Question

Tom and Rita are married. They have high balances in their Registered Retirement Savings Plans (RRSPs). They have named each other as beneficiaries of their RRSPs. They also own some rental properties in joint tenancy. The couple is worried that they will have to pay a considerable amount in taxes in the event of their death. Tom and Rita will not be able to pass on their entire estate to their inheritors as they might have to sell some of their assets to pay the tax. They have heard of life insurance as a solution for estate preservation. What kind of policy will be the best fit for Tom and Rita to cover their taxes on death? a) Single life policy on Rita b) Single life policy on Tom c) Joint first-to-die policy on Tom and Rita d) Joint last-to-die policy on Tom and Rita

Answer 1

They have high balances in their Registered Retirement Savings Plans (RRSPs). They have named each other as beneficiaries of their RRSPs. c) Joint first-to-die policy on Tom and Rita

Step-by-step explanation:

Joint First-to-Die Policy: This option is true for Tom and Rita's situation. A joint first-to-die policy covers both individuals, and the death benefit is paid upon the first death. In this case, if either Tom or Rita passes away, the policy pays out, providing funds to cover the taxes on the estate.

Single Life Policies: Options a) and b) involve single life policies, which would only pay out upon the death of the named individual. This might not be the most efficient solution for Tom and Rita, as they are concerned about potential taxes on the entire estate.

Joint Last-to-Die Policy: Option d) is a joint last-to-die policy, which pays out upon the death of the second individual. This may not be suitable for Tom and Rita's goal of preserving their estate, as the taxes may need to be paid before the death of both individuals.