Latest / Your Estate Matters / Episode 57 - Optimizing Life Insurance for Wealth & Legacy with Vince Cardella
Transcript
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</script><meta http-equiv="content-type" content="text/html; charset=UTF-8"><script nonce="i30vuj2T0sNRggag78E-wg">var DOCS_timing={}; DOCS_timing['pls']=new Date().getTime();</script><meta property="og:title" content="YEM ep57 Vince Cardella Transcript"><meta property="og:type" content="article"><meta property="og:site_name" content="Google Docs"><meta property="og:url" content="https://docs.google.com/document/d/1OMicynm8-gOiBFDXEOBM60CwIzhuvydoUbEzlUW6cSk/edit?usp=sharing&usp=embed_facebook"><meta property="og:image" content="https://lh7-us.googleusercontent.com/docs/AHkbwyL0M842cl8hcAEMccuYFUSU0t0UL9pZW7Jq9ljLiFrs5BJLA-UyI678ga1m-S0FPpU9E0ApdJGk9kz6fkPAxUnn_jw_91CCdq39BAMSgmgFE92YAREA=w1200-h630-p"><meta property="og:image:width" content="1200"><meta property="og:image:height" content="630"><meta property="og:description" content="Nicole Garton 00:00:02 Hello and welcome to Your Estate Matters, presented by Heritage Trust. Your Estate Matters is a podcast dedicated to everything estates, including building and preserving your legacy. If it's estate related, we'll be talking about it. We're having the conversations today ..."><meta name="google" content="notranslate"><meta name="viewport" content="width=device-width, user-scalable=no, initial-scale=1.0, minimum-scale=1.0, maximum-scale=1.0"><meta http-equiv="X-UA-Compatible" content="IE=edge;"><meta name="fragment" content="!"><meta name="referrer" content="origin"><title>YEM ep57 Vince Cardella Transcript - Google Docs</title><link rel="shortcut icon" href="https://ssl.gstatic.com/docs/documents/images/docs-favicon-2026-v2.ico"><link rel="chrome-webstore-item" href="https://chrome.google.com/webstore/detail/apdfllckaahabafndbhieahigkjlhalf"><script nonce="i30vuj2T0sNRggag78E-wg">_docs_webfonts_fontFaces = null; _docs_webfonts_iframe_fontFaces = null;DOCS_timing['wpid']=new Date().getTime();</script><style 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Your Estate Matters is a podcast dedicated to everything estates, including building and preserving your legacy. If it\u0027s estate related, we\u0027ll be talking about it. We\u0027re having the conversations today that will help Canadians protect their families, their assets and their legacies tomorrow. \n\nVince Cardella has over 30 years of professional experience in the financial services industry, and is a co-founder and principal of Promerita Strategic Wealth Planning Practice. Vince was a member of a major insurance companies product design team, where he helped to price and design the company\u0027s first Universal Life insurance product for the Canadian marketplace. He also led the training and development of financial advisors across Canada. Vince has his MBA, his CFP, and his Family Enterprise Advisor designation. Vince is the past president of the State Planning Council of Vancouver, and advises several charities and foundations on any life insurance policies and issues that arise for them. Vince has been on the board of the Vancouver Open Society for over 20 years, and has his advanced certification in wine, and in January will be involved in the first ever cohort of the Diploma of Wine Tasting with participants from all around the world.\n\nNicole Garton 00:01:29 Vince, thank you so much for joining us on Your Estate Matters. It\u0027s a pleasure to have you.\n\nVince Cardella 00:01:33 It\u0027s an honor to be here. Thank you very much for inviting me, Nicole.\n\nNicole Garton 00:01:37 Yes. And we\u0027ve known each other for, I think, 20 years, many years.\n\nVince Cardella 00:01:41 A little more than 20.\n\nNicole Garton 00:01:42 So maybe tell us a little bit about. You\u0027ve started at Standard Life. You\u0027re with RBC. I think you co-founded Promerita. Is that how you started Promerita?\n\nVince Cardella 00:01:51 Correct.\n\nNicole Garton 00:01:52 So tell us about you and how you got to where you are.\n\nVince Cardella 00:01:55 I have to say I\u0027m a little fortunate in that I was unemployed and sitting at home. Way back. And there was an opening for an interim product manager at Standard Life. And I went in for the interview and they really liked me, but I didn\u0027t get the job. But a few months later, another opening came up and the interviewers really liked my style. So I came back in and I got that job. It was an interim product manager that lasted until a person came back from sick leave, and then right away I went into the re-engineering team that developed their first Universal Life product.\n\nVince Cardella 00:02:27 So we\u0027re talking the mid 90s when Universal Life came into being, and from there I became the lead trainer. So I had to train the entire brokerage and agency on the use of the product and how it solves people\u0027s problems.\n\nNicole Garton 00:02:43 Maybe tell our listeners: what is a Universal Life product?