2 million. I go to the bank, I get a line of credit, I use the cash value inside my policy as security. And I'm sure a lot of people who are listening know about that. And if they go get a line, line of credit, they have to secure it. They can secure marketable securities or real estate or what have you. And the bank will give them 50 to 70 cents on the dollar.

Right.

Because that's not a guarantee. That real estate market can go up and down to Zach's point. Every year the dividend is paid on the cash value that is your new floor. There is no risk of never goes down, never goes down. There's zero risk of loss. The bank will lend you 100 cents on the dollar against the cash value because it's guaranteed there's no risk. Right. So that's how we tend to access the cash.

But the cash, if they lend 100 cents on the cash value, somebody has to pay interest on that. Yes.

Which is deductible. Right, Right. If you use it for your business. So most of our clients don't need insurance. Right. They want it. They don't need it. Right. And if they want to access the capital inside, that policy is often for growth in a business or an investment opportunity. So you go to the bank, you get the line. Line of credit, you borrow it back, you put it back into something with a reasonable expectation of profit, and they can take the deduction, the interest deduction plus the net cost appearance, insurance deduction, which is a whole other conversation.

That's insurance 301. Yeah, we're not even doing that would be seven. Yeah, we're not. We're not doing that one.

But there's two deductions you can take. So the cost of borrowing actually goes down quite a bit. So if the borrowing rate is 6.5, but you're have deductions at 50.17%, your borrowing rate is, you know, three and a half, 4.4%.

But Jonah, what I'll say to you is, and we always talk about it is the boring of a policy, while an option against the policy should not be what leads the client and what they do. I think it works in some circumstances, but we see it unfortunately too much today. Where, where, where what is leverage? Leverage is not. We see it where people are trying to use the whole pie for leverage. And it's actually a very small slice of the pie, but it actually is very applicable to leverage and people that should be using it. And it's, as Jonah said, maybe a real estate family or a manufacturing business where they have that reasonable expectation of profit. They know they have an idea what the future holds. Yeah, but there is that access to capital in the policy, if need be. And well, I will say from now, from not the technical side, but the personal side is clients appreciate it, especially with some of the new. Some of the insurance companies have really made changes to how they're structuring policies and, and the cash values are very high early on. Clients have an ease. They're paying a premium and they look over and they look at the balance sheet and that cash value and the cash flows in with some policies could be 95% of what the premium payment was. That is certainly in that and that's in the earlier. So that certainly provides an ease to a client that sometimes put in a lot of money into a policy and trying to figure out where the money.

Is going for someone else. Right. You're putting a lot of your own money in the policy for the benefit of someone else decades down the road.

Right.

To Zach's point, it's very nice to know that if that assumption changes and you need that or want it, that the cash value is high enough that you can get your money back out.

Right. You can see you're building an asset right away, as opposed to going back to the term, for example, that's just renting. The money goes and it's gone. Okay, got it. So you've talked about it's permanent and some of the features there, you've talked about some of the investment benefits of that sort of participating side, the smoother returns, no risk of loss. What about wealth transfer? Or is that where we want to get into?

This is a big one, I think.

Okay.

I think for our clients, so going back to our client base, and this is not for everyone but our client base, most of them don't need insurance, right? So they.

When you say need, you mean they don't need it or cover a loss.

They've. They've accumulated more wealth than they need in their lifetime. So when, when we talk to a client about permanent insurance and whether it works as opposed to term insurance, the real question is, can you pay a premium knowing that this is not for you, that this is for someone else? So for a wealth transfer perspective, let's say a typical client of ours has a company and they earn their annual money, their income, inside that company, then they pull it out to pay the personal bills. Tax Planning 101 would dictate you don't pull out more money from your company than you need because you have to pay dividend tax, leave more money in your company, you pay a lower tax rate, have more money to invest. Right. That's a deferral strategy. That's great. But from a wealth transfer perspective, that is a deferral. And that deferral comes due once you pass away the shares of a company pass to your kids and they want to pull the money out because they want to buy a home in Toronto, which is now a minimum of $4 million whenever it is.

Right.

Once they pull that money that's been sitting in the company as a deferral, they have to pay the dividend tax.

Right.

