CORPORATE RETIREMENT STRATEGY - Sun Life … · Introduction to the corporate retirement strategy...

CORPORATE RETIREMENT STRATEGY ADVISOR GUIDE

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Introduction to the corporate retirement strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Identify the opportunity - target markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Policy ownership: corporate or personal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

CRS mechanics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

A . Corporate borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

B . Shareholder borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

CRS and Eos . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

CRS presentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

CRS planning considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

CRS suitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Selecting a policy type – participating whole life or universal life . . . . . . . . . . . . . . . . . . . . . . . . . . .15

TABLE OF CONTENTS

CORPORATE RETIREMENT STRATEGY 1

2 CORPORATE RETIREMENT STRATEGY

Introduction to the corporate retirement strategyPermanent cash value life insurance policies, such as participating whole life and universal life are attractive to corporations for the potential tax-free death benefit and the tax-preferred cash accumulation benefits they offer. Permanent life insurance plans that build cash value can provide short- and long-term planning opportunities for the corporation.

The corporate retirement strategy (CRS) provides the corporation with valuable life insurance protection on a key person or shareholder and the opportunity to access policy values tax-free immediately or in the future.

Clients should seek their own independent tax and legal advice to ensure this strategy meets their needs.

How it works

A corporation owns, pays premiums and is the beneficiary of a tax-exempt life insurance policy. When the policy has accumulated cash values, it can be pledged as collateral in exchange for a series of tax-free loans from a third party lender. Currently, the Income Tax Act (Canada) doesn’t treat these loan proceeds as income, so they can be potentially received tax-free.

In Quebec, using a life insurance policy as collateral involves the use of a movable hypothec. Like a collateral assignment, the movable hypothec doesn’t involve the transfer of policy ownership. It provides security for the loan by giving the lender rights in the policy to the extent of the loan balance.

CRS can be implemented in one of two ways:

Traditionally, the strategy is used years after policy purchase, once the policy has accumulated significant cash values. The corporation can use loan proceeds to finance business opportunities or to supplement a key shareholder’s retirement income. Sun Par Protector or moderate- to heavily-funded SunUniversalLife or Sun Limited Pay Life plans may be suitable for situations requiring higher longer-term policy values.

More recently, collateral assignments early in the life of the contract are used to provide funds for business purposes. The higher early cash values available with Sun Par Accumulator or well funded SunUniversalLife plans make ideal product selections for this application.

The strategy can provide a corporation or a controlling shareholder with a stable source of potentially tax-free income, but there are a number of considerations to examine closely before implementing this strategy. Clients should speak to their own legal and tax advisors to help ensure the CRS is suitable for their unique situation.

INTRODUCTION


The CRS may be suitable for business owners or key shareholders who:

have a significant ownership interest in a Canadian controlled private corporation,

need permanent corporate life insurance and are in good health,

have corporate surplus and want to benefit from the tax-preferred growth of an exempt life insurance policy,

want access to cash for business opportunities now or in the future, and

have maximized their registered retirement savings plans (RRSPs) and Tax-Free Savings Accounts (TFSAs) and want additional flexibility.

There are a number of reasons a corporation would want to access cash values from a life insurance policy. These include building a pool of tax-preferred capital to take advantage of business opportunities, to expand the business, to provide a source of additional income for key employees, or for emergency purposes.

There are several benefits to a corporation owning an exempt life insurance policy compared to personal ownership.

Corporate tax rates. If a corporation qualifies for the small business tax rate, its tax rates will typically be less than an individual’s personal tax rate. As a result, the after-tax cost of the insurance may be lower if it’s purchased on a corporate basis. In addition, using corporate funds to pay for a corporate owned life insurance policy may result in an income tax savings versus paying dividends directly to the shareholder and having them pay the premium on an individually owned policy.

