Sun Life Financial Estate Planning and Contract Structuring with SunWise Essential Series 2

Transcription

1 Sun Life Financial Estate Planning and Contract Structuring with SunWise Essential Series 2 managed by CI Investments Inc. issued by Sun Life Assurance Company of Canada

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3 Table of Contents Sun Life Financial Estate Planning and Contract Structuring with SunWise Essential Series Tips for a contract structure that meets your clients needs Non-Registered Policies Individually Owned, Single Annuitant Individually Owned, Joint Annuitant Corporately Owned Joint Tenants with Rights of Survivorship (JTWROS), Single Annuitant... 9 Joint Tenants in Common, Single Annuitant Joint Tenants With Rights of Survivorship (JTWROS), Joint Annuitants.. 12 Joint Tenants in Common, Joint Annuitants Quebec Joint Ownership Reference Notes for Non-Registered Plans Registered Policies Tax-Free Savings Account (TFSA) Policy Registered Retirement Savings Plan (RRSP) Policy Registered Retirement Income Fund (RRIF) Policy Reference Notes for Registered Plans

4 Sun Life Financial Estate Planning and Contract Structuring with SunWise Essential Series 2 An estate plan represents the blueprint for your client s financial life and your client s family s financial future. Proper estate planning takes far less time and effort than most people imagine, and can provide tremendous peace of mind. Estate planning is a process that helps investors accumulate and conserve assets. It addresses their legal and financial concerns while taking into account their goals and tax considerations. Estate planning also takes advantage of existing laws and funding vehicles to save on tax payments and help manage property in an efficient and profitable manner during the investor s lifetime. As the baby-boomer generation ages, more and more investors are realizing the importance of creating an estate plan that ensures their loved ones are provided for in the best way possible. Estate plans are not all the same as each will have different nuances and goals driven by the unique motivations and priorities of the client. Thus, each client s estate planning should be approached differently to suit the expectations of the client. To meet the growing needs of investors to put more emphasis on estate planning, Sun Life Assurance Company of Canada and CI Investments offer taxefficient and estate planning friendly products like segregated funds. Segregated funds are more than mutual funds with guarantees. In actuality, they are insurance contracts that generally are invested in and provide the potential return of underlying mutual funds. But equally important, they are an excellent estate planning tool. The features of segregated funds as an insurance contract should not be overlooked as they have the potential to provide a different outcome, independent of the will, upon the annuitant s death. On the following pages you will find a wide range of the more common ways to structure a segregated fund contract for different registration types. Each example will demonstrate the effect the various owner(s), annuitant(s) and beneficiary(ies) will have on the continuation of the contract and potential tax implications upon the death of any of the parties involved. Use these examples to help ensure the outcome matches your client s expectations when setting up a segregated fund contract. The information contained herein is for informational purposes only, and pertains only to potential Canadian tax and legal implications surrounding segregated funds. It is not intended to provide legal, accounting, taxation or other professional advice to advisors or to their clients. We caution that no one should act upon this information without a thorough examination of the legal and tax situation with their own professional advisors, taking into account their own unique circumstances. 1

5 Tips for a contract structure that meets your clients needs Below are some quick pointers that can add value to you and to your clients and that will help you meet your client s objectives. 2 ANNUITANT Who is the annuitant? The annuitant of a segregated funds policy is the person upon whose life the contract is based. Upon the death of the annuitant, the death benefit guarantee becomes payable. Note: For corporately owned policies, the annuitant must be a living person. In our experience, the annuitant is usually a key person to the corporation such as a primary shareholder, founder or president. Caution! It is not appropriate to name the same person as both beneficiary and annuitant, as the death benefit proceeds are paid upon the death of the annuitant. Can I have more than one annuitant? Yes, the SunWise Essential Series 2 is designed to allow for two annuitants to be named under a contract (for non-registered policies). Upon the death of the annuitant (or the last surviving annuitant for policies with a joint annuitant structure), the contract terminates and the death benefit becomes payable. If I had originally only selected one annuitant on my contract, can I add a second annuitant to my policy at a later point in time? Yes, a joint annuitant can be added to a policy at any time prior to the death of the annuitant. After the addition of the new joint annuitant, the Death Benefit Proceeds will become payable only upon the death of the last surviving annuitant. Note: For policies with Income Class units, the addition of a joint annuitant will not automatically convert the LWA Income Stream from One-Life to Two-Life. A One-Life Income Stream can only be converted to a Two-Life Income Stream as permitted by our administrative policies in effect at the time. Can the annuitant be a different person than the owner? Yes, however, this is only possible for non-registered policies. For registered policies, the contract annuitant and the contract owner must be the same person. Caution! For non-registered policies, where the owner is different from the annuitant, upon the death of the annuitant, the contract is terminated and the contract benefits become payable to the Also, upon the death of the owner, if no successor owner has been named, ownership of the contract will pass to the owner s estate. In some circumstances a probated will may be required to determine ownership of the contract. OWNERSHIP STRUCTURE How can I ensure that non-registered assets are being passed to. my spouse? When a client wants to ensure the passing of assets to a spouse, the simplest contract structure that facilitates this is a single owner, single annuitant contract with the client as owner and annuitant, and the spouse as beneficiary. our children? When a couple wants to ensure the passing of the assets to their children upon their deaths, the best contract structure to facilitate this is a Joint Owners with Rights of Survivorship type of contract with joint annuitants (same as the joint owners) and the children named as the beneficiaries. Upon the death of the first owner/annuitant, the contract continues in the name of the surviving spouse only. Upon the death of the last surviving spouse, the death benefit becomes payable to the named beneficiaries, in this case, the children. Caution! For Joint Tenants in Common policies with joint annuitants (same people as the joint owners), upon the death of one of the owners, the ownership of the share belonging to the deceased becomes part

