Rich on paper, but cash-poor: the trap of well-endowed inheritances.

When we talk about estate planning, several people claim they do not need life insurance, on the pretext that they “have enough assets.” After all, a paid-off house, investments, a chalet, perhaps even a business — all of this seems sufficient to ensure the financial security of their loved ones.

But the reality is often quite different. What many forget to consider is the tax cost associated with these assets at the time of death.

Assets do not transfer for free

At death, the government generally assumes you have sold all your assets at their fair market value, even if that is not the case. This is what is called a deemed disposition.

As a result: you must pay tax on the capital gains accumulated over the years.

Let's take a simple example:

You own a chalet purchased for $150,000, now valued at $500,000. At death, the taxable capital gain is $350,000, of which 50% is taxable. Depending on your tax rate, your heirs could have to shell out more than $80,000 to $100,000 in taxes, simply to be able to keep this chalet.

And this is only one asset among others: non-registered investments, rental properties, company shares… all of that adds up quickly.

The liquidity problem

Even if your heirs inherit a substantial value, that does not mean they will have the cash necessary to pay the taxes.

Often, they are faced with a dilemma:

Sell an asset quickly to pay the tax bill (often at a discount, due to time constraints);

Take on debt temporarily to cover the amount due;

Or forgo certain assets, unable to afford to keep them.

In other words, you can leave them a handsome estate on paper… but difficult to preserve in practice.

The role of life insurance

That’s where life insurance comes into play. It provides immediate liquidity to your estate, tax-free. These amounts can be used to:

Pay the taxes due on capital gains;

Cover funeral, legal, and notarial fees;

Avoid selling valuable assets or investments hastily, at a bad time;

Preserve the family patrimony intact.

Life insurance is therefore not a luxury reserved for those who have no assets: it is an essential estate planning tool, even — and especially — for those who have a lot of assets.

In conclusion

Having assets is a great thing. But planning their transfer is even better.

Thinking that your loved ones will “make do with it” can cause them far more stress than security. A good estate planning strategy aims not only to transfer what you have built, but also to give them the means to preserve it.