Tax-preferred income. Passive corporate investment assets attract income tax at the top marginal rate and do not qualify for the small business deduction. Moving taxable investments to a tax-exempt life insurance plan can help reduce corporate income taxes. This is also true for corporate investments with deferred capital gains. Upon disposition, the deferred gains on these investments may result in significant taxes, reducing the net estate value.

Access to tax-free dividends. Part or all of the death benefit from a corporately owned life insurance policy creates a credit to the capital dividend account (CDA). The CDA is a notional account1 used to track tax-free surpluses accumulated by a private corporation. Proceeds in excess of the policy’s adjusted cost basis (ACB) can be credited to the CDA and paid out as a tax-free capital dividend2 to the shareholder’s estate. The balance of proceeds can be paid to the shareholder’s estate as a taxable dividend. As a result, the net estate values provided by life insurance can exceed those provided by taxable investments.

Value of corporate owned shares. Transferring corporate funds to a life insurance policy can help reduce the fair market value of the corporation for the purpose of calculating capital gains taxes at death. The cash value of a life insurance policy is included in the fair market value calculation, however the death benefit received by the corporation may be much higher. This may exclude a significant portion of the corporate assets from being included in any taxable capital gain at death.

1 Created under section 89 of the Income Tax Act (ITA). 2 An election under subsection 83(2) of the ITA must be made to treat the dividend as a tax-free capital dividend.

IDENTIFY THE OPPORTUNITY – TARGET MARKETS

POLICY OWNERSHIP: CORPORATE OR PERSONAL


For the CRS to work effectively, the proposed insured must be in good health and able to qualify for life insurance coverage. Once the appropriate amount of permanent life insurance has been determined by assessing the needs of the corporation, payments are made to the policy that will accumulate significant cash values. The corporation is the owner and beneficiary of the policy.

Once policy values have accumulated, they can be assigned as collateral for a series of loans from a third party lender. The CRS may be structured in one of two ways:

Corporate borrowing

Shareholder borrowing

Both methods use the corporate owned life insurance policy as collateral (movable hypothec in Quebec) however, either the shareholder or the corporation may borrow funds directly from the lender. The tax consequences will vary depending on the structure selected. The decision whether to use corporate or shareholder borrowing will depend on the individual circumstances of the corporation at the time that loans are needed.

Corporate borrowingThe corporation applies for the loan and receives the proceeds directly. The corporation can use these funds for business purposes or pay them to the shareholder as a taxable dividend.

At death, the tax-free death benefit first pays the outstanding loan plus accumulated interest. The corporation may post the entire death benefit to its CDA, minus an amount equal to the policy’s ACB. An amount equal to the CDA can be paid as a tax-free capital dividend to the estate of the shareholder. The fact that some or all of the death benefit may have been used to pay off the loan balance does not affect the corporation’s right to pay a capital dividend. Any distribution that the corporation cannot pay as a capital dividend can be paid as a taxable dividend (to the extent of retained earnings).

The CRS plays an important role for corporations that need access to a source of funds for business purposes. Plans with an emphasis on higher early cash values, such as Sun Par Accumulator or a well funded SunUniversalLife, are suitable for this market. In circumstances where the loan proceeds are being used to earn income from a business or property, interest on the loan may be tax deductible.

CRS MECHANICS

Corporation

Assigns insurance Pays income (taxable dividend)

Financial institution loans money Shareholder


Shareholder borrowingIn this scenario, the shareholder applies for the loan and receives the proceeds personally, on a tax-free basis. The shareholder can use these funds to supplement retirement income or for whatever purpose they choose. The corporation assigns the policy to the financial institution as collateral security for the loans.

This structure will usually result in a taxable shareholder benefit, based on either the interest rate savings that the borrower achieves by having the corporate guarantee, or a benefit that’s equivalent to a guarantee fee that would otherwise be charged. This risk may be reduced by having the shareholder pay a guarantee fee to the corporation for the right to use its policy as security for the loan. The facts of each case should be examined to ensure the structure is tax effective.

