RBC Wealth Management Financial Services Inc Protecting Your

RBC Wealth Management Financial Services Inc. Protecting Your Wealth With Insurance Tom Bryan CFP, CLU Feb 19, 2020

TOPICS 1. The Value of Your Estate 2. Which Assets will you Have to Pay Tax on? 3. Permanent Life Insurance 4. Universal Life vs. Whole Life Insurance 5. Tax-Exempt Life Insurance Case Study 2 January 6, 2022 RBC Wealth Management Financial Services Inc. | Protecting Your Wealth With Insurance

FINANCIAL PLANNING & INSURANCE • Insurance is a fundamental pillar of wealth management/financial planning, and can help to protect your savings and loved ones; • It may also help to ensure the successful transition of your wealth in a tax efficient manner. 3 January 6, 2022 RBC Wealth Management Financial Services Inc. | Wealth Management Solutions Using Insurance

FINANCIAL PLANNING & INSURANCE Your Professional Wealth Management Team Your Advisors Advisor Estate Planning Specialist Will & Estate Consultant Financial Planner Financial Planning Consultant 4 May 27, 2019 | Enterprise Strategic Client Group High Net Worth Business Owner Specialist RBC Wealth Management Financial Services Inc. | Wealth Management Solutions Using Insurance

PROTECTING YOUR WEALTH Like Most Canadians, you want to be free of financial worries. That means knowing you will have enough money to live comfortably in retirement and potentially leave something for your family in your Estate. 5 January 6, 2022 RBC Wealth Management Financial Services Inc. | Protecting Your Wealth With Insurance

THE VALUE OF YOUR ESTATE • Without proper planning your estate may be reduced significantly by taxes; • Your estate may not have enough liquid assets to pay for this tax bill; • Your heirs may have to decide which assets to sell in order to fulfill the tax obligation. 6 January 6, 2022 RBC Wealth Management Financial Services Inc. | Protecting Your Wealth With Insurance

WHICH ASSETS WILL YOU HAVE TO PAY TAX ON? • Unless your assets are eligible to be rolled over to your spouse on a tax free basis, a deemed disposition will be triggered upon your passing; • Only the principal residence exemption may be applied to property with capital appreciation (residential property); • These assets will include registered assets, non-registered assets and property which will be included in your income in the year of death; • The tax bill on these assets may be relatively low today but as your assets increase in value so will your tax bill; This means that your family will not only be inheriting your assets, but also the tax bill! 7 January 6, 2022 RBC Wealth Management Financial Services Inc. | Protecting Your Wealth With Insurance

MANAGING RISK The use of permanent insurance allows you to manage the risk associated with death and taxes today and in the future. 8 January 6, 2022 RBC Wealth Management Financial Services Inc. | Protecting Your Wealth With Insurance

AN EFFECTIVE SOLUTION A cost-effective solution to help your family pay for the eventual tax bill on your assets is to use permanent life insurance; Life insurance will help to: • Protect the value of your assets; • Provide your heirs with funds to pay the taxes; • The overall expense will be a fraction of the potential tax bill. 9 January 6, 2022 RBC Wealth Management Financial Services Inc. | Protecting Your Wealth With Insurance

WHAT CAN LIFE INSURANCE DO FOR YOU Life insurance is traditionally viewed as a means to: • Replace lost income; • Provide funding for debt obligations; • Provide for children’s education; • Pay for final expenses (funeral); 10 January 6, 2022 RBC Wealth Management Financial Services Inc. | Protecting Your Wealth With Insurance

PERMANENT LIFE INSURANCE • Permanent life insurance may prove to be a valuable asset and financial planning tool; • It can help provide solutions for families with more complex financial needs, such as: • Provide tax-deferred growth on savings; • Bypass probate; • Provide privacy to financial affairs; • Utilized in a number of financial strategies. 12 January 6, 2022 RBC Wealth Management Financial Services Inc. | Protecting Your Wealth With Insurance

UNIVERSAL LIFE VS. WHOLE LIFE INSURANCE 13 January 6, 2022 RBC Wealth Management Financial Services Inc. | Protecting Your Wealth With Insurance

UNIVERSAL LIFE VS. WHOLE LIFE INSURANCE • Only Universal Life and Whole Life Insurance policies accumulate cash values: • Example: 60 -Year-Old Non-smoker Male Life Whole Life • Year/Age Insurance Coverage. Universal $1, 000—$60, 000 annual deposit for 10 years Death Benefit Cash Value After Tax IRR 1/61 $1, 047, 617 $0 1396% $946, 037 $2, 851 1252. 03% 10/70 $1, 571, 700 $571, 700 14. 32% $1, 026, 958 $224, 372 6. 86% 20/80 $1, 561, 391 $561, 391 5. 24% $1, 465, 750 $1, 086, 867 4. 82% 30/90 $1, 546, 132 $546, 132 3. 14% $2, 074, 011 $1, 748, 568 4. 38% Source: BMO insurance, 60 years old healthy, non-smoker, male (WL) (UL 4% ROR). Both policies have, $70, 000 deposits for 10 years, May 9, 2019, IRR (Internal Rate of Return): Is the rate of growth an investment is expected to generate at a given period of time. This function is used to compare the profitability between investments, and the higher the IRR the better the potential outcome. After IRR compared to 4% fixed income RBC Portfolio, MTR: 53. 53% *These values are for illustration purposes only, and are not guaranteed. 14 January 6, 2022 RBC Wealth Management Financial Services Inc. | Protecting Your Wealth With Insurance

