Recently we have done a few insurance reviews for clients. This is always a good idea – rates change and the change isn’t always an increase.
There is another reason why people should be doing this now rather than waiting until next year. New income tax rules for life insurance are taking effect as of January 1, 2017. These rules will have a significant impact on estate plans.
Here’s an example:
You are a 50 year old business owner. You are evaluating a $5 million dollar life insurance policy (things are going well!) for inside your holding company. Currently, Canadian income tax rules enable a holding company to move 100% of the death benefit tax free to your family, as the new shareholders.
However, with the new rules, if you were to die at age 73, your holding company would be able to distribute only $4.175 million of your death benefit proceeds on a tax-free basis. The full $5 million would only be accessible to your heirs if you were to die after age 90. In Ontario, the tax cost of distributing the remaining $825,000 would be in excess of $300,000. Gone – straight to the government!!!
In other words, these changes will take away some of the tax advantages that we have previously taken for granted – in life insurance products as well as annuity products.
Who do these changes affect?
- Those who are incorporated and should have a corporate owned life policy.
- Those who are looking to overfund universal life policies.(We didn’t give an example of this)
In summary, insurance strategies are changing for you, 2016 is the time to decide. Call us.