CORPORATE LEGACY BUILDER - PDF Free Download

CORPORATE LEGACY BUILDER June-06-17 Proposal For Corporate Legacy Builder Prepared By: Retail Insurance Marketing 500-2550 Victoria Park Ave Toronto, ON M2J5A9 4164942972 18775481881 4164942972 (fax) john.quirt@empire.ca

What is the Corporate Legacy Builder? Corporate Legacy Builder is a strategy that gives business owners an opportunity to grow passive assets and/or surplus profits within an insurance policy on a tax-deferred basis. This alternative to traditional investments is designed to provide a business with funds that can be paid tax-free to shareholders or their estates when a business owner or key person dies. The business can also access cash for business needs while the owner or key person is alive. Under current tax laws, when a business insures one of its owners or a key person and the insured person dies, the company receives the insurance proceeds tax-free and is Providing funds that can be paid tax free to shareholders using your company s surplus profits entitled to credit its capital dividend account with an amount equal to the insurance proceeds minus the adjusted cost basis of the policy. Credits in the company s capital dividend account can be paid out to its shareholders tax-free. This strategy is best suited for client ages 50+ who own corporations with large retained earnings that sit in or can be moved to holding companies, investment or management companies and need liquid dollars if they or a key person dies, to fund buy sell agreements, cover collateral arrangements and bank loans and/or capital gains liabilities. How the Corporate Legacy Builder works? Holding Companies are often set up to protect retained earnings of the operating company from potential liabilities. Excess funds are transferred from the operating company to the holding company to maintain the small business status of the operating company and allow it to remain eligible for lower tax rates. The Corporate Legacy Builder strategy uses a portion of retained earnings (passive assets) to fund a life insurance contract to take advantage of tax-sheltered growth inside the life insurance contract. The strategy capitalizes on the tax-free payment of life insurance proceeds to the company on the death of the person insured and minimizes Capital Gains tax. Companies can also take advantage of the Corporate Capital Dividend Account to pay the insurance proceeds less the adjusted cost basis of the policy tax-free to its shareholders. This is in contrast to the personal tax rates that apply when regular dividends are paid to shareholders. The information is for general information purposes only and is not to be construed as providing legal, tax, financial or professional advice. The Empire Life Insurance Company assumes no responsibility for any reliance made on or misuse or omissions of the information contained in this document. Please seek professional advice before making any decision. Trademark of The Empire Life Insurance Company. Policies are issued by The Empire Life Insurance Company June-06-17 E.&O.E. Page 2 of 12

The Corporate Legacy Builder Strategy The Opportunity Business owners benefit from the ability to grow corporate assets on a tax-deferred basis within a life insurance policy during their lifetime. They are able to access cash while they are alive for business needs such as key person, debts and buy sell agreements. The tax-free life insurance proceeds received by the company at death can be paid out to the business owner s estate and used to fund donations to charity or leave a legacy for heirs. The strategy provides and effective mechanism to remove funds form the holding company and can be used to optimize the business owners estate value at death by reducing capital gains exposure. This is accomplished by using corporate assets to fund life insurance. The Fair Market Value of corporate shares immediately prior to death only reflects the cash surrender values of corporate owned life insurance immediately prior to death (as described in Subsection 70(5.3) of the Income Tax Act (Canada). The Challenge Operating companies, holding companies and management companies often contain retained earnings or surplus cash that are not used in active business. These assets are often retained and invested by the company because usually they can only be paid out to the individual shareholders as taxable distributions unless the company s capital dividend account has a credit balance. Frequently, retained earnings or surplus cash are invested in GICs or other short-term investments that may offer guarantees and easy access to cash in exchange for low rates of return. While active business income may be taxed at the small business rate, invested retained earnings and surplus cash are treated as passive income and are taxed at the top marginal tax rates. Business owners may wish to leave something to a church, favorite charity, school, community, etc. when they die in addition to leaving something to children or grandchildren but may feel that don t have enough money to do both. The information in this document is for general information purposes only and is not to be construed as providing legal, tax, financial or professional advice. The Empire Life Insurance Company assumes no responsibility for any reliance made on or misuse or omissions of the information contained in this document. Please seek professional advice before making any decision. Trademark of The Empire Life Insurance Company. Policies are issued by The Empire Life Insurance Company June-06-17 E.&O.E. Page 3 of 12

