7.8.1 General rule
As a general rule, if a policyholder absolutely assigns his life insurance policy to an arm’s length party, his proceeds are deemed to be the amount he received in compensation (i.e., the transfer price), and his policy gain will be equal to the transfer price minus the policy’s adjusted cost basis (ACB) immediately prior to the transfer. The transferee acquires the policy with an ACB equal to the transfer price.
Two people are said to be dealing at arm’s length if they are unrelated and they complete a transaction by acting entirely in their own independent economic interests. Very few absolute life insurance assignments are actually done at arm’s length, and one of the following situations is more likely to apply.
7.8.2 To a non-arm’s length party
Exceptions to the general rule apply if the absolute assignment occurs via one of the following situations, regardless of the amount (if any) that the policyholder received in compensation:
The transfer is via gift or bequest;
The transfer is from a corporation;
The Income Tax Act allows property to rollover from one spouse to another, meaning that it can
be transferred without triggering a taxable disposition. This rollover applies to all types of property,
including life insurance. So, if a policyholder assigns ownership of a life insurance policy to his
spouse, he is deemed to have acquired proceeds equal to his ACB, and his spouse is deemed to
have received the policy with the same ACB. This applies even if the recipient spouse paid the
transferor spouse for the policy.
As a general rule, if a policyholder absolutely assigns his life insurance policy to an arm’s length party, his proceeds are deemed to be the amount he received in compensation (i.e., the transfer price), and his policy gain will be equal to the transfer price minus the policy’s adjusted cost basis (ACB) immediately prior to the transfer. The transferee acquires the policy with an ACB equal to the transfer price.
Two people are said to be dealing at arm’s length if they are unrelated and they complete a transaction by acting entirely in their own independent economic interests. Very few absolute life insurance assignments are actually done at arm’s length, and one of the following situations is more likely to apply.
7.8.2 To a non-arm’s length party
Exceptions to the general rule apply if the absolute assignment occurs via one of the following situations, regardless of the amount (if any) that the policyholder received in compensation:
The transfer is via gift or bequest;
The transfer is from a corporation;
The transfer is a result of the operation of law (e.g., transfer to a successor owner or a joint
owner with right of survivorship);
The transfer is to any other non-arm’s length party.
A non-arm’s length relationship is deemed to exist between relatives, or any two unrelated parties who have a common interest and do not carry out a transaction in a way that two complete strangers might.
If any of the above situations apply, then the proceeds of disposition are deemed to be equal to the amount that the policyholder would have received if he had fully surrendered the policy (unless the spousal or child rollover rules apply, as discussed shortly in Sections Assigning a policy to a spouse and Assigning a policy to a child). Usually this means the cash surrender value less any outstanding policy loans.
The person who acquires the policy acquires it with an ACB equal to this same amount. This keeps the policyholder from avoiding a policy gain by giving the policy away, or selling it to someone else at a discount to its true value.
EXAMPLE
Robert owned a UL policy on the life of his wife, Joanna, naming himself as the beneficiary. Robert is terminally ill and, in anticipation of his death, he assigned ownership of the policy to his brother, Jim. At the time of the assignment, the policy had an ACB of $34,000 and a CSV of $61,000. As a result of this disposition, Robert realized a policy gain of $27,000.
Policy gain = $61,000 – $34,000 = $27,000 Jim acquired the policy with an ACB of $61,000.
7.8.3 Assigning a policy to a spouse
The transfer is to any other non-arm’s length party.
A non-arm’s length relationship is deemed to exist between relatives, or any two unrelated parties who have a common interest and do not carry out a transaction in a way that two complete strangers might.
If any of the above situations apply, then the proceeds of disposition are deemed to be equal to the amount that the policyholder would have received if he had fully surrendered the policy (unless the spousal or child rollover rules apply, as discussed shortly in Sections Assigning a policy to a spouse and Assigning a policy to a child). Usually this means the cash surrender value less any outstanding policy loans.
The person who acquires the policy acquires it with an ACB equal to this same amount. This keeps the policyholder from avoiding a policy gain by giving the policy away, or selling it to someone else at a discount to its true value.
EXAMPLE
Robert owned a UL policy on the life of his wife, Joanna, naming himself as the beneficiary. Robert is terminally ill and, in anticipation of his death, he assigned ownership of the policy to his brother, Jim. At the time of the assignment, the policy had an ACB of $34,000 and a CSV of $61,000. As a result of this disposition, Robert realized a policy gain of $27,000.
