holistic retirement advice

Transcription

1 Protecting your v business with holistic retirement advice a

2 Let s talk about the Corporate Investment Shelter strategy a

3 Life insurance is wealth protection Total wealth = human capital + financial capital

4 Make the Connection with a best practice approach ONE SIMPLE OBJECTIVE: Make it easy for advisors like you to start conversations with your clients about wealth protection solutions.

5 Disclaimer The following information is being presented with the understanding that it is intended for information purposes only. Neither Sun Life Assurance Company of Canada nor the presenter has been engaged for the purpose of providing legal, accounting, taxation, or other professional advice. No one should act upon the examples/information without a thorough examination of the legal/tax situation with their own professional advisors, after the facts of the specific case are considered.

6 What you ll learn today Corporate investment shelter (CIS) overview What it is and how it works Case Study Illustrating the CIS strategy Sales and marketing support available

7 Corporate investment shelter 101 Compares the benefits of a corporately owned participating whole life insurance solution to a traditional non-registered investment Maximize corporate asset value by minimizing the erosion of investment assets through taxes and other costs Use of capital dividend account (CDA) and refundable dividend tax on hand credits (RDTOH)

8 The corporate tax challenge Challenges with traditional investments Challenges while living Taxes payable on investment income Interest Dividends Realized capital gains Passive investment income Attracts tax at top corporate rate No small business deduction Erosion through income taxes = Reduced growth of corporate assets

9 The corporate tax challenge Challenges with traditional investments Challenges at death Taxes payable on deferred capital gains Taxes payable on transfers to shareholder s estate Erosion through taxes at death = Less assets available for estate

10 The corporate investment shelter Addressing the tax challenges Addressing tax challenges while living CIS uses a participating whole life insurance policy Policy earnings grow tax exempt Addressing tax challenges at death Policy proceeds can be paid tax free to the corporation (no deferred gains) Amount of death benefit in excess of the policy s adjusted cost basis can be paid as a tax-free capital dividend to the shareholder s estate

11 Target client profile Owner / significant shareholder of a Canadian controlled private corporation (CCPC) Age 50+ and healthy A corporate life insurance need exists Corporation has: excess cash flow and/or, investment assets not needed for business purposes Wants to maximize estate and transfer assets in a taxefficient manner Looking for stable and consistent asset growth

12 CIS suitability questionnaire Does the shareholder / corporation have a business succession plan in place? want to reduce tax on corporate investment income? have a desire to pass corporate assets to a beneficiary? have a corporate life insurance need? own taxable passive investment assets? own corporate investment assets with a deferred capital gain? want a minimum amount of estate value to be guaranteed? CIS

13 Corporate investment shelter A picture is worth a thousand words

14 CIS is not just tax efficient Some additional benefits For the shareholder Insurance immediately increases estate value Reduction of investment risk gives greater certainty to estate value CDA credit improves estate value Life insurance policy dividends provide stable long-term growth For you Convincing, professional demonstration Proof of insurance as a cost-effective solution for asset transfer at death Increased client loyalty

15 Capital dividend account The finer points Corporate income type Interest earned Dividends earned Deferred capital gains Realized capital gains Life insurance death benefit Is this eligible for CDA credit? No No No, only when these gains are realized Yes, only the nontaxable portions Yes, amounts in excess of the policy ACB

16 The benefits of a CIS with par whole life insurance from Sun Life Financial Access to the steady and consistent performance of the Sun Life Par Account through the crediting of policyholder dividends managed with a long-term perspective Investment experience is a key factor influencing dividends Potential to reduce investment volatility No need to make ongoing investment decisions Opportunity for asset diversification

17 The Sun Life Participating Account Asset Allocation

18 The Sun Life Participating Account historical returns 40% 30% 20% 10% 0% -10% % -30% -40% Dividend Interest Rate CPI S&P/TSX Total Return 5-Year GIC 10-Year GOC Bond

19 Case study Bruce s story Access to corporate assets for retirement $60,000/yr of dividend income for 20 years starting at age 65 Age 54 Time to retirement Retained earnings 11 years $1.25 million (equity + fixed income) Investment assets must deliver stable and consistent returns At death, corporate assets will be passed to his children

20 Bruce s concerns Bruce s corporate investment income is being taxed at the highest rate. Capital gains taxes are due at his death. Assets paid from the corporation to his estate are taxed as a dividend. A significant market correction will decrease the estate value of his corporate assets.

