| 5-921063 | |
| Andre Payette |
MAY 4, 1992
DRAFT/EBAUCHE
CALU ANNUAL MEETING-1992
QUESTION 8 : EMPLOYEE/SHAREHOLDER BENEFITS
A corporation may hold insurance policies on the lives of employees and shareholders for a variety of purposes. In each of the following scenarios, would the employee (both prior to and after retirement) or shareholder be considered to have received a taxable benefit. If so, when and how would the value of the benefit be determined.
(a) The corporation undertakes to pay a death benefit to the estate (or heirs) of the employee or shareholder. The corporation acquires an insurance policy, pays all premiums and is named as the beneficiary of the policy. Upon the death of the employee or shareholder, proceeds from the life insurance policy are received by the corporation. The corporation pays the promised death benefit to the estate of the employee or shareholder.
(b) The corporation acquires a "term to 100" policy, pays level annual premiums and names the estate of the employee or shareholder as beneficiary in respect of all death benefits. The policyholder does not have any right to cash surrender values. The corporation retains all ownership interests in the policy and has the right at all times to change the beneficiary designation.
(c) Same situation as (b) except that the estate of the employee or shareholder is named as beneficiary in respect of only a portion of the death benefit.
(d) Same situation as (b) except that an endorsement is added to the policy whereby the employee or shareholder has the irrevocable right to name the beneficiary.
(e) The corporation acquires a whole life (or universal life) policy, pays level annual premiums and retains all ownership interests in the policy including the right to all cash values.
(i) the corporation names the estate of the employee or shareholder as beneficiary in respect of all death benefits but retains the right to change the beneficiary designation,
(ii) the corporation names the estate of the employee or shareholder as beneficiary for only a portion of the death benefit, or
(iii) an endorsement is added to the policy whereby the employee or shareholder has the irrevocable right to name the beneficiary.
(f) Same situation as (e) except that sufficient premiums are paid so that the policy is fully "paid-up" after ten years.
DEPARTMENT'S POSITION
In a discussion with Brian Darling, Director, Financial Industries Division, it was decided that these questions would not be addressed at the Conference and therefore no responses to these questions were prepared.