USING PERMANENT LIFE INSURANCE TO FUND CAPITAL GAINS TAX—CASE STUDY Steve and Sara, both the same age recently passed away at age 90 leaving an estate to their two adult children worth $5 million; • Of this value, $3 million dollars is expected to be taxed as a capital gain; The capital gain tax owed on this asset assuming a tax rate of 53. 53%: • $3 million x 50% = $1. 5 million; • $1. 5 million x 53. 53% = $803, 000 • The estate has limited options at this point, and will each have to come up with $803, 000 to pay for the capital gains tax. • What if their parents had purchased a life insurance policy? 15 January 6, 2022 RBC Wealth Management Financial Services Inc. | Protecting Your Wealth With Insurance

USING PERMANENT LIFE INSURANCE TO FUND CAPITAL GAINS TAX—CASE STUDY • Universal Life Insurance Policy: 60 -Year-Old Non-smoker Male and Female • Insurance Coverage $803, 000—$40, 000 annual deposit for 10 years • If Steve and Sara were to invest $40, 000 for 10 years, they would have to receive an annual growth rate of at least 9. 53% to even come close to their tax funding objective. Age Permanent Universal Life Insurance Policy Alternative Investment Death Benefit Cash Value Total Account Value After-tax Estate Value 61/61 $831, 943 $11, 531 $40, 963 $40, 876 70/70 $1, 150, 497 $347, 496 $460, 536 $454, 688 80/80 $1, 175, 412 $372, 411 $613, 700 $590, 089 90/90 $1, 212, 292 $409, 291 $860, 715 $804, 904 Source: Aged 60, standard non-smokers, male and female—BMO insurance, Joint-Last-to-die, level cost of insurance, Universal Life, 4% ROR, May 9 2019. Non-registered fixed income investment portfolio: 4% rate of return—RBC Conservative Portfolio, and 53. 53% Marginal Tax Rate All values rounded to the nearest one thousand dollars. *These values are for illustration purposes only, and are not guaranteed. 16 January 6, 2022 RBC Wealth Management Financial Services Inc. | Protecting Your Wealth With Insurance

SUMMARY • The use of permanent life insurance allows you to manage your risk today and in the future; • The insurance premiums relative to the benefit make it a cost-efficient solution to cover your future tax liability; • Deciding which permanent insurance product to use (Whole Life, Universal Life or Term to 100) will depend on what you are trying to accomplish; • Whether your needs are simple or complex, there is a solution for you! 17 January 6, 2022 RBC Wealth Management Financial Services Inc. | Protecting Your Wealth With Insurance

Thank you, The following information is presented on the understanding that it is for education and information purposes only. Neither RBC nor the presenter has been retained to provide legal, taxation, accounting or other professional advice. Any strategies, advice and technical content in this presentation are provided as general guidance, based on information that we believe to be accurate, but we cannot guarantee its accuracy or completeness. Individuals should consult with their own professional advisors to determine the suitability of the information and examples contained in this presentation before acting upon them. This will ensure that your own circumstances have been considered properly, and that action is taken on the latest available information. Interest rates, market conditions, tax rules and other investment factors are subject to change. Insurance products are offered through RBC Wealth Management Financial Services Inc. (“RBC WMFS”), a subsidiary of RBC Dominion Securities Inc. * When providing life insurance products in all provinces except Quebec, Investment Advisors are acting as Insurance Representatives of RBC Wealth Management Financial Services Inc. In Quebec, Investment Advisors are acting as Financial Security Advisors of RBC WMFS is licensed as a financial services firm in the province of Quebec. RBC WMFS, RBC Dominion Securities Inc. * and Royal Bank of Canada are separate corporate entities which are affiliated. *Member-Canadian Investor Protection Fund. RBC Dominion Securities Inc. and RBC WMFS are member companies of RBC Wealth Management, a business segment of Royal Bank of Canada. ®Registered trademarks of Royal Bank of Canada. Used under licence. © 2016 -2019 RBC Wealth Management Financial Services Inc. All rights reserved. 18 January 6, 2022 RBC Wealth Management Financial Services Inc. | Protecting Your Wealth With Insurance