When the shareholder dies, the estate should be willing to provide additional collateral to the lender so that it can release its interest in the policy. This could be added as a provision to the loan agreement. After the lender releases its interest in the policy, the death benefit can be paid entirely to the corporation.

NOTE

Lenders may be reluctant to give up their interest in the policy without additional guarantees provided to secure the loan. However, if the death benefit flows directly from the insurer to the financial institution to repay the shareholder’s loan it may cause the loan reimbursement to be considered as a benefit to the shareholder and taxed accordingly under section 15(1) of the ITA.

Corporation

Assigns insurance

Shareholder

(guarantee fee)

Financial institution loans money


The corporation may then post the entire death benefit to its capital dividend account, minus an amount equal to the policy’s adjusted cost basis. An amount equal to the capital dividend account may then be paid tax-free to the estate of the shareholder. Once funds are received, the shareholder’s estate can pay the outstanding loan and receive a return of its collateral. Any amount remaining can be paid as a taxable dividend.

Advisors must pay special attention to this type of arrangement and ensure the implementation will not trigger negative tax consequences, since the repayment of the loan would have otherwise been done using a capital dividend that is non-taxable by definition.

Corporate or shareholder borrowing – which should I illustrate?

On the surface, shareholder borrowing may appear to be the more attractive option. This is because loan proceeds are paid directly from the lender to the shareholder and not through the corporation as a taxable dividend. While this may seem advantageous, there are tax considerations that may apply when a shareholder uses a corporate asset for their benefit.

Because the shareholder is getting the benefit of a loan that is secured by the corporate owned life insurance policy, there is a risk that a taxable shareholder benefit could be assessed. To help reduce this concern, a guarantee fee could be paid to the corporation.

Upon death, the shareholder’s estate may be deemed to have received a taxable benefit if the loan balance is paid directly from the corporation instead of from the estate of the shareholder. The shareholder’s estate will need to have collateral acceptable to the lender available immediately after the shareholder’s death.

Special care should be taken when considering the CRS using shareholder borrowing. Clients should consult their legal and tax advisors.

Financial institution

Estate

Repays loan

(Estate assigns additional collateral at death)

Corporation

Receives insurance Pays tax-free proceeds (tax-free) capital dividend (excess over ACB)


CRS AND EOS

The CRS compares the performance of an exempt life insurance plan to an alternate investment using the same stream of payments and income. CRS is available on your Eos software and is available with the following permanent life insurance products:

Sun Par Protector

Sun Par Accumulator

SunUniversalLife / SunUniversalLife MAX

Sun Limited Pay Life

Once the appropriate amount of permanent life insurance has been determined you can set up the product illustration on Eos.

From the left hand margin, select the ‘concept’ icon. Select corporate retirement strategy from the dropdown menu.

The corporate retirement strategy consists of three input tabs:

Concept assumptions

Corporate details

Alternate investments

Concept assumptions tab

This tab deals with the assumptions surrounding the third party loan:

Income: enter a specified loan amount or choose ‘maximized’. This will calculate the maximum annual loan available and assumes that the loan balance reaches the maximum collateral value at life expectancy.

Sun Par Protector and Sun Par Accumulator presentations provide the opportunity to run the concept at the current dividend scale, current minus 1%, or current minus 2%.


Corporate details tab

This tab deals with assumptions about the corporation:

Borrowing type: choose from corporate borrowing or shareholder borrowing

Company type: choose from holding company or operating company

Alternate investments tab

This tab lets you customize the return and allocation characteristics of the alternate investment. Users have the option of switching to a basic investment allocation.

TIP

Use the basic investment allocation with clients who don’t need an overly sophisticated asset mix for comparing the performance of the alternate investment.


CRS PRESENTATIONThe CRS presentation consists of both required and optional reports designed to give prospective clients a professional, high level description of how the strategy works and how the strategy will perform under the assumptions the client and advisor select.

Corporate retirement strategy – an overviewThis report summarizes how the CRS works and includes details on target markets. The presentation will reflect the borrowing type selected corporate borrowing or shareholder borrowing.

