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What's on the Minds of Clients
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Estate planning is about life - in the present and in the future. Most importantly, estate planning is about the life of your family and loved ones - and the peace of mind you get from helping to preserve their financial security.

Complete financial planning is not about choosing mutual funds and other investments. It should be about what you want out of life. Once that is clear an advisor can match investments to your needs.

In a recent column in the Dow Jones Investment Advisor Nick Murray stated that advisors need to become skilled at asking six threshold questions.


1) What will happen to your family if you die tomorrow? A year from now? 10 years from now?

2) How can you build a retirement income that you and your spouse can not outlive?

3) If you plan to leave principal to the people you love, how will you do that with minimum taxation?

4) How will you educate your children? Grandchildren?

5) Who will provide for the last five years of your life? Your parents' lives?

6) Would you leave meaningful legacies to the institutions that have intervened in your family's life? What are some highly efficient ways to do this?

"On these great questions are comprehensive plans build . . . Plan to serve the whole client, or to watch someone else do so." NICK MURRY

An Estate Planning Checklist

Raise the subject of high taxes and a lively discussion can result with almost anyone. Ask about succession planning, however, and it's a different story. Talking about death doesn't come easily. Yet, saving taxes is often the biggest benefit from a well-constructed estate plan, along with many other important benefits. Here's a checklist of some important aspects you should consider in your own plan.

Your Will
Have you prepared a Will?
If so, have you reviewed its provisions in the last five years?
Will your Will be easy to locate upon your death?
Have you discussed its provisions with your spouse/dependants?
If you have dependants, have you provided for everyone?
If you have minor dependants, have you named a guardian?
Is the named Executor still appropriate?
Has he/she agreed to serve in this capacity?
Your Assets
Will your Executor be able to locate all your assets easily?
Are beneficiary designations of RRSPs, insurance policies, etc. all up to date?
Your Estate and Taxes
Have you considered the effect of income tax or capital gains tax?
Have you considered ways to reduce such taxes on your death?
Will significant probate fees apply on your Will?
Do you know how to reduce these fees?

If you answer "No" to even one of these questions, you have some work to do. Remember, there are other aspects to consider as well, as this is by no means an all-inclusive list. Always consult with professionals in this complex field. Feel free to talk to us if we can help. For more information, see Estate Taxes/Charities/RRIF or RRSP.


RRIF or RRSP Insurance (Universal Life optional)

RRIF or RRSP Insurance

If a client dies with RRIF or RRSP holdings and the client does not have a spouse to whom the assets can be rolled over, or dependent child or grandchild, then the full amount of that RRIF or RRSP will be taxable income in the year of death.

Often, if the client wished to pass that money on to a beneficiary, the client would purchase life insurance in an amount equal to the potential taxes payable. The insurance would be used to pay the tax and the assets would pass in whole to the intended beneficiary. The government would get its tax dollars and the beneficiary would get the asset.

Under the new charitable giving rules this application of life insurance can be taken one step further. A client could buy life insurance coverage equal to the value of the RRIF or RRSP and leave that insurance benefit to a favourite charity via the client's will. Upon the client's death the life policy will be paid to the estate of the deceased, the estate will transfer the proceeds to the charity, and the charity will issue a tax receipt to the estate. The end result is that the tax credit available as a result of the charitable donation will offset the tax payable due to deemed disposition on the RRIF or the RRSP. The client avoids the payment of taxes on the RRIF or RRSP at death, and will have made sure that the beneficiary takes the full amount of the asset, while the charity receives a sizable donation.


The changes to the charitable giving rules are perhaps the most significant to this area of tax planning that have been seen in a decade. They have arisen from a desire for the government to shift the funding burden fro itself to the general public. Both charities and individual and corporate clients stand to gain tremendously from the new rules.

For further advanced Estate Planning such as the above consult a Financial Planner at Ogden Financial Planners Ltd.

Estate Freeze


An estate freeze is designed to transfer the future growth of a business or an investment to future generations (the "children") rather than leaving this growth in the hands of the current owner (the "parent"). In its most fundamental form, an estate freeze is a transfer of assets, which have potential future tax exposure, to the next generation. This enables the parent to know what his or her tax liability will be and, therefore, the parent can prepare for such liability in advance. To transfer future growth, a parent may simply wish to transfer shares by gifting those shares (investments etc.,) to a child. However, such gifting may cause certain problems to arise, such as immediate tax exposure and loss of control for the parent over the assets. These problems can be avoided if the parent implements a properly constructed estate freeze.