6 of the deceased s estate, unless a successor owner has been named for that share. Note: In Quebec, Joint Owners with Rights of Survivorship contracts are not permitted. All contracts held jointly in Quebec are held as Joint Tenants in Common. To ensure the contract continues with the surviving owner as sole owner on Joint Tenants in Common contracts, each owner can designate the other owner as subrogated policyholder of their share. In Quebec, on the death of one of the joint owners their portion goes through the estate of the deceased owner unless a subrogated policyholder is named for that share. Successor Owner (Subrogated Policyholder in Quebec) What is a successor owner? A successor owner is a person appointed by an owner to take their ownership interest in the contract on the death of the owner if the contract continues. If a successor owner has been named on the policy, the policy ownership will automatically pass to the successor owner on the death of the owner without passing through the estate. For example, if the owner is not the sole annuitant, the contract will continue on the owner s death and their interest passes to the successor owner and not to their estate. In Quebec, the successor owner is called the subrogated policyholder. For a jointly owned contract where and are the owners, a contract set up with named subrogated policyholder for and named subrogated policyholder for allows for assets to bypass the estate upon death. Upon the death of one of the owners, the policy is owned entirely by the surviving owner. How can I name a successor owner? A successor owner should be named at the time of the application. However a successor owner may be changed or added at any time with a written request signed by the policy owner. For a Tax-Free Savings Account (TFSA), full ownership rights under the contract can only be passed to the surviving spouse, if the surviving spouse is named as the sole primary beneficiary. Only the spouse can be the successor policyholder under a TFSA plan type. BENEFICIARIES A beneficiary designation is a very important benefit of a segregated fund contract as an estate planning tool. When a beneficiary designation is in effect, death benefit proceeds can flow directly to the named beneficiary(ies) on the death of the last surviving annuitant. A beneficiary designation in favour of certain family members of the annuitant (in Quebec the owner) may provide creditor protection for the owner of the contract in some circumstances. This also applies to an irrevocable designation. Clients should consult their own legal professional for more details. A beneficiary designation may be made at any time with a written request from the policy owner. Can a person acting with a Power of Attorney (POA) over the contract owner s financial affairs appoint a beneficiary? A person acting under a Power of Attorney (POA) cannot designate a beneficiary. In some circumstances, in conjunction with the directions of the attorney, the beneficiary designation may be carried forward to a new contract from an existing contract if the proceeds from that existing contract were used to fund the new contract. Can the beneficiary of my segregated funds policy be different from the beneficiary of my will? Yes. Generally beneficiary designations for insurance contracts are made outside of the will in the segregated fund application or subsequent beneficiary change form. An insurance beneficiary designation can be made in your will, however you must be careful on how it is worded to ensure its effectiveness. The last beneficiary designation you make for the contract will apply, regardless of whether or not it is specified in the will. The death settlement of the policy will flow outside of the estate when there is a valid beneficiary designation in effect. 3

7 4 Caution! For joint non-registered policies with one annuitant, it is advisable that the joint owner (who is not the annuitant) be named as beneficiary, in order for the death benefit to be paid out to the joint owner upon the death of the annuitant. Can I name a minor as beneficiary for my segregated funds policy? In all provinces other than Quebec, if a minor or a legally incompetent person is named as the policy beneficiary, it is recommended that a trustee be named for the beneficiary. The application or beneficiary change forms provide an area to name the trustee. If a minor beneficiary is named without a trustee, the estate settlement payment may be delayed until a financial trustee is appointed. In Quebec, if a minor is named as beneficiary, the payment of the death benefit will be made to their surviving parent or dative tutor. If there is no surviving parent, a dative tutor appointment will be made either through the will of the parents, court order, or based on a previous written appointment by the parents to the Public Curator. A Tutor is the legal guardian of a minor and of the minor s property. A dative tutor is a person that may hold the position of tutor to the child s person or their property, or both. Example Policy Owner: Annuitant: Beneficiary: Minor child without a trustee A Guardian can be appointed through court. If no Guardian is appointed, the Public Guardian and Trustee, or provincial equivalent may become the trustee of the minor child s property. What is an irrevocable beneficiary? If a beneficiary has been named as irrevocable, the owner of the policy cannot make certain changes to the contract without the consent of the irrevocable beneficiary (like changing the beneficiary designation, making withdrawals, changing guarantee options, etc., as these changes may potentially affect the contract negatively). There is seldom a good reason to name an irrevocable beneficiary, and it should only be done after a careful consideration of the consequences. In Quebec, the married/civil union spouse is deemed to be by law irrevocable unless the client specifies otherwise. This does not apply to common-law spouses. Caution! It is not advisable to have a minor as an irrevocable beneficiary, as appointment of a beneficiary as irrevocable gives the named beneficiary certain control over the policy. Given that a minor irrevocable beneficiary cannot consent to any change to the policy, the policy is frozen until the minor reaches the age of majority, unless a Guardian of Property is appointed by the courts. Can my spouse continue the benefits of my registered segregated funds policy upon my death? Spousal continuance is available for RRSP or RRIF policies. To ensure the continuation of the benefits (inclusive of GLWB benefits), the spouse must be named as the sole primary beneficiary. To continue the benefits of an RRSP, a new contract must be issued for the spouse. Corporate account beneficiaries Caution! When establishing a corporate policy, it is advisable to designate the corporation as beneficiary. This way, should a disposition occur due to the annuitant(s) s death, the death benefit would be payable to the corporation. In doing so, the corporation would have the assets required to pay any taxes owing. In the event that the death benefit is paid to someone other than the corporation, the entire proceeds could be fully taxable in the hands of the beneficiary as an employee benefit, shareholder benefit or taxable death benefit. Contingent beneficiaries What happens if the beneficiary predeceases the annuitant? If the beneficiary(ies) predecease(s) the annuitant, or the last surviving annuitant in the case of joint annuitants, a contingent beneficiary for that beneficiary s share, if still alive at the death of the annuitant, will receive that beneficiary s share of the death benefit. If no contingent beneficiary(ies) for that share is named or is alive at the time, that share shall be payable to the owner or if the owner was the annuitant, to the estate of the deceased owner.