Policy gain = $61,000 – $34,000 = $27,000 Jim acquired the policy with an ACB of $61,000.
7.8.3 Assigning a policy to a spouse
EXAMPLE
Noah recently assigned a life insurance policy with a CSV of $85,000 and an
ACB of $32,000 to his wife, Eve. Noah is deemed to have received proceeds
of $32,000, which will result in a policy gain of $0.
Policy gain = $32,000 – $32,000 = $0
Eve is deemed to have acquired the policy with an ACB of $32,000.
7.8.3.1 Opting out of the spousal rollover
The spousal rollover is automatic. However, the transferring spouse can choose to opt out of the rollover by filing a special election with his tax return. A policyholder might want to opt out of the rollover if he has a lower marginal tax rate than his spouse, or if he has income losses that he can use to absorb the resulting policy gain (e.g., rental or partnership losses).16 By opting out of the rollover, the ACB for the recipient spouse will be higher, which in turn will reduce the policy gain when the recipient spouse later disposes of the policy.
EXAMPLE (cont.)
Noah has a rental loss of $70,000 and no other taxable income. If he opts out of the automatic rollover, the policy assignment will result in a policy gain of $53,000.
Policy gain = $85,000 – $32,000 = $53,000
However, this will be more than offset by his rental loss, so it will not result in him having to pay tax. Furthermore, by opting out of the rollover, Eve’s ACB for the policy becomes $85,000.
7.8.3.2 Income attribution rules
When a taxpayer gives or sells property to his spouse, any property income (e.g., interest income, dividends or rents) or capital gains she earns on that property is generally17 subject to income attribution as long as the taxpayer is still alive. This means that the income will be taxable to the transferor spouse even if it is earned and legally belongs to the recipient spouse. Once the transferor spouse dies, the income attribution rules cease to apply.
16. This excludes capital losses, because capital losses can generally only be applied against taxable capital gains. 17. Income attribution will not apply if the recipient spouse pays fair market value for the policy and the transferor spouse opts out of the automatic rollover.
example
Policy gain = $32,000 – $32,000 = $0
Eve is deemed to have acquired the policy with an ACB of $32,000.
7.8.3.1 Opting out of the spousal rollover
The spousal rollover is automatic. However, the transferring spouse can choose to opt out of the rollover by filing a special election with his tax return. A policyholder might want to opt out of the rollover if he has a lower marginal tax rate than his spouse, or if he has income losses that he can use to absorb the resulting policy gain (e.g., rental or partnership losses).16 By opting out of the rollover, the ACB for the recipient spouse will be higher, which in turn will reduce the policy gain when the recipient spouse later disposes of the policy.
EXAMPLE (cont.)
Noah has a rental loss of $70,000 and no other taxable income. If he opts out of the automatic rollover, the policy assignment will result in a policy gain of $53,000.
Policy gain = $85,000 – $32,000 = $53,000
However, this will be more than offset by his rental loss, so it will not result in him having to pay tax. Furthermore, by opting out of the rollover, Eve’s ACB for the policy becomes $85,000.
7.8.3.2 Income attribution rules
When a taxpayer gives or sells property to his spouse, any property income (e.g., interest income, dividends or rents) or capital gains she earns on that property is generally17 subject to income attribution as long as the taxpayer is still alive. This means that the income will be taxable to the transferor spouse even if it is earned and legally belongs to the recipient spouse. Once the transferor spouse dies, the income attribution rules cease to apply.
16. This excludes capital losses, because capital losses can generally only be applied against taxable capital gains. 17. Income attribution will not apply if the recipient spouse pays fair market value for the policy and the transferor spouse opts out of the automatic rollover.
example
Suppose that Noah did not opt out of the automatic rollover, and that Eve later
surrendered the policy when its CSV was $94,000. As a result of the income
attribution rules, Noah would have to report the resulting policy gain of
$62,000.
Policy gain = $94,000 – $32,000 = $62,000
This happens even though Eve is the one who would have actually received the money. If Eve waited until Noah died to surrender the policy, she would have to report the policy gain as part of her own income.
Policy gain = $94,000 – $32,000 = $62,000
This happens even though Eve is the one who would have actually received the money. If Eve waited until Noah died to surrender the policy, she would have to report the policy gain as part of her own income.