CONCEPT ASSUMPTIONS Insureds Insured...Corporate Legacy Builder, Male, Age 50, Non-Smoker Product Name... $830,009 Optimax Wealth, Single Life Planned Deposits (8 s) Alternative Investment Growth Breakdown... 100 % Interest Effective Tax Rate On Interest... 46.00 % Projected Annual Growth Rate...3.000 % Special Notes Withdrawals from the policy may be subject to income tax, depending on the adjusted cost basis (ACB) of the policy, at the time of withdrawal. However, the proceeds of a life insurance policy upon death of the insured are received taxfree in the hands of the beneficiaries. Important Information This illustration is not a contract and the values are not The tax treatment of this illustration is based on the current Canadian Federal Income Tax laws and regulations. Any changes will affect the amounts shown on the illustration. It is advisable to contact a competent professional advisor in determining whether this Strategy is suitable to your situation. If this strategy shows a corporately owned scenario with an Alternate Investment, this illustration shows the net estate value assuming that the alternative investment and the insurance are paid out as a dividend at death. It does not reflect any capital gain on the deemed disposition of the shares at death. This strategy uses an Empire Life insurance policy. The amounts shown in the illustration may or may not be achieved depending on assumptions used. Corporate Owned Life Insurance only: The General anti-avoidance Rule (GAAR) in the Income Tax Act may deny a tax benefit that is the result of an avoidance transaction, unless it is undertaken primarily for purposes other than to obtain the tax benefit. Since the main purpose of this strategy is to provide a business with a higher tax-free value of the business for the estate or surviving shareholders, the GAAR rule is unlikely to apply. This document consists of two parts: the presentation and the Empire Life illustration. The presentation and the illustration are designed to read together, to fully understand how some of the values shown in the illustrations may vary. If either part is missing, this document is non-compliant and incomplete. This document is for illustrative purposes only and is not a contract or offer of insurance. Illustrated values are not Empire Life and its employees, distribution partners, and independent advisors do not provide specific legal, accounting, or tax advice. The provision of information provided on this presentation and corresponding illustration and any oral or written communication regarding the same should not be construed as such. This illustration is incomplete without all pages. Registered trademark of The Empire Life Insurance Company. Policies are issued by The Empire Life Insurance Company. June-06-17 E.&O.E. Page 4 of 12

Insurance After-Tax Legacy Benefit After-Tax Benefit EXECUTIVE SUMMARY (1) Investment After- Tax Legacy Benefit After-Tax Benefit Insurance vs. Investment Comparison Insurance % Increase over Investment Equivalent Pre-Tax Return (%) 10 $768,417 $336,275 $432,143 129 % 14.11 % 20 $1,037,906 $394,899 $643,008 163 % 7.58 % 30 $1,447,324 $463,743 $983,580 212 % 6.01 % 40 $2,045,764 $544,590 $1,501,174 276 % 5.34 % 50 $2,790,673 $639,531 $2,151,142 336 % 4.87 % ** Values shown beginning/ end of policy. Tax payable is not withheld from the policy and may be higher or lower and is not June-06-17 E.&O.E. Page 5 of 12