8 Non-Registered Policy Individually Owned, Single Annuitant Owner Annuitant 3 One-Life/Two-Life Who died? What happens on death? Death Benefit 2 One-Life The policy terminates and the proceeds are payable to the The guaranteed income benefit Actual Disposition: Tax slips will be issued to and any gains and/or allocations up to the date of death must be reported on his final tax return. Any gains and/or allocations in the policy between s date of death and the date of settlement will be taxed to s Successor ownership is not applicable as the Annuitant has passed away and the policy One-Life The policy continues in force since the Annuitant is still living. No death benefit is payable at this time. s estate now owns the policy. If no successor owner has been named, payments are halted until a new owner is named. Payments end if the Estate terminates the policy. If a successor owner has been named, payments can continue to the successor owner if payment instructions are received. If no successor owner 1 is named: Actual Disposition. Tax slips will be issued to and any gains and/or allocations up to the date of death must be reported on his final tax return. Any gains and/or allocations in the policy between s date of death and the date of settlement will be taxed to s estate. If a successor owner 1 is named: If is named as successor owner, ownership will transfer to, tax-deferred. No tax slips will be issued. If someone other than (the spouse) is named as successor owner there will be a deemed disposition as the account transfers ownership. Tax slips will be issued to and any gains and/or allocations up to the date of death must be reported on his final tax return. One-Life The policy terminates and the proceeds are payable to the The guaranteed income benefit Actual Disposition: The policy Tax slips will be issued to and capital gains and/or allocations must be reported on his tax return. Two-Life & Two-Life policies require a Joint Annuitant Contract set up. this policy cannot be established. 5 Estate Planning Guide

9 Non-Registered Policy Individually Owned, Joint Annuitant Owner Annuitant 3 One-Life/Two-Life Who died? What happens on death? Death Benefit 2 One-Life The policy continues in force since one Annuitant is still living. No death benefit is payable at this time. The policy continues as single Annuitant. If no successor owner 1 has been named, s estate now owns the Contract. The Death Benefit is not payable at this time. The LWA Base and 5% Bonus Base (if applicable) are reset to market value. Provided (spouse) is 65 or older, a recalculated LWA is available based on her age. If is younger than 65, she has the option to begin receiving LWA payments as early as age 55 by making the Age 55 LWA Election. Payments are halted until the new owner is named and new payment instructions are provided. Any LWA payments are made to the new owner. If no successor owner 1 has been named, the policy will be owned by the estate of until the executor of the estate terminates the Contract or the estate appoints a new owner(s) to the Contract. If no successor owner 1 is named: Actual Disposition. Tax slips will be issued to and any gains and/or allocations up to the date of death must be reported on his final tax return. Any gain and/or allocations in the policy between s date of death and the date of settlement will be taxed to s estate. If a successor owner 1 is named: If is named as successor owner, or inherits the policy through s will, ownership will transfer to, tax-deferred. No tax slips will be issued. If someone other than (the spouse) is named as successor owner there will be a deemed disposition as the account transfers ownership. Tax slips will be issued to and any gains and/or allocations up to the date of death must be reported on his final tax return. Two-Life & The policy continues in force since one Annuitant is still living. No death benefit is payable at this time. The policy continues as single Annuitant. If no successor owner 1 has been named, s estate now owns the Contract. The Death Benefit is not payable at this time. The LWA payments are not affected by s death and continue based on the existing Two-Life Age tier schedule. Payments are halted until the new owner is named and new payment instructions are provided. Any LWA payments are made to the new owner. If no successor owner 1 has been named, the policy will be owned by the Estate of until the executor of the estate terminates the Contract or the estate appoints a new owner(s) of the Contract. If no successor owner 1 is named: Actual Disposition. Tax slips will be issued to and any gains and/or allocations up to the date of death must be reported on his final tax return. Any gains and/or allocations in the policy between s date of death and the date of settlement will be taxed to s estate. If a successor owner 1 is named: If is named as successor owner, or inherits the policy through s will, ownership will transfer to, tax-deferred. No tax slips will be issued. If someone other than (the spouse) is named as successor owner there will be a deemed disposition as the account transfers ownership. Tax slips will be issued to and any gains and/or allocations up to the date of death must be reported on his final tax return. 6 Estate Planning Guide