21 The solution Corporate investment shelter BL Holdco purchases a participating whole life insurance policy Transfers funds from taxable investments to policy Policy type Face amount $750,000 Dividend option Annual premium Number of payments 10 Sun Par Protector 20 pay Paid-up additional insurance $44,990 including Plus premium benefit payment of $10,290 Premium offset* Beginning in year 11 under current / - 1% Withdrawals from BL Holdco * Not guaranteed $60,000/yr (indexed) beginning at age 65 for 20 years

22 Is life insurance really necessary? Comparing to corporate owned investments Strategy compares CIS against traditional corporateowned investments Asset value $1,250,000 ACB $1,000,000 Bond component of portfolio 40% to age 65 earns 4% 60% after age 65 Equity component of portfolio earns 6% 60% to age 65 40% after age 65

23 The results What happens at death? Net to beneficiaries (at death) Without CIS strategy CIS CIS strategy CIS CIS strategy (current) advantage (current -1%) Advantage Age 55 $908,218 $1,641,374 $733,156 $1,640,877 $732,659 Age 64 $1,383,808 $2,019,798 $635,990 $1,973,799 $589,991 Age 75 $1,246,894 $1,654,109 $407,215 $1,445,060 $198,166 Age 85 $1,067,198 $1,767,438 $700,240 $1,359,327 $292,129 Age 90 $1,303,322 $2,073,810 $770,488 $1,580,980 $277,658 Illustrated net death benefit is after the income stream of $60K + 1% annual inflation to shareholders; illustration includes premium offset

24 The results

25 A closer look CIS net estate value life insurance Sun Par Protector death benefit CIS Life insurance age 75 $1,116,333 Minus dividend tax payable $81,124 Equals net to estate $1,035,209

26 A closer look CIS net estate value corporate investments CIS corporate investments age 75 Investment balance at death $812,913 Minus capital gains taxes $8,484 Plus RDTOH refund $105,720 Equals amount available for distribution $910,148 Minus dividend tax payable $291,249 Equals net to estate $618,899

27 A closer look CIS net estate value corporate investments Net to estate life insurance $1,035,209 Net to estate corporate investments $618,899 Total net to estate $1,654,108

28 Refundable dividend tax on hand RDTOH: How it works A notional account A credit to the RDTOH is created when taxable income is earned When taxable dividends are paid Amounts equal to RDTOH balance can be received by corporation Corporation receives $1 for every $3 of taxable dividend paid to shareholders Balance of RDTOH is paid at death

29 Refundable dividend tax on hand The finer points Corporate income type Interest earned Dividends earned Realized capital gains Deferred capital gains Life insurance death benefit RDTOH eligibility? Yes, 26.67% Yes, 33.33% Yes, 26.67% of the taxable portion No No

30 Bruce s concerns have been addressed Tax on corporate investment income has been reduced Capital gains on corporate assets at death have been reduced A significant portion of corporate assets can be paid tax-free to Bruce s estate Sun Par Protector participating whole life plan provides stable and consistent growth

31 The results Bruce has significantly increased the value of his estate Transfers from traditional corporate investments to the tax-exempt Sun Par Protector policy reduce the corporate tax bill All or a portion of the life insurance death benefit can be paid tax free to Bruce s estate Capital gains would be minimized at death

32 Running the concept Select the concept Select NO Import data

33 Running the concept Data entry tabs Advisor info Alternate investment assumptions Tax details Estate assumptions

34 Sample report pages

35 Marketing support Client and advisor product guides Financial Advisor Bulletin CIS fact sheet

36 Wrapping it up Create corporate asset transfer opportunities Minimize erosion of assets to taxes Opportunity to earn dividends Access to a strong and stable par account Less taxes = larger estate

37 The bottom line If you re not talking to your clients about protecting their assets, another advisor will. *2013 Sun Life Canadian Unretirement Index

38 Make the Connection strategy materials Strategy worksheet Concept overview Client EOS Illustrations Available on: sunlife.ca/maketheconnection

39 NEXT STEPS 1. Identify 4-5 clients/prospects 2. Prepare a CIS proposal for each client 3. Set up appointments to meet with clients and review the proposal

40 Disclaimer This information is presented with the understanding that it is intended for information purposes only. Neither Sun Life Assurance Company of Canada nor the presenter has been engaged for the purpose of providing legal, accounting, taxation, or other professional advice. No one should act on the examples/information without a thorough examination of the legal/tax situation with their own professional advisors after the facts of the specific case are considered.