Let’s look at an example of a current non-registered blue chip equity mutual fund portfolio. If valued at $225,000 today, with an adjusted cost base of $50,000, what will the tax implications be? If, as of February 22, l994, you had used up all of your capital gains exemption, you would face taxation if the assets are left to a non-spousal heir. The taxes could be deferred if the assets were left to the spouse.

Tax of about $43,750 would be due from the gains on these investments, not including surtaxes, when left to your sister. When left to your spouse, tax on the capital gain is deferred until your spouse sells them or dies.

Consider taxes that may be due on large cap or blue chip equity mutual funds, where unrealized capital gains have been growing over the years. There may also be a large tax bill accruing if monies are not rolled over to a spouse. Consider using life insurance to pay this type of tax liability. A joint last-to-die policy on both spouses would work well, as the payout would occur on the second death i.e. of the surviving spouse, allowing the estate’s tax liability to be paid.

* Note: though maximum tax rates are less now, we use 50% for ease of explanation.