Estate Freezes

Perhaps, the most common type of estate freeze involves a holding company. In this situation, (and pursuant to section 85(1) of the Income Tax Act), the parent transfers his or her shares in the operating company to a holding company and, in return, the parent receives fixed value "freeze" shares from the holding company. Under the Income Tax Act, if the parent and the holding company make a joint election within a certain time period, they can select an amount that will be the parent's proceeds of disposition of the common shares and the holding company's cost of the operating company's shares. If the only consideration received by the parent for the common shares of the operating company is the freeze shares of the holding company, the election can be made so that the proceeds of disposition equal the adjusted cost base of the common shares transferred. The children, under a section 85(1) freeze, would subscribe for common shares of the holding company at a nominal subscription price because all of the value at that time would be in the parent's freeze shares. After the exchange has occurred, any future growth in the value of the shares will accrue to the new common shares, which may be held in an inter vivos trust for members of the family or can be subscribed to by the children directly. If the only consideration received for the original common shares is the special shares, there will be no capital gains. However, if for example, the parent has capital losses, he or she could elect to have transferred the shares at an amount in excess of the adjusted cost base, and thereby, triggering a capital gain that could offset the capital losses incurred.
Charity Never Fails - Especially When It's Your Estate
CASE 1: Estate with no insurance to gift to beneficiary
Estate's Market Value at Death
(A) $ 1,500,000
A.C.B. Adjusted Cost Base
Capital Gains for Tax Purposes at Death
New Capital Gains Tax @ 66.66%
Assumed Marginal Tax Rate @ 49.1%
(B) 327,000
Net After Tax in Estate (A minus B)
$ 1,172,700
CASE 2: Estate with insurance included to charitable beneficiaries
Estate's Market Value at Death
$ 1,500,000
A.C.B. Adjusted Cost Base
Capital Gains for Tax Purposes at Death
New Capital Gains Tax @ 66.66%
Assumed Marginal Tax Rate @ 49.1%
  Non-refundable Charity Tax Credit from Insurance Donation
  Income Taxes
Net to Estate After Tax
$ 1,500,000
Creditor Protection
Generally speaking, most life insurance products are protected from creditors of the insured if proper beneficiary designations are made, well before the time of any insolvency. Provincial legislation has more or less set out the criteria that must be met in order to preserve this special protection.
The products that are covered by the special protective blanket fall into three separate categories:

1. life insurance;
2. segregated funds; and
3. RRSPs and other annuities issued by life insurance companies.

All of these products contain "an undertaking to provide an annuity" which is the main criteria that has come out of years of court cases in which the issue in dispute was "what is an insurance product".
The provinces all have similar legislation relating to irrevocable beneficiaries and beneficiaries of a particular class.

In Ontario, for an insurance product to be protected, there must be either:

1. a designation of an irrevocable beneficiary, or
2. a designation of either spouse, child, grandchild, or parent of the insured.

In Quebec, the class of relatives is wider and includes all descendants and ascendants of the owner of the policy. The relationship in Quebec is between the owner and the beneficiary. In all other provinces, the relevant relationship is between the life insured and the beneficiary.
As its name indicates, an irrevocable beneficiary designation is just that. It cannot be revoked or altered without the consent of the beneficiary. While this may work well in a situation where there is total certainty, it can create many problems where there is a change in circumstances. Breakdowns occur in many sorts of family relationships, whether they be spousal, parental or otherwise, and accordingly irrevocable beneficiary designations should be well thought out before being implemented.

The policy holder surrenders all effective control over the policy and any cash value it may have. The policy holder retains little, if any, benefit or control over the policy other than the ability to let the policy lapse by failing to pay premiums.

It should also be pointed out that in this designation of an irrevocable beneficiary, there is no restriction as to whom the beneficiary can be, other than the policy holder or the policy holder's estate. An irrevocable designation of one's self is not permitted.
The allowable family beneficiaries that maintain the creditor protection are set out in most provinces' legislation (other than Quebec as noted above) and are as follows:

1. Spouse
2. Child
3. Grandchild
4. Parent of Life Insured

It is acceptable when naming anyone from the above group of family members to have a trustee named as well, i.e. to Jane Doe in trust for (spouse's name, or child's name, etc.).