\n\nVince Cardella 00:02:46 It\u0027s a product that was a result of the market screaming for, I want to have more control of the elements within my insurance product. So there was a term back then called yuppies and yuppies said, “I can do it better than they can do it. So give me access to the different features inside an insurance product so that I can manage more of it.” People have realised that it\u0027s a lot more than they thought. So the pendulum swung from the old product whole life to Universal Life, and pretty much the pendulum has swung back, because Universal Life does require management and people just don\u0027t have time for it.\n\nNicole Garton 00:03:22 And what is a whole life product?\n\nVince Cardella 00:03:24 A whole life product is a black box. You actually don\u0027t know what\u0027s happening inside and you probably don\u0027t want to know.\n\nVince Cardella 00:03:29 But the insurance company experts are managing the investment component for you, and they have the ability to do things that you can\u0027t do in Universal Life, which is smooth the returns year over year, which is hugely impactful for the performance of the product. Secondly, they pay you a dividend on your anniversary, and that dividend buys you more insurance without you having to go through another medical. So it has features that Universal Life does not have. The unfortunate thing is the sticker price. It looks more expensive than Universal Life at the outset, but it\u0027s because the investment component is forced upon 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Isn\u0027t that right?\n\nVince Cardella 00:04:11 A lot of people buy term. What people don\u0027t know is term is a fabulous product. I sold some to myself because I needed a lot of insurance when my children were young and dependents.\n\nNicole Garton 00:04:21 I think you\u0027ve sold some to me.\n\nVince Cardella 00:04:23 Yes, it\u0027s very inexpensive, and the reason it\u0027s inexpensive is it doesn\u0027t pay out very often, right? Historically, about 95% of term insurance doesn\u0027t pay out a death benefit because the person lets it lapse before they die, or they convert it to a permanent product when they have the financial means to do so.\n\nVince Cardella 00:04:41 So it\u0027s not term when they actually pass away, it\u0027s permanent.\n\nNicole Garton 00:04:44 So tell me a little bit about your current role at Promerita. Like my understanding is it\u0027s insurance but you guys do real estate…you do other stuff too. Isn\u0027t that right?\n\nVince Cardella 00:04:53 Correct. I started the company in 2007 with Ernest Lang, and Ernest was a really understood insurance, but he had other passions. And so at a certain point in time, we decided that to let Ernest do his passion and I\u0027ll do my passion. So the company actually has two components. One is a real estate advisory and investment component, which I do not dabble in. I\u0027m an investor on that side, but I don\u0027t make decisions. They don\u0027t ask me for any input. And on the life insurance side, I\u0027ve built up a team and we strictly do insurance planning and a little bit of insurance type products like annuities and occasionally segue funds.\n\nNicole Garton 00:05:30 Tell me about people that you help, like what is a typical client profile that someone that you would assist?\n\nVince Cardella 00:05:36 Our team is built up with different personalities and my personality deals well with business owners.\n\nVince Cardella 00:05:42 So business owners from the net worth scale from low to extremely high. Now some of these business owners have tax issues to deal with, and some people consider it to be a first world problem. It is a problem nevertheless. So if you have an estate that\u0027s going to attract a very large tax liability, dealing with that tax liability requires you to deal with it before you actually pass away. If you don\u0027t deal with it, you\u0027re going to have to sell assets to pay their tax liability. And those are corporate assets. And you\u0027ve got to pay your taxes with personal dollars. So it\u0027s a conundrum. Life insurance is the only component that lets you pay and buy it with corporate money. And it comes out of personal money through something a very special tax credit called the Capital Dividend Account. So if we did not have that in Canada, we\u0027d be dealing with issues that we couldn\u0027t handle. Life insurance is the only product that lets you do that.\n\nNicole Garton 00:06:44 So lay that out for me. So you\u0027ve got a business owner.\n\nNicole Garton 00:06:47 They\u0027ve built a business from zero. It\u0027s worth, I don\u0027t know, between $10 and $20 million when they die. There\u0027s going to be a large tax bill. Because for our listeners, when you die, the Income Tax Act deems that you\u0027ve sold everything you own at that time, and that can trigger a significant tax bill. 