7.8.4 Assigning a policy to a child
The Income Tax Act also allows a policyholder to rollover an insurance policy to a child, if all of the following conditions apply:
The transfer is done for no consideration (i.e., the child didn’t pay the policyholder for the policy);
The life insured by the policy is the child, or that child’s child. The rollover will not apply if the policyholder is transferring a policy to his child and the policyholder is the life insured under that policy.
EXAMPLE
Rhonda owned a UL policy with an ACB of $16,000 and a CSV of $29,500 on the life of her daughter, Jolene, who is 19 years old. Rhonda gave the policy to Jolene for her 19th birthday. Because of the automatic rollover, Rhonda is deemed to have received proceeds equal to her ACB of $16,000, so no policy gain is triggered at the time of the gift. Jolene is deemed to receive the policy with an ACB of $16,000.
Any policy gain that is subsequently triggered when the transferee child disposes of the policy will be taxable to that child, as long as the child is at least 18 years old by the end of the year. If the child is under 18, the income attribution rules will apply and the policy gain will be taxable to the original policyholder.
EXAMPLE (cont.)
Jolene surrendered the policy shortly after receiving ownership of it. She realized a policy gain of $13,500.
Policy gain = $29,500 – $16,000 = $13,500
Because she is over 18 years of age, the policy gain will be taxable in her hands.
The Income Tax Act also allows a policyholder to rollover an insurance policy to a child, if all of the following conditions apply:
The transfer is done for no consideration (i.e., the child didn’t pay the policyholder for the policy);
The life insured by the policy is the child, or that child’s child. The rollover will not apply if the policyholder is transferring a policy to his child and the policyholder is the life insured under that policy.
EXAMPLE
Rhonda owned a UL policy with an ACB of $16,000 and a CSV of $29,500 on the life of her daughter, Jolene, who is 19 years old. Rhonda gave the policy to Jolene for her 19th birthday. Because of the automatic rollover, Rhonda is deemed to have received proceeds equal to her ACB of $16,000, so no policy gain is triggered at the time of the gift. Jolene is deemed to receive the policy with an ACB of $16,000.
Any policy gain that is subsequently triggered when the transferee child disposes of the policy will be taxable to that child, as long as the child is at least 18 years old by the end of the year. If the child is under 18, the income attribution rules will apply and the policy gain will be taxable to the original policyholder.
EXAMPLE (cont.)
Jolene surrendered the policy shortly after receiving ownership of it. She realized a policy gain of $13,500.
Policy gain = $29,500 – $16,000 = $13,500
Because she is over 18 years of age, the policy gain will be taxable in her hands.
7.8.4.3 Education funding or other intergenerational transfers
The rollover of an insurance policy to a child provides some interesting opportunities for intergenerational wealth transfer. For example, a policyholder could acquire a UL policy on the life of a child, and maximum fund it to build up the CSV as quickly as possible. He could then give the policy to that child, and the rollover would apply.
Once the child is 18 years of age, the child could surrender the policy, and the policy gain would be taxable in that child’s hands, often when the child has little or no other taxable income. However, if the child surrenders the policy prior to age 18, income attribution rules would apply, meaning that the original policyholder would have to report the policy gain as income.
EXAMPLE
Dorothy is in the top marginal tax bracket, such that any interest income she earns personally is taxed at 44%. Dorothy bought a UL policy on the life of her daughter Madelyn, with the intention of eventually giving the policy to Madelyn’s daughter Jackie (i.e., Dorothy’s granddaughter), to help with her education expenses. By the time Jackie was 18, the policy had a cash surrender value (CSV) of $54,000 and an adjusted cost basis (ACB) of $18,000. Dorothy gave the policy to Jackie for her 18th birthday. The policy qualified for a rollover, so Jackie acquired the policy with an ACB of $18,000.
Jackie immediately withdrew $15,000 to pay for her first year of university. The
prorated ACB for her withdrawal is $5,000.
Prorated ACB = ($15,000 ÷ $54,000) × $18,000 Her withdrawal will result in a policy gain of $10,000.
Policy gain = $15,000 – $5,000 = $10,000
She has no other sources of taxable income, so this will be fully sheltered by her basic personal exemption,18 and she will not have to pay any tax. If her grandmother, Dorothy, had retained ownership of the policy and made the same withdrawal, Dorothy would have had to pay tax of $4,400.
