2009 General Meeting ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario)

1. L’Institut canadien des actuaires Canadian Institute of Actuaries 2009 General Meeting ●Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario) Session/séance : PD 35 How Insurance is Sold Speaker(s)/conférencier(s) :Richard Elsmore, Estate Planning Specialist, Vice President CIBC Wood Gundy Inc.

2. Insurance “Need!” DAPA Define Accept Present Accept 2009 General Meeting Assemblée générale 2009 How Insurance is Sold Needed Assets Available Assets Mind the gap

3. How Insurance is Sold Insurance “Need!” Define Accept Present Accept 2009 General Meeting Assemblée générale 2009 Needed Assets Available Assets Mind the gap

4. How Insurance is Sold Insurance “Need?” 2009 General Meeting Assemblée générale 2009 Available Assets Needed Assets

5. How Insurance is Sold Insurance “Want!” 2009 General Meeting Assemblée générale 2009 Creating the "want!" Available Assets Concepts Needed Assets Estate Planning Financial Planning Retirement Planning Business Planning Investment Planning Tax effective liability funding, asset diversification, planned giving.

6. Estate Planning

7. The Estate Planning Process Estate Assets Investigation Estate Liabilities Liability Identified

8. The Estate Planning Process Admin Probate Gross Assets RIF Tax Assets Reduced CGT Time Funeral The Wall Time of Death

9. The Estate Planning Process Estate Assets Estate Assets Investigation Information Reduced Estate Liability Estate Liabilities Liability Minimized Liability Identified

10. Valid Will’s Power of Attorney Family Trusts Testamentary TrustsJoint OwnershipGifts while aliveBequestsSegregated Funds Estate Freezes Itemization of effects Charitable bequests The Estate Planning Process(involves organizational strategies) Admin Probate Gross Assets Assets reduced BUT Only By minimized costs RIF Tax CGT Time Funeral The Wall Time of Death

11. The Estate Planning Process Transferring a small portion of assets BEFORE they are used to pay tax into a tax sheltered estate results in even the reduced tax being eliminated. Estate Assets Estate Assets Estate Assets Information Investigation Implementation Reduced Estate Liability Estate Liabilities Reduced Estate Liability Liability Neutralized Liability Identified Liability Minimized

12. The Estate Planning Process Robert and Sheila are enjoying their retirement Sheila is 62 and Robert is 64 They are comfortable with their retirement income. They jointly own a (mortgage free), house in Ottawa worth $450,000. Their combined RSP’s are valued at $385,000. They own a cottage north of Kingston which they purchased for $75,000 and invested a further $50,000 in Improvements. It is currently worth $350,000 Their personal effects have an approximate value of $75,000. They intend to leave everything to each other and on second death to their two children John (30) and Sarah (28).

13. The Estate Planning Process ITEM ACBFMV House N/A $ 450,000. RSP’s N/A $ 385,000. Cottage $125,000$ 350,000. Personal effects N/A$ 75,000. $125,000$1,260,000. Deemed disposition at death Current estate liability on 2nd death Probate $ 18,400 Legal/Exec Fees $ 63,000 Tax on RSP’s $ 178,640 Capital Gains Tax $ 52,200 Total $ 312,240 (24.78% of estate!)

14. The Estate Planning Process ITEM ACBFMV House N/A $ 450,000. RSP’s N/A $ 385,000. Cottage $125,000 $ 350,000. Personal effects N/A $ 75,000. $125,000 $1,260,000. Deemed disposition at death Current estate Liability on 2nd death To achieve this and potentially greater savings, information only is required! Probate $ 18,400 Legal/Exec Fees $ 63,000 Tax on RSP’s $ 178,640 Capital Gains Tax $ 52,200 Total $ 312,240 (25% of estate approx!) $ 13,371 $ 8,750 $ 178,640 $ 52,200 $ 252,961 (20.00% of estate approx!) Minimized

15. TheEstate Planning Process Liability Approx % of Estate A) Initial estate liability = $312,240(25%) B) Revised estate liability = $252,961(20%) C) Saving for 10 years = $21, 566 total, $215,660(17%) D) Saving for 10 years = $ 7,000 total, $70,000(5.5%) Note: B) Approximately 5% savings achieved by basic planning. C) Requires deposits for ten years at 5% ROR and 30% tax rate, (the liability is not funded by this approach for first ten years). D) Requires insurance and underwriting but provides instant liability coverage.

16. The Estate Planning Process Surplus tax- free to beneficiaries or charities Insurance Tax Shelter Instant, tax efficient funding of estate liability Admin Probate Net Assets Gross Assets RIF Tax CGT Time Funeral The Wall Time of Death

17. Investment Planning

18. Investment Planning Mortality? Mortality? Registered Non- Registered INCOME REQUIRED

19. Investment Planning Non-Registered Tax Sheltered Registered Non- Registered INCOME REQUIRED

20. Investment Planning Mortality? Mortality? Mortality? Non-Registered Tax Sheltered Registered Non- Registered INCOME REQUIRED

21. Investment Planning

22. Business Planning

23. During life High up-front tax on retained earnings in fixed income On death Frequently high tax on deemed disposition of shares Possible double tax when dividends paid to heirs Shareholder liquidity issue – very expensive to pay estate costs with a corporate dividend Tax Challenges

24. Tax treatment of a Holdco On Death- Pay Capital Gains Tax on Share Values Redundant Assets Alive Pay Dividend Tax Alive Pay Income Tax Tax Trap Alive *Retained Earnings Pay Income Tax on earnings *Retained Earnings- defined as “redundant assets not being used to fund lifestyle.”

25. Taxtreatment of a Holdco Redundant Assets Pay Income Tax Insurance Contract Tax Shelter Pay Dividend Tax Retained Earnings Tax

26. Tax treatment of a Holdco Insurance Co Pays Tax-Free Over ACB Insurance Contract Up to ACB Pay Dividend Tax Pay Income Tax Capital Dividend A/C Retained Earnings A/C Tax-free dividend Taxable dividend Pay Capital Gains Tax on Share Values Balance to shareholder beneficiaries

27. How I sell Insurance has changed From “need” to “want” Concepts deal with - Preservation of wealth, Creation of wealth, Tax sheltering of wealth, Tax efficient funding of estate liability, Long term investment for income and growth Corporate tax planning These concepts drive larger premiums and larger sums of Insurance The focus has shifted from the death benefit to the whole package and more often with the focus on the tax sheltered account Amounts of insurance applied for are more often determined by the amount of deposit planned, securing whatever amount of insurance is required to maintain the policies exempt status The language has changed from insurance terminology to investment terminology Products are packaged within concepts and concepts are packaged within planning reports This process is actively being expanded within the high net worth community. Summary