The Estate Preserver Plan

Transcription

1 The Estate Preserver Plan

2 Wealth Management Goals Manage savings for retirement Minimize taxes Transfer wealth in a fair and equitable manner

3 Who will be the beneficiaries your client s estate? The Estate Children Favourite Charity * hospital * church * university Grandchildren

4 Who REALLY will be the beneficiaries your client s estate? The Estate Children Favourite Charity CRA Grandchildren

5 What portion of your client s assets will CRA get? In Canada, upon the death of you and your spouse, a significant portion of your remaining RRSP or RRIF assets will go to the government in the form of income taxes instead of to your heirs.

6 The Perfect Plan Beneficiary 1 Beneficiary 2 Beneficiary 3

7 The Real World Problem TAXES Beneficiary 1 Beneficiary 3 Beneficiary 2 You can easily lose 50% of the value of RRSPs and 25% of the total estate value

8 Two Things You Know You Can Count On Death Taxes Some day, I am going to die And the government is going to share in my estate

9 The Solution That You Can Provide to Your Clients Most people are unaware of the costs associated with dying: you can educate them. With a proper estate plan your client s heirs could save hundreds of thousands of dollars: create an Estate Preserver Plan to solve their problem.

10 The Costs Probate fees: to probate the will or certify the administrator of the estate Executor fees (paid to the executor of the estate): Arranging the funeral Locating the will Gathering, managing and distributing the deceased s assets Paying the bills due from the estate Filing income tax returns Legal fees Income tax Tax on capital gains

11 Estate Administration Tax Known more commonly as probate fees Currently for Ontario: EAT is $5.00 per $1000 on the first $50,000 and $15.00 (i.e. 1.5%) thereafter, with no limit (Ontario) For example: a client that has a $500,000 estate value, the EAT would be $7,000 Note: Probate Fees are not applicable in Quebec

12 Executor Fees The courts will allow 5% of the value of the estate to be paid to the estate trustee (executor) plus all expenses including personal out of pocket expenses. If a trust company is your executor, the fee could be 5%! Using our previous example with the client that has a $500,000 estate, the executor s fee would be $25,000 plus expenses!

13 Legal Fees Most estate solicitors will charge between $1,500 and $2,000 just to prepare and file the Certificate of Appointment of estate trustee with a will. Any additional work done by the lawyer is usually charged at a hourly basis, which could range from $200-$400 per hour. The maximum tariff is 5% of the estate

14 Income Tax Income tax is payable on the entire income of the deceased during his/her calendar year of death All registered investments (excluding spousal rollovers) are taxed as income for that calendar year.

15 Capital Gains Tax Capital gains result when an asset, such as a mutual fund, share, income property or family cottage, is sold at a price that is higher than the original cost of the asset. Capital gains receive a preferential tax treatment as only 50% of capital gains are taxable.

16 Case Study William (68) and Janice Smith (67) William has been the President of a large manufacturing company for 15 years Janice worked as a nurse Built up a large estate over the years Will retire very comfortably Not concerned about retirement Income Worried about tax problems at death They have no debt

17 The Value of the Smith s Estate: Today Principal Residence $500,000 RRSP $350,000 TAXES AND ESTATE CHARGES: $293,250 GICs $250,000 Stocks and Bonds $250,000 (Purchase Price of $120,000) Cottage $300,000 (Purchase Price of $120,000) Total Estate Value $1,650,000

18 The Smith Assets: In 20 Years Assumed Growth Rate Principal Residence $903,056 3% RRSP/RRIF $210,966 6% (minimum withdrawals) GICs $346,807 3% Stocks, Bonds (Non-registered) $478,571 6% Cottage $541,833 3% Total Estate Value $2,481,233 TAXES AND ESTATE CHARGES: $330,477

19 What Are the Options? Sell assets at death Start saving now Borrow money

20 Sell off assets to cover the Smith s tax bill Easiest solution Burden is entirely on the estate Estate may be forced to sell assets Cost is $1.00 for every $1.00 of tax savings: Cost = $330,477

21 Ask the Smith s heirs to start a savings plan now Better than doing nothing Very sensitive to interest rates At 3% rate of return after taxes - $25,615 for 10 years to accumulate $330,477 in 20 years Cost is $0.78 for every $1.00 of tax savings Cost = $256,150

22 Borrow now to pay for future taxes due on the Smith s estate Definitely not cost efficient Assuming 5% loan rate $42,798 / year for 10 years to repay loan of $330,477 Cost is $1.30 for every $1.00 of tax savings Cost = $427,980

23 Is there another solution? Yes, the Estate Preserver!

24 Evaluating the cost of each option $450,000 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 427, , , ,372 Borrow Sell Assets Save Insurance

25 An Estate Preserver Plan for the William and Janice Joint Last to Die Benefits from the lower Single Equivalent Age of 57 Death Benefit: Sum Insured plus Fund Value Cost of Insurance: Level COI Face Amount = current tax liability = $308,000 Fund Value grows to cover future tax liability Deposit: $11, for 10 years Rate of return: 3%

26 Estate Value Projections 3,000,000 2,500,000 2,000,000 1,500,000 1,000, , Year Pre-Tax Estate Value After-Tax Estate Value

27 The Impact of Life Insurance 3,000,000 2,500,000 2,000,000 1,500,000 1,000, , Year Pre-Tax Estate Value After-Tax Estate Value Estate Value with Life Insurance

28 What Can Life Insurance Do? Provide the money when it is needed: To pay taxes To allow entire estate to pass to heirs To keep the family home, farm or cottage in the family Build wealth instantly or over time Provide you with more financial freedom during retirement

29 Marketing Support A complete library of marketing support materials is available on the Wave software and on our website, at Information contained in this document is for illustrative purposes and is subject to change without notice. Refer to an up-to-date policy illustration for this plan for a current statement of benefits. Insurer: BMO Life Assurance Company. Registered trade-mark of Bank of Montreal, used under licence.

30 The Estate Preserver Plan