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DOCS_modelChunkLoadStart = new Date().getTime(); DOCS_initialLoadTiming.incrementTime('mp', DOCS_modelChunkLoadStart - DOCS_modelChunkParseStart); DOCS_warmStartDocumentLoader.loadModelChunk(DOCS_modelChunk); DOCS_modelChunk = undefined;</script><script nonce="i30vuj2T0sNRggag78E-wg">DOCS_modelChunkParseStart = new Date().getTime();</script><script nonce="i30vuj2T0sNRggag78E-wg">DOCS_modelChunk = {"chunk":[{"ty":"is","ibi":8464,"s":"\nVince Cardella 00:07:44 On the premium. So that\u0027s a huge benefit right there. Secondly, all the cash value inside life insurance grows in a tax shelter. Thirdly, when you pass away, it\u0027s instant cash. And that creates the capital dividend account that allows the surviving shareholders to flush the money out of the company tax free. This is a huge benefit that no other product can do. So it\u0027s very advantageous to do it that way.\n\nNicole Garton 00:08:08 So, you know, this is part of a larger issue with succession. And, you know, I think the data shows the majority of Canadian GDP is people working for small to medium sized businesses, largely of which are family owned. And they say in the next ten years most of them are going to transition. But unfortunately nobody\u0027s planning. Like, how do you get these business owners at the table to start thinking about this?\n\nVince Cardella 00:08:37 It\u0027s not easy. It always takes a team. So I\u0027m working on a couple of files right now where I am emailing and constantly in contact with the lawyers and the accountants for the family businesses.\n\nVince Cardella 00:08:50 It\u0027s not done in a silo, because there\u0027s no advantage to surprising people with some solution that you drop on the table. I want them involved in the planning process because it requires some planning as to who\u0027s going to own and pay for it. Where does the money have to end up to pay the tax liability? So tax liabilities for wealthy families come from two major assets shares in a private corporation, which is an illiquid asset, as you know, its private shares. And the other one is real estate, which is a huge component in the Vancouver market. Both of those attract a large tax liability. A simple example is the growth is quarterly taxed. So if the growth is 5 million you\u0027ve got about a $1.25 million tax liability. So there\u0027s four ways to deal with that tax liability. You can start saving. You can do nothing you can borrow at time of death. Or you can get life insurance if you calculate the cost of those for life insurance will win every single time. If you can get a standard offer on the life insurance, meaning your health is relatively normal.\n\nNicole Garton 00:09:54 So we are in a challenging economic market. Productivity is declining. The cost of living is extremely high. Food housing in Canada, our tax burden is high. How are you selling people on dealing with something? Now that\u0027s sort of a later problem when people are struggling to make ends meet.\n\nVince Cardella 00:10:17 It\u0027s not easy. Life insurance doesn\u0027t have the best reputation in the financial services market. It has to do with underqualified people representing the product. It used to be that way and that they sold products that they didn\u0027t understand. And statistically, your career lasted less than two years in a life insurance industry. So you factor all those three components together. You figure out why life insurance has a bad reputation. The key is to talk about what is the cost of doing nothing, comparing that to doing something else. Making a decision to do nothing has a cost, and that cost will be basically, how are you going to come up with the cash at time of death to pay the tax liability such that you can maintain the assets that you want? So I\u0027ve dealt with files where the person couldn\u0027t get insurance.\n\nVince Cardella 00:11:09 They were unhealthy, so they had to sell assets. And the assets that people want are your favorite assets. So it\u0027s not a good time to do that. An example would be you own nine buildings. A person passes away. You got to sell 3 or 4 to keep the other five. It\u0027s not something you want to do in any market, let alone the Vancouver market, because we\u0027re placing that assets. Not going to be easy.\n\nNicole Garton 00:11:32 That\u0027s interesting because we have an estate right now where a gentleman passed away. He owns ten buildings. He was not an organized guy. So none of the planning is done. And the difficulty is we have a seven figure very heavy tax bill with totally illiquid properties and probably one of the most challenging real estate markets ever to sell. So, you know, it\u0027s interesting at Heritage Trust, like we often get the really messy files where unfortunately people haven\u0027t planned. And there\u0027s enormous tax burdens. You know conflict litigation. We see very much unfortunately what not to do. 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So, like I said before, it takes a team. You don\u0027t do it in a silo. I could be crass and say, just throw cash at the problem. That can cause its own problems. That\u0027s why you need to prepare how this is going to be structured so that it solves the problem that you have. In today\u0027s market, the average person is having trouble making ends meet. But as you move up, unfortunately, the net worth scale, the people don\u0027t have the same issues. They have other issues that they\u0027ve got to deal with.