Amount of tax Dorothy would have paid = $10,000 × 44%
Note that this tax strategy tends to be more effective when the transfer skips a generation, and when the life insured is not a minor. This is because the amount of money that can be accumulated within an exempt policy is partially a function of the age of the life insured and the face amount. The younger the life insured and the lower the face amount, the lower the MTAR line on the exempt test policy.
Prorated ACB = ($15,000 ÷ $54,000) × $18,000 Her withdrawal will result in a policy gain of $10,000.
Policy gain = $15,000 – $5,000 = $10,000
She has no other sources of taxable income, so this will be fully sheltered by her basic personal exemption,18 and she will not have to pay any tax. If her grandmother, Dorothy, had retained ownership of the policy and made the same withdrawal, Dorothy would have had to pay tax of $4,400.
Amount of tax Dorothy would have paid = $10,000 × 44%
Note that this tax strategy tends to be more effective when the transfer skips a generation, and when the life insured is not a minor. This is because the amount of money that can be accumulated within an exempt policy is partially a function of the age of the life insured and the face amount. The younger the life insured and the lower the face amount, the lower the MTAR line on the exempt test policy.
Maximum Tax Actuarial Reserve (MTAR)
In other words, the MTAR line of the ETP describes an accumulating fund that will grow to equal
the death benefit by the time the life insured reaches age 85, based on fixed deposits for 20 years,
and growth at an assumed interest rate, minus the cost of insurance. This rate should be 4 %
minimum. (Adjustments are made if the policy was issued after age 65, but that is beyond the
scope of this Chapter).
When comparing the cash values of the actual policy to the ETP, the CSV is used (i.e., the cash value – any surrender charges). If the CSV of the actual policy is less than the MTAR of the ETP, then the policy is exempt from annual accrual taxation.
7.6.3 Maximum Tax Actuarial Reserve (MTAR) remedies
While life insurance policies are initially designed to be exempt, it is possible for a policy to become non-exempt after issue, usually due to investment returns that were higher than expected. Fortunately, neither the policyholder nor the agent is responsible for applying or monitoring the results of the MTAR rule. Usually the terms of the life insurance contract specify that the insurance company is responsible for ensuring that the policy remains exempt.
If the policy fails the MTAR test on its anniversary, the Income Tax Act allows a grace period of 60 days after that date for the problem to be fixed before the policy officially loses its exempt status. Once an exempt policy is declared to be non-exempt (i.e., if it cannot be restored during the 60-day grace period), it remains non-exempt forever.
When comparing the cash values of the actual policy to the ETP, the CSV is used (i.e., the cash value – any surrender charges). If the CSV of the actual policy is less than the MTAR of the ETP, then the policy is exempt from annual accrual taxation.
7.6.3 Maximum Tax Actuarial Reserve (MTAR) remedies
While life insurance policies are initially designed to be exempt, it is possible for a policy to become non-exempt after issue, usually due to investment returns that were higher than expected. Fortunately, neither the policyholder nor the agent is responsible for applying or monitoring the results of the MTAR rule. Usually the terms of the life insurance contract specify that the insurance company is responsible for ensuring that the policy remains exempt.
If the policy fails the MTAR test on its anniversary, the Income Tax Act allows a grace period of 60 days after that date for the problem to be fixed before the policy officially loses its exempt status. Once an exempt policy is declared to be non-exempt (i.e., if it cannot be restored during the 60-day grace period), it remains non-exempt forever.
In other words, the MTAR line of the ETP describes an accumulating fund that will grow to equal
the death benefit by the time the life insured reaches age 85, based on fixed deposits for 20 years,
and growth at an assumed interest rate, minus the cost of insurance. This rate should be 4 %
minimum. (Adjustments are made if the policy was issued after age 65, but that is beyond the
scope of this Chapter).
When comparing the cash values of the actual policy to the ETP, the CSV is used (i.e., the cash value – any surrender charges). If the CSV of the actual policy is less than the MTAR of the ETP, then the policy is exempt from annual accrual taxation.
7.6.3 Maximum Tax Actuarial Reserve (MTAR) remedies
While life insurance policies are initially designed to be exempt, it is possible for a policy to become non-exempt after issue, usually due to investment returns that were higher than expected. Fortunately, neither the policyholder nor the agent is responsible for applying or monitoring the results of the MTAR rule. Usually the terms of the life insurance contract specify that the insurance company is responsible for ensuring that the policy remains exempt.
If the policy fails the MTAR test on its anniversary, the Income Tax Act allows a grace period of 60 days after that date for the problem to be fixed before the policy officially loses its exempt status. Once an exempt policy is declared to be non-exempt (i.e., if it cannot be restored during the 60-day grace period), it remains non-exempt forever.