Insurance After-Tax Legacy Benefit After-Tax Benefit EXECUTIVE SUMMARY (2) Investment After- Tax Legacy Benefit After-Tax Benefit Insurance vs. Investment Comparison Insurance % Increase over Investment Equivalent Pre-Tax Return (%) 1 $817,680 $38,452 $779,228 2,026.47 % 1,592.20 % 2 $807,232 $77,528 $729,704 941.22 % 272.29 % 3 $796,791 $117,236 $679,555 579.65 % 122.44 % 4 $786,358 $157,588 $628,770 399.00 % 72.18 % 5 $775,935 $198,593 $577,341 290.72 % 48.02 % 6 $765,520 $240,263 $525,257 218.62 % 34.10 % 7 $755,116 $282,608 $472,508 167.20 % 25.17 % 8 $744,720 $325,638 $419,082 128.70 % 19.01 % 9 $746,853 $330,914 $415,939 125.69 % 15.95 % 10 $768,417 $336,275 $432,143 128.51 % 14.11 % 11 $790,756 $341,722 $449,034 131.40 % 12.72 % 12 $813,937 $347,258 $466,679 134.39 % 11.63 % 13 $838,032 $352,884 $485,148 137.48 % 10.76 % 14 $863,119 $358,600 $504,519 140.69 % 10.05 % 15 $889,281 $364,410 $524,871 144.03 % 9.46 % 16 $916,623 $370,313 $546,310 147.53 % 8.96 % 17 $945,211 $376,312 $568,899 151.18 % 8.54 % 18 $974,913 $382,408 $592,504 154.94 % 8.18 % 19 $1,005,783 $388,604 $617,179 158.82 % 7.86 % 20 $1,037,906 $394,899 $643,008 162.83 % 7.58 % 21 $1,071,382 $401,296 $670,085 166.98 % 7.34 % 22 $1,106,273 $407,797 $698,476 171.28 % 7.12 % 23 $1,142,674 $414,404 $728,270 175.74 % 6.93 % 24 $1,180,679 $421,117 $759,562 180.37 % 6.75 % 25 $1,220,373 $427,939 $792,434 185.17 % 6.60 % 26 $1,261,846 $434,872 $826,975 190.17 % 6.46 % 27 $1,305,189 $441,917 $863,272 195.35 % 6.33 % 28 $1,350,489 $449,076 $901,413 200.73 % 6.21 % 29 $1,397,836 $456,351 $941,485 206.31 % 6.11 % 30 $1,447,324 $463,743 $983,580 212.10 % 6.01 % 31 $1,499,050 $471,256 $1,027,794 218.10 % 5.93 % 32 $1,553,089 $478,890 $1,074,199 224.31 % 5.85 % 33 $1,609,508 $486,649 $1,122,859 230.73 % 5.77 % 34 $1,668,395 $494,532 $1,173,863 237.37 % 5.70 % 35 $1,729,823 $502,544 $1,227,280 244.21 % 5.64 % 36 $1,793,876 $510,685 $1,283,191 251.27 % 5.58 % 37 $1,858,054 $518,958 $1,339,096 258.04 % 5.52 % 38 $1,918,382 $527,365 $1,391,017 263.77 % 5.45 % 39 $1,980,939 $535,908 $1,445,031 269.64 % 5.39 % 40 $2,045,764 $544,590 $1,501,174 275.65 % 5.34 % 41 $2,112,874 $553,412 $1,559,462 281.79 % 5.28 % 42 $2,182,254 $562,378 $1,619,876 288.04 % 5.23 % 43 $2,253,872 $571,488 $1,682,384 294.39 % 5.18 % 44 $2,327,640 $580,746 $1,746,893 300.80 % 5.13 % 45 $2,403,405 $590,154 $1,813,251 307.25 % 5.09 % 46 $2,480,877 $599,715 $1,881,162 313.68 % 5.04 % 47 $2,559,550 $609,430 $1,950,120 319.99 % 5.00 % ** Values shown beginning/ end of policy. Tax payable is not withheld from the policy and may be higher or lower and is not June-06-17 E.&O.E. Page 6 of 12

