Achieving More Together Welcome! The Canada Life Assurance Company Ontario Regional Marketing Centre

Achieving More Together Global Insurance Solutions & Canada Life Katherine Hill, Regional Marketing Consultant Telephone: (905) , ext. 17 Kelly Picard, Living Benefits Consultant Telephone: (416) Ian Kerr, Investment Products Consultant Telephone: (416) , ext. 147 Tom Pilkington & Frank Abate, Estate & Tax Planning Consultants Access via Katherine Hill Edda Whitten, Marketing & Sales Assistant Telephone: (905) , ext. 27 Eddie Maiato, Marketing & Sales Assistant – Investments Telephone: (905) , ext. 39

Achieving More Together 2005 – Year in Review March 2005 –Significant pricing philosophy change to Millennium May 2005 –Life Advance re-price –ASTRA enhancements –T20 re-price and enhancements –Millennium Enhancements August 2005 –Millennium Enhancements to compensation –T10 re-price and enhancements and T20 re-price September 2005 –Achiever compensation increase October 2005 –Introduced Leveraged Loan Program November 2005 –DI portfolio improvements

Achieving More Together 2006 – Looking Forward January 2006 –No changes to the dividend scale (7.46%) –New Sales Strategies Scheduled Launches for 2006 –Lower MER Segregated Funds – Generations 1 –Guaranteed Pay Universal Life –Ongoing Sales Strategy Releases –Competitive pricing updates as required –New Critical Illness addition

Achieving More Together House-Keeping Issues Canada Life Software Version Zoom 9.0 RRSP Season –RRSP Loan Program Catch-up loan: a long-term loan to help you catch-up on your retirement savings by taking advantage of accumulated contribution room Top-up loan: a short-term loan you can use to top-up your annual contribution to your maximum annual allowable contribution limit

Achieving More Together House-Keeping Issues - Disclosure Intended to increase clients' confidence by allowing them to decide if they are satisfied you are offering objective advice Before you complete a sales transaction, you need to disclose five items to a client in writing: –the financial services companies you represent –the nature of the relationship between you and an insurance company –how you're compensated and by whom –if you may be eligible for additional compensation, including cash or non-monetary compensation –potential conflicts between your interests and those of the client

Achieving More Together House-Keeping Issues - Disclosure Producer Resources –cailba.com –ifbc.ca –advocis.ca –Canada Life’s Repnet - canadalife.ca/repnet Services  Compliance Sample Disclosure Document FAQ Other information covered in this section includes Privacy Guidelines

Achieving More Together T he N eed F or E state L iquidity Understanding the important role insurance plays in estate planning for clients and their families Tom Pilkington, CA, CFP, TEP National Estate and Tax Planning Consultant Ontario Regional Marketing Centre

Achieving More Together This material is for information purposes only and should not be construed as legal or tax advice. Every effort has been made to ensure its accuracy, but errors and omissions are possible. All comments related to taxation are general in nature and are based on current Canadian tax legislation for Canadian residents, which is subject to change. Persons who are not residents in Canada or who are resident in Canada but are citizens of another country, may be subject to different tax rules in Canada and may also be subject to taxes levied by jurisdictions other than Canada. For individual circumstances, consult with legal or tax professionals. This information is current as of February 15, 2006.

Achieving More Together Agenda Introduction Wills and will planning The need for liquidity –Probate fees –Death of a taxpayer –Charitable gifts –Planning for business entities Summary

Achieving More Together Introduction Estate planning defined “Estate planning is the process of arranging for the transfer of your property to your heirs and other beneficiaries in a way that will, as much as possible, achieve your objectives and minimize the associated costs and taxes.”

