Without an asset transfer plan, the tax man will be happy to create one for them Family Asset Transfer Plan PN0012E 2014/06/01
Is there a simpler way to transfer assets to my heirs? The Family Asset Transfer Plan from BMO Insurance 1
Is this really your will? 40% to your children 15% to your grandchildren 45% paid in taxes 2
How can your clients transfer assets to their heirs? How can your clients transfer their estate on to their heirs without losing significant value to probate, taxes and other estate charges while also saving taxes during their lifetime? GICs or mutual funds Trusts RESPS Gifts Family Asset Transfer Plan 3
GICs or Mutual Funds Simple and easy to purchase All (or a portion) of the investment income for these options can be taxable on an annual basis X 4
Trusts Can be complicated Can be costly due to legal and trust setup fees and ongoing maintenance costs X X 5
RESPs Provide tax benefits on contributions Contribution amounts are limited X 6
Gifts Simple and easy to do Oftentimes, parents (or grandparents) aren t willing to give up control over their assets X 7
The Family Asset Transfer Plan
Target Market Ages between 60-80 Have sizeable non-registered assets set aside as inheritance for their children or grandchildren Paying income tax on the investment income earned on these assets Not dependent on these assets for living expenses Concerned with maintaining control of their assets Have children (or grandchildren) who require insurance and are eligible to be insured 9
Underwriting Considerations An insurable interest should be established between the parent (or grandparent) and the child (or grandchild) Note: for the purposes of underwriting, an insurable interest is defined as a demonstrated financial loss that would be incurred by the owner and beneficiary upon the death of the insured; blood relation by itself does not constitute an insurable interest Including a covering letter along with the life insurance application Remember to add a covering letter and provide details of: Coverage amounts on other siblings and; If all children are covered equally Note: For minor children: the maximum amount of coverage is typically $250,000 to $500,000 Parents (or grandparents) should have at least two times more insurance than the children (or grandchildren) 10 10
Underwriting and Administration Remember to: Check if child can be insured Establish an appropriate amount of insurance Ensure that parent/grandparent is indicated as owner Include a covering letter with life application Include a signed copy of a Family Asset Transfer Plan universal life illustration Name contingent owner on BMO Life Assurance Company Policy Service Form 11 11
Family Asset Transfer Plan Three Easy Steps STEP 1 The Parent or grandparent purchases a Universal Life insurance policy on the life of their child (or grandchild). See Tax Considerations below. 12
Family Asset Transfer Plan Three Easy Steps STEP 2 The child (or grandchild) is insured (within the limits and guidelines specified by BMO Insurance) 13
Family Asset Transfer Plan Three Easy Steps STEP 3 At the discretion of the owner of the policy (a parent or grandparent), the policy may be transferred to the child during the owner s lifetime or at death using a contingent owner designation. 14
Underwriting and Administration Check if child can be insured Establish an appropriate amount of insurance Ensure that parent/grandparent is indicated as owner Include a covering letter with life application Include a signed copy of a Family Asset Transfer Plan universal life illustration Name contingent owner on BMO Life Assurance Company Policy Service Form 15
The Results A reduction in future taxable income Parent/grandparent maintains control of assets Parent/grandparent may access the Cash Value of the policy at any time Parent/grandparent can transfer ownership to the contingent owner or to the insured without any tax consequences The child (or grandchild) is provided with valuable insurance protection A tax-free death benefit is paid to the beneficiary of the life insurance policy. 16
Is The Family Asset Transfer Plan Right for Your Clients? Has my client completed the asset accumulation phase of their life? Does my client want to leave funds for their children or grandchildren? Does my client want to simplify the transfer of their estate to the next generation? Is my client concerned about maintaining control over their assets? Would they like to transfer taxable investments into a tax-deferred investment vehicle? 17
Is The Family Asset Transfer Plan Right for Your Clients? Do they want to reduce taxes on their investment income? Do they want to lower their current taxable income? Do they want to avoid costly probate fees on their estate? Do they want to minimize the risk of will contestability? Do they have eligible children (or grandchildren) that require and will qualify for insurance? 18
A Case Study Sam, male age 60 45% Marginal tax rate Has a surplus of $100,000 of nonregistered taxable assets currently invested in a Balanced Fund Wants to eventually transfer these assets to his son, Bill Wants to maintain control over these assets and transfer them to the next generation at death 19
The Solution: The Family Asset Transfer Plan Owner of BMO Insurance universal life policy Insured Beneficiary Sam Bill (male age 35, nonsmoker) Bill s daughter, Julie Insurance Required $750,000 Death Benefit Option Sum Insured Cost of Insurance Option YRT 100 Deposit Option Plan $20,000 for 5 years Life Dimensions Low Fees 20
A Comparison of Values Life Dimensions (Low Fees) Family Asset Transfer Plan at 5% Alternative Investment at 6%^ Year Fund Value Death Benefit Account Value Estate Value 5 107,163 913,355 112,516 110,828 10 129,984 750,000 136,610 134,561 15 160,724 750,000 165,864 163,376 20 199,225 750,000 201,382 198,361 30 298,416 750,000 296,865 292,412 40 420,454 750,000 437,619 431,054 ^ Assuming a Balanced Fund that has the following income: 50% interest, 30% dividends, 10% unrealized capital gains, 10% realized capital gains and probate fees of 1.5%. Note: Probate fees are not applicable in Quebec. 21
The Results for Sam $100K investment will grow within a tax-deferred environment Future taxable income is reduced Control of investment is maintained Can access Cash Value of UL policy at anytime Has provided Bill with $750,000 of permanent insurance Has passed on a legacy to Julie, his grandchild. 22
Tax Considerations: Subsection 148(8) of the Income Tax Act (Canada) Allows transfer of ownership of a life insurance policy to a child on a rollover basis if the child is the life insured at the time of transfer. Transfer of ownership to a minor child is NOT advisable since any realized income prior to age 18 is taxable in the hands of the transferor. 23
Tax Considerations: Definition of a Child The Income Tax Act s definition of Child includes and must be verified at the time of the transfer: A natural child, born inside or outside marriage A person who is currently wholly dependent on the taxpayer for support and of whom the taxpayer has, or immediately before the person attained the age of 19 years did have, in law or in fact the custody and control A child of the taxpayer s spouse An adopted child of the taxpayer A spouse of a child of the taxpayer A grandchild or great grandchild A person who is or at any time before age 19 was under the custody and control of the taxpayer and wholly dependent on the tax payer for support. Note: no current dependency is required. 24
Helpful Tips Insure adult children - minors can be problematic Single life policies work best - Joint or multi-life policies are a cause for concern Beware of impact of assigning Cash Value of policy as collateral for bank loans 25
Marketing Support 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. 26
Is there a simpler way to transfer assets to my heirs? The Family Asset Transfer Plan from BMO Insurance 27
Call us for more information ONTARIO REGIONAL SALES OFFICE 1-800-608-7303 QUEBEC-ATLANTIC REGIONAL SALES OFFICE 1-866-217-0514 WESTERN REGIONAL SALES OFFICE 1-877-877-1272 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. 28
Thank you for your time. If you have any questions, please don t hesitate to ask.