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Estate Planning with Life Insurance, 8th Edition
This guide provides critical insight into the many roles life insurance plays in estate planning. This handy reference discusses:
• The role of corporate-owned life insurance in estate and family business succession planning
• The impact of changing tax rates on life insurance planning
• Detailed strategies for funding shareholders’ agreements
• Planning opportunities through the review of clients’ shareholders’ agreements and wills
• Accumulation and leveraging strategies
• The use of life insurance in charitable planning and in planning with trusts
• Creditor protection using insurance products
New for this eighth edition:
• Expanded commentary and additional examples regarding corporate policy transfers, including amalgamations, the transfer of an insurance policy as a dividend in kind, the transfer of a policy to a key employee, and transfers between partners and partnerships
• New commentary on the valuation of corporate-owned life insurance
• Discussion of new case law, including:
• Calmusky and Mak—cases potentially affecting beneficiary designations
• Brown v. Laurie—a shareholder dispute concerning the payment of life insurance proceeds
• Rogers—a tax case involving life insurance proceeds and the calculation of the capital dividend account
• Expanded discussion concerning the CRA’s potential ability to seize life insurance proceeds
• New case studies and updates throughout the book
Glenn Stephens, LL.B., TEP, FEA, was called to the Ontario Bar in 1982. Glenn is Vice-President, Planning Services with PPI Advisory in Toronto, and provides tax and legal support to PPI Associates across Canada. He has been with PPI since 2004. Glenn has lectured and written extensively on the subjects of estate planning, taxation, and life insurance. He is a regular columnist for FORUM magazine and an editor of Insurance Planning. Glenn is a member of the Society of Trust and Estate Practitioners (STEP), the Conference for Advanced Life Underwriting (CALU), Family Enterprise Canada and the Canadian Tax Foundation.
It is more than twenty years since the first edition of this book was published. As one would expect, any book that deals with income tax, estate planning, and life insurance can quickly become out of date. Inevitable changes in the law, as well as product developments and other factors, have led to a number of new editions over the years. This is the eighth edition, which is an update to the seventh edition that was published in 2019.
In my professional life I continue receive more questions on insurance policy transfers than on any other subject. The commentary on policy transfers was updated in the sixth and seventh editions, but I still felt that more commentary was needed. Chapter 4 of this edition includes some revisions to existing material, plus an expanded section dealing with transfers to key employees, and between partners and partnerships. The policy transfer rules are difficult and confusing, and can result in onerous tax consequences for the unwary. I hope this section of the book will be helpful not only to insurance professionals but also to tax advisors who may be unfamiliar with the rules.
As in all previous editions, new and relevant case law has been included. Cases that attracted a lot of attention in the last year or so were the Ontario decisions in Calmusky and Mak, which highlight the evolving (and still uncertain) law regarding beneficiary designations and resulting trusts. Another recent Ontario case, Brown v. Laurie, showed the dangers of failing to properly document clients’ intentions at the time life insurance is acquired. There is also expanded commentary, with reference to relevant cases, on whether the CRA has the ability to seize insurance proceeds payable to a named beneficiary. Other new court cases are addressed in different chapters where relevant.
Finally, as with previous updates, this edition contains both new and revised examples in many chapters, and uses updated income tax rates where applicable.
The book is primarily intended for insurance advisors who work with business owners, executives, and other high net worth individuals, although I have met some lawyers, accountants, and other professionals who admit to reading the book. As with the previous editions, throughout this book I will use the terms ‘‘insur- ance professional’’, ‘‘insurance advisor’’, ‘‘agent’’, or ‘‘broker’’ to describe the individual involved in selling insurance to the client. These different terms are intended to be synonymous.
By necessity, this book will contain a lot of income tax-related material. It is not, however, intended be an income tax or estate planning text. The income tax information provided is intended to be of sufficient detail that it will help the insurance advisor understand how insurance products can best be used in client situations.
Unless otherwise indicated, the examples and commentary in the book apply only to Canadian residents and citizens. There are many Canadian residents who are US citizens or dual citizens, and many Canadian citizens who reside in the US. These individuals are subject to US tax laws that are for the most part outside the scope of this book.
Like the previous editions, this edition will contain references to relevant sections of the Income Tax Act (Canada), and will also identify some pertinent CRA publications and case law. These will be found at the end of each chapter. It is hoped that these references will be helpful to those interested in a more in-depth investigation into these issues, particularly accountants and lawyers who are being asked to advise clients but may not be familiar with some of the peculiarities of the taxation of life insurance.
Inevitably, as with the earlier editions, post-publication income tax changes will render certain portions of this book out of date. The online edition should allow more regular updating.
Glenn R. Stephens, LL.B., TEP, FEA Toronto, Ontario