achieving more together welcome! the canada life assurance company ontario regional marketing centre
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Achieving More Together
Welcome!
The Canada Life Assurance Company
Ontario Regional Marketing Centre
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Global Insurance Solutions & Canada Life
Katherine Hill, Regional Marketing Consultant Telephone: (905) 803-8888, ext. 17
Kelly Picard, Living Benefits Consultant Telephone: (416) 594-1100
Ian Kerr, Investment Products Consultant Telephone: (416) 594-1100, ext. 147
Tom Pilkington & Frank Abate, Estate & Tax Planning Consultants Access via Katherine Hill
Edda Whitten, Marketing & Sales Assistant Telephone: (905) 803-8888, ext. 27
Eddie Maiato, Marketing & Sales Assistant – Investments Telephone: (905) 803-8888, ext. 39
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2005 – Year in Review
March 2005
– Significant pricing philosophy change to Millennium
May 2005
– Life Advance re-price
– ASTRA enhancements
– T20 re-price and enhancements
– Millennium Enhancements August 2005
– Millennium Enhancements to compensation
– T10 re-price and enhancements and T20 re-price
September 2005
– Achiever compensation increase
October 2005
– Introduced Leveraged Loan Program
November 2005
– DI portfolio improvements
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2006 – Looking Forward
January 2006– No changes to the dividend scale (7.46%)
– New Sales Strategies Scheduled Launches for 2006
– Lower MER Segregated Funds – Generations 1
– Guaranteed Pay Universal Life
– Ongoing Sales Strategy Releases
– Competitive pricing updates as required
– New Critical Illness addition
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House-Keeping Issues
Canada Life Software Version Zoom 9.0 RRSP Season
– RRSP Loan Program Catch-up loan: a long-term loan to help you catch-up on your
retirement savings by taking advantage of accumulated contribution room
Top-up loan: a short-term loan you can use to top-up your annual contribution to your maximum annual allowable contribution limit
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House-Keeping Issues - Disclosure
Intended to increase clients' confidence by allowing them to decide if they are satisfied you are offering objective advice
Before you complete a sales transaction, you need to disclose five items to a client in writing:– the financial services companies you represent– the nature of the relationship between you and an insurance
company– how you're compensated and by whom– if you may be eligible for additional compensation, including cash
or non-monetary compensation– potential conflicts between your interests and those of the client
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House-Keeping Issues - Disclosure
Producer Resources– cailba.com
– ifbc.ca
– advocis.ca
– Canada Life’s Repnet - canadalife.ca/repnet Services Compliance Sample Disclosure Document FAQ Other information covered in this section includes Privacy
Guidelines
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The Need For Estate LiquidityUnderstanding the important role insurance plays in estate planning for clients and their families
Tom Pilkington, CA, CFP, TEP
National Estate and Tax Planning Consultant
Ontario Regional Marketing Centre
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This material is for information purposes only and should not be construed as legal or tax advice. Every effort has been made to ensure its accuracy, but errors and omissions are possible.
All comments related to taxation are general in nature and are based on current Canadian tax legislation for Canadian residents, which is subject to change. Persons who are not residents in Canada or who are resident in Canada but are citizens of another country, may be subject to different tax rules in Canada and may also be subject to taxes levied by jurisdictions other than Canada.
For individual circumstances, consult with legal or tax professionals.
This information is current as of February 15, 2006.
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Agenda
Introduction Wills and will planning The need for liquidity
– Probate fees
– Death of a taxpayer
– Charitable gifts
– Planning for business entities Summary
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Introduction
Estate planning defined
“Estate planning is the process of arranging for the transfer of your property to your heirs and other beneficiaries in a
way that will, as much as possible, achieve your objectives and minimize the
associated costs and taxes.”
