THE ASSET PROTECTION PLAN

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1 THE ASSET PROTECTION PLAN Give your client a safety net that s big enough for everyone. A strategy using tax-exempt universal life insurance

2 Here s the story John and Mary, both 55, have worked hard over the years to save for their retirement and acquire additional assets. They have combined assets of over $1 million, in addition to their principal residence. Their plans for retirement include converting their RRSPs to RRIFs at age 65 on a minimum annual payment basis. Their focus is on a comfortable retirement, yet they are concerned that they may lose up to 39% to 48% (depending on their province of residence) of their registered assets and 20% to 24% of capital gains to taxation after the second death leaving their children far less than planned. How can you offer effective financial protection solutions to minimize John and Mary s tax burden? CAPITAL ASSETS Asset Mutual funds Family cottage Rental property Capital gains exemption Adjusted cost base Fair market value (FMV) Projected growth rate Undepreciated capital cost Depreciating method Non-qualified* Non-qualified Non-qualified $80,000 $50,000 $100,000 $200,000 $250,000 $200,000 6% 4% 2.7% n/a n/a $45,296 n/a n/a Declining balance 3% Note: For ease of illustration, we have shown only the value of the rental building, which is depreciable. The value of the land is not depreciable and should be calculated separately. * Non-qualified not eligible for the enhanced capital gains exemptions (i.e. farms and small business). 2 ASSET PROTECTION PLAN

3 REGISTERED ASSETS Asset John s RRSP Mary s RRSP Fair market malue (FMV) $250,000 $250,000 Annual contribution $13,500 $13,500 Projected growth rate 6% 6% RRIF type Minimum annual payment Minimum annual payment Starting age First-year withdrawal $25,453 $25,453 TAX EXPOSURE AT SECOND DEATH Age at second death FMV registered assets $558,620 $1,272,658 $1,265,896 $908,426 FMV non qualified assets $677,400 $989,287 $1,529,960 $2,404,326 Recaptured depreciation $56,062 $66,597 $75,368 $81,836 Tax liability** $377,272 $773,505 $896,060 $934,841 Tax as a % of assets 30.52% 34.20% 32.05% 28.22% ** Taxable assets based on federal and provincial budgets for the year 2008 assuming a 45% marginal tax rate. THE TERMINAL TAX CHALLENGE Anne The objective: Equitable distribution of the estate s assets to the children: Bob, Jane, and Anne. Anne The problem: Tax upon death could be up to 35% of the value of the assets. Some of the estate s assets may need to be sold. ASSET PROTECTION PLAN 3

4 The solution The asset protection plan. John and Mary make annual payments of $11,525 to their $425,000 joint last-to-die SunUniversalLife policy to fund the estate s tax liability. Owner John and Mary SunUniversalLife policy Fund value (Grows taxdeferred) Face amount Death benefit of $966,409 paid tax-free at last death of John and Mary (assumed to be age 85). Estate Anne Tax liability of estate paid to CRA. CRA Objective is met: Full value of estate available to beneficiaries. 4 ASSET PROTECTION PLAN

5 MEETING YOUR CLIENTS NEEDS The asset protection plan (APP) is a solution that speaks for itself. One of the most cost-effective solutions for funding John and Mary s future tax liability is to use an exempt life insurance policy. Plus, the APP will help preserve their estate for future generations. In this scenario, a SunUniversalLife policy with an initial face amount of $425,000 payable on second death and an annual payment of $11,525 has been illustrated. The policy illustration shows a tax-free death benefit of $964,052 at age 85, using a 5% illustration rate this will provide enough cash to pay the projected taxes. If John and Mary had invested the same amount in a balanced portfolio earning 5.15% before tax, they would have accumulated only $602,541 which is not enough to pay the tax bill. Cost of paying the tax using different solutions at age 85 $1,385,511 $929,689 $976,173 $563,310 SunUniversalLife Cash: Equals the tax liability $ 929,689 Sell assets: Equals the tax liability plus $ 929,689 selling cost of 5.00% $ 46,484 $ 976,173 Borrow: Equals the tax liability plus the cost $ 929,689 of borrowing at 8.00% for 10 years $ 455,822 $ 1,385,511 SunUniversalLife: Equals the future value of insurance $ 563,310 deposits up to the time of death* This example is supported by illustration and sales concept tools exclusive to Sun Life Assurance Company of Canada, a member of the Sun Life Financial group of companies. * The insurance premiums have been accumulated assuming a balanced portfolio with a gross rate of return of 5%, less income taxes, to include the time value of money. ASSET PROTECTION PLAN 5