So for a wealth transfer perspective, if we look at a client as a company, $10 million of cash inside the company that they don't need in their lifetime, we allocate a Percentage of the money they don't need, not all of it because you don't put all of your eggs in the insurance basket. I apologize for everyone in the insurance business who's listening. You take a percentage and you put it into a permanent policy that will grow tax free, which we already talked about. That growth in the participating fund is completely tax free.

We actually didn't talk about that. So maybe elaborate on that for a minute. That's a very good point.

The premium gets paid and some of it goes into the participating fund, which we talk about. And there's a dividend every year. This growth occurs completely tax free. And it's not a deferral. That tax does, does not become due when, when you die. It's completely tax free. So if we take this company with $10 million, let's say we take a million of it and put it into a life insurance policy, we pay a premium of $100,000 for 10 years. So a million dollars in total. That policy will grow tax free inside the company. Okay, let's say it's on the life of, of mom and dad. So it's a joint last to a die on second death. Dad dies first, the mom passes away. The insurance will get paid into the company because that's the owner and beneficiary completely tax free. So it's grown tax free and paid into the company completely tax free. When it pays into the company, it will attribute to the capital dividend account balance, which is the notional account which allows you to pull money from your company to a shareholder. Completely tax free.

Yeah, so. So this is a little bit of tax complication, but it's actually pretty critical and a key concept that people need to know so that, so maybe just repeat that about this. The CDA as you call.

So that is a notional account which you can create in a company through different ways. One is life insurance. Another common ways if you sell some something inside your company and pay capital gains tax on the trip, a portion. Because if you pay tax, you don't pay tax twice on the way out. That's so here when the policy pays to the company tax free, distributes. Let's say the death benefit is 3 million bucks at life expectancy. Usually the CDA will match the death benefit. So 3 million gets paid into the corp. It attributes that to that no count. 3 million can get paid out completely.

So that CDA account is a buildup of how much the owners of that corporation can take out without paying 1 cent of tax.

Right. So that deferral strategy of leaving cash in your company and investing more, which is a deferral because your kids will pull it out and you pay tax, that deferral turns into elimination with permanent life insurance.

Right.

And this to us is really where permanent life insurance makes a ton of sense. So from an investment perspective, it's very low risk. You get a steady return and those, those are great things. But if you had to pay 50.17% tax on the growth and then some tax on the way out, it would not be nearly as beneficial.

So why don't we do. Can you give us. I know every scenario is different, every person's age is different, the timeline is different, but can you give us some numbers? If I were to take that 100,000 a year for 10 years and put it into a lower risk bond that pays five and a bit percent or put it into this insurance policy over 10 years, that's going to probably also pay a quote, unquote, dividend of 5ish. I don't know. You'll tell us. Yeah. At the end of the day, to the estate of that owner of that corporation. What are, what's the end numbers look like? I know you can't give specific numbers.

I'll give general.

What's the general.

Give a general overview because it's hard to be specific because it's different based on age and gender, health and all those things. So when we talk to a client about this type of planning, which to us is insurance as an asset class or an alternative to a low risk asset class, we don't like to say, here's an illustration. This is the premium. This is the death benefit, the cash. What we like to say is here is what the insurance looks like. Okay. Here's the Premium. You're paying $100,000 for 10 years. We'll use the same example.

Yeah.

If you didn't put that hundred thousand dollars into insurance and you put it into fixed income, what would that look like? So on the insurance side, we know we're paying a premium of 100,000 bucks a year. It's growing tax tax free. But it's insurance. Right. So on a traditional investment, if I gave you 100,000 bucks and I earn 5.35%, I know what I have at the end of year one on insurance, I give $100,000. I have a million dollars. Right. So I'm starting at the 70 yard line when I'm competing against two investments.

You have a million dollars of.

Right.

So it's what's always Forgotten. It's the one question that's asked to us and every presentation is how you so far ahead, you're buying insurance.

Right. Like we're, we are.

But you only get that million dollars if you die.

But this is the again, going back to our first question to a client is do you need all of this money? If the answer is yes, don't buy permanent life insurance. Invest your dollars because you need it for retirement or what have you.

Right.

If you have accumulated more wealth than you need, then yes, that money is when you die. But that's okay because you have more than you need. You've already.

Right.

It's estate planning, right?

Yeah.

So we compare the same dollars going in for the same period of time with the same return. So right now for the manual life, the return is 6.35%. Okay. That's the dividend scale. Of course there, you know, that's not the rate of return you get because there's some fees and. Right, right.

