The March 22, 2016 federal budget closed two tax-planning strategies that involved the use of life insurance and private companies. Here is the first one:
Capital Dividend Account (CDA) Planning
The death benefit from an exempt life insurance policy is tax-free, and the same principle holds true if a private company is the beneficiary of the policy. The life insurance proceeds are added to the CDA of the private company when they can later be paid as a tax-free capital dividend to the shareholder. However, if the company is both the owner and beneficiary of the policy, then the amount that goes into the CDA is only the amount in excess of the adjusted cost base (ACB) of the policy.
For example, if the death benefit is $1 million and the ACB is $100,000, then only $900,000 is available for the CDA. Only $900,000 can be paid out tax-free, while the other $100,000 would be paid as a taxable dividend to the shareholder.
It follows that if the policy owner is not also the corporate beneficiary, then there is no reduction to the beneficiary’s CDA. A common planning strategy was to have ownership of the life policy in a parent holding company with the subsidiary company the beneficiary. This was done especially if the subsidiary was operating an active business and the owner did not want the policy to be an asset of the business that could be attacked by creditors.
Upon the death of the insured, the full death benefit of $1 million would go into the subsidiary’s CDA and be available to be paid out tax-free. Continue Reading…
Recently I had lunch with an accounting acquaintance of mine who shocked me when she told me, “I don’t believe in insurance.”
What she meant was, “I don’t recommend insurance to my clients.” Hearing this was like taking a hard blow to the stomach because I saw the true value of insurance when I lost my husband to a sudden heart attack. Being widowed at 35 with a five-year-old child is something that no one should to go through, but the reality is life isn’t always fair.
“Buying life insurance in our case turned out to be one of the smartest decisions that we ever made.”
As a young mother, the greatest fear came when I accepted that I now had full responsibility for bringing up my son on my own. For the first time I was fully responsible for his well-being: emotionally, spiritually and financially. How do you find the right care for a child when you need to work to support your family? Where were we going to live? How do I rebuild? How do we survive?
We were lucky though as we had put an adequate level of insurance in place when our son Austin was born. Life insurance can’t replace the loss of your spouse but it can replace the income you depend on and help protect your children’s future.
Life will never be the same as it was before but we are happy and safe. Things could have been much, much worse.
All of us need to ensure that we take the appropriate measures to protect the people that depend on us, who would suffer a financial loss if you were to die
If you have a family, it’s critically important to plan ahead and provide financial security with a life insurance policy. You never know how long you will live, but you can do something to provide for your family’s future.
Many people put off buying life insurance because they think it costs too much. What they’re not considering, however, is the cost of not having it if something bad were to happen. Figure out what you need to cut so you can afford it. It’s more important to have life insurance than those extra nights on the town.
“Asking your insurance broker if you need insurance is like asking your barber if you need a haircut.” – Robb Engen, Boomer and Echo
I laughed when I first read the above quote by Robb Engen and, truth be told, I really can’t argue with what he said. It reinforces my belief that you just need to find a trusted advisor who cares and is committed to doing the right things for you and your family. They are out there: you just have to invest the time to find them.
When Will You Need life Insurance?
In general, you need Life Insurance if:
You have children,
You are a single-income couple where a spouse has insufficient work skills or savings
How Much Life Insurance Will You Require?
You need to insure the family’s breadwinner first, then others if income permits. You need enough to cover funeral expenses, taxes, mortgage and other debts and future retirement needs of the remaining spouse. Have enough insurance in place to provide for the family and their education costs.
An interesting thing that I noticed after taking the required insurance courses is that most participants after taking the course either bought insurance or improved the existing coverage that they already had in place. Once people become aware of the risks of being uninsured, the purchasing of adequate life insurance coverage becomes a no-brainer.
In my case, life insurance allowed me to ensure that we were able to maintain our lifestyle as much as possible. It provides for housekeeping and child care services so that the surviving spouse can enter the workforce and work reduced hours and stay at home during the family’s transition.
It is important to regularly review your life and health insurance coverage so you, your family and your assets are appropriately protected.
Melina Mastromartino is an Investment Advisor (BSc,PFP,FDS) and part of the Komitas Mastromartino Wealth Management Group at RBC Dominion Securities, based in Toronto. She focuses her financial advisory career on working with individuals transitioning in life, helping them maintain good financial health and peace of mind. Melina can be reached at melina.mastromartino@rbc.com
Take me with you when you go, girl
Take me anywhere you go
I’ve got nothin’ here but me, babe
Take me with you when you go — Jack White
Over my nearly 30 years of financial planning, death in a client family has given me both agonizingly poignant moments but also moments of tremendous encouragement for the human condition.
I have had the opportunity to work with bereaved spouses where we were able to allow them to stay in the family home and give their families the support and foundation they so desperately need.
I have also had the achingly sad moments of having to tell others how their worsened financial future will unfold due to their altered financial circumstances. The difference generally can be attributed to the existence of forward tax planning for the financial implications of the “first to die.”
An annuity is a type of investment sold through insurance companies. You can think of a life annuity as a life insurance policy in reverse — you pay the insurance company a large lump sum of cash and in return the insurance company pays you monthly premiums for life.
This can act as a form of retirement income after you leave the work force. Although life annuities can be a great option, here is some advice on the things you should look out for when it comes to life annuities.
Know the Difference between Immediate and Deferred Annuities
You should understand and watch out for the language in an annuity agreement. There is language that will signal if the policy is an immediate or deferred annuity. As its name implies, an immediate annuity means that you will obtain your fixed payments right away. There will be no delay in receiving your money. A deferred annuity is different. Continue Reading…
He learned he had non-Hodgkin’s lymphoma, in 2008. (He is now 62).
Mr. Patrick struggled first with the decision about whether or not he should share the knowledge of his cancer with clients. He did and despite his fears to the contrary, none of his clients left as a result of this disclosure. One client even pre-paid, although Mr. Patrick still had to downsize his operation. He had a few employees: one of whom volunteered to leave while another agreed there would be no raise for a year.
Importance of providing clear instructions to spouse
Once it was clear he would be undergoing a (dangerous) stem-cell transplant, he made sure his wife had the paperwork on the life insurance, names of clients and where they could go for alternative service, and how to wind down the business if it came to that. All business owners should have a such letter for their spouse, he says.
After the nine months of treatment, he realized his hopes to immediately resume operating the business at full speed were a tad optimistic. Suddenly, health had become a priority over the business and he realized it would take a few years before his energy levels returned to the point he could work as hard on the business as he had before the cancer revealed itself.
Not coincidentally (given the wide publicity that comes with a story in the Times), his business — Stage 2 Planning Partners — focuses on retirement planning for business owners. I dare say he’s now busier than ever.
Posted By 
Posted By 