10 Non-Registered Policy Individually Owned, Joint Annuitant cont d Owner Annuitant 3 One-Life/Two-Life Who died? What happens on death? Death Benefit 2 Ben & Mary One-Life Ben Ben The policy continues in force since one Annuitant is still living. No death benefit is payable at this time. continues to own the policy. The LWA Base and 5% Bonus Base (if applicable) are reset to market value. Provided Mary (spouse) is 65 or older, a recalculated LWA is available based on her age. If Mary is younger than 65, then has the option to begin receiving LWA payments by making the Age 55 LWA Election. No disposition occurs here as the owner is still alive. Ben & Mary Two-Life Ben & Mary Ben The policy continues in force since one Annuitant is still living. No death benefit is payable at this time. continues to own the policy. The LWA payments are not affected by Ben s death and continue based on the existing Two-Life Age tier schedule. LWA payments continue to. No disposition occurs here as the owner is still alive. One-Life and (concurrent death) The policy terminates and the proceeds are payable to the The guaranteed income benefit Actual Disposition: Tax slips will be issued to and any gains and/or allocations up to the date of death must be reported on his final tax return. Any gains and/or allocations in the policy between s date of death and the date of settlement will be taxed to the contract Successor ownership is not applicable because the policy Two-Life & and (concurrent death) The policy terminates and the proceeds are payable to the The guaranteed income benefit Actual Disposition: Tax slips will be issued to and any gains and/or allocations up to the date of death must be reported on his final tax return. Any gains and/or allocations in the policy between s date of death and the date of settlement will be taxed to the contract Successor ownership is not applicable because the policy One-Life Ben The Income Stream must be based on the life of one of the Joint Annuitants. this policy cannot be established. Two-Life Ben & Mary The Income Stream must be based on the lives of both Joint Annuitants. this policy cannot be established. 7 Estate Planning Guide

11 Non-Registered Policy Corporately Owned Owner Annuitant 3 One-Life/Two-Life Who died? What happens on death? Death Benefit 2 XYZ Corporation One Life The policy terminates and the proceeds are payable to the beneficiary(ies) 2. The guaranteed income benefit Actual Disposition: Tax slips will be issued in the name of XYZ Corporation. The gain is taxable to XYZ Corporation and is not eligible for Small Business Tax Rate. XYZ Corporation One Life The policy continues in force since one Annuitant is still living. No death benefit is payable at this time. The policy continues as single Annuitant. The LWA Base and 5% Bonus Base (if applicable) are reset to market value. Provided is 65 or older, a recalculated LWA is available based on her age. If is younger than 65, she has the option to begin receiving LWA payments as early as age 55 by making the Age 55 LWA Election. No disposition occurs. XYZ Corporation Two-Life & The policy continues in force since one Annuitant is still living. No death benefit is payable at this time. The policy continues as single Annuitant. The LWA payments are not affected by s death and continue based on the existing Two-Life Age tier schedule. No disposition occurs. XYZ Corporation Two-Life & Two-Life policies require a Joint Annuitant Contract set up. this policy cannot be established. XYZ Corporation Two-Life Ben & Mary The Income Stream must be based on the lives of both Joint Annuitants. this policy cannot be established. XYZ Corporation & Mary (non-spouses) Two-Life & Mary (non-spouses) For Two-Life the Joint Annuitants must be spouses. this policy cannot be established. XYZ Corporation One-Life Ben The Income Stream must be based on the life of the Annuitant. this policy cannot be established. 8 Estate Planning Guide

12 Non-Registered Policy JTWROS Owners, Single Annuitant (For Contracts established in all provinces except Quebec) Owner Annuitant 3 One-Life/Two-Life Who died? What happens on death? Death Benefit 2 One-Life The policy terminates and the proceeds are payable to the Note: If a beneficiary(ies) other than has been named, has no claim to the money even though she is the joint owner. The guaranteed income benefit Actual Disposition: Tax slips will be issued in the name of both and. s gains and/or allocations will be taxable on his final tax return and s gains and/or allocations will be taxable on her tax return 4. A tax professional should be consulted as clients would need to track their financial contributions and each person would be responsible for the taxation of gain on their proportionate growth in the account. Two-Life & Two-Life policies require a Joint Annuitant Contract set up. - this policy cannot be established. Ben One-Life Ben Ben The policy terminates and the proceeds are payable to the Note: If a beneficiary(ies) other than and/or has been named, and/or have no claim to the money even though they are the joint owners. The guaranteed income benefit Actual Disposition: Tax slips will be issued in the names of both and for any gain and/or allocations in the policy up to notification of Ben s death 4. Any gain and/or allocations in the policy between notification of Ben s death and the date of settlement will be taxed to the contract Ben Two-Life Ben & Mary Two-Life policies require a Joint Annuitant Contract set up. this policy cannot be established. One-Life The policy continues in force since the Annuitant is still living. No death benefit is payable at this time. is now the sole owner of the policy. The LWA payments continue unchanged. No disposition occurs. 9 Estate Planning Guide