Okay.

So but what we do is when we say okay, but 6.35%, let's be conservative and let's say the dividend scale goes down 1%.

Right.

5.35%. Which by the way is super conservative because we just stopped the lowest interest rate environment ever. And the dividend scale is at 6.35%. Right. So as interest rates go up, the dividend scale should, should go up as well. That's how it flows. So we model out the insurance, 100 grand going in for 10 years at a rate of return of 5.35%. We're looking at life expectancy. So let's say they're 50, we'll look at age 90. Okay. On a joint last two die.

Yeah.

Then we say if you don't do that, we're going to put a hundred thousand dollars fixed income earning 5.35%. So the same money going in with the same return, but here you have to pay tax on the return. Right. And it's inside a company. So you're paying 50.17% tax. So on that 5.35% you pay your tax, you have your balance after. And because our assumption is you don't need this money in your lifetime, we roll that return back into the investment. Right. So we're, we are comparing after tax combined growth with tax free combatant growth. Then we look at what that looks like at age 90.

Yeah.

We look at how those dollars get paid into the corp, but then how it flows out of the corp to the estate. Because this Is about the estate.

Yeah.

Estate plan.

Yeah.

You have to get the money out. You can't use it.

Right.

We have a lot of meetings about this with clients. Yeah. How many people think those investments in their company. Actually, I.

It's a, it's a tough thing. So I mean, it goes back to the initial conversation.

Sorry, you're gonna. Your thought was how many people think that they can literally just take the money out of the company and just.

Brian, with.

With no leakage. Yeah.

Brian, we hear on a more than often basis that I have $10 million.

Right.

And there is no thought to actually the taxes payable and what the government's going to take. And there is the reaction to it is it's visceral. Visceral. And it's surprising because they don't realize that four or five million dollars is now going to somebody else.

Right, right. So. So that's a lot. Again, it's about tax. Right. It's about. Sorry, it's not just about tax. It's about tax. It's about low risk and it's about liquidity. And the liquidity to me is a big thing. So if we've invested the same amount of money over the same period of time, earning the same return, but we start at the 70 yard line because we bought insurance. We know. And I can't give an exact. But usually we've increased the size of the estate based on that $1 million anywhere from 170 to 190%.

The is the after tax.

The after tax value, cash in hand to the estate.

Right.

That's generally 170 to 190 is usually where we fall, depending on almost doubling. Yes, yes.

Well, that's a major difference.

Right. But to Zach's point, when we do this presentation to a client, they go, well, why am I only investing $100,000? Because I'm ahead. And that's how clients often think is I'm ahead. So why wouldn't I go further ahead? Because.

Into the policy.

Yes.

Because again, this is a part of the planning. It can't be the plan. Right. Because sometimes life does not go the way that we plan Covid or what have you. Let's hope don't go through that again. But like, you know, you need some liquidity inside the company during your life, not just when you pass away. So we want to allocate a percentage of the, of, of, of the dollars, not all of it. And a big thing at the end is the liquidity, the fact that when you pass away, that the insurance Check will be in your estate's account in what, five to 10 business days.

Let's call it 10 business.

Let's call it 10. 10 business days. Your estate has liquidity, right? I do not care. Zach and I have seen this a million times. Don't care how wealthy you are. I don't care if you're a billionaire. Every estate needs liquidity. Particularly if you're a billionaire. You need liquidity because your estate needs go up. Whether that's taxes, estate equalization, perhaps you've told chair, hey, S, I'm going to donate X percent of the residue of my estate. Like, doesn't matter. Your estate needs liquidity.

Well, and to pay taxes and.

Well, that's part of it. Taxes.

And the CRA does not care one bit about your liquid situation. They want their money on death, and this is their taxes on death.

And this is a great bleed into the tax planning, which is if you don't have the liquidity, how are you going to create the liquidity?

Right.

And what is the cost of creating that liquidity? And to create liquidity, there is a cost. If there wasn't, you'd be liquid now.

Right. And create liquidity. You mean because folks own businesses or they own real estate buildings. You can't just sell a building building in five minutes or whatever the case may be.