\n\nVince Cardella 00:13:21 And one of them is the legacy of the family. And the other one is how do you treat everybody fairly? Fair is not equal. And if you\u0027ve got a family business, sometimes some people are geared to run that and others are not. Sometimes. Sometimes nobody is geared to run. So you have to hire managers to keep the company going if you want to maintain ownership. So it takes a long time. It\u0027s a process. 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What if something happened to you?\n\nNicole Garton 00:20:40 Like. With who? Like, is that an accountant\u0027s office? Is that in a lawyer\u0027s office? Do they go to a financial planner? Like what? How do they do that?\n\nVince Cardella 00:20:47 Well, in my practice, I\u0027m virtually introduced to all my clients through centers of influence.\n\nVince Cardella 00:20:54 The accountants and the lawyers. Right. So I meet them with the accountant lawyer who\u0027s bringing me in. And we\u0027ve had a discussion already as to what the issue is to deal with the basic problem of what would happen to your family and your business if you became ill, or if you suddenly passed away in an accident or something, and trying to solve that problem. The largest risk, as you said when we started, term insurance is very inexpensive. It won\u0027t make, you know, you\u0027ll still be able to afford your groceries. Get some term in place. Solve the drastic situation. Now what about disability? Disability is more likely to happen than death, but death is more tragic. Are they insurable? Do they have a job where they can get disability insurance? There are certain occupations that are very risky and it might not make sense to buy insurance. You may be better off self insuring. Putting money aside for the rainy day or this situation that comes.\n\nNicole Garton 00:21:54 So what are the jobs like? What are the jobs that it\u0027s hard to get insurance for?\n\nVince Cardella 00:21:58 Anything where you\u0027re lifting, using your hands. sawmills, mines, anything where you\u0027re physically at risk. Let alone, you know, some activities that you have in your leisure life that can cause issues such as parachuting and bungee jumping and paragliding. And all of these were. These are all things the insurance company needs to underwrite the risk and figure out if it\u0027s acceptable.\n\nNicole Garton 00:22:23 I\u0027m hearing consulting easy, logging hard?\n\nVince Cardella 00:22:27 Absolutely. If you apply for disability, there\u0027s basically four levels of risk, right? A four is a person who\u0027s sedentary. They\u0027re not lifting boxes. A one is someone who\u0027s doing physical labor. So it\u0027s a different product, different risk. So I understand your question. How do we deal with the regular or the bulk of the market out there are people who just need basic insurance to cover the major risks. Obviously, there\u0027s a plan for everybody. We do not want to make anybody insurance rich and cash poor. We don\u0027t want you to hate the premium when it\u0027s coming due every year.\n\nVince Cardella 00:23:05 We want happy clients, so we\u0027re not going to put anything in place. Now, if you do something completely against our recommendations, there\u0027s a letter you need to sign to say they offered me what I should have got, but I declined it. So just that\u0027s our CYA. And I\u0027m sure in your industry, if somebody doesn\u0027t follow your recommendations, you have something similar. So there are basic plans out there. I have a young associate that just joined my team. He\u0027s 30 years old. He\u0027s going to work through that market probably a lot more than I will at my stage of my career.\n\nNicole Garton 00:23:35 Okay, so now we\u0027ve got that business owner and they\u0027re 65 and they\u0027ve worked incredibly hard, you know, been smart, had some luck. And now this is a, you know, $15 million $20 million business. It\u0027s maybe industrial piping or rebar or something like that. What are some of the interesting or sophisticated options that might be available to that individual to help transfer wealth to the next generation and mitigate tax hits?\n\nVince Cardella 00:24:06 Well, I usually want to get a picture from the accountant and the lawyers to let\u0027s take a balance sheet shot right today.\n\nVince Cardella 00:24:13 What is the business worth? What is the tax liability today? What are your plans for the business? Is it to sell to arm\u0027s length. Is it to sell to family? Is it to wind up? Each of those has a different ultimate requirement for a need for cash. If you want to keep everything in the family, there\u0027s going to be taxes to pay and where those taxes are going to come from, they have to be paid with personal after tax dollars. The easiest way to do that is obviously with life insurance corporately owned and paid for. It\u0027s a slam dunk. 