Annual Deposit/ Premium Life Insurance Proceeds LIFE INSURANCE Adjusted Cost Basis Credit to Capital Dividend Account After-tax Legacy Benefit 1 $50,000 830,009 49,315 780,694 817,680 2 $50,000 831,828 98,383 733,445 807,232 3 $50,000 833,611 147,282 686,329 796,791 4 $50,000 835,364 196,024 639,340 786,358 5 $50,000 837,089 244,617 592,472 775,935 6 $50,000 838,789 293,076 545,713 765,520 7 $50,000 840,468 341,407 499,061 755,116 8 $50,000 842,127 389,629 452,498 744,720 9 $0 843,772 387,677 456,095 746,853 10 $0 864,768 385,405 479,363 768,417 11 $0 886,447 382,766 503,681 790,756 12 $0 908,863 379,704 529,159 813,937 13 $0 932,072 376,161 555,911 838,032 14 $0 956,136 372,068 584,068 863,119 15 $0 981,116 367,343 613,774 889,281 16 $0 1,007,098 361,899 645,199 916,623 17 $0 1,034,173 355,850 678,324 945,211 18 $0 1,062,195 349,130 713,065 974,913 19 $0 1,091,202 341,676 749,526 1,005,783 20 $0 1,121,259 333,412 787,848 1,037,906 21 $0 1,152,446 324,259 828,187 1,071,382 22 $0 1,184,809 314,143 870,666 1,106,273 23 $0 1,218,418 302,976 915,442 1,142,674 24 $0 1,253,348 290,676 962,672 1,180,679 25 $0 1,289,662 277,158 1,012,505 1,220,373 26 $0 1,327,430 262,335 1,065,095 1,261,846 27 $0 1,366,718 246,118 1,120,600 1,305,189 28 $0 1,407,595 228,424 1,179,171 1,350,489 29 $0 1,450,128 209,166 1,240,962 1,397,836 30 $0 1,494,390 188,264 1,306,126 1,447,324 31 $0 1,540,459 165,636 1,374,823 1,499,050 32 $0 1,588,392 141,209 1,447,183 1,553,089 33 $0 1,638,236 114,911 1,523,324 1,609,508 34 $0 1,690,065 86,680 1,603,386 1,668,395 35 $0 1,743,938 56,457 1,687,480 1,729,823 36 $0 1,799,923 24,191 1,775,733 1,793,876 37 $0 1,858,054 0 1,858,054 1,858,054 38 $0 1,918,382 0 1,918,382 1,918,382 39 $0 1,980,939 0 1,980,939 1,980,939 40 $0 2,045,764 0 2,045,764 2,045,764 41 $0 2,112,874 0 2,112,874 2,112,874 42 $0 2,182,254 0 2,182,254 2,182,254 43 $0 2,253,872 0 2,253,872 2,253,872 44 $0 2,327,640 0 2,327,640 2,327,640 45 $0 2,403,405 0 2,403,405 2,403,405 46 $0 2,480,877 0 2,480,877 2,480,877 47 $0 2,559,550 0 2,559,550 2,559,550 48 $0 2,638,589 0 2,638,589 2,638,589 49 $0 2,716,492 0 2,716,492 2,716,492 ** Values shown beginning/ end of policy. Tax payable is not withheld from the policy and may be higher or lower and is not June-06-17 E.&O.E. Page 8 of 12

Annual Deposit/ Premium Life Insurance Proceeds LIFE INSURANCE Adjusted Cost Basis Credit to Capital Dividend Account After-tax Legacy Benefit 50 $0 2,790,673 0 2,790,673 2,790,673 ** Values shown beginning/ end of policy. Tax payable is not withheld from the policy and may be higher or lower and is not June-06-17 E.&O.E. Page 9 of 12