AssumptionsA summary of the insured(s), the life insurance policy, tax rates, the alternate investment and the bank loan are provided.

Comparison of values reportThis report compares the net estate value of the CRS to the net estate value of the alternate investment.

Corporate retirement strategy details reportThis report provides an in-depth look at the values behind the strategy itself, including the CDA credit resulting from the life insurance policy death benefit and the loan balance expressed as a percent of policy cash value. An additional collateral needed column also appears. This amount is the additional collateral a lender may require if the ratio of the accumulated loan balance to the policy’s cash surrender value is greater than the limit set in the loan agreement.

Alternate investment details reportThis report provides an in-depth look at the values behind the alternate investment including the cumulative refundable dividend tax on hand and cumulative CDA credits.

Loan interest sensitivity analysisThis report provides clients with a look at how a higher interest rate will impact the performance of this strategy. The report will compare strategy performance at the rate selected from the input versus a loan interest rate that is one per cent higher.

Corporate retirement strategy – key considerationsThis report provides a summary of some of the important items that should be examined prior to implementing this strategy.

Interest deductibility reportThis report will appear when interest deductibility is selected.

Detailed alternate investment assumptionsThis optional report will outline the asset allocation and investment return characteristics of the alternate investment.

Key terms

This optional report provides a summary of some of the key terminology that is used in the corporate retirement strategy presentation.


CRS PLANNING CONSIDERATIONS

The CRS is an excellent way to illustrate the benefits of leveraging an exempt life insurance policy to provide a source of tax-free income in the future. Clients should understand there are many variables that contribute to the amount of income that may be available from the policy. Even a small change in the assumptions used in the CRS presentation can have a significant impact on future values.

One of the primary risks faced by the borrower is that the outstanding loan balance may exceed the maximum collateral value outlined in the loan agreement. When this occurs, the policy owner must provide additional collateral or pay off a portion of the loan balance. If the policy owner is unable to restore the agreed upon collateral value, the lender may force surrender of the policy.

This may have serious consequences for the corporation and shareholder. When the lender forces surrender of the policy, proceeds are first used to repay the loan. The remaining funds belong to the corporation, but may not be sufficient to pay the outstanding tax liability triggered by the recognition in income of the policy gain.

Not only does the corporation lose its valuable life insurance protection, it may fall short of the funds needed to cover the outstanding taxes due. Clients need to ensure they understand the impact the potential income and outstanding loan balance can have on their policy.

Interest rates

The interest rate that the borrower will pay on the loan is not guaranteed and will fluctuate with the prevailing rate of interest. Higher than expected interest rates may mean that the accumulated loan balance will catch up to the policy cash surrender value faster than projected in the CRS presentation, and trigger a requirement for additional collateral.

Living longer than expected

The CRS software is designed to calculate the loan amount that will reach the maximum collateral value percent at life expectancy. Approximately 50% of the population will die before reaching life expectancy and 50% will outlive life expectancy. If the life insured lives longer than expected or longer than was illustrated in the CRS presentation, the loan balance may begin to exceed the maximum allowable percentage of the policy’s cash value, again triggering a requirement for additional collateral.

TIP

Illustrate multiple loan interest rate scenarios to determine the impact of loan interest rate increases on future CRS values. The loan interest sensitivity analysis report will illustrate the impact that even a one per cent increase in interest rates will have on the performance of the CRS.

TIP

Increasing the client life expectancy will lower the annual loan amount, creating a greater margin of safety if the client lives longer than historical life expectancy. The closer to age 100 the life expectancy is set, the lower the risk of exceeding the maximum collateral value will be.


TIP

Participating whole life policies like Sun Par Protector and Sun Par Accumulator provide steady cash value growth and may help reduce the risk of exceeding collateral loan limits.

TIP

Eos will calculate the maximum loan amount available based on the assumptions entered. Using a specified loan amount that is less than the maximum will provide a greater margin of safety should actual long-term results not meet expectations.