Yeah. Particularly with our real estate clients, the liquidity becomes a bigger factor. No one wants to sell the buildings. Right, right. That's how generational wealth is created. The easiest way, I'll say it's not easy, but you know what, what I mean is hard to transfer an operating business. It's easier to transfer real estate from Gen 1 to Gen 3. Right. So they don't want to sell the building. As soon as you sell the building, you have to pay your taxes, like your cap gains inside the company and then distribute the cash and pay your dividend tax. And there's a whole slew of taxes to pay taxes. But then the building's gone.

Right.

And you're never going to get that building back. Perhaps my grandparents bought that apartment in the 70s. I'm never going to be able to.

They were supposed to buy that. Yeah, I've always heard that story that.

I was supposed to buy.

Yeah, yeah, yeah, yeah.

Right, right at, you know, you know, and a queen. And they should have had the quarter.

Yeah. But you know, you're not going to rebuy that. So the liquidity, I think, is almost as important as the tax planning component because all of our clients require liquidity. And there's always a benefit. And it's not just about taxes because sometimes it's about kids. Right. Like if you.

I was going to say.

Yeah. If you have two kids and you have an operating business, let's move away from real real estate. You have an operating business and one kid is involved in the business and one isn't. Which happens all the time. We hear this all the time.

Yeah.

So is one sibling supposed to run the business, work 80 hours a week and then just give a dividend check to their sibling who does not work, who provides nothing. And they're grinding it out. It creates family dynamic issues. And this is where Zach takes the elite on this stuff with his fba is very well suited to have this conversation. From the soft perspective. I'm better at the hard stuff at the numbers.

But by the way, I've never had two people on at point this same time. This is great. You guys just go back. I got to go to the restroom for a minute. I'll be back. This is good. We.

We spent too much time together. But like.

Yeah, keep going on that theme there.

But so some. Sometimes we use insurance to equalize the estate to provide liquidity. Okay. Child who is uninvolved in the business. They will be the beneficiary of the insurance and they get paid out cash.

Right.

The kid involved in the business gets the business.

Family dynamic is so important.

Important.

Right. It is sometimes not considered or. Or there's a not enough thought put to it. But family dynamics and being able to sit around the. The dinner table together and talk and love each other and I understand that's Jonah says I'm the soft one is so such a nice thing. And not planning is what breaks families apart.

Well, I bet you this also holds for like family cottages and stuff like that. Some. One of the children or whatever love the cottage. The other doesn't really go. But to pay the taxes, you'd have to sell the cottage and. I don't know.

Yeah. No. Even once we. We set up a trust for a family where the insurance was going to go into the trust and then the trust was going to pay the maintenance and the taxes and the upkeep on the cottage to keep it in the family for everyone to enjoy. They wanted the family to stay together and they thought the cottage was the way. So we used insurance for family planning. It was all about. Okay, now the onus isn't on the kids to fund the cottage because that's hard. The money's there, guys. Be a family. Go out there together and enjoy it. It had nothing to do. The family didn't care about the return or anything like that. All they cared about was that the liquidity was going to be there when it needed to be and that it would be in the trust and fund. The.

That's why insurance is so people. We were, Jonah and I were talking yesterday and sometimes we hear, well, someone told us a strategy in insurance and we don't understand it in the sense that when we're looking, we're talking about something. We just talked about a family that wanted to pay the maintenance fees on the cottage. Well, every family's going to have a different dynamic. And without having those conversations, rather than just being sold something which unfortunately we see, there has to be that conversation understanding of really why we're doing the plan, what are we trying to achieve. And without that discussion, the outcome is probably not going to be good. And we want to make sure that it's really tailored to what's. What the. What the family or the client wants.

Right.

That to me is.

If you think about term insurance, there's always like a need to. What would Zach said if I pass away, my income needs to be replaced, I have a mortgage and it needs to be paid. Like there's a clear need. With long term planning, there might be a need. Perhaps it's less clear. It's a literal opaque. And there's 40 years.

That's why you need a soft question.

Yeah. And that's where Zach is good at kind of talking to a family and drilling down on okay, this is your family today. What you see your family being like in 40 years, what are some of the roadblocks? If we're here today and your goal post is here, this is where you want your destination to be. When we get in the car, we drive there, how many tolls are there going to be? How much construction? And then we think of can insurance be used to pay the tolls to alleviate some of the speed bumps.

Jonah, this is my first time ever hearing that. Greatest analogy you've ever had. Greatest analogy you've ever.