13 Non-Registered Policy JTIC Owners, Single Annuitant Owner Annuitant 3 One-Life/Two-Life Who died? What happens on death? Death Benefit 2 One-Life The policy terminates and the proceeds are payable to the Note: If a beneficiary(ies) other than has been named, has no claim to the money even though she is the joint owner. The guaranteed income benefit Actual Disposition: Tax slips will be issued in the name of both and. s gains and/or allocations will be taxable on his final tax return 4 and s gains and/or allocations will be taxable on her tax return. 4 A tax professional should be consulted as clients would need to track their financial contributions and each person would be responsible for the taxation of gain on their proportionate growth in the account. Any gain and/or allocations in the policy between the date of notification of s death and the date of the estate settlement should be taxed in the name of the contract Two-Life & Two-Life policies require a Joint Annuitant Contract set up. this policy cannot be established. Ben One-Life Ben Ben The policy terminates and the proceeds are payable to the Note: If a beneficiary(ies) other than the owners have been named, the owners have no claim to the money even though they are the joint owners. The guaranteed income benefit Actual Disposition: Tax slips will be issued in the names of both and for any gain and/or allocations in the policy up to notification of Ben s death. A tax professional should be consulted as any gain and/or allocations in the policy between the date of notification of Ben s death and the date of settlement should be taxed in the name of the contract Ben Two-Life Ben & Mary Two-Life policies require a Joint Annuitant Contract set up. this policy cannot be established. 10 Estate Planning Guide

14 Non-Registered Policy JTIC Owners, Single Annuitant cont d Owner Annuitant 3 One-Life/Two-Life Who died? What happens on death? Death Benefit 2 One-Life The policy continues in force since the Annuitant is still living. No death benefit is payable at this time. Provided no successor owner 1 has been named for s portion, the policy is now held jointly by and s estate. If no successor owner 1 has been named, s estate now owns his portion of the Contract. Payments are suspended until the Estate of the deceased informs us what is to happen to the estate s portion. If no successor owner 1 is named: Actual Disposition. s portion goes to someone other than (the spouse). There will be a deemed disposition of s portion at the time of death and gains and/or allocations will be taxable on his final return. There will not be a deemed disposition of s portion. Tax slips will be issued in the name of both and. If a successor owner 1 is named: If is named as s successor owner or inherits s portion of the policy through the will, ownership of s portion will transfer to, tax-deferred. No tax slip will be issued. If someone other than (the spouse) is named as successor owner there will be a deemed disposition of s portion on date of death as it transfers ownership. Tax slips will be issued to and and any gains and/or allocations up to the date of death must be reported on his final tax return Estate Planning Guide

15 Non-Registered Policy JTWROS Owners, Joint Annuitants (For Contracts established in all provinces except Quebec) Owner Annuitant 3 One-Life/Two-Life Who died? What happens on death? Death Benefit 2 One-Life The policy continues in force since one Annuitant is still living. Surviving owner inherits the policy. The LWA Base and 5% Bonus Base (if applicable) are reset to market value. Provided (spouse) is 65 or older, a recalculated LWA is available based on her age. If is younger than 65, she has the option to begin receiving LWA payments as early as age 55 by making the Age 55 LWA Election. No disposition occurs. Note: If the joint owners are not spouses, then there would be a deemed disposition on the death of one of the annuitants as this would be considered a transfer of ownership. One-Life The policy continues in force since one Annuitant is still living. Surviving owner inherits the policy. The LWA payments continue unchanged. No disposition occurs. Two-Life & The policy continues in force since one Annuitant is still living. Surviving owner inherits the policy. The LWA payments are not affected by s death and continue based on the existing Two-Life Age tier schedule. No disposition occurs. Ben & Mary One-Life For One-Life, the Income Stream must be based on the life of one of the Joint Annuitants. For Two-Life, the Income Stream must be based on the lives of both Joint Annuitants. this policy cannot be established. Ben & Mary One-Life For One-Life, the Income Stream must be based on the life of one of the Joint Annuitants. For Two-Life, the Income Stream must be based on the lives of both Joint Annuitants. this policy cannot be established. Ben & Mary Two-Life & For One-Life, the Income Stream must be based on the life of one of the Joint Annuitants. For Two-Life, the Income Stream must be based on the lives of both Joint Annuitants. this policy cannot be established. 12 Estate Planning Guide

