Family Wealth Transfer

1
Family Wealth Transfer

• Giving Money to your spouse and children

2

• Although some people may think that giving
  money to their spouse and children is a natural
  life function, there are tax rules that actually,
  make this unattractive.

3

• CCRA (Revenue Canada) is not enthused about
  taxpayers in a high tax bracket, giving money
  away to family members who might be in a lower
  tax bracket.
• The problem is that when
• a person does that, the
• income earned on the money
• would be taxable at a lower rate than the
  taxable rate of
• the person who gave it away.

4

• So, to combat this practice, the
• government put in some rules
• called attribution rules.
• Simply put, the income earned by
• the family members you gave the
• money to, is taxed at your higher
• rate, as if you had earned that income, even
  though you
• did not receive that income.

5

• The insurance industry has found some sections of
  the income
• tax that can be used to defeat this problem.
• It is subsection 148(8) of the act and it allows
  you to do some
• interesting things.

6
Intergenerational Transfers

• A parent may purchase a life
• insurance policy on a child or
• a grandchild. The parent deposits
• funds into the plan to build up
• cash values for the ultimate
• benefit of the child.
• When the parent owns such a
• policy, it can be rolled over on a
• tax-free basis to the child at any time.
  
• Universal Life is ideally suited for this
  purpose.

7

• This allows the parent to maintain
• control of the policy for as long as
• they feel necessary, and transfer it
• to the child when they are confident
• of the childs ability to handle the
• money.

8
Who is considered a child ?

• A child can be any number of people
• Your child
• A grandchild
• A great grandchild
• Spouse of a child
• Anyone under the age of 19 who is totally
  dependent you
• for support and under your care and custody

9

• And you dont even need to give
• the policy to the person who is
• insured under the policy.
• If you insure your child, you
• could roll the plan over to your
• grandchild.

10

• This rule is limited to rollovers during your
  (policy holder) lifetime, so you cannot arrange a
  transfer to a child at the death of the policy
  holder.
• To solve this problem, you would arrange that
  a spouse be made a successor owner, or if you are
  confident in the ability of the child, the child
  itself could be the successor owner. As successor
  owner, the policy would automatically transfer to
  them and not form part of the deceaseds estate.

11
What does this allow you to do?

• If a parent or grandparent has excess funds
  that they would like to accumulate for a child,
  they could purchase an insurance policy on the
  child.
• When the child reaches age 18, the plan could
  be transferred to them on a tax-free rollover
  basis.
• The child could then withdraw funds from the
  plan and because they are over 18, there would be
  no attribution back to the parent. Any policy
  gain would be taxed in their hands.
• universal life is ideally suited
  for this purpose

12

• This could prove an effective way to fund
  part or all of the childs post secondary
  education, while providing shelter for the
  parent/grandparents contributions during the
  accumulation period.
• Alternatively, the child
• could leave the proceeds
• inside the policy and enjoy
• tax sheltered growth of their
• cash values. Any future premiums paid by the
  child would also grow tax deferred !!

13
Transfer money to your spouse during
your lifetime

• If a taxpayer owns a life insurance policy
  with cash values, normally any change of
  ownership would be a disposition of the policy
  for tax purposes. However, if the tax payer
  transfers the policy to their spouse, common-law
  partner or a former spouse in a settlement of
  rights arising out of their marriage, the
  transfer is treated as a tax-free rollover, as
  long as both parties are resident in Canada at
  the time of the transfer

14

• The spouse who takes over the policy cannot
  just cash in the plan and take out the money
  because if they do, the income on the disposition
  will still be attributed back to the original
  owner (unless the transfer was made to a former
  spouse)

15
Family Wealth Transfer

• Giving Money to your spouse and children

Thank You
Questions or comments
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