Parent A acquires and is the sole policyholder of a joint-last-to-die life insurance policy on the life of Child B and Child B’s spouse (B’s Spouse). Child B dies and the policy remains in force, with B’s Spouse being the sole life insured.
Situation 1
Subsequent to Child B’s death, Parent A transfers the policy to B’s Spouse for no consideration. Does s. 148{8) apply to this transfer? CRA responded:
[T]he fact that there was more than one life insured under the policy when issued, will not preclude the policy from being transferred at its ACB pursuant to subsection 148(8) of the Act, provided that, at the time the policy is transferred, there is only one life insured under the policy who is the child of the policyholder or the child of the transferee.
In Situation (1) …subsection 148(8) of the Act would apply to the transfer of Parent A’s interest in the Policy to B’s Spouse, as B’s Spouse is the child of Parent A by virtue of paragraph (b.1) of the definition of child in subsection 70(10) of the Act. Accordingly, the interest in the Policy would be deemed to have been disposed of by Parent A for proceeds of the disposition equal to Parent A’s ACB of the interest immediately before the transfer, and B’s Spouse will be deemed to have acquired the interest in the Policy at a cost equal to those proceeds.
Situation 2
Subsequent to Child B’s death, Parent A names B’s spouse as the contingent owner of the policy upon death, within the meaning of s. 199(1) of the Insurance Act (Ontario). Is the policy is deemed to have been disposed of for its ACB to Parent A immediately before death pursuant to s. 148(8)? CRA stated:
In Situation (2), if B’s Spouse (who is a child of Parent A) receives Parent A’s interest in the last-to-die policy on Parent A’s death for reason only that B’s Spouse is the contingent owner of the policy within the meaning of 199(1) of the Insurance Act (Ontario), it is our view that B’s Spouse is the only life insured under the policy at the time Parent A’s interest in the Policy is transferred to B’s Spouse. Provided that B’s Spouse acquired this interest without consideration, it is our view that subsection 148(8) of the Act would apply to the transfer of the interest in the Policy from Parent A to B’s Spouse, such that Parent A would be deemed to have disposed of the interest in the Policy for proceeds of the disposition equal to Parent A’s ACB of the interest immediately before the transfer, and B’s Spouse will be deemed to have acquired the interest in the Policy at a cost equal to those proceeds.