Estate planning guide

Transcription

1 Estate planning guide

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3 Estate Planning with An estate plan represents the blueprint for your client s financial life and their 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 looking to simplify or focus on estate planning, CI Investments offers products like G5 20 Series, a mutual fund which is part of the CI Guaranteed Retirement Cash Flow Series. On the following pages you will find the most common G5 20 Series outcomes for different registration types. Each example will demonstrate the effect the various owner(s) and beneficiary(ies) will have on the G5 20 Series assets 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 using G5 20 Series. The information contained in this guide is for informational purposes only, and pertains only to potential Canadian tax and legal implications surrounding G5 20 Series. 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

4 Individually Owned, Non-Registered Accounts Owner Who died? Subject to probate? Beneficiary in will What happens on death? Tax treatment Jack Jack Yes, all provinces except Quebec. Spouse (Jill) Jill inherits the fund and the distributions continue uninterrupted. Deemed disposition at date of death and, because Jill automatically inherits the account at Jack s adjusted cost base (ACB), there is no capital gain or loss reported on Jack s final tax return. May elect out of spousal rollover at ACB and dispose at fair market value (FMV), triggering a capital gain or loss. Anyone other than spouse (includes trusts and charities). 1 If transferred in cash to the beneficiary designated in the will, the account is liquidated and the proceeds are paid out as per the will. 2 If transferred in-kind, the account is transferred in-kind to the new owner and the distributions continue to be paid. 1 & 2 Deemed disposition at FMV at date of death. Accrued capital gains or losses reported on Jack s final tax return. Capital gains or losses realized subsequent to deemed disposition at death to date of liquidation or transfer in-kind are reported by Jack s estate. 2

5 Joint Tenants in Common (JTIC) Accounts Owner Who died? Subject to probate? Beneficiary in will What happens on death? Tax treatment of Jack s portion Jack and Jill (spouses) Jack Yes, Jack s portion is subject to probate in all provinces except Quebec. Spouse (Jill) 1 If transferred in-kind to Jill, distributions continue uninterrupted. 2 If taken in cash, distributions stop since the fund is liquidated. 1 Deemed disposition at date of death and, because Jill automatically inherits the account at Jack s adjusted cost base (ACB), there is no capital gain or loss reported on Jack s final tax return. May elect out of spousal rollover at ACB and dispose at fair market value (FMV), triggering a capital gain or loss. 2 Deemed disposition at FMV at date of death. Accrued capital gains or losses reported on Jack s final tax return. Capital gains or losses realized subsequent to deemed disposition at death to date of liquidation or transfer in-kind are reported by Jack s estate. Anyone other than spouse (includes Trusts and charities). 1 If Jack s portion is transferred in cash to the beneficiary designated in the will, the account is liquidated and the proceeds are paid out as per the will. 2 If Jack s portion is transferred in-kind, the account is transferred in-kind to the new owner and the distributions continue to be paid. 1 & 2 Deemed disposition at fair market value at date of death. Accrued capital gains or losses reported on Jack s final tax return. Capital gains or losses realized subsequent to deemed disposition at death to date of liquidation or transfer in-kind are reported by Jack s estate. 3

6 Joint Tenants with Rights of Survivorship (JTWROS) Accounts (all provinces except Quebec) Owner Who died? Subject to probate? Beneficiary in will What happens on death? Tax treatment of Jack s portion 1 Jack and Jill (spouses) or 2 Jack and a joint owner (non-spouse) Jack Not subject to probate. Not relevant since the surviving owner inherits the deceased s portion of the account. 1 Jill (spouse) inherits Jack s portion of the account and the distributions continue uninterrupted. Deemed disposition at date of death and, because Jill automatically inherits the account at Jack s adjusted cost base (ACB), there is no capital gain or loss reported on Jack s final tax return. May elect out of spousal rollover at ACB and dispose at fair market value (FMV), triggering a capital gain or loss. 2 The surviving owner (nonspouse) inherits Jack s portion of the account and the distributions continue uninterrupted. Deemed disposition at fair market value at date of death. Accrued capital gains or losses reported on Jack s final tax return. 4

7 Registered Retirement Savings Plan (RRSP) Owner Who died? Subject to probate? Designated beneficiary What happens on death? Tax treatment Jack Jack If there is a named beneficiary (excluding Quebec), not subject to probate. Spouse (Jill) 1 Jill elects to transfer the account to her RRSP/RRIF in-kind. Distributions continue uninterrupted. 2 Jill elects to transfer the assets to her RRSP/RRIF in-cash. Distributions stop since fund has been liquidated. 3 Jill elects to receive the account in cash. 1 & 2 A T4RSP slip and an offsetting 60L contribution receipt are issued to Jill. 3 A T4RSP slip is issued for the fair market value (FMV) of the RRSP at date of death and is reported on Jack s final tax return. An increase in the FMV of RRSP from the date of death to settlement is taxed to Jill, who will receive a T4RSP slip. If there is a decrease in FMV of RRSP subsequent to death, if RRSP is settled by the end of the year following death, a deduction is available to be carried back to Jack s final tax return. If the estate is the beneficiary, the account is subject to probate in every province except Quebec. Anyone other than the spouse (includes Trusts, charities and the estate). Beneficiary may elect to receive the fund in-kind or in-cash. A T4RSP slip is issued for the FMV of the RRSP as of the date of death and is reported on Jack s final tax return. An increase in the FMV of RRSP from the date of death to settlement is taxed to beneficiary, who is issued a T4RSP slip. If there is a decrease in FMV of RRSP subsequent to death, if RRSP is settled by the end of the year following death, a deduction is available to be carried back to Jack s final tax return. 5

