The Corporate Asset Transfer Plan. Someone is going to profit from all of your client s hard work. Shouldn t it be their family?

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1 The Corporate Asset Transfer Plan Someone is going to profit from all of your client s hard work. Shouldn t it be their family?

2 Target Market Owners of privately controlled Canadian corporations who are looking at succession planning Are age and require business insurance on their lives Are in good health and are able to qualify for life insurance Intend to pass on wealth currently locked-in their businesses to their heirs Have surplus cash flow in their business (perhaps held in a holding company to house passive investments) that is not required for day-to-day operations Are interested in a tax sheltered, flexible investment to house a portion of their surplus corporate investment portfolio

3 The Corporate Asset Transfer Plan it s simple! TAXABLE INVESTMENT UNIVERSAL LIFE SHAREHOLDER S ESTATE Taxed every year No creditor protection Tax-sheltered growth Added benefit of life insurance protection Death Benefit paid tax-free to corporation Can then be paid as a tax-free dividend through via Capital Dividend Account Creditor protection

4 TAXABLE DIVIDEND How the Corporate Asset Transfer Plan works TAX-FREE DIVIDEND TAXABLE INVESTMENT UNIVERSAL LIFE SHAREHOLDER S ESTATE

5 The Universal Life Solution TOTAL DEATH BENEFIT TAX-FREE DIVIDEND N TAXABLE DIVIDEND Death Benefit in excess of the Adjusted Cost Basis and Side Account Adjusted Cost Basis

6 The Capital Dividend Account (CDA) Capital dividends issued by Canadian private corporations are received tax-free. Type of income to the corporation Life Insurance proceeds Interest earned Eligible for CDA credit? Yes, only the amount of the Death Benefit in excess of the ACB No Dividends earned Realized capital gains (RCG) Deferred capital gains (DCG) No Yes, only on the non-taxable portion No, only when these gains are realized (then see RCG)

7 The Universal Life Solution in 4 easy steps! STEP 1 STEP 4 STEP 2 STEP 3

8 Step 1: The Universal Life Solution Determine the amount of insurance your client(s) need for their business, based on the corporation s financial objectives.

9 Step 2: The Universal Life Solution Have your client(s) (the business owner(s)) purchase a BMO Insurance universal life policy. The corporation owns and is the beneficiary of the policy on the life of a key person or shareholder.

10 Step 3: The Universal Life Solution Work with your client(s) to determine how quickly and what portion of their corporate taxable surplus should be transferred into the policy.

11 Step 4: The Universal Life Solution Have your client(s) select an investment portfolio within the policy that is best suited to their longterm objectives and risk tolerance.

12 The Results The size of the shareholder s estate value is immediately increased A reduction in the corporation s future taxable income since assets are transferred into a life insurance vehicle with tax-deferred accumulation Upon death of the insured, the life insurance benefit is paid to the corporation tax-free A significant portion or all of the proceeds can subsequently be paid as a tax-free dividend to the shareholder s estate.

13 Is the Corporate Asset Transfer Plan right for your clients? Is my client a business owner thinking about succession planning for his/her business? Does he/she require business insurance (ex. key person insurance)? Does my client want to leave funds for his/her heirs? Does my client want to simplify the transfer of their estate to these heirs? Would he/she like to transfer taxable corporate investments into a tax-deferred investment vehicle?

14 Is the Corporate Asset Transfer Plan right for your clients? Does he/she want to reduce corporate taxes on investment income? Does he/she want to lower his/her company s current corporate taxable income? Does he/she want to minimize capital gains tax upon the deemed disposition of shares upon death? Do they want to minimize the tax payable upon the withdrawal of funds from the company?

15 A Case Study: Sam and Sally Sam and Sally are both 60 years old Business owners of S&S Opco, a privately owned Canadian corporation. Sam and Sally have created a holding company, S&S Holdings, to house surplus corporate investments. S&S Holdings currently has $250,000 of assets invested in GICs that are taxed at a rate of 45%. Sam and Sally want to minimize their corporate tax bill and maximize the amount of assets that is transferred to their children, Bill and Betty.