When designating one of these family members, the insured has greater control than with an irrevocable beneficiary in that the beneficiary can be changed, but only to another person from one of the four classes as outlined above.

The definition of "spouse" generally includes only married spouses and not common-law spouses. There has been a case recently in Alberta (Re Greunding) that took a different approach, but that situation will no doubt result in the rewriting of legislation and at the time of writing, it is unclear if common-law spouses will be included in the definition of "spouse".

"Child", however, can include children born of a common-law union.
The above examples of beneficiary designations will, in most cases, prevent creditors from seizing the insurance product during the life of the insured. Once the designation has been made, the protection is in place (subject to a few exceptions set out below).

With all other beneficiary designations, the insurance is protected from creditors only once the insured has died and the insurance becomes "payable" to the beneficiary. It then becomes the beneficiary's property and cannot be claimed by creditors of the insured.
As with everything in law, there are some "wrinkles" or exceptions. They are as follows:

The Bankruptcy and Insolvency Act provides that where a policy owner designates an irrevocable or preferred beneficiary which in turn creates a "protected policy", or pays premiums or otherwise transfers non-creditor-protected funds into a creditor-protected policy, and then goes bankrupt within one year, the Trustee in Bankruptcy can move to seize the money that would have been available had that transaction not occurred.
If a policy owner carries out any of the above transactions between one and five years before bankruptcy, the Trustee in Bankruptcy can move to have the transaction voided if the Trustee can prove that at the time of the transaction the policy owner would have been unable to pay all debts without those said funds.
With a few exceptions, the Crown, both federal and provincial, is not bound by the creditor protection provisions in provincial legislation. There have been some cases, however few, where Revenue Canada has been able to seize insurance products for unpaid taxes. Despite the legal and practical difficulties that the Crown would face in forcing a surrender of a life insurance annuity or RRSP, it can happen, and sometimes does.
Royal & Sunalliance. Reprinted with permission.
Investing with Seven Figure Deposits

With the advent of insured estates there is a growing wealth class in Canada never before seen. Proceeds after tax on assets passed on to the next generation is growing significantly and requires special applications to guarantee that such funds will be passed on to the next generation with minimum tax consequences in the form of family trust and investment returns that are safe with sufficient income not to waste the growth during income periods.

A diversified investment portfolio is key in the administration of such funds, allowing for growth with conservation of capital.

In situations where no dependants are left to inherit the estates, special planning to designate charitable beneficiaries are important.

Proper wills to enforce the desires of the donor and to eliminate probate wherever possible are encouraged.

Various investment strategies can be explored for the novice to ensure the security of investments. Wrap accounts are popular for large deposits. For amounts of $ 250,000.00 or more a wrap account gives the investment dealer, broker, bank and trust the flexibility to move funds around to accommodate the risk factors of the investor.

For amounts over $ 1,000,000.00 the investor will most likely choose a number of options to build a portfolio that best suits their risk factor and returns. For example, a suggested portfolio would look something like this:

1. $ 250,000 Money markets with a combination of Canadian Cash and US
2. $ 250,000 Segregated funds with guaranteed funds. Creditor proof and insured 100%.
3. $ 250,000 Dividend Income funds and Bonds both Canadian and Global.
4. $ 250,000 Stock plans and Mutual Funds for future growth in equities.

Timing on fund transfers and rebalancing are an essential element for your planner as the needs of the investor change with time. The health and wealth of the investor will play a big part in the future of these funds. Special arrangements can be made to protect these assets whilst the investor is in reasonably good health. Ask your financial planner what these arrangements are and consider all the options available to you.

For further advanced Estate Planning such as the above consult a Financial Planner at Ogden Financial Planners Ltd.


List of Items I Own (PDF document opens in new window)
Estate Planning and Wills

Estate Planning is all about people, from individuals to large families. Basic needs in planning estates range from:

  • Saving Taxes
  • Building Cornerstones
  • Choosing Trustees
  • Assigning Beneficiaries
  • Protection and Conservation

Wills are essential most of the time, to define who's in charge, who gets everything, who is your back-up. Remember family comes first and keeping promises to beneficiaries is essential.

For information on Alter-Ego/Joint Partner Trust and Inter Vivos Trust click on AIM Tax and Estate Information . . . then scroll down and click on "10 Simple Steps".

For further advanced Estate Planning such as the above consult a Financial Planner at Ogden Financial Planners Ltd.

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