When comparing the cash values of the actual policy to the ETP, the CSV is used (i.e., the cash value – any surrender charges). If the CSV of the actual policy is less than the MTAR of the ETP, then the policy is exempt from annual accrual taxation.
7.6.3 Maximum Tax Actuarial Reserve (MTAR) remedies
While life insurance policies are initially designed to be exempt, it is possible for a policy to become non-exempt after issue, usually due to investment returns that were higher than expected. Fortunately, neither the policyholder nor the agent is responsible for applying or monitoring the results of the MTAR rule. Usually the terms of the life insurance contract specify that the insurance company is responsible for ensuring that the policy remains exempt.
If the policy fails the MTAR test on its anniversary, the Income Tax Act allows a grace period of 60 days after that date for the problem to be fixed before the policy officially loses its exempt status. Once an exempt policy is declared to be non-exempt (i.e., if it cannot be restored during the 60-day grace period), it remains non-exempt forever.
In other words, the MTAR line of the ETP describes an accumulating fund that will grow to equal
the death benefit by the time the life insured reaches age 85, based on fixed deposits for 20 years,
and growth at an assumed interest rate, minus the cost of insurance. This rate should be 4 %
minimum. (Adjustments are made if the policy was issued after age 65, but that is beyond the
scope of this Chapter).
When comparing the cash values of the actual policy to the ETP, the CSV is used (i.e., the cash value – any surrender charges). If the CSV of the actual policy is less than the MTAR of the ETP, then the policy is exempt from annual accrual taxation.
7.6.3 Maximum Tax Actuarial Reserve (MTAR) remedies
While life insurance policies are initially designed to be exempt, it is possible for a policy to become non-exempt after issue, usually due to investment returns that were higher than expected. Fortunately, neither the policyholder nor the agent is responsible for applying or monitoring the results of the MTAR rule. Usually the terms of the life insurance contract specify that the insurance company is responsible for ensuring that the policy remains exempt.
If the policy fails the MTAR test on its anniversary, the Income Tax Act allows a grace period of 60 days after that date for the problem to be fixed before the policy officially loses its exempt status. Once an exempt policy is declared to be non-exempt (i.e., if it cannot be restored during the 60-day grace period), it remains non-exempt forever.
When comparing the cash values of the actual policy to the ETP, the CSV is used (i.e., the cash value – any surrender charges). If the CSV of the actual policy is less than the MTAR of the ETP, then the policy is exempt from annual accrual taxation.
7.6.3 Maximum Tax Actuarial Reserve (MTAR) remedies
While life insurance policies are initially designed to be exempt, it is possible for a policy to become non-exempt after issue, usually due to investment returns that were higher than expected. Fortunately, neither the policyholder nor the agent is responsible for applying or monitoring the results of the MTAR rule. Usually the terms of the life insurance contract specify that the insurance company is responsible for ensuring that the policy remains exempt.
If the policy fails the MTAR test on its anniversary, the Income Tax Act allows a grace period of 60 days after that date for the problem to be fixed before the policy officially loses its exempt status. Once an exempt policy is declared to be non-exempt (i.e., if it cannot be restored during the 60-day grace period), it remains non-exempt forever.
7.10 Taxation of life insurance strategies
The previous sections have examined how life insurance is taxed from a product perspective. This Section explores the tax implications of various strategies that can be implemented using insurance, including:
Using the policy for collateral, including borrowing for business use; Annuitizing the cash surrender value to create a steady income;
Leveraging a life insurance policy to create a retirement income;
Charitable giving.
The previous sections have examined how life insurance is taxed from a product perspective. This Section explores the tax implications of various strategies that can be implemented using insurance, including:
Using the policy for collateral, including borrowing for business use; Annuitizing the cash surrender value to create a steady income;
Leveraging a life insurance policy to create a retirement income;
Charitable giving.
EXAMPLE
Heloise borrowed $200,000 from a financial institution to expand her business. The lender required the collateral assignment of her $500,000 universal life policy, which had an adjusted cost basis (ACB) of $160,000 and a cash surrender value (CSV) of $250,000. Heloise paid premiums of $12,000 annually, with a NCPI of $3,200.
Because Heloise’s policy is for $500,000 but the loan is only for $200,000, she can only deduct 40% of the NCPI.