16 Working with their insurance advisor, Sam and Sally were able to Maximize the value of the corporate surplus that they would like to transfer to their heirs through a flexible corporate life insurance policy Convert their company s taxable surplus into nontaxable surplus and reduce the company s future taxable income Access the Cash Value of the plan at anytime Increase the after-tax value of their estate through the payment of a tax-free dividend

17 The Solution: The Corporate Asset Transfer Plan Life Dimensions (Low Fees) Joint Last to Die Owners: S&S Holdings Beneficiaries: S&S Holdings Death Benefit Option: Sum Insured COI option: YRT 100 with Investor Maximizer Planned Deposits: $50,000 for 5 years

18 Comparing UL to an Alternative Investment Projecting Rates of Return: an example Net Mutual Fund Return UL Fee Net Return Mutual Fund Return 6.00% 0.00% 6.00% Life Dimensions 6.00% 1.00%* 5.00% *This amount could differ depending on which UL investment option you are using.

19 Year A Comparison for Sam and Sally (Sum Insured + YRT COI + Maximizer) Cash Value Life Dimensions (Low Fees) The Corporate Asset Transfer Plan projected at a 5% annual rate of return) Death Benefit Adjusted Cost Basis Capital Dividend Account Credit Taxable Dividend Estate Value (net of taxes) Alternative Investment (Balanced Fund projected at a 6% annual rate of return)^ Estate Value Estate Value (net of taxes) 5 242,137 1,132, , , ,452 1,057, , , , , , , , , , , , , , , , , , , , , , , , , , , ,452,660 1,452, ,352 1,250, ,352 1,389,931 1,077, ,607 ^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%. Probate fees are not applicable in Quebec.

20 The Alternative Investment and the RDTOH When taxable income is earned CREDIT RDTOH When taxable dividends are paid N CCPC RECEIVES REFUND= 33 1/3% OF AMOUNT PAID AT DEATH, BALANCE IS PAID OUT

21 The Alternative Investment and the RDTOH Refundable Dividend Tax on Hand Allows a CCPC that has paid Part I tax on investment income to recover part of that tax when the corporation pays taxable dividends to its shareholders. Type of income to the corporation Eligible for RDTOH credit? Life Insurance proceeds Interest earned Dividends earned Realized capital gains (RCG) Deferred capital gains (DCG) No 26.67% of interest earned 33 1/3 % of dividends earned %, but only on taxable portion of earned RCG No, only when these gains are realized (then see RCG)

22 A Comparison for Sam and Sally (Sum Insured + Fund Value + Level COI) Life Dimensions (Low Fees) The Corporate Asset Transfer Plan (projected at a 5% annual rate of return) Alternative Investment (Balanced Fund projected at a 6% annual rate of return)^ Year Cash Value Death Benefit Adjusted Cost Basis Capital Dividend Account Credit Taxable Dividend Estate Value (net of taxes) Estate Value Estate Value (net of taxes) 5 194,013 1,223, , , ,211 1,149, , , ,922 1,225, ,483 1,010, ,483 1,159, , , ,746 1,237,746 70,543 1,167,203 70,543 1,215, , , ,482 1,257, ,257, ,257, , , ,420 1,294, ,290, ,290,420 1,077, ,607 ^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%. Probate fees are not applicable in Quebec.

23 Life Dimensions and Life Dimensions (Low Fees) Access to Canada s leading mutual fund managers Acuity Funds Ethical Funds AGF Funds Fidelity Investments AIC Funds Franklin Templeton BMO Guardian IA Clarington CI Investments Invesco Trimark Counsel Group of Funds Mackenzie Group of Funds Criterion Investments Meritas Financial Dynamic Mutual Funds Renaissance Investments SEI Investments

24 The Results for Sam and Sally Sam and Sally have significantly increased the value of their estate Over a five year period, the $250,000 investment portfolio (net of charges) will grow tax-sheltered within the UL policy, greatly reducing Sam and Sally s corporate tax bill At death, the life insurance proceeds less the Adjusted Cost Basis are paid to Bill and Betty, via tax-free dividends from the company s CDA Using the Corporate Asset Transfer Plan, capital gains would be minimized and would be assessed only on the Cash Value of the policy prior to death benefit payout Without this Asset Transfer Plan, capital gains taxes would be payable on the entire amount of the Balanced Fund.

25 Tax and Other Considerations Determine any consequences of transferring assets from other investment vehicles into the Corporate Asset Transfer Plan: Tax liabilities Surrender fees from other investments Asset portfolio mix Corporate structure and objectives You are the insurance expert Bring in other professionals for their expertise, where necessary

26 Underwriting and Administration Insurance applied for must be reasonable and justified Refer to the Underwriting Guidelines on the Wave Run a personalized illustration on the Wave! For the Corporate Asset Transfer Plan: Owner: Corporation Life insured: Shareholder/Key employee Beneficiary: Corporation Include a covering letter with the application.

27 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.

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