Achieving More Together Welcome! The Canada Life Assurance Company Ontario Regional Marketing Centre

Achieving More Together

Welcome!

The Canada Life Assurance Company

Ontario Regional Marketing Centre


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


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


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


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


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


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


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


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.


Agenda

Introduction Wills and will planning The need for liquidity

– Probate fees

– Death of a taxpayer

– Charitable gifts

– Planning for business entities Summary


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.”


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


Introduction

Estate planning process– Fact-finding

– Client objectives

– Analysis

– Action plans

– Implementation

– Follow-up


Introduction

Estate planning tools– Wills and Powers of Attorney

– Trusts

– Private corporations

– Agreements

– Gifts

– Beneficiary designations

– Ownership of property

– Insurance


Introduction

CLIENT

LEGALADVISOR

BUSINESSADVISOR

TAXADVISOR

FINANCIALADVISOR

Who wants to be the “quarterback”?


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 ..


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


Will planning

Tax considerations– Taxpayers

Deceased Estate Survivors

– Taxes Income tax Foreign tax Probate fees (Estate Administration Tax or “EAT”)


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


CASE STUDY # 1


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


Pay final expenses and fees

Funeral costs Executor’s fees Professional fees Estate administration tax (probate 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.



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?



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)



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


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)


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


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


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


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)


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


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


Pay taxes

RPPs:– Benefits taxable to recipient (not to deceased)

– May transfer lump-sum payments to RRSP


CASE STUDY # 2


Fund charitable bequests

CANADA REVENUE AGENCY

HEIRS CHARITY

You have 3 choices for distributing your estate:



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



Insurance strategies– Bequest by will

– Bequest by beneficiary designation

– Gift of policy

– Estate replacement

– Insured annuity donation



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



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



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


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


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


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


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


CASE STUDY # 3


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

Documents

Achieving More Together Welcome! The Canada Life Assurance Company Ontario Regional Marketing Centre