16 Non-Registered Policy JTIC Owners, Joint Annuitants Owner Annuitant 3 One-Life/Two-Life Who died? What happens on death? Death Benefit 2 One-Life The policy continues in force since one Annuitant is still living. Provided no successor owner 1 has been named for s portion, the policy is now held jointly by and s estate. One-Life Two-Life & The policy continues in force since one Annuitant is still living. Provided no successor owner 1 has been named for s portion, the policy is now held jointly by and 's estate. The policy continues in force since one Annuitant is still living. Provided no successor owner 1 has been named for s portion, the policy is now held jointly by and s estate. All payments are halted based on s death. The LWA Base and 5% Bonus Base (if applicable) are reset to market value. Provided (spouse) is 65 or older, a recalculated LWA is available based on her age. If is younger than 65, the owners have the option to begin receiving LWA payments as early as age 55 by making the Age 55 LWA Election. We need the instructions of all owners of the contract to commence a new income stream and provide new payment directions. All payments are halted until new payment directions are received from the Estate and we determine what happens to s portion of the assets. All payments are halted until new payment directions are received from the Estate and we determine what happens to s portion of the assets. If no successor owner 1 is named: Actual Disposition. There will be a deemed disposition of s portion at the time of death and gains and/or allocations will be taxable on his final tax return 4. There will not be a deemed disposition of s portion. Tax slips will be issued in the name of both and 4. If a successor owner 1 is named: If is named as s successor owner or inherits the policy through s will, ownership of s portion will transfer to, tax-deferred. No tax slips will be issued. If someone other than (the spouse) is named as successor owner there will be a deemed disposition of s portion on date of death as it transfers ownership. Tax slips will be issued to and and any gains and/or allocations up to the date of death must be reported on his final tax return 4. Ben & Mary One-Life, or One-Life, or Two-Life & For One-Life, the Income Stream must be based on the life of one of the Joint Annuitants. For Two-Life, the Income Stream must be based on the lives of both Joint Annuitants. this policy cannot be established. 13 Estate Planning Guide

17 Non-Registered Policy Quebec Joint Ownership Owner Annuitant 3 One-Life/Two-Life Who died? What happens on death? Death Benefit 2 One-Life The policy terminates and the proceeds are payable to the The guaranteed income benefit Actual Disposition: Tax slips will be issued in the name of both and. s gains and/or allocations are taxable on his final tax return and s gains and/or allocations are taxable on her tax return 4. A tax professional should be consulted as clients would need to track their financial contributions and each person would be responsible for the taxation of gain on their proportionate growth in the account. One-Life If and want the surviving spouse to own the contract in the event of the death of one of them, each should name the other as subrogated owner 1 for their share. The policy continues, and no death benefit is payable at this time, since one of the Annuitants is still living. If a subrogated owner 1 is named: The subrogated owner acquires s portion of the policy. All payments are halted until the estate settlement is completed and it is determined what happens to s portion of the assets. If no subrogated owner 1 is named: s portion goes to someone other than (the spouse). Tax slips will be issued for both and. s portion will be deemed a disposition at the time of death and gains and/or allocations will be taxable on his final return. s portion will not be deemed a disposition. Tax slips will be issued in the name of both and. If a subrogated owner 1 is named: If is named as subrogated owner, either through the application or through the will, ownership of s portion will transfer to, tax-deferred. No tax slips will be issued. If no subrogated owner 1 is named: s portion of the policy becomes the property of s estate until the executor transfers ownership to the estate If someone other than (the spouse) is named as subrogated owner there will be a deemed disposition of s portion on date of death as it transfers ownership. Tax slips will be issued to and and any gains and/or allocations up to the date of death must be reported on his final tax return Estate Planning Guide

18 Non-Registered Policy Quebec Joint Ownership cont d Owner Annuitant 3 One-Life/Two-Life Who died? What happens on death? Death Benefit 2 One-Life If and want the surviving spouse to own the contract in the event of the death of one of them, each should name the other as subrogated owner 1 for their share. The policy continues, and no death benefit is payable at this time since one of the Annuitants is still living. If a subrogated owner 1 is named: The subrogated owner acquires s portion of the policy. If no subrogated owner 1 is named: s portion of the policy becomes the property of s estate until the executor transfers ownership to the estate and s estate will dictate the terms and conditions of the account until and the beneficiary(ies) of s estate terminate the account. All LWA payments are halted based on s death. The LWA Base and 5% Bonus Base (if applicable) are reset to market value. Provided (spouse) is 65 or older, a recalculated LWA is available based on his age. If is younger than 65, the owners have the option to begin receiving LWA payments as early as age 55 by making the Age 55 LWA Election. We need the instructions of all owners of the contract to commence a new income stream and provide new payment directions. If was named as the subrogated owner of s portion he is the sole owner of the contract. If someone other than was named as the subrogated owner of s portion, that person and are now the owners of the contract. If no subrogated owner is named for s portion, her portion will be owned by her estate until her estate transfers ownership to the estate If no subrogated owner 1 is named: Actual Disposition. Tax slips will be issued for both and. s portion will be deemed a disposition and gains and/or allocations may be taxable on her final return. s portion will not be deemed a disposition 4. If a subrogated owner 1 is named: If is named as s subrogated owner, ownership of s portion will transfer to, tax-deferred. If the subrogated owner named is someone other than there will be a deemed disposition on s portion as it transfers ownership Estate Planning Guide