8 Registered Retirement Income Fund (RRIF) Owner Who died? Subject to probate? Designated beneficiary What happens on death? Tax treatment Jack Jack If there is a named beneficiary (excluding Quebec), not subject to probate. Spouse (Jill) Jill inherits the account: 1 Jill elects to transfer the account to her RRSP/RRIF in-kind*. Distributions continue uninterrupted. 2 Jill elects to transfer the assets to her RRSP/RRIF in-cash. Distributions stop since fund has been liquidated. 3 Jill elects to be successor annuitant* of Jack s RRIF. Distributions continue uninterrupted. 4 Jill elects to receive the account in cash. *In Quebec, the estate may direct 60L transfer or successor annuitant. 1 & 2 A T4RIF slip is issued to Jack for any withdrawals up to his date of death. Any remaining minimum annual withdrawal amount is paid to Jill, and the remaining eligible amount is transferred, with the total reported as income on a T4RIF to Jill. A 60L contribution receipt is issued on the receiving plan to offset the T4RIF by the eligible amount. 3 A T4RIF slip is issued to Jack for any withdrawals up to his date of death. No tax slips are issued to Jill at the time of transfer. Distributions continue uninterrupted. 4 A T4RIF slip is issued for the FMV of the RRIF as of the date of death and is reported on Jack s final tax return. An increase in the FMV of RRIF from the date of death to settlement is taxed to Jill, who will receive a T4RIF slip. If there is a decrease in FMV of RRIF subsequent to death, if RRIF is settled by the end of the year following death, a deduction is available to be carried back to Jack s final tax return. If the estate is the beneficiary, the account is subject to probate in every province except Quebec. Anyone other than spouse (includes Trusts, charities and the estate). Beneficiary may elect to receive the fund in-kind or in-cash. A T4RIF slip is issued for the FMV of the RRIF as of the date of death and is reported on Jack s final tax return. An increase in the FMV of RRIF from the date of death to settlement is taxed to beneficiary, who will receive a T4RIF slip. If there is a decrease in FMV of RRIF subsequent to death, if RRIF is settled by the end of the year following death, a deduction is available to be carried back to Jack s final tax return. 6

9 Tax-Free Savings Account (TFSA) 7Owner Who died? Subject to probate? What happens on death? Tax treatment Jack Jack 1 If spouses designated as successor holder (not applicable in Quebec), no probate required. 2 If a beneficiary other than the estate is named (not applicable in Quebec), no probate required. 3 If the estate is designated as beneficiary, probate required in every province except Quebec. 1 The spouse assumes the TFSA as successor holder and distributions continue uninterrupted. 2 & 3 Beneficiary may elect to receive the fund in-kind or in-cash. 1 No tax slip issued for either Jack or Jill. 2 The beneficiary is taxed on any growth between the date of death and the settlement date. If the beneficiary is the spouse and transfers the proceeds to their personal TFSA, they may complete the RC240 within 30 days in order to not have the lesser of the value of the TFSA on the date of death or the transferred amount be considered a contribution. In Quebec, the account owner may designate their spouse as successor holder in their will. 3 The estate is taxed on any growth between the date of death and the settlement date. 7

10 For more information on G5 20 Series and resources including an illustration tool, visit or contact your CI Sales Representative. The information contained in this guide is for informational purposes only, and pertains only to potential Canadian tax and legal implications surrounding G5 20 Series. 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. Every effort has been made to ensure that the material is accurate at the time of publication. However, CI Investments Inc. cannot guarantee its accuracy or completeness and accepts no responsibility for any loss arising from any use of or reliance on the information contained herein. Features associated with the calculation of potential increases of guaranteed cash flow are applicable to G5 20 Series funds issued after March Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Except as described below, mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Bank of Montreal guarantees that at least the original amount you paid for the fund unit will be paid back to you over a 20-year period in equal monthly instalments. This guarantee does not apply to units redeemed before the end of that period. You will receive the net asset value per unit for any unit redeemed early. Mutual fund securities are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. CI Investments and the CI Investments design are registered trademarks of CI Investments Inc. G5 20 Series, the G5 20 Series design and CI Guaranteed Retirement Cash Flow Series are trademarks of CI Investments Inc. BMO Financial Group and Bank of Montreal are marketing names (also referred to as trade names or brand names) used by Bank of Montreal. BMO, BMO Financial Group, BMO (M-bar roundel symbol) Financial Group, Bank of Montreal and BMO Capital Markets are trademarks owned by Bank of Montreal. Morningstar Awards Morningstar Inc. All Rights Reserved. 2 Queen Street East, Twentieth Floor, Toronto, Ontario M5C 3G7 I Head Office / Toronto Calgary Montreal Vancouver Client Services English: French: FSC FPO _E (07/14)