Percentage of NCPI deductible = $200,000 ÷ $500,000 = 40% So, she can deduct $1,280 as a business expense.
Deduction = 40% × $3,200 = $1,280
Heloise borrowed $200,000 from a financial institution to expand her business. The lender required the collateral assignment of her $500,000 universal life policy, which had an adjusted cost basis (ACB) of $160,000 and a cash surrender value (CSV) of $250,000. Heloise paid premiums of $12,000 annually, with a NCPI of $3,200.
Because Heloise’s policy is for $500,000 but the loan is only for $200,000, she can only deduct 40% of the NCPI.
Percentage of NCPI deductible = $200,000 ÷ $500,000 = 40% So, she can deduct $1,280 as a business expense.
Deduction = 40% × $3,200 = $1,280
7.10.3.1 Collateralizing the cash surrender value (CSV)
Recall that a policyholder may be able to use the CSV of his life insurance policy as collateral for a loan, and that doing so does not trigger a deemed disposition.
Under an insured retirement strategy, the policyholder negotiates a series of annual loans, where each loan is secured by the policy’s CSV. When the life insured dies, the lender recovers the amount of the cumulative loans from the death benefit, with the remainder going to the beneficiaries. This is called collateralizing the CSV.
The policyholder gets a tax-free payment from the lender, which can be particularly important to those in retirement who are trying to minimize their net income to avoid claw backs of Old Age Security (OAS) benefits.
The cash value remains in the policy where it can continue to grow on a tax-sheltered basis. This growth in the accumulating fund will help extend the duration of the income stream, because the lender will not let the cumulative loans exceed a certain percentage of the CSV.
Recall that a policyholder may be able to use the CSV of his life insurance policy as collateral for a loan, and that doing so does not trigger a deemed disposition.
Under an insured retirement strategy, the policyholder negotiates a series of annual loans, where each loan is secured by the policy’s CSV. When the life insured dies, the lender recovers the amount of the cumulative loans from the death benefit, with the remainder going to the beneficiaries. This is called collateralizing the CSV.
The policyholder gets a tax-free payment from the lender, which can be particularly important to those in retirement who are trying to minimize their net income to avoid claw backs of Old Age Security (OAS) benefits.
The cash value remains in the policy where it can continue to grow on a tax-sheltered basis. This growth in the accumulating fund will help extend the duration of the income stream, because the lender will not let the cumulative loans exceed a certain percentage of the CSV.
EXAMPLE
Doris owns a UL policy with a CSV of $380,000. She made an arrangement to
receive a loan of $20,000 each year, secured by her insurance policy. She
receives the $20,000 at the beginning of each year, and does not need to
report it as taxable income.
7.10.3.2 Interest paid or capitalized
Depending on the lender, the policyholder may have to pay the interest on the loans annually, or the lender may allow the interest to be capitalized, meaning it will be added to the cumulative loan balance outstanding, which is payable at death.
Both methods have their drawbacks. Interest that has to be paid annually will reduce the policyholder’s retirement cash flow. Interest that is capitalized will reduce the policy’s estate value.
7.10.3.2 Interest paid or capitalized
Depending on the lender, the policyholder may have to pay the interest on the loans annually, or the lender may allow the interest to be capitalized, meaning it will be added to the cumulative loan balance outstanding, which is payable at death.
Both methods have their drawbacks. Interest that has to be paid annually will reduce the policyholder’s retirement cash flow. Interest that is capitalized will reduce the policy’s estate value.
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7.10.5 Managing taxes upon death
Life insurance is often used to manage or pay for the taxes that become due as a result of death. While life insurance cannot help the policyholder or life insured avoid these taxes, it can provide the funds to pay them, and thereby preserve the estate for the intended beneficiaries. The four primary taxes or fees that can burden an estate include:
Tax on capital gains;
Tax resulting from the collapsing of registered plans (RRSP, RRIF, etc.); Taxes payable by the estate;
Probate fees.
Agents must estimate these liabilities with sufficient accuracy to determine if the estate will be large enough to cover them, or if insurance is required. Candidates are reminded to review the Booklet entitled Life insurance taxation principles to ensure they are familiar with these tax principles.
11.3.4.3 Debt elimination
A common objective in a life insurance needs analysis is to ensure that the estate has sufficient liquidity to pay off all debts owing at the time of death.
A common objective in a life insurance needs analysis is to ensure that the estate has sufficient liquidity to pay off all debts owing at the time of death.
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