19 Non-Registered Policy Quebec Joint Ownership cont d Owner Annuitant 3 One-Life/Two-Life Who died? What happens on death? Death Benefit 2 Two-Life & If and want the surviving spouse to own the contract in the event of the death of one of them, each should name the other as subrogated owner 1 for their share. The policy continues in force since one Annuitant is still living, no death benefit is payable at this time. If no subrogated owner 1 is named: s portion of the policy becomes the property of s estate until the executor transfers ownership to the estate and s estate will dictate the terms and conditions of the account until and the beneficiary(ies) of s estate terminate the account. If a subrogated owner 1 is named: The subrogated owner aquires s portion of the policy. If no subrogated owner has been named or if a subrogated owner other than has been named, all payments are halted until the estate or new owner provides direction on what happens to s portion of the assets. If has been named subrogated owner, the LWA payments are not affected by s death and will continue to based on the existing Two-Life Age Tier schedule. If no subrogated owner 1 is named: Tax slips will be issued for both and. s portion will be deemed a disposition and gains and/or allocations may be taxable on his final return. s portion will not be deemed a disposition 4. If a subrogated owner 1 is named: If is named as s subrogated owner, ownership of s portion will transfer to, tax-deferred. If the subrogated owner named is someone other than there will be a deemed disposition on s portion as it transfers ownership 4. Ben & Mary One-Life, or One-Life, or Two-Life & For One-Life, the Income Stream must be based on the life of one of the Joint Annuitants. For Two-Life, the Income Stream must be based on the lives of both Joint Annuitants. this policy cannot be established. 16 Estate Planning Guide

20 Reference Notes for Non-Registered Plans 1 Successor Owner also often referred to as Contingent Owner. In Quebec, a Successor Owner is referred to as Subrogated Owner. 2 Beneficiary designation guidelines: y Owners, successor owners and those who inherit ownership of the policy always have the right to name a new beneficiary(ies) (once they become owners), except where the beneficiary(ies) has been named irrevocably, in which case written consent is required from the irrevocable y If the annuitant dies and there is no surviving beneficiary, proceeds are payable to the owner. y If the owner and annuitant are the same person and there is no surviving beneficiary, the proceeds are payable to the owner s estate and probate may apply. Beneficiaries for a corporately-owned policy Care should be taken when selecting a beneficiary for a corporately-owned policy. If a death benefit is paid out to a beneficiary other than the corporation, the entire proceeds could be fully taxable in the hands of the beneficiary as an employee benefit, shareholder benefit or taxable death benefit. Minor named as beneficiary All provinces except Quebec Beneficiary Minor without a Trustee Upon the death of the annuitant, the policy terminates and the proceeds may be paid into the applicable provincial courts where a guardian may be appointed for the beneficiary. If no guardian can be appointed, the Public Guardian and Trustee or equivalent of that province may become the guardian of the minor child s property. Beneficiary Minor with a Trustee The policy terminates and the proceeds are payable to the Trustee in trust for the minor beneficiary. The trustee can be appointed on the application at the time of plan establishment, through the applicable beneficiary change form or on a legal document. Provincial legislation governs trustee use of the proceeds. Consult a legal professional for details. Quebec Beneficiary Minor without a surviving parent as tutor The policy terminates and the proceeds are paid to the dative tutor appointed. A dative tutor may be appointed either through the will of the parents, court order, or written appointment by the parents to the Public Curator. Beneficiary Minor with a surviving parent as tutor The policy terminates and the proceeds are payable to the tutor (parent) for the minor child. Financially dependent disabled adult son or daughter named as beneficiary If the beneficiary is legally incapable, the proceeds would be payable to the financial trustee (in Quebec: tutor or curator). Proceeds may negatively impact provincial disability income support entitlements. Disability income support varies with provincial legislation. Consult a legal professional for details. 3 Policy continuation can occur for single annuitant policies with the addition of a new joint annuitant at any time prior to the death of the annuitant. After the addition of the new joint annuitant, the Death Benefit Proceeds will become payable only upon the death of the last surviving annuitant. Note: For policies with Income Class units the addition of a joint annuitant will not automatically convert the LWA Income Stream from One-Life to Two-Life. A One-Life Income Stream can only be converted to a Two-Life Income Stream as permitted by our administrative policies in effect at the time. 4 Note that for joint owners, the Income Tax Act requires the funds to be taxed in proportion to each party s actual financial contribution to the fund. It is up to the owners of the contract to track each party s financial contribution to the fund and to file the tax slips accordingly. If the policy is terminated due to the death of the last surviving annuitant, the beneficiary will receive the greater of the Death Benefit or the Market Value. 17 Estate Planning Guide

21 Tax- Free Savings Account (TFSA) policy Owner/ Annuitant Beneficiary One-Life/Two-Life Who died? Death Benefit One-Life If the spouse is sole beneficiary, the spouse has the following options: What happens on death? Effect on GLWB LWA Lifetime a) elect spousal continuance of the benefits and assume the Contract as successor planholder a) The LWA Base and 5% Bonus Base (if applicable) are reset to market value. Provided (spouse) is 65 or older, a recalculated LWA is available based on her age. If is younger than 65, she has the option to begin receiving LWA payments as early as age 55 by making the Age 55 LWA Election a) If elects to assume the policy as successor planholder, no tax slips will be issued to either or. Two-Life & Any other beneficiary(ies) b) to transfer the Death Benefit to a personal TFSA c) receive a cash payment of the Death Benefit. The spouse must assume the policy as successor planholder since is the sole beneficiary of the contract and continues the benefit. No option to receive the death benefit. One-Life The policy terminates and the proceeds are payable to the b) The guaranteed income benefit is terminated c) The guaranteed income benefit is terminated The LWA payments are not affected by s death and will continue based on the existing Two-Life Age tier schedule. The guaranteed income benefit is terminated b) If elects to transfer the proceeds to her own TFSA (new or already established), no tax slips will be issued to. The proceeds transferred to s policy during the rollover period would not be considered a contribution if the CRA forms are completed and filed with CRA within 30 days of the transfer. c) If decides to take the death benefit proceeds in a lump sum cash payment, tax slips may be issued to for any income earned between the date of death and the settlement date. There will be no tax slips issued to either or. No tax slips will be issued to. Tax slips will be be issued to the beneficiary(ies) for any income earned between the date of death and the settlement date. 18 Estate Planning Guide