Policy performance

Because the maximum loan amounts are based on the policy cash value, any variation of actual performance from that illustrated in the CRS presentation will impact the amount that can be borrowed. Lower than expected performance over the long-term may mean that borrowers will have to reduce their income expectations or risk exceeding the maximum collateral value sooner than expected.

There are a number of other items that can impact the expected benefits of this strategy. Have a discussion with clients to ensure they understand the impact each of these can have.

Borrowing limits

Lenders will typically lend anywhere from 50% to 90% of the policy cash surrender value. The CRS refers to this amount as the collateral value. It can also be expressed as the ratio of loan balance to policy cash surrender value. The exact amount will depend on how the policy funds are invested. Policies with equity-based investments will have a lower collateral value while policies with guaranteed investments or guaranteed cash values will have a higher collateral value. CRS lets you choose from a collateral value of 50%, 75% or 90%.


Borrowers must qualify

Much like a car loan or a mortgage, individuals or corporations must qualify for loans when collaterally assigning their policy. Owning a life insurance policy with significant cash values does not guarantee approval for a loan. Each lender will have their own criteria that include credit history, net worth and income. Lenders may ask for additional collateral beyond the life insurance policy. It is important to note that lending practices may change over time.

Changes to tax rules

One of the primary advantages of the CRS is that the Income Tax Act (Canada) does not currently treat loan proceeds as income, so these amounts are potentially tax-free to the corporation or shareholder. Tax laws change frequently. Because the CRS is a longer-term strategy there is the risk that tax treatment applicable to loans, interest deductibility and life insurance policies may change between now and the time the client decides to take a loan without any grandfathering provision.

General anti-avoidance rules (GAAR)

GAAR may apply to any transaction that attempts to avoid taxes. Specifically, section 245(3) of the ITA defines an avoidance transaction as any transaction “that but for this section, would result, directly or indirectly, in a tax benefit, unless the transaction may reasonably be considered to have been undertaken or arranged primarily for bona fide purposes other than to obtain the tax benefit.”

The Canada Revenue Agency has indicated a key issue in determining whether or not the loan is taxable as a policy loan will be the link between the loan agreement and the purchase of the life insurance policy that may contain terms relating to the loan.

Interest deductibility

Eos lets users illustrate the impact of loan interest deductibility. Interest deductibility is subject to the deductibility criteria under paragraph 20(1) (c) of the ITA. If loan interest is paid or payable and if the proceeds of the loan are invested to earn income from a business or property, then the interest expense may be deducted from the borrower’s taxable income. If this illustration assumes interest deductibility, please ensure clients consult their legal and tax advisors to confirm the applicability of interest deductibility for their situation.

Interest on loans may be deductible only against income the corporation earns from business or property, and only if all other conditions for deductibility are satisfied. The corporation must be active and generating income from business or property. Where shareholder borrowing is being used, interest deductibility will not apply if the loan proceeds are being used only to pay an income to a shareholder. For individuals, the Quebec Tax Act limits the annual interest deduction to the amount of taxable investment income generated in the year.


Loss of control

As we have seen, collaterally assigning a life insurance policy has the potential to provide significant benefits to both the shareholder and the corporation. Policy owners should keep in mind that once a policy has been collaterally assigned, they are giving up certain rights and control over that policy. The owner cannot withdraw funds, take a policy loan or make changes to the policy without either first receiving the lender’s consent or paying off the loan balance.

Retirement compensation arrangements (RCA)

An RCA is a plan or an arrangement made by an employer or a former employer that is used to provide retirement income or benefits to an employee or former employee. In circumstances where a corporation acquires a life insurance policy and is obligated to fund retirement benefits from it, through the CRS or otherwise, and it’s reasonable to assume that the policy was acquired to fund these obligations, a retirement compensation arrangement may be deemed to exist. This may result in significant tax consequences. Clients should consult with their professional legal and tax advisors on this issue.