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DOCS_modelChunkLoadStart = new Date().getTime(); DOCS_initialLoadTiming.incrementTime('mp', DOCS_modelChunkLoadStart - DOCS_modelChunkParseStart); DOCS_warmStartDocumentLoader.loadModelChunk(DOCS_modelChunk); DOCS_modelChunk = undefined;</script><script nonce="i30vuj2T0sNRggag78E-wg">DOCS_modelChunkParseStart = new Date().getTime();</script><script nonce="i30vuj2T0sNRggag78E-wg">DOCS_modelChunk = {"chunk":[{"ty":"is","ibi":26281,"s":"\nVince Cardella 00:25:19 so I always take a back seat to what everyone else the advisors feel is the right amount, the right structure, and the right way to do it. Who owns and pays for it and everything else.\n\nNicole Garton 00:25:32 So yeah, so for the listeners, like there\u0027s not a lot of tax avoidance strategies left. But one of the things business owners often do is what\u0027s called an estate freeze, where the lawyer and the tax accountant were together and you effectively freeze the value and the founders hands. And then new common shares are issued, which often go inside a family trust that the next generation will be beneficiaries of. But the problem is, every 21 years, those trusts have tax events you\u0027ve got to deal with. But if somebody\u0027s doing an estate freeze, how does insurance interplay with that planning?\n\nVince Cardella 00:26:11 Good question. So when you do an estate freeze you\u0027ve basically locked in your taxes. Sometimes the freeze is just going to stay as is. Sometimes it\u0027s called a wasting freeze, and the wasting freeze is when they\u0027re going to redeem the shares over time to support their retirement income.\n\nVince Cardella 00:26:28 For all the wasting freezes I\u0027ve seen out there, very few get wasted. The person who is the business owner who has frozen basically says I have enough to live on. Don\u0027t force more income into my pocket. I\u0027ve been right there at that conversation. So we know the tax liability. It\u0027s known so we can deal with that. That\u0027s possibly a non-moving object. It\u0027s known for the shares that are being passed on to the next generation, usually through a family trust. As you said, the clock ticks from that point on. And one day they\u0027ll probably take the shares into their personal name. The trust is good for planning and getting their lives in order once they take those shares back. The tax liability has been growing for 21 years, so they\u0027ve got a tax liability. It depends on what their plans are for the business. We\u0027re obviously talking about a business because that\u0027s what you would do a freeze on. Is the business going to stay in the 2G3 the third generation and onwards. Then we\u0027ve got tax liabilities to deal with.\n\nVince Cardella 00:27:25 Now it\u0027s easier to deal with the tax liability early in your life. You\u0027re usually healthier and definitely younger. So both of those reduce the cost of the insurance. Oddly enough, the internal rate of return to life expectancy doesn\u0027t change that much over a person\u0027s lifetime. If you buy insurance at 65 or 35. The IRR, the internal rate of return is about the same. The issue is the dollar cost is a lot more at 65 than 35. So it\u0027s better to do it when you\u0027re younger and you have more time to let it grow. So you don\u0027t have to start right where you need it. You can always add term insurance to make it inexpensive and cover the tax liability from day one, and let something like whole life grow such that it meets the target by the time your life expectancy comes. So life insurance is very important for estate freezes depending on the plan, I deal with a lot of estate freezes and dealing with the tax liability that is known. And so it\u0027s fixed and we\u0027re dealing with it that way.\n\nNicole Garton 00:28:22 So how do you see your industry evolving? Like you know it\u0027s interesting. We\u0027ve got AI which does incredibly more sophisticated analysis of risk and what\u0027s new and what\u0027s changing with all this change in the economy.\n\nVince Cardella 00:28:36 Well, 20 years ago, we felt that the banks were going to take away the mom and pop tabletop market. And for a lot of that market, it has. You can buy insurance online. I get an advertisement on my phone daily, buy life insurance. 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So is there anything else you want to leave our listeners with about what are the important things they need to know about this option and what should they do in the next three months to make sure that themselves and their family are covered?\n\nVince Cardella 00:34:11 Don\u0027t be afraid of the product. Deal with someone who can explain the product so that you can make an informed decision.\n\nVince Cardella 00:34:23 There are only three life insurance products in Canada. It\u0027s not rocket science: term, universal life, and whole life. They each have unique features. Have a discussion with someone reputable who your accountant or your lawyer has introduced you to. Get to a point where you\u0027re comfortable making an informed decision. Sometimes you become saturated after five minutes. Sometimes it\u0027s an hour of discussion and making a decision that you feel comfortable with. Don\u0027t be forced to do anything you don\u0027t want to do. 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