Planning Opportunities
Although we promote the importance of comprehensive financial planning, we also realize that you may have some priorities that you want to deal with first.
In this section you will find an overview of several financial planning objectives / concepts / strategies and a client profile for each.
If you would like help determining if a strategy is right for you or more information please feel free to contact by phone, email or our feedback form.
Area of Interest
Estate Planning
Tax Strategies
Retirement Planning
Corporate Insurance
Pension Estate Maximization
Charitable Giving
Insured Inheritance
You have a term deposit set aside as a specific bequest under your will. A life insurance plan can provide Tax Advantage growth and provide tax-free proceeds to your beneficiaries.
Client Profile
Age 60 and over; in good health; in high tax bracket; concerned about safety of investment; not likely to ever need the money themselves.
Insured Inheritance (Annual accumulation)
You want to set aside as a specific annual savings amount for a few years with a view to establishing a bequest under your will. A life insurance plan can "Tax Advantaged" investment earnings and provide tax-free proceeds for your beneficiary.
Client Profile
Age 45 and over; in good health; in high tax bracket; concerned about safety of investment; not likely to ever need the money for personal use, (i.e., has already established sufficient personal savings programs).
Insured Annuity
You want to increase the after tax flow from your fixed income investments. Any new investment is to be fully guaranteed and left intact in whole or in part on death.
Client Profile
Age 65 and over, in good health, in high tax bracket, concerned about safety of investment, minimum of $100,000 available for investment.
Capital Gains Protector
You are concerned about leaving your family with a large Capital Gains Tax burden upon death.
An individual is deemed to dispose of their assets at death, and therefore must remit tax based on the growth in value since they were acquired. This may place a heavy tax burden on the estate, and this may force the sale of some or all assets, perhaps at less than Fair Market Value, to pay for the taxes. Life insurance can provide the cash to pay the taxes. Assets such as a Canadian Small Business, and Farm Property are eligible for a special $500,000 lifetime exemption. The total exemptions claimed may not exceed $500,000. (A spousal rollover can defer taxes until the second death)
Client Profile
Anyone with a large amount of non-liquid assets for example business owners, along with real estate owners (income properties and cottage owners) and those with non-registered investment portfolios.
Asset Protection Plan
This concept provides a solution if you are concerned about leaving a large final income tax burden upon death.
An individual is deemed to dispose of their assets at death and therefore must pay tax on the growth in value of capital property plus the untaxed balance of registered savings plans such as RRSPs, RRIFs, etc. Life insurance is a cost effective way to provide for these taxes. Canadian Small Businesses and Farms may qualify for a $500,000 capital gains exemption. Any portion of the former $100,000 personal capital gains exemption already used reduces this. (A spousal rollover can defer taxes until the second death)
Client Profile
Anyone with substantial registered and/or non-registered assets or the prospect of accumulating such assets. Generally ages from 45 to 80 with greater interest at older ages.
Income Generator
This withdrawal plan illustration provides solutions for several common financial planning scenarios:
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Current high tax problem expected to reduce in retirement. |
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Needs to save more money now for retirement than RRSP limits will allow and will benefit from a tax shelter. |
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Has significant life insurance needs now AND a future income requirement, plus needs to tax shelter current investment income. |
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Major shareholder in small business wishes to set aside additional funds on a tax-sheltered basis for retirement. |
Client Profile
Healthy; middle aged; some surplus income; and motivated towards saving for retirement and leaving an estate on death. Has already made maximum contributions to RRSP and may need to retire some old term policies and replace with permanent coverage.
Insured Retirement
You want to invest money for his/her retirement. How can you maximize the amount available for your retirement and yet minimize the tax consequences?
Client Profile
Age 45 to 55, in good health, in high tax bracket, has extra cash available, is already maximizing his/her RRSP or RSP (Registered Pension Plan) but still has funds available, which he/she wishes to shelter from taxes until he/she retires. Or A major shareholder in a small business wants his/her company to set aside additional funds on a tax-sheltered basis for his/her retirement.
Secular Trust
A Company wishes to provide one of its valued employees with a retirement income but does not wish to go through the complications of setting up an RCA. The company plans to pay the employee an additional sum on top of his/her current wage which will be designated to go into a "Secular" Trust account which will be owned by the employee and administered by the company until the employee's retirement.
Client Profile
Healthy; middle aged; valued employee.
Retirement Compensation Arrangement (RCA)
A corporation wishes to provide a larger pension for certain employees than is currently possible through the formal company pension plan. To implement the plan a trust is set up which receives the funds from the corporation under a formalized agreement.