The loan agreement

Often set up by the lender as a line of credit, the loan agreement is a contract between the lender and the borrower (corporation or shareholder). It sets out each party’s rights and obligations, which include borrowing limits, repayment terms, collateral requirements and interest. Lenders may also have the option to call the loan at anytime.


CRS SUITABILITYThe following questions can help you determine whether the CRS is the right fit for clients.

Does the corporation have a permanent corporate life insurance need?

The need for permanent death benefit protection should be the primary reason for the corporation’s purchase of the life insurance, not the future need for access to cash. While there are many reasons that a corporation may require permanent life insurance protection, some of the more common needs include key person protection, funding a buy-sell agreement, paying off long-term debt obligations and covering a potential capital gains tax liability on the shareholder’s ownership interest in the corporation at death.

Is the client healthy?

The CRS uses permanent life insurance, so clients must be reasonably healthy and able to qualify for the coverage to take advantage of its benefits.

Does the corporation have excess taxable corporate assets?

Passive corporate investment assets attract tax at the top marginal rate and the income does not qualify for the small business deduction. Transferring taxable asset to a corporate owned insurance policy can provide potential tax savings.

Does the corporation require a tax-effective source of future income?

These funds could be used to help expand business opportunities, improve operational efficiencies, access a source of cash for emergency purposes or supplement retirement income.

Is the corporation and/or shareholder comfortable with leverage risk and carrying debt?

While the benefits of the CRS can be sizable, clients must realize they are using borrowed funds and are therefore assuming some risk. Clients must be comfortable with the risks before considering this strategy.

Does the corporation and/or shareholder have a long-term planning view?

The CRS is intended to be in place for the life of the business owner. A long-term view is essential to maximizing the benefits of this strategy.


SELECTING A POLICY TYPE – PARTICIPATING WHOLE LIFE OR UNIVERSAL LIFE

Choosing the policy type to use with this strategy will come down to the unique characteristics of the client, their risk profile and desire for flexibility.

Reasons to consider participating whole life insurance:

Stability of growth – The combination of a long-term investment strategy, a large, well-established par account and a prudent management philosophy contributes to strong, stable returns for policy owners. A stable stream of returns can help to reduce the variability of policy performance.

Low maintenance – Policy owners do not have to pick and manage the investments within the policy. The Sun Life Participating Account is managed by a team of dedicated investment professionals.

Diversification opportunities – Participating policies have access to the participating account through policyholder dividends and consist of a diversified mix of bonds, real estate, equities and mortgages. An asset class on their own, participating whole life plans allow for diversification of a client’s existing corporate asset base.

Guarantees – Participating whole life insurance plans come with guaranteed cash values that continue to increase over the life of the contract. Both the guaranteed values and non-guaranteed values can be used to calculate the amount a lending institution is willing to lend. The lending institution may be willing to lend greater amounts against a policy with guaranteed cash values and investments than against one with variable investment options.

Vesting of dividends – Once a dividend is paid to the policy owner, it cannot be taken away unless directed by them. This helps to reduce cash value variability and adds stability to the long-term values in the policy.

Reasons to consider universal life insurance:

Premium flexibility – Universal life allows for greater premium flexibility than participating whole life. Only the monthly policy charges need to be made to ensure the policy stays in force. This may be beneficial to corporations with variable cash flow.

Investment choice – Universal life plans allow policy owners to select from a wide variety of equity, fixed income and guaranteed investment options. This can enable a business owner to replicate the asset classes already held within their corporation.

Control – Universal life plans allow policy owners the opportunity to take control of managing their asset mix and seeing the breakdown of the premiums paid to the policy, including cost of insurance, premium tax, and additional benefits.


MAKING IT EASYOur goal is very simple – to make it as easy as possible for you to sell and service our products. By providing clients with a concrete summary of the issues that face them, you will be better positioned to help them structure an effective financial solution. That’s why we offer the following tools that you can use to explain the benefits of the CRS strategy to clients.