22 Tax-Free Savings Account (TFSA) policy cont d Owner/ Annuitant Beneficiary Any other beneficiary(ies) One-Life/Two-Life Two-Life & not permitted Who died? Death Benefit One-Life Policy continues in force since the Annuitant is still living. If a contingent beneficiary is named, the contingent beneficiary(ies) becomes the primary If no contingent beneficiary has been named, the death benefit entitlement reverts to s estate until names a new Two-Life & What happens on death? Effect on GLWB LWA Lifetime The Annuitant s spouse must be the sole beneficiary of the Contract to establish the Two-Life option Policy continues in force since the Annuitant is still living. If a contingent beneficiary is named, the contingent beneficiary(ies) becomes the primary If no contingent beneficiary has been named, the death benefit entitlement reverts to s estate until names a new The LWA payments continue uninterrupted. The LWA payments are not affected by s death and will continue based on the existing Two-Life Age tier schedule. this policy cannot be established. s death does not trigger a taxable event. s death does not trigger a taxable event. 19 Estate Planning Guide

23 Registered Retirement Savings Plan (RRSP) Policy Owner Beneficiary One-Life/Two-Life Who died? What happens on death? Death Benefit One-Life has the following options: a) Subject to our administrative policies and any applicable legislation in effect at the time, and the spouse may transfer the proceeds (at the current market value) and any existing benefits intact to a personal registered plan. b) Terminate the contract and transfer the Death Benefit (the greater of the market value or death guarantee) to a personal registered plan. c) Terminate the contract and receive a cash payment of the Death Benefit (the greater of the market value or death guarantee). a) The LWA Base and 5% Bonus Base (if applicable) are reset to market value. Provided (spouse) is 65 or older, a recalculated LWA is available based on her age. If is younger than 65, she has the option to begin receiving LWA payments as early as age 55 by making the Age 55 LWA Election. b) The guaranteed income benefit a, b, c) A tax slip will be issued to reporting the greater of the market value of the policy on the date of death or the death guarantee. a, b) Offsetting tax slips will be issued to, for the tax free rollover which defers taxation of the proceeds transferred. c) The guaranteed income benefit c) If the final payment exceeds the amount reported to, then this growth would be taxable to. Two-Life & has the following options: a) Elect spousal continuance subject to our administrative policies and any applicable legislation in effect at the time. The spouse may transfer the proceeds (at the current market value) and any existing benefits intact to a personal registered plan. b) Terminate the contract and transfer the Death Benefit (the greater of the market value or death guarantee) to a personal registered plan. c) Terminate the contract and receive a cash payment of the Death Benefit (the greater of the market value or death guarantee). a) The LWA payments are not affected by s death and continue based on the existing Two-Life Age tier schedule. Offsetting tax slips will be issued to, for the tax free rollover which defers taxation of the proceeds transferred. A tax slip will be issued to reporting the greater of the market value of the policy on the date of death or the death guarantee. If the final payment exceeds the amount reported to, then this growth would be taxable to. b) The guaranteed income benefit c) The guaranteed income benefit 20 Estate Planning Guide

24 Registered Retirement Savings Plan (RRSP) Policy cont d Owner Beneficiary One-Life/Two-Life Who died? What happens on death? Death Benefit Any other beneficiary(ies) One-Life The policy terminates and the Death Benefit (greater of the market value or death guarantee) is payable to the The guaranteed income benefit A tax slip will be issued to reporting the greater of the market value of the policy on the date of death or the death guarantee. The beneficiary(ies) will receive a tax slip for any income earned between the date of death and the settlement date. Any other beneficiary Two-Life & The Annuitant s spouse must be the sole primary beneficiary of the Contract to establish the Two-Life option. this policy cannot be established. One-Life The policy continues in force since the Annuitant is still living. If a contingent beneficiary is named, the contingent beneficiary(ies) becomes the primary If no contingent beneficiary(ies) has been named, the death benefit entitlement reverts to s estate until names a new The LWA payments continue uninterrupted. s death does not trigger a taxable event. Two-Life & The policy continues in force since the Annuitant is still living. If a contingent beneficiary is named, the contingent beneficiary(ies) becomes the primary If no contingent beneficiary has been named, the death benefit entitlement reverts to s estate until names a new The LWA payments are not affected by s death and continue based on the existing Two-Life Age tier schedule. s death does not trigger a taxable event. 21 Estate Planning Guide