6 Most of us want the same thing: Once our retirement is well taken care of, we want our children to benefit from what s left behind. That could be a beloved family cottage. However, without proper planning, often it could be a hefty tax bill. But you can prepare for taxes and protect what you value with the asset protection plan strategy. John and Mary have invested well, with assets of just over $1,000,000. But they didn t realize their estate could grow to over $4.2 million by the time they reach 85 well-earned wealth they want their children to share. Taxes could consume a substantial portion of their estate much more than you may think. Depending on your province of residence, registered assets are taxed from 39% to 48%. Capital gains on assets such as your cottage are taxed from 20% to 24%. Shouldn t those assets go to your heirs? What John & Mary want But what if the cash in your estate isn t enough to pay the taxes? Without proper planning, your children may have to raise the money by selling the family cottage or other assets from your estate or take out a loan, with the accompanying interest charges. Sun Life Assurance Company of Canada What could happen A Presentation designed for: Prepared by: They re both 55 with three children, a tidy nest egg for retirement and a cottage that s the heart of their family. MAKING IT EASY Our goal is very simple - to make it as easy as possible for you to sell and service our products. By providing your clients with a concrete summary of the issues that face them, you will be better positioned to help them structure an effective financial solution. That s why we offer the following tools that you can use to explain the benefits of the APP strategy to your clients: Because the things we cherish most are for keeps. Asset protection plan strategy providing for taxes through life insurance. Meet John and Mary. Client fact sheet: This one-page sheet explains how the APP strategy works. It highlights the benefits and encourages your clients to contact you for more information. the challenge APP illustrations: With Sun Life Financial s powerful Eos software, you can create detailed client needs analysis reports based on your client s actual financial situation. With a minimal amount of effort, you can clearly demonstrate the potential size of your client s estate at life expectancy, their future tax liability based on their current situation, and then compare the cost of any insurance solution with the other three funding options. John Client Mary Client Client reports: Our Eos software produces a full-colour report with text and colour graphs for a powerful presentation of the problem and solution. Exemple De Relevé Du Client 6 ASSET PROTECTION PLAN

7 HEADING WHAT S THE BRIGHT IDEA? SunUniversalLife The bright idea behind the asset protection plan is SunUniversalLife. Besides providing your clients with a flexible financial planning tool, SunUniversalLife gives you the confidence to deliver: optimal tax-deferred growth, competitive, guaranteed level cost of insurance, a bonus option that combines a guaranteed investment bonus starting in year 2 with a unique cost of insurance discount controlled by the client, or a no-bonus option that provides lower management fees on investment account options, a large selection of competitive, tax-deferred investment options, including three exclusive Financial Post Index (FPX) accounts and seven institutional managed accounts, tax-free access to policy funds if required in future as a result of disability. SunUniversalLife TOOLS SunUniversalLife CLIENT guide For further information about the versatility of SunUniversalLife, our client guide, advisor guide and investment account options booklet can provide you and your clients with full details about the product s features and benefits. SunUniversalLife provides permanent life insurance protection to meet your long-term needs plus the opportunity for tax-preferred growth in savings. It s designed for people like you who want security, diversified investment opportunities, guarantees and greater flexibility. This flexibility allows you to customize your policy at issue and adjust it as your needs change in the future. What s inside How your SunUniversalLife policy works Types of coverage Custom-design your policy ASSET PROTECTION PLAN 7

8 We re here to help We ve been a trusted and reliable company for over 145 years. As a leading international financial services organization, we continue to build on that strong foundation with a focus on market-leading products, expert advice and innovative solutions. Our team of insurance- and investment-focused sales directors, living benefits specialists, and advanced tax and estate planning specialists understand your needs and work with you to help you make the best decisions. Contact your sales director or visit today. Life s brighter under the sun Sun Life Assurance Company of Canada, Digital-09-12