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Introduction
Why is estate planning is so important– Better decision making
– Achieve your objectives
– Costs and taxes minimized
– Focus on fun and lifestyle
– Family harmony
– Peace of mind
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Introduction
Estate planning process– Fact-finding
– Client objectives
– Analysis
– Action plans
– Implementation
– Follow-up
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Introduction
Estate planning tools– Wills and Powers of Attorney
– Trusts
– Private corporations
– Agreements
– Gifts
– Beneficiary designations
– Ownership of property
– Insurance
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Introduction
CLIENT
LEGALADVISOR
BUSINESSADVISOR
TAXADVISOR
FINANCIALADVISOR
Who wants to be the “quarterback”?
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Will planning
What is a will? Why have a will? Do you need a will? Why some clients may not have a will? What if you don’t have a will?
My last will and testament ..
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Will planning
If you die without a Will in Ontario (intestacy):– Spouse, no kids - all to spouse– Spouse and kids, estate < than $200,000 - all to spouse– Spouse and kids, estate > than $200,000
1 child - first $200,000 to spouse, spouse and child split difference
more than 1 child - first $200,000 plus 1/3 of excess to spouse, kids share 2/3 of excess
– Kids, no spouse - kids share equally– Otherwise – parents, then brothers and sister, then nieces
and nephews, then all other next-of kin, then Government of Canada
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Will planning
Tax considerations– Taxpayers
Deceased Estate Survivors
– Taxes Income tax Foreign tax Probate fees (Estate Administration Tax or “EAT”)
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Will planning
Spouse trusts Estate as a separate taxpayer Testamentary trusts Tax-free rollovers Elections Spousal RRSP contribution in year of death Testamentary charitable gifts Post-mortem freeze / reorganizations
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CASE STUDY # 1
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The need for liquidity
Immediate cash needs Pay final expenses and fees Pay taxes Repay debts Fund specific bequests or legacies Fund charitable bequests Fund special trusts Fund business needs Fund equalizations
Capital needs Income replacement for spouse / heirs
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Pay final expenses and fees
Funeral costs Executor’s fees Professional fees Estate administration tax (probate fees)
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Pay final expenses and fees
Why is probate necessary?– Evidence of Estate Trustee’s (executor’s) right to deal with
property
– Example: Bank accounts GICs/CSBs Public stock/securities Real property etc.
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Pay final expenses and fees
How much are probate fees?– first $50,000 of estate assets 0.5%
– amount in excess of $50,000 1.5% How are probate fees calculated?
– assessed on gross (not net) value of estate
– assessed only on assets falling into Ontario estate Example:
– $100,000 estate fees = $1,000
– $1,000,000 estate fees = $14,500
– $10,000,000 estate fees = $149,500
Is this fair?
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Pay final expenses and fees
How can I minimize / avoid probate fees?– Joint ownership with right of survivorship
– Inter vivos (lifetime) gifts / transfers
– Use of trusts
– Beneficiary designations
– Multiple Wills (for private company shares/debt)
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Pay final expenses and fees
Multiple wills– Example
Bank accounts / investments / etc. $1,000,000 Shares in private corporation $5,000,000
If one will .… probate fees = $89,500 If two wills ... probate fees = $14,500
Difference = $75,000
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Pay taxes
The two certainties of life:– Death
– Taxes Estate planning considerations
– Taxpayers (deceased, estate, beneficiaries)
– Canadian taxes
– Foreign taxes (e.g., US estate tax)
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Filing requirements– Legal representative is responsible for the filing of T1 tax
return for the year of death (“final return” or “terminal return”)
– Taxation year is Jan 1 to date of death
– Due date is later of 6 months following date of death and April 30th of the following year
– Legal representative is responsible for the payment of all taxes that are owing
– Legal representative is responsible for obtaining clearance certificates from CRA for deceased and estate
Pay taxes
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Pay taxes
Computation of income in year of death– The taxpayer’s tax position is essentially “crystallized” at
the time of death
– Taxation year is Jan 1st to date of death
– Accrual tax rule applies
– Deemed disposition rule applies
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Pay taxes
Accrual tax rule– Include accrued income from Jan 1 to date of death on final
tax return Accrual tax rule applies to
– Employment income
– Rental income
– Investment income
– Realized capital gains / losses
– Income from a business or partnership
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Pay taxes
Deemed disposition of property rule– Deceased is deemed to dispose of each property
immediately before death for proceeds equal to the fair market value of the property at that time
Deemed disposition of property rule applies to– Capital property (investments, land, private company
shares, etc.)
