2f72b166   
   XPost: can.general, can.politics, ott.general   
   From: Canuck57@nospam.com   
      
   On 27/09/2011 11:13 AM, Alan Baggett wrote:   
   > How to use Life Insurance to Minimize Estate Taxes: CRA SOTW   
   >   
   > Lisa MacColl / September 19, 2011   
   >   
   > Life insurance can be an effective tool to mitigate estate taxes on   
   > your client’s portfolio.   
   >   
   > Life insurance and business succession   
   > If your client has a business, life insurance should form part of the   
   > business succession plan. John Armstrong, vice president of Armstrong   
   > &  Quaile, states clients need to plan ahead: “You can always   
   > restructure your company, [but] you will not always be insurable.”   
   >   
   > If your client owns shares in a business, the shares will pass to the   
   > beneficiary when your client dies. If the beneficiary isn’t interested   
   > in the business, the partner will have to find adequate capital to buy   
   > out the beneficiary’s share. Armstrong advises business partners to   
   > take out adequate life insurance on each other so that one can buy out   
   > a beneficiary and continue the run the company. Rona Birenbaum of   
   > Caring for Clients adds partners should have a buy-sell agreement so   
   > the business succession plan is clear.   
   >   
   > Spousal rollover   
   > When a taxpayer dies, Canada Revenue Agency values all the taxpayer’s   
   > assets as if they had been sold on the day prior to the date of death,   
   > and the assets are subject to tax on the deemed disposition. If the   
   > taxpayer has a spouse, the assets can pass to the spouse through the   
   > spousal rollover provision. Taxes can be deferred until the spouse   
   > dies or otherwise disposes of the assets.   
   >   
   > Birenbaum suggests the client and spouse purchase a joint-last-to-die   
   > life insurance policy. A client who’s not insurable on his own can   
   > still qualify for life insurance in joint-last-to-die policies because   
   > all insured lives are considered together. The life insurance proceeds   
   > are not paid until the last of the insured dies, so it’s important to   
   > make sure the funds won’t be needed until that happens. Birenbaum   
   > suggests investing in a Universal Life (UL) policy with an investment   
   > component, and overfunding the policy with a very conservative rate of   
   > return assumption to ensure its value will cover future taxes owing.   
   >   
   > Estate freeze   
   > This strategy requires a financial advisor with in-depth tax   
   > knowledge. An estate freeze is an effective strategy for a client with   
   > a valuable business asset who plans to transfer it to a family member   
   > or trusted business associate. Here’s what to do:   
   > Commission a professional valuation on the business to establish its   
   > value as at a specific date.   
   >   
   > Have a transfer of ownership drafted. Client transfers part-ownership   
   > in the company by selling growth common shares to the successor owner.   
   > Client then purchases non-growth preferred shares for a portion of   
   > ownership, effectively freezing his share of the company at a set   
   > point in time. For example, if the company is worth $4 million, client   
   > would sell growth common shares to the new owner for $2 million, and   
   > keep $2 million in non-growth preferred shares. The value of the   
   > client’s interest in the company is now frozen at $2 million.   
   >   
   > Successor will be taxed on any dividend or capital gain that she earns   
   > on the growth common shares.   
   >   
   > Client purchases life insurance policy with a value that will cover   
   > the taxes owing on a deemed disposition of $2 million. When the client   
   > dies, taxes will be paid on $2 million, rather than the company’s   
   > current fair market value.   
   >   
   > Birenbaum cautions the transfer of ownership must be constructed to   
   > allow the current owner to maintain control of the business. Armstrong   
   > adds timing is essential, as the estate freeze must be completed while   
   > the owner is still insurable.   
   >   
   > Charitable donations   
   > Charitable donations valued up to 100% of net taxable income in the   
   > year of death can be claimed as a tax credit. Birenbaum suggests   
   > clients purchase life insurance coverage roughly equal to their   
   > taxable income at death, and designate a charity as the beneficiary of   
   > the policy. The charitable donation will provide a tax credit that   
   > will mitigate or eliminate the tax liability.   
   >   
   > Make the estate the beneficiary   
   > Life insurance policies with a named beneficiary avoid probate and are   
   > not subject to probate fees. In some instances, Birenbaum states, it   
   > makes sense to name the estate as beneficiary. “Even though the   
   > proceeds will then be subject to probate fees, the money to pay the   
   > taxes will then be part of the estate. It’s easier to pay the taxes   
   > from the estate proceeds than to try to get the money back from a   
   > family member after they have received it.”   
   >   
   > Filed by Lisa MacColl, editor@Advisor.ca   
   > Originally published on Advisor.ca   
   >   
   >   
   > --------------------------------------------------------------   
   > Miss a Tax Tale Miss a lot!   
   > Pop the link below into your browser to view the entire CRA SOTW   
   > Library!   
   > http://canada.revenue.agency.angelfire.com   
   > --------------------------------------------------------------   
   > Alan Baggett – Tax Collector’s Bible - http://taxcollectorsbible.com/   
      
   There are better ways to do this than using insurance companies.   
   --   
   Eat the rich, screw the companies and wonder why there are no jobs.   
       -- Obama and the lefty fleabagger attitude   
      
   --- SoupGate-Win32 v1.05   
    * Origin: you cannot sedate... all the things you hate (1:229/2)