Client Profile
Owners or major shareholders of a medium to large incorporated business or senior executives of large public companies. In each instance, additional retirement income is needed over and above the pension, which will be paid out through the company's formal pension plan.
Individual Pension Plan (IPP)
Business owners, key executives and professionals with Professional Corporations face a problem most other employees do not. How can they build assets large enough to maintain the same lifestyle upon retirement when the rules governing Registered Retirement Savings Plans (RRSP) and Registered Pension Plans (RPP) severely restrict them? Business owners may have the additional problem of trying to move funds out of the business tax-efficiently.
What is an IPP?
An IPP is a personal defined benefit pension plan, with benefits taxed upon receipt, by the member. The plan allows for the potential to accumulate a greater amount of assets than in an RRSP. Plan contributions are determined by an actuary to provide sufficient assets at retirement. Contributions are made by the plan sponsor (the company), and all expenses for setting up and funding the plan are deductible by plan sponsor. The plan has full creditor protection, and is governed by more prudent investment rules than a RRSP.
Client Profile
Who should consider an IPP?
Members should be:
| over 40 year old and earn an annual income over $75,000 since this the approximate minimum criteria |
where actuarial calculations show it makes sense to set up an IPP compared to other retirement plans.
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employed at that company for at least seven years, since evidence of stability with the company provides |
a margin of comfort for the company.
The company must also be incorporated and have employees. In other words, sole proprietorships, partnerships, and self-employed corporations are not eligible. A member can set up a family IPP with their spouse and/or children if either are working for the same business.
Executive Retirement Account
This concept provides dual solutions:
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The executive or owner-manager has a high tax problem, which is expected to reduce in retirement. Needs to save more money now for retirement than RRSP limits will allow and will benefit from a tax shelter.
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An employer is concerned about the financial consequences of the death of this key employee.
Client Profile
Key executive or owner manager with surplus income and motivated towards saving for retirement. Who has already made maximum contributions to an RRSP or RPP and is looking for additional tax advantaged savings.
Personal Retirement Account
This concept provides a solution for the individual with earnings over $100,000 who needs to save more money for retirement than limits to RRSP will allow. This is NOT a replacement for an RRSP but rather a supplement to it.
Client Profile
An individual with surplus income and is motivated towards saving for retirement. Who has already made maximum contribution to RRSP or Registered Pension Plan and is looking for additional tax deferred savings.
Capital Dividend Account
A Corporation needs to fund a buy/sell agreement, a key person replacement, a deferred compensation agreement; or needs to cover liabilities arising on the premature death of a key individual. The company wants to receive the insurance proceeds and be able to flow them directly through to shareholders on a tax-free basis.
Client Profile
Age 30 - 60, in good health. Client is a major shareholder of a small incorporated business.
Net Cost Pure Insurance Tax Savings
A corporate owner or executive who wishes to reduce the net cost of premiums by using the policy as collateral for corporate borrowing, thus qualifying the NCPI portion of the premium for tax deduction.
Client Profile
A corporate owner, or executive of a company which owes money to a financial institution.
Corporate Split Dollar
A Company wishes to assist a young and potentially valuable employee to purchase a life insurance policy.
Client Profile
A young and potentially valuable employee who is employed by a firm interested in adding to the benefits of employment through assisting the employee to buy a life insurance policy.
Corporate Buyout
Shareholders of a small private corporation wish to enter into a buy-sell agreement to ensure that the business continues after one of the shareholders dies and to ensure that the estate of the deceased shareholder receives full value for the business. It does not appear that capital gains taxes will be a major problem when one of the shareholders dies.
Client Profile
Key shareholders in a small but successful corporation. Capital gains taxes are not likely to be a significant problem to the estate of the deceased shareholder (If they are likely to be a problem the corporate redemption method of buy-out should be considered).
Corporate Redemption of Shares
Key shareholders in a small private corporation wish to enter into a buy-sell agreement to ensure that the business continues after one of the shareholders dies and to ensure that the estate of the deceased shareholder receives full value for the business. The parties are interested in reducing the capital gains tax liability at death to the maximum extent possible. NOTE: The STOP-LOSS rules announced on April 26, 1995 change the taxation of these arrangements substantially. Legal and tax advice is essential.
Client Profile
Key shareholders in a small but successful corporation where the capital gains tax liability is likely to be significant to the estate of a deceased shareholder.
Employee/Shareholder Arrangement
The owner of a small private corporation is interested in offering future benefits to attract and retain valuable employees. He/she has given consideration to accumulating a fund within the corporation to provide those benefits. He/she is interested in comparing this approach to providing benefits with the approach, which uses life insurance. The employer plans to make this key employee a shareholder if he/she isn’t already.