Achieving More Together Introduction Why is estate planning is so important –Better decision making –Achieve your objectives –Costs and taxes minimized –Focus on fun and lifestyle –Family harmony –Peace of mind

Achieving More Together Introduction Estate planning process –Fact-finding –Client objectives –Analysis –Action plans –Implementation –Follow-up

Achieving More Together Introduction Estate planning tools –Wills and Powers of Attorney –Trusts –Private corporations –Agreements –Gifts –Beneficiary designations –Ownership of property –Insurance

Achieving More Together Introduction CLIENT LEGAL ADVISOR BUSINESS ADVISOR TAX ADVISOR FINANCIAL ADVISOR Who wants to be the “quarterback”?

Achieving More Together Will planning What is a will? Why have a will? Do you need a will? Why some clients may not have a will? What if you don’t have a will? My last will and testament..

Achieving More Together Will planning If you die without a Will in Ontario (intestacy): –Spouse, no kids - all to spouse –Spouse and kids, estate < than $200,000 - all to spouse –Spouse and kids, estate > than $200,000 1 child - first $200,000 to spouse, spouse and child split difference more than 1 child - first $200,000 plus 1/3 of excess to spouse, kids share 2/3 of excess –Kids, no spouse - kids share equally –Otherwise – parents, then brothers and sister, then nieces and nephews, then all other next-of kin, then Government of Canada

Achieving More Together Will planning Tax considerations –Taxpayers Deceased Estate Survivors –Taxes Income tax Foreign tax Probate fees (Estate Administration Tax or “EAT”)

Achieving More Together Will planning Spouse trusts Estate as a separate taxpayer Testamentary trusts Tax-free rollovers Elections Spousal RRSP contribution in year of death Testamentary charitable gifts Post-mortem freeze / reorganizations

Achieving More Together CASE STUDY # 1

Achieving More Together The need for liquidity Immediate cash needs Pay final expenses and fees Pay taxes Repay debts Fund specific bequests or legacies Fund charitable bequests Fund special trusts Fund business needs Fund equalizations Capital needs Income replacement for spouse / heirs

Achieving More Together Pay final expenses and fees Funeral costs Executor’s fees Professional fees Estate administration tax (probate fees)

Achieving More Together Pay final expenses and fees Why is probate necessary? –Evidence of Estate Trustee’s (executor’s) right to deal with property –Example: Bank accounts GICs/CSBs Public stock/securities Real property etc.

Achieving More Together Pay final expenses and fees How much are probate fees? –first $50,000 of estate assets0.5% –amount in excess of $50,0001.5% How are probate fees calculated? –assessed on gross (not net) value of estate –assessed only on assets falling into Ontario estate Example: –$100,000 estatefees = $1,000 –$1,000,000 estatefees = $14,500 –$10,000,000 estatefees = $149,500 Is this fair?

Achieving More Together Pay final expenses and fees How can I minimize / avoid probate fees? –Joint ownership with right of survivorship –Inter vivos (lifetime) gifts / transfers –Use of trusts –Beneficiary designations –Multiple Wills (for private company shares/debt)

Achieving More Together Pay final expenses and fees Multiple wills –Example Bank accounts / investments / etc.$1,000,000 Shares in private corporation$5,000,000 If one will.… probate fees = $89,500 If two wills... probate fees = $14,500 Difference = $75,000

Achieving More Together Pay taxes The two certainties of life: –Death –Taxes Estate planning considerations –Taxpayers (deceased, estate, beneficiaries) –Canadian taxes –Foreign taxes (e.g., US estate tax)

Achieving More Together Filing requirements –Legal representative is responsible for the filing of T1 tax return for the year of death (“final return” or “terminal return”) –Taxation year is Jan 1 to date of death –Due date is later of 6 months following date of death and April 30 th of the following year –Legal representative is responsible for the payment of all taxes that are owing –Legal representative is responsible for obtaining clearance certificates from CRA for deceased and estate Pay taxes

Achieving More Together Pay taxes Computation of income in year of death –The taxpayer’s tax position is essentially “crystallized” at the time of death –Taxation year is Jan 1 st to date of death –Accrual tax rule applies –Deemed disposition rule applies

