Heritage Group Plan:Payout OptionsHeritage Education Services

Module Outline

• Objectives

• Concepts

• Payout option details

• Scholarship option(s)

• Self-determined option

• Points to remember

Objectives

• Prepare new representatives for product exam

• Identify payout options available

• Review details of options• Payout schedules & sources• Qualifying criteria

Concepts

• Payout period begins at maturity

• Recognized institutions

• In Canada

• Outside Canada

Concepts

• Principal

• Paid to subscriber or beneficiary on or after maturity date

• Educational Assistance Payment (EAP)

• Paid to qualified students

• Year of Eligibility

Maturity Date

• Usually July 31st of year beneficiary turns 18

• Advance maturity date

• if beneficiary starting post-secondary earlier

• May require interest adjustment

• Delay maturity date

• July 31st prior to 21st birthday if scholarship option

Payout Options

Scholarship Option (SO)

• Best option for programs 2 or more years

• Remain in scholarship pool

• Streams

• Option 1 – two (2) year program

• Option 2 – three (3) year program

• Option 3 – four (4) year program

Scholarship Payout Schedule

• 1st year – Principal returned

• Subsequent year(s) – EAP payment

% of share in scholarship pool paid each year

Yr 2 Yr 3 Yr 4

Option 1 100%

Option 2 50% 50%

Option 3 33% 33% 33%

Scholarship EAP

• Comprised of

• Income from principal investment

• Grants

• Interest from grant investment

• Discretionary payment• Enhancement fund• Return of membership fees

Enhancement Fund

• Used to “top-up” scholarship EAPs

• Discretionary payments not guaranteed

• Includes

• Interest earned on scholarship fund after maturity

• Interest earned on income from terminated plans

• Principal unclaimed five (5) years after maturity

Return of Membership Fee

• Only available with scholarship option

• Discretionary payment not guaranteed

% of fee returned

portion paid each year

Yr 2 Yr 3 Yr 4

Option 1 25% All

Option 2 50% 1/2 1/2

Option 3 100% 1/3 1/3 1/3

SO Qualified Program(s)

• Program of two (2) or more years duration

• Recognized institution

• Full attendance at least six (6) months of year

• Multiple programs also qualify

• Each must be of at least one-year duration

Qualifying for Scholarship EAP

• Must successfully complete preceding year and be enrolled in next year

• Application & proof of registration required by Aug 15th

• $75 processing fee if late

Postponement & Deferment

• Postponement – 1st EAP only

• Up to 2 years

• Deferment - 2nd or later EAPs

• May only request once, for one year

• EAP not taken after one year is lost

• Plan must be completed by 35th year from enrollment

Review Questions

• Refer to Course Book for review Questions

Self-Determined Option (SDO)

• For programs less than two (2) years

• Withdraw from scholarship pool

• May continue contributions to 31st year of plan

• May leave principal in after maturity

• To accrue more tax-sheltered interest

• Default option

Self-Determined EAP

• Comprised of

• Income from principal investment

• Grants

• Interest from grant investment

SDO Payout Schedule

• Upon request any time by subscriber

• Subject to program criteria

• Entitled to one withdrawal per year

• $10 fee for each subsequent withdrawal

• Plan must be completed by 35th year from enrollment

SDO Qualified Program

• Not less than 3 consecutive weeks in Canada

• Not less than 13 weeks outside Canada

• Minimum of 10 hours per week

• Initial EAP limit of $5,000

• After completing 13 consecutive weeks in 12-month period & still enrolled, no EAP limit

• Otherwise, $5,000 limit in 12-month period

SDO Alternative Program

• Not less than 3 consecutive weeks in Canada

• Not less than 13 weeks outside Canada

• Minimum of 12 hours per month

• EAP cannot exceed $2,500 in any 13-week period

• Beneficiary must be 16yr or older

No School

• Options include

• Substitution of beneficiary

• Accumulated income Payment (AIP)

• Transfer contribution income to RRSP

Substitution of Beneficiary

• Under Scholarship Option

• Before any EAP paid

• New beneficiary can not be older

• Before original beneficiary is 21 years of age

• All grants returned unless• new beneficiary is sibling under 21; or• Both beneficiaries under 21 and related to subscriber by

blood or adoption

Substitution of Beneficiary

• Under Self-Determined Option

• May be substituted by subscriber or joint subscriber

• All grants returned to government

Accumulated Income Payment

• Income and grant interest

• Taxable income, plus additional 20% penalty tax

• Subscriber must be resident of Canada

• One of the following

• RESP open at least 10 years, beneficiary over 21 and not eligible for EAPs; OR

• RESP in 35th year; OR

• Beneficiary is deceased

Transfer to RRSP

• Income and grant interest

• Up to $50,000 per subscriber

• Must have RRSP contribution room

• AIP conditions must be met

Review Questions

• Refer to Course Book for review Questions

Points to Remember

• Scholarship option

• For programs of 2+ years

• EAP may include discretionary payments

• Beneficiary must successfully complete prior year to qualify for next EAP

• Two postponements & one deferment of EAP allowed

Points to Remember

• Self-determined option

• For programs of less than 2 years

• No set payout schedule

• Two program types – qualified & alternative• Some maximum payout criteria

Points to Remember

• No school

• Substitution of beneficiary

• Accumulated Income Payment

• Transfer to RRSP

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