– Depreciable property (rental buildings, etc.)
– Registered funds (RRSPs, RRIFs)
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Pay taxes
Deemed disposition of property– Capital gain or loss = Proceeds - tax cost (ACB)
– Taxable capital gain = 50% x capital gain
– Special rules Principal residence Tax-free rollover to spouse or spouse trust (unless elect
FMV transfer) $500,000 capital gains exemption on QSBC shares Depreciable property
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Pay taxes
RRSPs / RRIFs:– General rule:
Deceased annuitant deemed to receive a benefit from the plan equal to the fair market value of the plan
– Exceptions: Transfer to spouse, financially dependant child
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Pay taxes
RPPs:– Benefits taxable to recipient (not to deceased)
– May transfer lump-sum payments to RRSP
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CASE STUDY # 2
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Fund charitable bequests
CANADA REVENUE AGENCY
HEIRS CHARITY
You have 3 choices for distributing your estate:
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Fund charitable bequests
Individuals– Entitled to a non-refundable federal tax credit based on
total donation receipts
– Tax credit = 46.4% x donations > $200
– Testamentary gifts Donation based on total testamentary gifts Maximum of 100% of net income in the year of death Plus 100% of net income in the immediately preceding
year
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Fund charitable bequests
Insurance strategies– Bequest by will
– Bequest by beneficiary designation
– Gift of policy
– Estate replacement
– Insured annuity donation
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Fund charitable bequests
Insured gift by Will– The donor owns an insurance policy, pays the premiums,
names his/her estate as beneficiary and makes a bequest in his/her Will in favour of one or more charities.
– Planning Use of insured gift by Will to create tax credit to offset
income tax liabilities at death
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Fund charitable bequests
Insured gift by beneficiary designation– The donor owns an insurance policy, pays the premiums,
names one or more charities as a beneficiary under the insurance policy
– Planning Use of insured gift by beneficiary designation to create
tax credit to offset income tax liabilities at death
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Fund charitable bequests
Charity-owned policy– The charity owns an insurance policy and is the named
beneficiary under the insurance policy, donor pays the premiums
– Planning Use of charity-owned policy to create current tax credits
to offset current income tax liabilities
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Fund business needs
Planning to transfer business interests– Business succession planning
– Dealing with investment holding companies
– Tools Estate freeze Post-mortem planning Will planning Shareholder agreements Corporate-owned life insurance
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Fund business needs
Estate freeze – Internal freeze (section 85 or 86)
KidsKids ParentsParents
100% CS100% CS 100% PS100% PS
FAMILYOPCO
BEFOREBEFORE AFTERAFTER
ParentsParents
100% CS100% CS
FAMILYOPCO
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Estate freeze – Holdco freeze (section 85)
Fund business needs
100% CS100% CS
BEFOREBEFORE
FAMILYOPCO
AFTERAFTER
KidsKids ParentsParents
100% CS100% CS 100% PS100% PS
FAMILYHOLDCOParentsParents
100% CS100% CS
FAMILYOPCO
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Fund business needs
A multitude of possibilities:– Fund capital gains tax on deemed disposition
– Fund share redemption of preferred shares
– Fund estate equalization amongst children
– Fund repayment of business debts
– Fund replacement CEO of family business
– Fund emergency working capital needs
– Fund supplemental retirement income
– Fund redemption of shares gifted to charity
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CASE STUDY # 3
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Summary
Life insurance is an essential tool in estate planning because it provides liquidity to …– Pay debts
– Pay expenses
– Pay taxes
– Create special purpose funds
– Make charitable bequests
– Facilitate business succession plans
– Equalize the estate amongst the heirs