The Flow-Through Ladder ™ what it is – how it works
MAY 15, 2020
AUTHOR: DAN PEMBLETON
The Pavilion Flow-Through Ladder ™ is a tax-saving and investment strategy, based on a concept similar to building a bond investment ladder. I will briefly describe a bond ladder first and then the Flow-Through Ladder.
A bond ladder is an investment strategy where an investor buys bonds in successively longer staggered terms to maturity in equal investment amounts so that, over time as the bonds mature, the proceeds can then be reinvested at regular intervals. This strategy helps the investor to spread out the risks of bonds between a number of smaller investments along the bond yield curve rather than just one or a few bonds. A bond ladder also helps spread the reinvestment risk of rates being particularly low when you have bonds maturing and want to keep it invested. The major theme of this strategy is to reduce the reliance of the investor on any one bond or maturity date. The bond ladder provides the investor with a stream of income from interest or proceeds for bond maturities over time as the bonds mature. In a similar way, the Pavilion Flow-Through Ladder can provide the investor with a stream of taxes saved, and proceeds from both interim distributions and final distributions from the funds.
The Pavilion Flow-Through Ladder can be built like a bond ladder. The strategy for the Flow-Through Ladder is that the investor purchases a new Pavilion Flow-Through L.P. each year, for three to five years, to start their ladder. The Pavilion Flow-Through funds target to mature in 36 months but can go as long as 64 months, depending on market conditions, in order to generate the best returns for clients. When an investor purchases each new Pavilion Flow-Through, they create tax savings from what they would otherwise have to pay. The investor can use this tax savings to partially pay (about half) for the next rung in their ladder or for other purposes. As the successive previous Pavilion fund investments mature, or provide an interim distribution, the proceeds can be used to purchase the new Pavilion fund offered in the maturing year, and therefore add another rung to the ladder. Each new successive rung also provides another tax savings, which again can be invested in another rung of the ladder, or for other purposes. What this can do is build a self-sustaining Flow-Through Ladder, which will keep spinning off tax savings and cash proceeds for new successive rungs in the ladder for as long as the client wishes to keep saving the tax.
There are variants of this strategy to “super charge” the tax savings, or build a parallel bond ladder, or both. One strategy is to make a purchase of your annual Pavilion Flow-Through L.P., representing another rung in your ladder, and with the tax savings make an RRSP contribution, generating yet another tax saving opportunity from the original investment amount. Within your RRSP, you could then make a purchase of a bond and start a bond ladder. This strategy is highly efficient in many ways, by using one tax saving method (the most flexible one being the Flow-Through investment) to generate funds for creating a second tax saving (the RRSP) and within the RRSP using the dollars to create a bond ladder.
A Pavilion Flow-Through Ladder program can help investors significantly lower their tax burden and increase their wealth. It is also the most flexible of any of the government tax saving programs.