Strategic Tax Planning and the Large Case Market An opportunity for strategic diversification and distribution of your assets Stephanie Stewart, CLU, CEA, RHU, BBA Advanced Case Consultant Product Solutions Center

The information provided is based on current tax legislation and interpretations for Canadian residents and is accurate to the best of our knowledge as of the date of publication. Future changes to tax legislation and interpretations may affect this information. This information is general in nature, and is not intended to be legal or tax advice. For specific situations, you should consult the appropriate legal, accounting or tax advisor.

Agenda Key components to large case success The ‘tool box’ (numbers) Client Discussion pieces Live case examples

Key Components to Large Case Success The ability to position cash value life insurance as a valuable part of their overall net worth The ability to communicate the opportunity the insurance provides Advisor has a process & “tool box” of discussion pieces

Balance of Skills for the Large Life Sale Sales Skills Technical Skills Analysis Words Products Stories Competition Questions Promotion Concepts

Insurance Planning Continuum Net worth Transfer Strategic diversification of net worth Asset substitution Estate equalization Accumulation Tax advantaged alternative to fixed income , Strategic diversification Alternative asset class Protection Replaces lost earnings Time

Insurance Planning Continuum Asset Substitution / Estate Equalization Strategic Diversification OPPORTUNITY Tax-Advantaged Alternative to Fixed Income Replaces Lost Earnings Capacity NEED

Insurance Planning Continuum Asset Substitution / Estate Equalization Strategic Diversification DEPOSIT Tax-Advantaged Alternative to Fixed Income Replaces Lost Earnings Capacity EXPENSE

Diversified Assets – Integrated Value Note: Different asset groups vary in their features and characteristics. It makes sense to evaluate how these differences can be managed and applied to your best advantage. These asset groups are not in competition… they complement each other. TOTAL NET WORTH Fixed Income Investments Equity Investments Business, Real Estate, etc. Life Insurance Growth/Risk Time Tax Treatment Accessibility Distribution Life Insurance Characteristics A conservative instrument Growth is tax advantaged Retains value when owner dies Death Benefit is tax-free “to the named beneficiary” Can provide additional cash resources Low volatility Optimized Personal Net Worth & Estate Values

Diversified Assets – Integrated Value Participating Life Insurance Characteristics Conservative instrument Consistent and stable earnings Growth is tax exempt Retains value when owner dies Death Benefit is tax-free Can provide additional cash resources Can be leveraged to buy or to spend Professionally managed Vested policy holder dividends (for 170 years)

Vesting

How participating life insurance works

Where it fits – strategic diversification Permanent life insurance as part of an overall portfolio Equities Fixed- income assets Fixed- income investments Life insurance Other Cash *Stable performance, low risk, low fees, professionally managed, access to available cash value if any.

Net Worth Cycle

Tax grind (Ontario) Example 50 mns Non-registered investment 1,000,000 at 4% At year 25 0% tax environment: $2,665,836 53.53% tax environment: $1,584,761 Cumulative loss due to tax: $1,081,075

Tax Grind – show them the opportunity… Default Position Deposit: 100,000 Duration: 10 Years Growing at 4%, 53.53% tax environment Net Estate Age 70 $1,332,248 Age 80 $1,602,661 Age 90 $1,925,556 By Design : Tax-Exempt Insurance Deposit: $100,000 Duration: 10 Years Coverage: $1,434,454 Net Estate Age 70 $2,566,818 Age 80 $3,292,742 Age 90 $4,250,370 Increased Family Estate @ 90: $2,324,814 Equivalent Pre-Tax Required Return: 8.91%

Cash is accessible if needed… 3 Policy Loan, Bank Loan, surrendering paid up additions

ESTATE PLANNING PROPOSAL (Living Access) Traditional Investment 4% Deposit: $ 100,000 Duration: 10 Years Net Income 75-90: $ 139, 274 Accumulated $ 1,574,251 Net Estate 90: $ 0 NO ACCESS: $1,897,173 Tax-Exempt Insurance Deposit: $ 100,000 Duration: 10 Years Coverage: $1,435,454 Net Income 75 -90: $ 139,274 Accumulated: $2,089,110 Net Estate 90: $ 936,991 NO ACCESS: $4,250,372 @ 90 Increased Family Wealth with access: $1,451,850 @ 90 Required Rate of Return: 8.42% Disclaimer *Collateral loans involve risk. They should only be considered by sophisticated investors with high risk tolerance and access to professional advice from a lawyer and accountant. The terms of future availability of collateral loans cannot be guaranteed. The loan or line of credit must be negotiated between the policyowner and the lender. It is subject to the lender’s financial underwriting and other requirements. The policyowner should have enough income and capital to cover the interest and loan repayment, as well as the insurance premium.

Accessing CSV Assumptions & Incomes Male, 50, non-smoker Tax Exempt Insurance Canada Life EA 20 Pay Life – Current Dividend Scale ( 10 Premiums) max ADO – Initial Coverage: $1,435,454 Collateral Loan Assumptions Loan Rate 5% (Interest Capitalized) Life Expectancy 90 Loan Repaid with Death Benefit Investment Allocation 100% Interest @ 4% (53.53% tax) Disclaimer *Collateral loans involve risk. They should only be considered by sophisticated investors with high risk tolerance and access to professional advice from a lawyer and accountant. The terms of future availability of collateral loans cannot be guaranteed. The loan or line of credit must be negotiated between the policyowner and the lender. It is subject to the lender’s financial underwriting and other requirements. The policyowner should have enough income and capital to cover the interest and loan repayment, as well as the insurance premium.

Funding Options Cash Flow Existing Asset Leverage (only for the RIGHT client)

Immediate Financing Arrangements Corporation Deposits Bank of Montreal ScotiaBank Toronto Dominion CIBC Manulife Assignment Life Insurance Reinvested in business/investment Earn X% Loan Replenishes working capital premiums are deposited into permanent insurance plan client can borrow to replace working capital* (loan rates negotiable) invest loan proceeds to generate taxable income pay the loan interest and tax-deduct it** net cost of pure insurance (NCPI) may also be deductible benefit from the value of the net insurance amount and net investment

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