Annual Deposit/ Premium 3.00 % Annual Growth Tax Due On Growth 46.00 % ALTERNATE INVESTMENT Tax on unrealized capital gains Total Value After Tax Cumulativ e RDTOH {RDTOH Rate} Total Dividend Tax Payable On Dividend 25.00 % After-tax Legacy Benefit 1 $50,000 $1,500 $690 0 50,810 460 51,270 12,817 38,452 2 $50,000 $3,024 $1,391 0 102,443 927 103,370 25,843 77,528 3 $50,000 $4,573 $2,104 0 154,913 1,402 156,315 39,079 117,236 4 $50,000 $6,147 $2,828 0 208,232 1,885 210,117 52,529 157,588 5 $50,000 $7,747 $3,564 0 262,415 2,376 264,791 66,198 198,593 6 $50,000 $9,372 $4,311 0 317,476 2,874 320,351 80,088 240,263 7 $50,000 $11,024 $5,071 0 373,429 3,381 376,810 94,203 282,608 8 $50,000 $12,703 $5,843 0 430,289 3,896 434,185 108,546 325,638 9 $0 $12,909 $5,938 0 437,260 3,959 441,218 110,305 330,914 10 $0 $13,118 $6,034 0 444,343 4,023 448,366 112,092 336,275 11 $0 $13,330 $6,132 0 451,542 4,088 455,630 113,907 341,722 12 $0 $13,546 $6,231 0 458,857 4,154 463,011 115,753 347,258 13 $0 $13,766 $6,332 0 466,290 4,222 470,512 117,628 352,884 14 $0 $13,989 $6,435 0 473,844 4,290 478,134 119,533 358,600 15 $0 $14,215 $6,539 0 481,520 4,359 485,880 121,470 364,410 16 $0 $14,446 $6,645 0 489,321 4,430 493,751 123,438 370,313 17 $0 $14,680 $6,753 0 497,248 4,502 501,750 125,437 376,312 18 $0 $14,917 $6,862 0 505,303 4,575 509,878 127,469 382,408 19 $0 $15,159 $6,973 0 513,489 4,649 518,138 129,535 388,604 20 $0 $15,405 $7,086 0 521,808 4,724 526,532 131,633 394,899 21 $0 $15,654 $7,201 0 530,261 4,801 535,062 133,765 401,296 22 $0 $15,908 $7,318 0 538,851 4,878 543,730 135,932 407,797 23 $0 $16,166 $7,436 0 547,581 4,957 552,538 138,135 414,404 24 $0 $16,427 $7,557 0 556,451 5,038 561,489 140,372 421,117 25 $0 $16,694 $7,679 0 565,466 5,119 570,585 142,646 427,939 26 $0 $16,964 $7,803 0 574,626 5,202 579,829 144,957 434,872 27 $0 $17,239 $7,930 0 583,935 5,287 589,222 147,306 441,917 28 $0 $17,518 $8,058 0 593,395 5,372 598,767 149,692 449,076 29 $0 $17,802 $8,189 0 603,008 5,459 608,467 152,117 456,351 30 $0 $18,090 $8,322 0 612,777 5,548 618,325 154,581 463,743 31 $0 $18,383 $8,456 0 622,704 5,638 628,342 157,085 471,256 32 $0 $18,681 $8,593 0 632,792 5,729 638,521 159,630 478,890 33 $0 $18,984 $8,733 0 643,043 5,822 648,865 162,216 486,649 34 $0 $19,291 $8,874 0 653,460 5,916 659,376 164,844 494,532 35 $0 $19,604 $9,018 0 664,046 6,012 670,058 167,515 502,544 36 $0 $19,921 $9,164 0 674,804 6,109 680,913 170,228 510,685 37 $0 $20,244 $9,312 0 685,736 6,208 691,944 172,986 518,958 38 $0 $20,572 $9,463 0 696,845 6,309 703,153 175,788 527,365 39 $0 $20,905 $9,616 0 708,133 6,411 714,544 178,636 535,908 40 $0 $21,244 $9,772 0 719,605 6,515 726,120 181,530 544,590 41 $0 $21,588 $9,931 0 731,263 6,620 737,883 184,471 553,412 42 $0 $21,938 $10,091 0 743,109 6,728 749,837 187,459 562,378 43 $0 $22,293 $10,255 0 755,148 6,837 761,984 190,496 571,488 44 $0 $22,654 $10,421 0 767,381 6,947 774,328 193,582 580,746 45 $0 $23,021 $10,590 0 779,813 7,060 786,873 196,718 590,154 46 $0 $23,394 $10,761 0 792,446 7,174 799,620 199,905 599,715 47 $0 $23,773 $10,936 0 805,283 7,291 812,574 203,143 609,430 ** Values shown beginning/ end of policy. Tax payable is not withheld from the policy and may be higher or lower and is not June-06-17 E.&O.E. Page 10 of 12

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