I saved that. I saved it for a part.

I think that must have been when you found this out.

You were right in it.

I just did it right now.

That's unbelievable.

The only thing I will say, and I think, I think we should discuss when we talk about this, like some people have real questions. It's not just the soft stuff. They want to know equivalent return. They want to know how we got to our recommendations. So I'll just Say quickly. I think the most important thing is there's a lot of, I always say there's a lot of stuff in our appendix of our, when we're going through a client of our presentations. And why there's stuff in the appendix is, no, not, there's not one solution. So not one. We talked about the insurance product. Not one insurance product is right for everybody.

Right.

And Jonah laughs at me because I, for some reason I really like to look at insurance products. And when we, when we're talking to a client, we may look at 16 to 20 different ways to structure coverage to determine what one is the best. Because if you're, if it's a joint last deny policy, maybe one carrier is better than another. If it's a single life policy on a younger female, maybe another, another one. So you really have to have that understanding too. I'm always just cautious. And the reason I bring it up is sometimes people make recommendations and people don't understand why they got there. And I always say to Joan, I never want anyone ever to question why we made a decision or why we recommended something. And then we always looked at the people of choices. And when we're presenting this, we have, we also say, hey, listen, there's, you have a choice, you could continue to invest in something else. And Jonah looks at the equivalent return analysis.

Yes, we always want to quantify. So, so it's like insurance as the black box where we talk to, so I'd say 25 to 30% of our business now, it's probably higher than 20, is reviewing insurance that's already been placed. An accountant, a wealth advisor, family office will ask us to review insurance for a client of theirs. And it's sometimes sold as a bit of a black box because insurance is tricky. Like there's a lot of moving pieces there. So sometimes the clients and sometimes the advisors don't fully understand exactly what's been placed and why. The transparency part, I think is a huge part of what we do, which is again, we're not going to sell you a product. We're going to say this is an issue that you might have long term estate tax, kids, spouse, chair, charity, what have you. These are the different ways you can solve that problem and we'll quantify it. And sometimes insurance isn't the winner and we'll be the first ones to say, look, here's X, Y. Insurance is not the solution here. But we've, we've quantified it, we've given reasons to it. There's not this black box of like I have no idea what the hell I'm paying for a hundred thousand dollars a year, where it's going, what the investment is. To Zach Point in our appendix it shows the participating fund for every carrier. So if you have a hundred thousand dollars going to Equitable Life, you know where your dollars are being invested in some like you know where the dollars have been invested. We have the historical rates of returns for each our fund. Like we, we try to.

Right. That's why we work. We're insurance advisors as well at Ginza Wealth Financial Services, a sister company. But my approach and our clients know this is. We know a lot about this stuff but we don't know what those 16 different policies might look like. So we always bring in folks like you. What's your advice to somebody who is not talking to you, necessarily talking to someone else. Looking at some insurance options like how does the end client or the end beneficiary insured owner of the policy, how do they look at this stuff? Because this is complicated. It can be a black box especially the whole life is far more complicated than term. Any advice to folks sitting down with people and trying to get a solution here? This is a loaded question.

I think, I think ours might be different. We're usually on the same page. Perhaps ours is different. Get different.

No, I think yours is better because you used to sit on the opposite side of the table.

So I, when I was in practice.

I. Oh, and you can't say call Sterling park as the answer.

No, just actually I was going to say the opposite. Even if you're sitting with Sterling park, get a second opinion.

Right.

Have two people present you two different options and then talk to your advisors and figure out what's best. We are comfortable knowing that how we present to clients that go get a second opinion, we're happy to have our work looked over. We're happy for you to get a second opinion out there. I, we always say why not get a second set of eyes.

Yeah. And it's hard sometimes though for that end owner or you or a client to evaluate that stuff. Luckily that's where we come.

That's where you come.

Yeah.

We're not selling the product to anybody. We're. We're working with them. You're.

You're agnostic. Right. Like so having that third party advisory I think is huge. And that's why we spend so much time with people like yourself or accountants, lawyers. Right. Because the client relies, I think particularly with the ultra high net worth and high net worth clients. It, it takes A village. Do you know, like, everyone needs to be in their lane and have their expertise, and you need some counsel to rely on. You know, I'd say that you don't know what you're.

If you don't know what you're looking at, you don't know what you're looking at.