Achieving More Together Pay taxes Accrual tax rule –Include accrued income from Jan 1 to date of death on final tax return Accrual tax rule applies to –Employment income –Rental income –Investment income –Realized capital gains / losses –Income from a business or partnership

Achieving More Together Pay taxes Deemed disposition of property rule –Deceased is deemed to dispose of each property immediately before death for proceeds equal to the fair market value of the property at that time Deemed disposition of property rule applies to –Capital property (investments, land, private company shares, etc.) –Depreciable property (rental buildings, etc.) –Registered funds (RRSPs, RRIFs)

Achieving More Together Pay taxes Deemed disposition of property –Capital gain or loss = Proceeds - tax cost (ACB) –Taxable capital gain = 50% x capital gain –Special rules Principal residence Tax-free rollover to spouse or spouse trust (unless elect FMV transfer) $500,000 capital gains exemption on QSBC shares Depreciable property

Achieving More Together Pay taxes RRSPs / RRIFs: –General rule: Deceased annuitant deemed to receive a benefit from the plan equal to the fair market value of the plan –Exceptions: Transfer to spouse, financially dependant child

Achieving More Together Pay taxes RPPs: –Benefits taxable to recipient (not to deceased) –May transfer lump-sum payments to RRSP

Achieving More Together CASE STUDY # 2

Achieving More Together Fund charitable bequests CANADA REVENUE AGENCY HEIRSCHARITY You have 3 choices for distributing your estate:

Achieving More Together Fund charitable bequests Individuals –Entitled to a non-refundable federal tax credit based on total donation receipts –Tax credit = 46.4% x donations > $200 –Testamentary gifts Donation based on total testamentary gifts Maximum of 100% of net income in the year of death Plus 100% of net income in the immediately preceding year

Achieving More Together Fund charitable bequests Insurance strategies –Bequest by will –Bequest by beneficiary designation –Gift of policy –Estate replacement –Insured annuity donation

Achieving More Together Fund charitable bequests Insured gift by Will –The donor owns an insurance policy, pays the premiums, names his/her estate as beneficiary and makes a bequest in his/her Will in favour of one or more charities. –Planning Use of insured gift by Will to create tax credit to offset income tax liabilities at death

Achieving More Together Fund charitable bequests Insured gift by beneficiary designation –The donor owns an insurance policy, pays the premiums, names one or more charities as a beneficiary under the insurance policy –Planning Use of insured gift by beneficiary designation to create tax credit to offset income tax liabilities at death

Achieving More Together Fund charitable bequests Charity-owned policy –The charity owns an insurance policy and is the named beneficiary under the insurance policy, donor pays the premiums –Planning Use of charity-owned policy to create current tax credits to offset current income tax liabilities

Achieving More Together Fund business needs Planning to transfer business interests –Business succession planning –Dealing with investment holding companies –Tools Estate freeze Post-mortem planning Will planning Shareholder agreements Corporate-owned life insurance

Achieving More Together Fund business needs Estate freeze – Internal freeze (section 85 or 86) KidsParents 100% CS 100% PS FAMILY OPCO BEFOREAFTER Parents 100% CS FAMILY OPCO

Achieving More Together Estate freeze – Holdco freeze (section 85) Fund business needs 100% CS BEFORE FAMILY OPCO AFTER KidsParents 100% CS 100% PS FAMILY HOLDCO Parents 100% CS FAMILY OPCO

Achieving More Together Fund business needs A multitude of possibilities: –Fund capital gains tax on deemed disposition –Fund share redemption of preferred shares –Fund estate equalization amongst children –Fund repayment of business debts –Fund replacement CEO of family business –Fund emergency working capital needs –Fund supplemental retirement income –Fund redemption of shares gifted to charity

Achieving More Together CASE STUDY # 3

Achieving More Together Summary Life insurance is an essential tool in estate planning because it provides liquidity to … –Pay debts –Pay expenses –Pay taxes –Create special purpose funds –Make charitable bequests –Facilitate business succession plans –Equalize the estate amongst the heirs