Client Profile
Owner of a small but successful corporation, which offers unique products, or services and the success of the corporation is dependent on one or several key employees without whose services the company would suffer.
Corporate Key Person Protection
The owner of a small private corporation recognizes that the loss of a key employee could mean a serious loss to his/her business. He/she has given consideration to creating a reserve fund in his/her corporation to buffer the loss if and when it occurs. He/she has heard that life insurance may offer a better solution and would like to see the two approaches compared.
Client Profile
Owners of well established small private corporations, which offer unique products or services through the contribution of an individual in the corporation with unusual or special skills.
Leveraged Corporate Insured Annuity
Owners or key shareholders of a successful corporation are facing a large capital gains tax liability at death. The corporation they own has the capacity to borrow funds to purchase a single premium life-0 annuity. The single premium of the annuity is equal to the initial face amount of the life insurance policy needed to pay for the capital gains taxes. The corporation must be able to demonstrate that the funds are needed to earn active business income. The loan is set up in a manner, which postpones the repayment of the loan until the insured dies. When the owner or key-shareholder dies the face value less the Adjusted Cost Basis of the insurance policy is deposited to the Capital Dividend account and transferred tax free to the estate of the deceased. The loan is then paid off from company funds. The approach effectively exchanges assets of the company subject to capital gains tax (company funds) into assets for the same dollar amount which are not subject to either capital gains or income tax (life insurance proceeds) paid into the Capital Dividend Account.
Client Profile
The concept works best for those who are older than the normal retirement age. In fact, the older the prospect the more favorable the figures look. The reason is that the annuity payments are higher and the taxable portions of those payments are lower. It leaves a larger net payment to fund the deposits of the life insurance policy, in spite of the fact that those are higher for older insured's. In addition, older prospects are less reluctant to agree to a Life-0 guaranteed annuity than younger ones due to the shorter life span over which funds are committed. Works best up to ages 65 – 80.
Corporate Insured Annuity
A principal shareholder, approaching or past retirement age, is concerned about getting money out of the corporation in a tax effective way, while living and at death.
Client Profile
A principal shareholder of a Canadian controlled private corporation, which has accumulated capital in its undistributed income account beyond what is, needed for current business activities and future capital needs. Because earnings on this type of capital is taxed at the high corporate rate the shareholder is concerned about the amount lost to taxes when money is taken out while living and when money comes out of the corporation at death. The concept works best for annuitants who are at least 58 years old and who are non-smokers. At older ages, a larger portion of annuity payments is non-taxable principal repayment rather than taxable interest earnings. Smokers and annuitants under age 58 still benefit but may have to wait 5 or 6 years to gain from higher dividends. Benefits to heirs however, are immediate and are not affected by age or smoking status.
Annuity Estate Maximizer
You are receiving or are about to receive proceeds from an annuity or pension, but you do not need the full amount to live on.
Client Profile
Age 65 and over, in good health, a high tax bracket and concerned about safety of investment. Not likely to ever need the money themselves and motivated to leave as much as possible to beneficiaries.
RRIF Estate Maximizer
You want to set aside all, or a portion of your RRIF (Registered Retirement Income Fund) net income in a tax sheltered investment with a view to establishing tax-free bequests for certain individuals for whom you wish to make financial provisions upon death.
Client Profile
Age 65 and over; in good health; in high tax bracket; concerned about safety of investment and is not likely to ever need the money for personal use.
Insured RRIF
You want to ensure that the full balance of your RRIF (Registered Retirement Income Fund) account passes on to the estate upon death.
Client Profile
Age 65 and over, in good health, in a high tax bracket, has a minimum of $100,000 available in RRIF (Registered Retirement Income Fund), and concerned about leaving money for those they leave behind.
Charitable Annuity
You have a fairly large sum of cash available and want to make a donation to a charity while at the same time receive an income from the capital donated.
Client Profile
An individual of virtually any age who has a fairly large sum of cash and wants to provide as much to charity as possible without adversely affecting cash flow. This concept works best with individuals over age 60.
Charitable Insurance
You have some surplus income that you would like to convert into a worthwhile bequest to a charity upon death. You would like to invest the move so as to maximize the gift and to create annual charitable donation tax credits for yourself?
Client Profile
Age 55 and over, in good health and a high tax bracket, concerned about investment safety, not likely to need the money themselves and concerned about leaving as much as possible to the charity of their choice.
Charitable Insured Annuity
You want to increase the after tax flow from your fixed income investments while at the same time provide a substantial donation to one or more charities upon death.
Client Profile
Age 65 and over, in good health, in high tax bracket, concerned about safety of investment, minimum of $100,000 available for investment, not necessarily concerned about leaving money for those they leave behind.