And they dealt with some of this like we have. We've worked with families and clients that are brilliant. Like, brilliant people. Yeah. And then we see the insurance planning. They. They've done it. Me. Me and Zach are scratching our heads like, this is. This makes no sense. I can't believe you're doing this. Brilliant, brilliant person who. You know.

And this, what we always say, our clients, and your clients, too, I'm sure, are brilliant and geniuses at their area of expertise. That's where they. Where and how they've generated huge. But that's often not in the financial planning, the investing, the insurance, the tax world. And doesn't mean they're not smart. They're geniuses. That's why they're working with us, I think. But you got to have experts that know what they're doing in each of these areas, for sure. Let's maybe wrap a little bit with what I probably should have asked at the beginning, but now that we've got a lot more context, maybe the answering it at the end might be good. I hear. You probably hear from a lot of folks, oh, I don't. I don't want this insurance. It's complicated. I don't know. It's being sold to me. I don't understand it. I don't need it. I don't want to pay premium. Like, lots of considerations or objections as to why this is. I don't want. It's complicated. What do you hear most on that front? And how do you. Did I touch a nerve? And.

No, no, we just.

And how do you address.

That's an everyday.

Yeah.

Conversation with us. And it's funny when, you know, we're talking to you, you're like, wow, they don't like insurance. And yeah, we get it. That's the conversation we've had. And there's a lot of reasons for it. And really. And then I know Jonah likes to speak more than me, which is people will find surprising. But. But I always think it's. And what I'm saying this is. It's the context of what. What is being said and how is it being said to the client. And most people don't understand insurance because what's happened is someone's Pushed an illustration that Clay can't have any relation to what's going on. We bought a house during COVID I always say I was very lucky. We bought it just before everything went up. But here was what was really interesting. I couldn't go to any of the stores to see what the furniture, couches look like. And I have no. And I can't understand. I have no visualization of what things look like. So my wife's like, do you like this couch? And she. And I said, I don't. I don't know. And what she did was she put together a PowerPoint presentation, God bless her, with a picture of the living room and what the couches look like and actually could see what the future was.

Well, this is amazing that she's even seeking your opinion.

I know.

I think.

Yeah. Just being nice.

Yeah.

She's just being politics.

Very lucky. Yeah.

But I had to see.

And it's no different with clients. Clients are being told, you're going to have a million, 20 million, $100 million as a policy. But there's no understanding either what your alternative was that we spoke about what it's achieving and why do they care? So I'll tell you. Most people should hate insurance because they're not having the right conversations. It starts at the beginning of the conversation, and I think about a client that we recently spoke with the viewers, and the first thing she said was, I find insurance very confusing, and I'm not understanding why I. Somebody suggests I do it. And by the end of the conversation, she said, this was fantastic. Thank you for providing clarity to what? How insurance can work inside my corporation.

Right.

The road that was there has always been there. But it's just. What's the conversation? What are you talking about? And are you actually talking about how so the client can say, well, what are my alternatives? That's the issue. That's why people. I understand it. Jonah. And I can tell you where we've walked in the meetings. I think about one.

This guy.

We walked in the meeting.

Now we're on now. Don't swear.

We're not going to swear on the. This has been amazing. I've been more quiet because I'm afraid I am going to swear. And this guy's. What the f are you guys doing here? I thought we had to leave the room. It was the most intimidating thing. And he calls us his best friends now. But he had just been. He had just seen somebody. They threw down an illustration that this is what. This is what you should buy.

Yeah.

Nothing. No. One walked him through it. So, yeah, 100 people should do it.

Well, I think to. To your credit, because we. We do share a number of clients. I've seen how you walk through and how you present, and you have a similar style to us, which is just summarized really clearly in a chart or picture format that is easy to understand. Reams of year one, year two, year three, all the way down to year 50, and the eight columns of. Of, you know, Excel numbers and stuff most folks can't absorb, but when you put a chart that says if you use it, you'll have X, if you don't use it, you'll have half of X, you know, I'm exaggerating a bit. It's pretty clear for folks to understand that may still may not be the right thing for them, but at least they understand what. What the benefit is.

We're not the smartest guys. Do you know how we get there?

This is the.