Client fact sheet – participating whole life: This fact sheet sets out how the CRS strategy works with participating whole life, highlights the benefits and encourages clients to contact you for more information.

Client fact sheet – universal life: This fact sheet sets out how the CRS strategy works with universal life, highlights the benefits and encourages clients to contact you for more information.

Guide to leveraging a life insurance policy: A guide for lawyers, accountants and insurance advisors, this booklet reviews several methods of accessing the cash value of an exempt life insurance policy, including a number of third-party leverage structures, with a balanced discussion of the benefits and risks.

LEVERAGING A LIFE INSURANCE POLICYA GUIDE FOR LAWYERS, ACCOUNTANTS AND INSURANCE ADVISORS

Using life insurance as collateral for personal and business planning.

The corporaTe reTiremenT sTraTegy wiTh parTicipaTing whole life Being a business owner comes with unique risks because a steady increase in the value of your business can result in significant tax bills. Corporations are taxed at the top marginal rate on traditional investment assets and the income doesn’t qualify for the small business deduction. Capital gains taxes may apply when these assets are sold or reallocated, reducing corporate assets.

Catherine expects the corporation will owe sizable capital gains taxes on her death due to the steady increase in value of the corporation’s shares and investment assets. She and her advisor determine she needs $1,000,000 of permanent life insurance to protect the value of her corporation. In addition, while Catherine expects to have enough money to cover her living expenses during retirement, she’d like to have the potential for additional income if she needs it. She wants to build a pool of corporate assets to provide future liquidity if needed.

meeT caTherine

Catherine, age 44, is the sole shareholder of a successful Canadian controlled private corporation that generates annual corporate surplus of just over $50,000.

The challengeCatherine wants the flexibility to access corporate investment assets in a tax-effective manner while reducing the tax bite on these assets.

Catherine wants a solution that will provide guarantees and stability while protecting the corporation’s corporate surplus.

Catherine doesn’t want to sacrifice long-term growth potential by investing only in low yielding, interest bearing investments.

Catherine wants to reduce taxes on the corporation’s invested surplus.

She expects the corporation will owe sizable capital gains taxes on her death. She wants to ensure the value of the corporation is protected for her children.

Protect the value of your comPany and maintain access to cash

The corporaTe reTiremenT sTraTegy wiTh sunUniversalLife Being a business owner comes with unique risks because a steady increase in the value of your business can result in significant tax bills. Corporations are taxed at the top marginal rate on traditional investment assets and the income doesn’t qualify for the small business deduction. Capital gains taxes may apply when these assets are sold or reallocated, reducing corporate assets.

William expects the corporation will owe sizable capital gains taxes on his death due to the steady increase in the value of the corporation’s shares and investment assets. He and his advisor determine he needs $1,000,000 of permanent life insurance to protect the value of his corporation. In addition, while William expects to have enough money to cover his living expenses during retirement, he’d like to have the potential for additional income if he needs it. He wants to build a pool of corporate assets to provide future liquidity if needed.

meeT wiLLiam

William, age 48, is the sole shareholder of a successful Canadian controlled private corporation that generates annual corporate surplus of just over $50,000.

The challengeWilliam wants the flexibility to access corporate investment assets in a tax-effective manner while reducing the tax bite on these assets.

William wants a solution that provides flexibility. While the corporation’s annual income is generally stable, the timing of that income is inconsistent. William also wants to build an aggressive but balanced asset mix.

William wants to reduce taxes on his corporation’s invested surplus.

He expects the corporation will owe sizable capital gains taxes on his death. He wants to ensure the value of the corporation is protected for his children.

Protect the value of your comPany and maintain access to cash

CORPORATE RETIREMENT STRATEGY TOOLS

© Sun Life Assurance Company of Canada, 2011.810-3704-Digital-06-11

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CORPORATE RETIREMENT STRATEGY - Sun Life … · Introduction to the corporate retirement strategy...

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