This is the easiest thing. We sit in meetings with clients, and they said, and our presentations today, and we'll be the first ones to admit this, are not the same what they look like seven years ago. But what you need to do is listen. And so we listen to what our clients say. And our clients said. And we probably started off with probably a little too much information. And they said, I don't understand what I'm looking at.

Right.

And then the epiphany that Jodo and I had that we should use a bar chart, which is, you know, like, you know, breaking the. The mold of everything, has made it infinitely easier to have the conversation.

Right.

So we're just listening to what clients say, what concerns them. And then we made.

We.

We adapt our presentations to the common things we hear from clients. But, Joan, I know that I. That's my, you know, that's the thing that moves me.

Yeah, That's. I don't have much to add there, apart from the fact that I have been doing this now for several.

Seven years.

Oh, my God, for seven years and glorious years. Glorious, wonderful, happiest marriage of my life. And I never walked into a meeting and a client's been like, I'm so happy to be meeting with.

With. Except for today. I'm really happy to be with you guys.

But, yeah, a client has never been, like, I really wanted to talk about insurance. We. We went out for dinner with a client recently, and I made a joke. I'm like, it's so nice to go out and not talk about your death and tax. Right, right. Like, because that's that's fair, right? Like that's what we talk about all day. And then we're, we're talking about insurance, which is convoluted and hard and people have been pushed insurance since the 80s and they don't know what the hell is going on. So like it's not a good combination. So to Zach's point, we always just tried to be as transparent and understandable and digestible as possible. So the client at the end of the day, in three years after we settled the policy goes, I know exactly why I got this, I know what it's doing, I know what it's going to be doing, and I don't have.

To worry about it. And because it works, if we can show that insurance works, it's actually just, it's a useful tool in clients overall estate planning. But if we're not unable to show it to them and unable to show them how it works and why it may work in their situation, they can't, they can't incorporate that.

Okay, so insurance 201, now we know what it is, we know why and how it might work for you, and we know if you're sitting down and talking to somebody about that, just make sure it's clear and you understand it. Okay, that's a wrap for insurance to A1. Before we let you go, the final question that we ask everybody, and now we have to ask two people. So one of you gets to listen and think about this. You guys know our theme over here? We have, we're in my office. Behind us is a big word called unlimited. Your wealth. Unlimited is our theme. We can help clients in any way. We're not limited to maybe what some other firms can do or not do. So I always ask our guest, in this case our guests. If you weren't a 20, I'm looking at Zach, a 20 year insurance veteran, or Jonah, a seven year plus a tax lawyer. And you could do anything in the world that you want to do or want to be doing. I'm going to look here Zach, for me. Okay. So Jonah, you gonna be a record printer producer?

I'd be in music. The, the idea of being famous is entire old to me. Like people know who I am. Sounds awful.

What, what would your handle be? You know, like you gotta have a cool.

No, there's nothing cool about me.

At least, at least he knows himself. There you go.

But if I could be a record producer in like late 70s, early 80s punk rock scene New York, that's, that's heaven to me.

I love it.

Yeah.

Zach.

Oh. I know this from day one. Airline pilot, I am telling you.

Well, you can't because I see you wearing glasses.

No, that's just reading glasses, Ryan. I'll tell you why I can't leave.

So the pilot doesn't need to see the control.

They wear glasses.

My mom and my wife are the two that probably let me do it.

Sorry.

That's why.

That is the only reason why you're not flying planes.

And listen, I don't like turbulence. Hold on, hold on, hold on.

What you want for your life? No. Heights. He's afraid of heights.

No, no.

Okay, but that's why the question is. Yeah, you could do everything you want.

Yeah, that's what I want to do.

Yeah. Yeah.

Amazing, guys. Listen, lots of fun. This is one of the more fun ones that we've done because we were together in the room. We live next door to each other here. Appreciate everything. Thanks for educating our group. What's that show that.

I don't know.

I feel like there's a show reference here, but basically. Now get the heck out of my office. You know, where's that from?

No, that's. I do know.

Do you know. You know what I'm talking about? Anyways, okay. Get out of here.

Guys.

Thank you very much. Really appreciate it.

Thank you.

Thank you.

The unlimited podcast is host, hosted and.

Produced by Brian Ginsler, and is edited and mixed by myself, David McMillan. This podcast is not to be taken as investment advice. If you like what you heard, don't forget to rate the podcast and follow us on social medianslerwealth.

Thanks for listening and see you next time.

It.